Palos Verdes Real Estate

The Thing About Loans

I’m sure anyone who has tried to get a real estate loan during the past 6 months knows this, but for the rest, it’s a lot like going to see your proctologist and about as pleasant. All the old rules are out and the primary hiring criterion for underwriters appears to be that they must have been diagnosed with a severe case of Obsessive Compulsive Disorder. Want a second opinion? OK, they don’t get out much either.

To be fair, the secondary market, which used to buy loans that met certain criteria, is pretty much scared shirtless these days. So, to interest investors, the loan “package” must be cleaner than the driven snow, and there must be a complete suspension of logic in getting it there. Not a comma can be out of place, and if your jetho from the Old Country (in this case Serbia) was an even in the Plaza during Archduke Franz Ferdinand’s assassination, or was ever 5 minutes late on his oxcart payment, you’re out of luck. I do seriously think that, in their anxiety to please now-neurotic secondary market investors, the underwriters have over-shot the mark.

I had a buyer last Fall who had half down on a roughly million dollar house, and a FICO score north of 800. A year ago every lender in town would have hugged this guy, licked his boots, or anything else to get the loan. But noooooo. This poor guy had to jump thru every hoop imaginable. If Adm Farragut had encountered as many mines at Mobile Bay as the loan process currently has, he never would have gotten past the forts, and “Damn the Torpedoes” (mines were called torpedoes then) would be the cleaned-up version of what he said.

One of the more frustrating elements (and one for which logic must be totally suspended) is the appraisal process. Those of you who have read my stuff know that this subject is a pet peeve of mine, because the process is replete with holes, and the faith put in the end product is not justified by the means to it. It is certainly contributory to the current mess, but that has been overshadowed by all the rest.

That aside, these days once you have convinced the appraiser that the property is worth the price, you then have to deal with the Review Appraiser. Oy. Picture a sallow, sunken-eyed creature sitting at his keyboard in his cubicle, who hasn’t seen the sun in days, probably lives with his mother, may have been seen interviewed by Chris Hansen, and whose job it is to second-guess the product of appraisers . . . who have actually BEEN TO THE PROPERTY, seen the comps (or at least driven by them), and spent many hours figuring out whether the subject property is worth the sale price. Seriously, these guys almost never actually visit the property, but rather analyze the merits of the sale with their HP calculator based upon such questionable (but it’s all you’ve got when you don’t see any property) criteria as dollars-per-square-foot, bedroom count, lot size, and anything else they can put a number on.

As anyone involved in this business knows, the under $750,000 market is hotter than the back seat of a Crosley with a blown head gasket.  Interest rates are around 5% — I mean, they’re almost paying you to take the loan. On top of that, at least here in So Cal, the lenders are blowing their REO’s out waaaay below market, which elicits a feeding frenzy on pretty much every one of them.

So I have buyers with a foreclosure in escrow now that is probably worth somewhere around $550,000. When it was listed, what price did the lender put on it? Why, $464,500, of course. There were 21 offers on the thing and my buyers didn’t get it . . . . until the ones who did couldn’t perform (I guess they should have taken performance enhancing drugs, but whatever). So we got it at $521,000. We have been trying to buy a house for 6 months, mind you, and have gotten beat out on every one we tried to get, no matter how high a price (over asking) we offered. These are buyers with FICO scores in the high 700’s with 20% down — not exactly derelicts, and I didn’t get my license last week.

So we get thru the appraisal fine, but who should then get his grubby hands on the file? The dreaded Review Appraiser [cue evil organ music], sitting in his cubicle with 3-day old B-L-T, probably jealous that other people his age are not living with their mother, and pretty turned on at his power to keep them from buying a house. Review Appraiser cannot understand how a house in this market (after all, he has seen something about how slow real estate is on his MSN Home Page) could possibly sell over the asking price. That’s it! Doesn’t matter than there are zillions of comps that support a value at least at the sale price — who would pay over asking in this market? What if the asking price had been $.59 and we had the thing in escrow for a buck? Holy Smokes — that’s 69% over asking!! No way it can be worth that.

So, I’m just warning you:  it actually is a great time to buy, but fasten your seatbelt, get Cousin Nunzio cued up, and get a fresh supply of quaaludes, cuz you’re gonna need them.

This entry was posted on Tuesday, September 22nd, 2009 at 7:34 am and is filed under Buyers, Everything I've Written. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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