As the pendulum swings…
This week I spoke with a title agent in Florida who informed me of this new phenomenon where lenders are now adding a 10% reduction from the appraisal price due to a declining market.
Here’s how the situation works…an elderly lady in Miami purchased a house for $800K at the peak of the real estate boom and put down $100K as a down payment. She is now looking to refinance as her monthly payment is too high and understands that the value of her house may have depreciated since she bought it. Her appraisal comes in at $700K, which is not an issue since she owes $700K on the current mortgage. Due to the market that we are in, the lender is taking an additional 10% reduction off the appraisal for the new loan. This means the lender is only going to lend $630K for a house that appraised at $700K.
Upon hearing this I was in disbelief, that was until I spoke with another agency who said the exact same thing, however, it was for a buy/sell transaction. From what I understand, these types of reductions are only in South Florida, but the question is for how long?
Is this the beginning of a new era in home loans?
Jonathan Yasko
in related industries, foreclosure crises, jonathan yasko
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Jonathan
Given that this was written a couple of months ago, I'm sure we've all experienced the wave of declining market valuations and LTV hits being implemented by various lenders.
The interesting thing is that some lenders held out on implementing the declining market "hits" for so long. Take US Bank for example, they're a portfolio lender. Up until last month they were still doing 100% with no LTV hits for declining markets.
Do I think it's unfortunate? Yes especially for some home owners who could really use that additional 5%. But I can also see why it's been implemented.