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#1743581 - 09/24/12 08:27 PM Appraisals amendments -- Reg Z (Higher-risk mtgs.)
Mary Beth Guard Offline
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Mary Beth Guard
Joined: Oct 2000
Posts: 797
Oklahoma City, OK
These deal with appraisal requirements for "higher-risk mortgage loans" -- including the need to obtain an additional appraisal if it's a so-called "flip loan."

What's clear? What's not? What do you think should be tweaked?

Comment deadline is October 15, 2012.

Here is a link to the proposal:
https://www.federalregister.gov/articles...-mortgage-loans

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#1744188 - 09/26/12 12:59 PM Re: Appraisals amendments -- Reg Z (Higher-risk mtgs.) Mary Beth Guard
bankchick Offline
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Joined: Nov 2007
Posts: 61
Oklahoma
The loophole is the 181 days.

I do NOT like the fact that if a seller has made a legitimate purchase of a house, rehabed it, and can sell it for a profit in less than 6 months that the BANK must take the hit for a second appraisal. At that point, I see smaller banks avoiding these type of loans. Again, how will that help the consumer?
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#1744217 - 09/26/12 01:27 PM Re: Appraisals amendments -- Reg Z (Higher-risk mtgs.) Mary Beth Guard
Irishguy Offline
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Kentucky
I agree. To force the bank to purchase a 2nd appraisal at their own cost will prevent some banks from doing these kinds of loans. Furthermore, by requiring a second appraisal, isn't the Bureau basically saying that we don't trust your first appraisal? Most bank's approved appraiser list has gone through enough scrutiny in the last few years to ensure that the appraisers that made the cut are established, professional and reliable. There is not a need for a second appraisal in my opinion.

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#1744256 - 09/26/12 02:33 PM Re: Appraisals amendments -- Reg Z (Higher-risk mtgs.) Mary Beth Guard
DoS Offline
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DoS
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one state over
I agree, however the rule states that the bank cannot charge the borrower ... could we charge the seller? I realize that we have no contract etc. but if they want to sell.
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#1744301 - 09/26/12 03:50 PM Re: Appraisals amendments -- Reg Z (Higher-risk mtgs.) Mary Beth Guard
#Just Jay Offline
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Cheeseheadland
Not only will this cause a small bump in priciong acroos the board for all borrowers as the bank needs to find a way to recoup the costs of the secondary appraisal, but how is the bank to rectify the differences in appraisals, or, which one is the bank to rely on?

We all know that you can give three appraisers the same property, and you can get back three varied responses. Even the thought he proposed rule states that their intent is not to direct the bank on which one to use, they are inerently stating that by default, that one of the appraisals is bad.

So, then what? Will the bank be faulted for taking the higher valued appraisal? Will the bank be cited for not taking action against the deemed by default 'poor' appraisal or appraiser? I see a net negative result of this as the bank will simply default to the lowest valued appraisal of the two, and thus put additional transactions in jeapordy of not being able to obtain financing and thus further restricting access to credit.
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#1744315 - 09/26/12 04:06 PM Re: Appraisals amendments -- Reg Z (Higher-risk mtgs.) Mary Beth Guard
SMQ, CRCM Offline
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Between the lines
And we will have to gather more information at the application stage to find out if that second appraisal will be required.

We are a small community bank where we will not have many of these, but we will need to find out early in the process so that we can avoid the added expense. This will increase the processing costs of all applications, training, monitoring, testing, etc.

My biggest issue though is the first appraisal, the banks and the buyers should be able to rely on it to make credit decisions. Does it really matter what the value was 4 months ago, the buyer wants it today and the seller deserves to be compensated for what he put into it.

Often the buyer does not want to do the upgrades and may not have the cash available to do it himself. May prefer to pay more to have it move-in ready. So, what's wrong with that?
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#1744331 - 09/26/12 04:20 PM Re: Appraisals amendments -- Reg Z (Higher-risk mtgs.) Mary Beth Guard
Retired DQ Offline
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Turnpike Exit 10
And, yet another hit to our already very slim profits.
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#1745039 - 09/27/12 09:16 PM Re: Appraisals amendments -- Reg Z (Higher-risk mtgs.) Mary Beth Guard
Still Smiling Offline
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I think my concerns with this have been stated very well by others here.
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#1745420 - 09/29/12 04:25 PM Re: Appraisals amendments -- Reg Z (Higher-risk mtgs.) Mary Beth Guard
Oursisnottoreasonwhy Offline
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Oursisnottoreasonwhy
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Central Illinois
Bank's should not have to obtain a second appraisal at no fee to the buyer or seller. The bank had nothing to do with the property being flipped in less than 181 days.

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#1745861 - 10/02/12 04:33 PM Re: Appraisals amendments -- Reg Z (Higher-risk mtgs.) Mary Beth Guard
ahou Offline
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ahou
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The bank should not have to pay for a second appraisal. Who is to say which appraisal carries more weight? Will the bank be at the mercy of the lower appraisal value?
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#1746273 - 10/03/12 04:59 PM Re: Appraisals amendments -- Reg Z (Higher-risk mtgs.) Mary Beth Guard
Beth175 Offline
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Wisconsin
According to our underwriting department the additional information that is required in the 2nd appraisal is already required by secondary market. In addition the appraiser is to comment on sales within the last 3 years not just the last 6 months. This seems to be an unneccesary and costly requirement for a bank that is obtaining appraisals according to existing secondary market guidelines.

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#1746995 - 10/05/12 01:48 PM Re: Appraisals amendments -- Reg Z (Higher-risk mtgs.) Mary Beth Guard
Sequoia Offline
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Sequoia
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East Coast
I do not think the bank should have to pay for the second appraisal. I understand the concept of aquiring a 2nd appraisal if the house is "flipped" within 180 days but what I don't understand is why does the cost fall on the bank? Why doesn't the seller or the buyer have to absorb this? Did I miss something?
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#1747174 - 10/05/12 05:56 PM Re: Appraisals amendments -- Reg Z (Higher-risk mtgs.) Mary Beth Guard
cle Offline
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Why should the bank be forced into paying for a second appraisal?Who is going to determine which appraisal is "good"?

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#1747203 - 10/05/12 06:30 PM Re: Appraisals amendments -- Reg Z (Higher-risk mtgs.) cle
OnTheEdge Offline
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SmallTown, USA
I do not think the bank should have to pay for the second appraisal. Why should the cost fall on the bank? Why shouldn't the seller pay for this?
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#1747236 - 10/05/12 07:18 PM Re: Appraisals amendments -- Reg Z (Higher-risk mtgs.) Mary Beth Guard
MarieR Online
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I agree that there should not be a responsibility on the bank to obtain a second appraisal. The first appraisal that we receive should contain information on past sales and will usually impact the value. From an operational point, which value then would we be required to use for supervisory limits?
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#1747245 - 10/05/12 07:34 PM Re: Appraisals amendments -- Reg Z (Higher-risk mtgs.) Mary Beth Guard
Sequoia Offline
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Sequoia
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East Coast
In my opinion, I think the seller should be responsible for the cost but I don't see how we can pass the cost on to the seller.

I think the customer should not be responsible for the cost of the second appraisal so that leaves the seller and the bank.
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#1749277 - 10/15/12 04:50 PM Re: Appraisals amendments -- Reg Z (Higher-risk mtgs.) Mary Beth Guard
ktac MITCH Offline
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ktac MITCH
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Giant side of TX
This will having the following unintended consequences.

1. Individuals who "Rehab" and sell within 6 months, will be at a competative disavantage because a lender has the extra expense of a 2nd appraisal on loans for these sellers vs. other sellers. The result is lenders will want to avoid lending for purchases from these types of sellers.
If the lender had the ability to pass on this extra cost to the seller, they could consider this cost in the pricing of the rehab property being sold.

2. Delays in closing for home purchasers. I anticipate the most common method that a lender will learn that a home purchase falls under this requirement is when the first appraisal is received and it indicates a prior sale within 6 months. Causing a delay equal to the time required to order and receive the second appraisal.

3. What about the sales contracts that refer to an appraisal value for determining the sale price? For example "a price of $100,000 or appraisal amount, whichever is less". And what if the initial appraisal comes in at $98,000 and the second appraisal comes in at $102,000 - - What is the sale price in the sales contract? Which appraisal is is to be based on?

In addition, under USPAP appraisers are to comment on sales within the last 3 years. If their comments indicate the property has been "rehabed", for the cause of the increase from the prior sale price - why is this not sufficient?
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#1749365 - 10/15/12 07:45 PM Re: Appraisals amendments -- Reg Z (Higher-risk mtgs.) Mary Beth Guard
epewitt Offline
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epewitt
Joined: Sep 2012
Posts: 3
Texas
The second appraisal would confuse the applicant, lenders and examiners. We need to remember that compliance is not the only reason for appraisals, we have a safety and soundness responsibility also.
Example: One appraisal at $75,000 and another one at $100,000. How do you explain to the borrower and/or the examiner which one was used to determine the LTV and why. Then we still have the responsibility to review both appraisals. What if the banks review determines the value at somewhere between the two appraisals?

What about the cost increase to the bank for providing smaller dollar loans? If you have a $40,000 loan request that you have to order two appraisals and review two appraisals. Will banks stop offering credit on properties that meet the 180 day requirement?

Delays in closing and increase in cost if you have to complete two appraisals and both are required to be a physical visit including the interior.

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#1749415 - 10/15/12 10:41 PM Re: Appraisals amendments -- Reg Z (Higher-risk mtgs.) Mary Beth Guard
RebekahL CRCM Offline
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RebekahL CRCM
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Big Sky Country
From a purely business standpoint, banks will not want to make these types of loans, as the increased cost of a 2nd appraisal(not to mention the murky details about which appraisal would be "accurate"), will simply make them unattractive to community banks. Ultimately, the financing market for "rehabbed" properties will shrink, resulting in fewer properties being rehabilitated and occupied.

This proposal runs counter-intuitively to the Community Reinvestment Act, which, in part, seeks to rehabilitate blighted properties.

If the rule goes through as proposed, will banks be able to receive CRA credit for the cost of those second appraisals? If not, why not??
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