Pensacola Area Home Lending and Appraisals - Changes Abound

Lots of changes are coming our way in terms of both lending and appraising. Those of us actively working in real estate in the Greater Pensacola Bay area are realizing that the saying "each deal is a new deal" has never been more true. With much tighter underwriting scrutiny on loans and new appraisal guidelines taking effect May 1, it's time to make sure we understand and stay on top of all the changes that are having an impact on our real estate market and our clients. And there are many!

Toward that end Shawn McCorkle with First American Title, DeeDee Rhodes with Gulf Coast Community Bank and Pensacola area Appraiser Dan Helms put on an excellent workshop for Realtors at the Pensacola Association of Realtors downtown Pensacola location this morning. I'd like to share some of the more salient points made by the trio.

Everyone discussed "Time" as a factor that is now more important than ever when writing a contract to purchase real estate.

As DeeDee explained, "We have been used to closing in 30 days, but everything must be verified and verified once again now and that takes time." She gave the example of having a buyer's pay stub not match their annual salary. A number of things; overtime, a bonus, variable work hours, etc., could cause this mismatch, but it must be researched and verified before the transaction can move to closing. DeeDee has worked in both underwriting and as a loan officer and says that we are, "Back to 1980," in terms of loan underwriting criteria and scrutiny.

Dan spoke about the new more stringent appraisal guidelines which add hours of work to the appraisal process. "I'll estimate that the new marketing addendum alone adds an additional two hours of work," Dan said. When you consider that with the downturn in the real estate market there are far fewer appraisers working in the Pensacola market than in the past, and now that their time to complete an appraisal has increased, you can see why the days of a two day appraisal turnaround are over.

Some pointsand changes related to lending and underwriting:

1. Credit Scores - Most loans will require a minimum of 620 and talk is of going to a 660 minimum.
2. Private Mortgage Insurance is underwriting and with all the recent payouts they are stringent. Credit score is the determining factor with 10% down.
3. New Good Faith Estimate forms will be required beginning Jan. 1, 2010. These will require the buyer's signature and the loan will not be able to close for 10 days (3 days if sign in person).
4. New HUD1 forms that reconcile the Good Faith Estimate with the actual closing costs will be required.
5. Stated Income Loans will be a thing of the past. RESPA will be requiring verification of income.
6. Employment will be verified within 48 hours of closing.

Some points and changes related to appraisals:

1. The Home Valuation Code of Conduct going into effect for appraisers May 1, 2009, requires sales used as comparables to be within one mile of the subject property and to have been sold within the past 90 days. Exceptions require a narrative explanation.
2. Comparables require bracketing. One property that is similar, one that is above (newer, larger, etc.) and one that is below (older, smaller, etc.).
3. Foreclosure will carry the same weight as regular sales.
4. The List to Sale Price average in the area must be considered and included in the valuation.

My big takeaways from today's workshop:

• Patience - for both Realtors and our Clients - we're in a brave new real estate world!
• Knowledge - Things are changing almost daily. It's important that we stay on top of the changes; talk regularly with our local lenders, appraisers and real estate agents.
• Talk with clients - both buyers and sellers - about realistic expectations.

In my own Pensacola area real estate practice I am noticing an abundance of unrealistic expectations on the part of both buyers and sellers today. Too many sellers haven't internalized the reality that the property will only sell for what it will appraise for. We ARE in a declining market. And too many buyers have been pulled into the negative media hype and believe that sellers are giving away properties. As example, the recent caller from Ohio who told me, "I am looking for one of those $350,000 homes that you are selling for $100,000."

Whether it's an individual seller or a lender as seller (foreclosure), I've yet to see any true giveaways. All bargains come at a price. A thorough understanding of the market forces at work that a real estate professional can provide help buyer and seller arrive at a realistic price that meets the lenders' criteria. And our title, appraisal, and lender partners can help us stay abreast of these forces.