Is Today’s Lending Market Double Trouble?

Click stars to vote (left is low, right is high)

(6 votes, average: 4.33 out of 5)

 Loading ...

[?]
 Print This

By Jason Kotar

RISMEDIA, Feb. 8, 2008–Today’s lending market is fascinating. It’s volatile, ever-changing, hard to keep up with, and even harder to understand.

Recently, I wrote an article regarding the renewed importance of an appraisal in today’s real estate environment with declining home values. This is only part of the lending puzzle.

At Fannie Mae’s direction, lenders have instituted a “soft market policy” (usually Counties) according to a risk assessment of whether that area is declining or stable from a valuation standpoint. One lender uses a system of five categories; another, a three-category system, with the highest number equating to the highest risk. Different lenders have different criteria for addressing soft markets.

The impact of the rating is that the highest risk markets can have (in some cases will have) their loan-to-value (LTV) ratio reduced. The minimum LTV reduction in the highest risk markets that we have determined, among the lenders we have surveyed, is 5%. Under these circumstances, a loan program allowing for a 95% LTV, will now have a new maximum of 90% LTV. This effectively increases the down payment requirement by 5%. On a $300,000 loan, that increases the down payment requirement by $15,000. The maximum LTV reduction that we have found is 10% LTV. FHA and VA loans are excluded from the reduction of LTV policy. However, popular first-time homebuyer programs offering 100% financing could be subject to a 5% reduction in LTV if they are located in a “high risk” market.

In my previous article, I mentioned that the appraisal criteria lenders require appraisers to follow, is of critical importance in getting the loan approved. Not only have lenders implemented more stringent requirements for appraisers to meet in establishing the value of a specific property, they have compounded the issue by setting risk criteria which could have the effect on further diluting property values.

Not all markets are categorized as soft and not all lenders categorize markets the same. Your mortgage professional has access to this information as well as lists of approved appraisers for various lenders. Going forward, the working relationship between the real estate agent, the appraiser and the mortgage broker/lender is more important than ever.

Jason Kotar is president of Diversity Lending Group, Inc.

For more information, visit http://www.diversitylg.com/.

To read Kotar’s article “The Importance of Appraisals in a Declining Market,” click here.
RISMedia welcomes your questions and comments. Send your e-mail to: realestatemagazinefeedback@rismedia.com.

For more of today’s top stories, see:

• Home Is Where the Heart Is: 5 Reasons to Escape to a Vacation Home  
  How to Soar High with Power Agent Teams  
  How to Utilize Web 2.1, Wikis and Widgets

Discussion Forum

Topic	Posts	Last Poster
Effective, Fast and FREE Ways to Sell Homes on the Internet!	1	RealEstateMarketingNerdscom
Seller switched appliances	5	soldbychris
"I'm not going to give my house away."	15	Racheli
#1 Thing you MUST know about your website to make $$$$ online	1	RealEstateMarketingNerdscom
My Space Page?	6	RealEstateMarketingNerdscom
Why is acknowledging a recession a good thing???	3	ruthrbn
Role of realtor in real estate business	1	RomiSam11
A Listing and $2.00 will get you on the subway!	3	JoeCline
Online bidding for all Realtors	2	JoeCline
Yeah Right ,You Can Always Refinance	2	JoeCline

The Philosophy Embedded Within

Commentary by Scott Einbinder
RISMEDIA, May 19, 2008-Having read the 2008 Power Broker Report, I’d like to thank RISMedia for putting together such an informative document. Like all good resources, there are things to learn and apply from what we have read. Within the pages of this report rests a very important characteristic of our industry. […]