Appraisal Low

Posted By: KTMiteComply

Appraisal Low - 10/29/15 04:55 PM

I have reviewed numerous threads with the discussion about Appraisals coming in low and feel these loans should be a denial, however we are having some discussion as to why others feel that this shouldn't be a denial because it is out of the Borrowers control. I see this as a valid argument, especially when somebody says they just don't want to bring more money to closing. Here is one of the responses to discussion that we had and wanted to get some feedback on what you guys think b/c honestly, I just don't really know how to correctly respond when I sorta understand where they are coming from:

I have a very hard time with this one. If the potential collateral value comes in low why would we not then allow the contract to be terminated therefore creating a withdraw situation. This was not a qualification issue on the borrowers side it was something completely out of their control.
Posted By: Kathleen O. Blanchard

Re: Appraisal Low - 10/29/15 04:59 PM

A denial has nothing to do with the reason being outside of the borrower's control. The bank is making a credit decision: collateral is of insufficient value, title insurance cannot be approved, whatever.

Why do banks seem to think that a denial scars the applicant for life? Denials are not reported anywhere, the credit that was pulled is already pulled. You don't go back and tell the bureau "we turned him down".

Consider this: bank receives appraisal, lower value than expected. Bank tells customer they need to bring more cash to closing. Customer says no. Banks says "then we cannot make this loan". That is a denial.
Posted By: burke116

Re: Appraisal Low - 10/29/15 05:34 PM

The bank orders an appraisal in order to calculate a loan to value to approve a loan. In your example, let's say the borrower could care less about the LTV of their loan being at 110% and decide they still want the house. Are you going to continue with the loan because the borrower does not "withdraw" their contract and the application?? No, you're going to deny the loan due to value of the collateral. Once you learn that LTV is going to create a denial situation, you cannot 'un-know' that and just ignore it. You can of course ask them to bring in money to cover the shortfall, that's a conditional approval. If they decide not to bring in money or they can't bring in money, you have denied their initial credit request.
Posted By: Kathleen O. Blanchard

Re: Appraisal Low - 10/29/15 07:33 PM

Also, are you familiar with the conditional approval q and a's at the FFIEC site?

http://www.ffiec.gov/hmda/faqreg.htm#action
Posted By: KTMiteComply

Re: Appraisal Low - 10/30/15 01:33 PM

Thank you so much guys! Yes Kathleen...you know I have read this in the past and was thinking about this last week to review again! Thank you for the reminder of something to show and share! Have a great day guys!
Karen