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#2197776 - 11/08/18 04:54 PM CLTV/PV: Lesser of purchase price/appraised value
dlucas Offline
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Joined: Nov 2014
Posts: 49
NC, USA
Dwelling purchases for small business and commercial loans: We work with the applicant to set the loan amount based on a CLTV limit compared to the purchase price of a property. Conditional approvals are provided with the condition that the loan to value ratio remains at or under 80%, for example, of the lesser of purchase price or appraised value. If the appraisal comes back at or higher than the purchase price, we're ready to close. If it comes back less than the purchase price, we'll supply a counter offer to remain within the conditionally approved CLTV limits.

We have an appraisal in the file, but our underwriters only care about the purchase price unless the appraisal falls below PP. Which are we relying on in our credit decision: the purchase price or the appraised value?

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#2197799 - 11/08/18 06:13 PM Re: CLTV/PV: Lesser of purchase price/appraised value dlucas
hmdagal Offline
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The lower of the two.

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#2197803 - 11/08/18 06:40 PM Re: CLTV/PV: Lesser of purchase price/appraised value dlucas
dlucas Offline
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Joined: Nov 2014
Posts: 49
NC, USA
I appreciate your reply, hmdagal. That's definitely what is used to set the loan amount, but what of the appraisal? Does it matter that a satisfactory appraisal is still required to close the loan? Is it ok to report the appraised amount as the "property value" in these cases and refer to the purchase price as the "cost", thereby distinguishing a "loan to cost" from the "loan to value"?

I would like to hear from others, too, with your rationale.

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#2197808 - 11/08/18 06:48 PM Re: CLTV/PV: Lesser of purchase price/appraised value dlucas
raitchjay Online
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OK
I'm with hmdagal...you're relying on the lower of the two.
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#2197809 - 11/08/18 06:51 PM Re: CLTV/PV: Lesser of purchase price/appraised value dlucas
raitchjay Online
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OK
I don't know what HMDA field you are referencing with "cost".
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#2197811 - 11/08/18 06:53 PM Re: CLTV/PV: Lesser of purchase price/appraised value dlucas
raitchjay Online
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OK
(Since you wanted some rationale)--the bottom line is that you are supposed to report the CLTV that you relied on in making your credit decision. If you're relying on the lower of the two, i don't see how you can report it any other way.
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#2197820 - 11/08/18 07:18 PM Re: CLTV/PV: Lesser of purchase price/appraised value dlucas
hmdagal Offline
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And since you've asked about the appraisal, you don't know which value is lower until the appraisal is done.

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#2197847 - 11/08/18 08:39 PM Re: CLTV/PV: Lesser of purchase price/appraised value dlucas
dlucas Offline
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Joined: Nov 2014
Posts: 49
NC, USA
I'm ok with reporting the purchase price. It still seems wrong not to report the appraised value, though!

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#2197849 - 11/08/18 08:42 PM Re: CLTV/PV: Lesser of purchase price/appraised value dlucas
rlcarey Online
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Galveston, TX
Because they want to know the value you used to approved loan. The market value of the property? - they just don't care as it all about the credit decision.
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#2197881 - 11/08/18 09:45 PM Re: CLTV/PV: Lesser of purchase price/appraised value dlucas
dlucas Offline
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Joined: Nov 2014
Posts: 49
NC, USA
rlcarey, can I ask you to expand on that thought? In our approval process, our underwriters approve the loan using an estimated property value with the condition that the appraised value is at or above the estimated value. All other facets of the underwriting conditions other than receipt of a satisfactory appraisal have been met. As long as the appraised value reaches the estimated value, no one with approval authority touches the loan again.

Should we report the CLTV and property value corresponding to the estimate? Or should we be required to recalculate the CLTV once the appraisal is received, even though there isn't a subsequent credit decision occurring?

Refinance of apartments:
Estimated value = $1.2mm
Loan amount = $800k
CLTV at decision = 66.67
Appraisal = $1.35mm
Lender without approval authority confirms appraisal is > estimate
-->What is CLTV and what is Property Value?

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#2197885 - 11/08/18 10:16 PM Re: CLTV/PV: Lesser of purchase price/appraised value dlucas
rlcarey Online
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Galveston, TX
It all comes down to the value used when the loan was approved.

2. Multiple property values. When a financial institution obtains two or more valuations of the property securing or proposed to secure the covered loan, the financial institution complies with § 1003.4(a)(28) by reporting the value relied on in making the credit decision. For example, when a financial institution obtains an appraisal, an automated valuation model report, and a broker price opinion with different values for the property, it reports the value relied on in making the credit decision. Section § 1003.4(a)(28) does not require a financial institution to use a particular property valuation method, but instead requires a financial institution to report the valuation relied on in making the credit decision.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2197902 - 11/09/18 02:30 PM Re: CLTV/PV: Lesser of purchase price/appraised value dlucas
RR Joker Offline
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The Swamp
I'll tell you how we do it....as it is somewhat similar and an entirely separate rationale than what is used for supervisory LTV calcs.

Most often we have an evaluation or an appraisal before the decision is final. If our sales price is LOWER than the value, 99.99% of the time the decision is based on the value.

For supervisory purposes, we use the lower of the two for 'section 365' [FDIC's version] reporting.
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