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#1966788 - 10/03/14 01:22 PM Using loan to cost rather than value
Many Hats Offline
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Joined: May 2008
Posts: 915
Orlando, FL
Need some help on how the ECOA appraisal rule applies here

We use loan to cost rather than loan to value as the basis for approval of a loan. In the case of a denial where the loan was denied because the LTC would exceed guidelines, does the applicant have a right to the written valuation, which is typically a bank-prepared figure based on the cost documentation provided by the applicant (i.e. HUD from settlement) plus the documentation provided by the applicant for any improvements that were made since the purchase (value is added).

Should these applicants receive the right to copy of the appraisal notice even though a traditional appraisal is never ordered?

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Interagency (Reg Z) and CFPB Reg B Appraisal Rules
#1966791 - 10/03/14 01:31 PM Re: Using loan to cost rather than value Many Hats
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 77,247
Galveston, TX
You absolutely have to provide them the notice and the final value determination you use in connection with the application.

1002.14(a) Providing appraisals and other valuations.

(3) Valuation. The term "valuation" means any estimate of the value of a dwelling developed in connection with an application for credit.

With that said, I'm not sure how your approach meets either supervisory LTV expectations or the appraisal and evaluation guidelines.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#1966811 - 10/03/14 01:45 PM Re: Using loan to cost rather than value Many Hats
Many Hats Offline
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Joined: May 2008
Posts: 915
Orlando, FL
How would you recommend it be handled (i.e., since the LTC is based on information the applicant provides like a HUD); would we provide a copy of that same HUD to the applicant (perhaps with some kind of worksheet that shows how we arrived at the "LTC" figure?

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#1966825 - 10/03/14 01:59 PM Re: Using loan to cost rather than value Many Hats
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 46,417
Bloomington, IN
You have to provide whatever document you use to document your evaluation of the property.

I highly encourage you to review 1002.14 and its Commentary's explanation of what an appraisal/evaluation is.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#1966843 - 10/03/14 02:20 PM Re: Using loan to cost rather than value Many Hats
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 77,247
Galveston, TX
Many Hats - You are really basing current valuations based on what the borrower originally paid for the property. You are also making this determination based on a HUD-1 that is handed to you by the borrower???

I surely hope your evaluation methods have be validated by your regulators. Evaluations have to be derived from independent sources based on current market value, including comparable sales information. An evaluation as you describe it is worthless in my mind.

I work with a lot of banks and I have never heard of such a practice. There are a lot of properties bought in 20006-08 that aren't worth half of what borrower's paid for them.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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