- The Washington Times - Wednesday, April 4, 2007

a: Your situation was a lot more common in the mortgage industry when I first got into the business about 20 years ago. Underwriters were these all-powerful beings whom loan officers and borrowers couldn’t speak to or negotiate with. Thankfully, the business has become much more sensible. If the basics of the loan application were sound, it would be approved without a lot of headaches.

One of the main components of a mortgage application is the appraisal report. It’s important that the property’s purchase price be valued fairly. In the event the borrower defaults on a mortgage on a property with an inflated value, the lender could end up owning collateral that’s worth less than the loan balance.

Let me address your issues. First, it’s quite possible that the appraised value of the property is not sufficiently supported in the report. Appraisers use similar homes that have sold recently to support the purchase price of the subject property. Because all homes are not alike, the appraiser will make adjustments to the contract price of a comparable home to compensate for a superior or inferior feature.

Sometimes, in order to reach a particular value, an appraiser will make unreasonable adjustments. In a suburban neighborhood, for example, a $50,000 adjustment to a comparable property that sits on a land site that’s just one-eighth of an acre bigger than the subject property would be considered excessive.

A good appraiser knows that a poorly supported value could get kicked out of underwriting. Your appraiser should have given you a heads up.

Here are some suggestions. First, speak with the appraiser and have him write an addendum to the report that further supports and explains his adjustments. Any reasonable underwriter also should welcome a conversation with the appraiser. It’s certainly possible that the property cannot be properly supported, suggesting that the purchase price is elevated.

If you think this might be the case, you have an option to renegotiate the purchase price, assuming your contract is contingent upon financing, which most are. In fact, it may be prudent to question your original contract price.

On the other hand, if you really like the property and are prepared to pay the contract price, I see no reason why the underwriter wouldn’t examine the appraisal report, determine that the property is worth some number less and allow you to increase your down payment. There’s no reason that you should be stonewalled.

One last thing. Thanks to technology, automated underwriting and the demand for mortgage-backed securities, there is very little difference between mortgage brokers, mortgage bankers and federally chartered banks that originate mortgage loans.

Almost all conventional “A”-grade loans get packaged and sold as investments, so it doesn’t surprise me that your bank originated a loan that was either sold immediately or funded by another investor. A good mortgage company, whether it is a bank or a broker, will have automated underwriting and the ability to have a personal dialogue with its investors. Your bank clearly had neither.

Henry Savage is president of PMC Mortgage in Alexandria. Reach him by e-mail ([email protected]pmcmortgage.com).

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