Ask The Underwriter
Wednesday, 30 April 2008 16:00
Q: Recently one of my loan files was suspended by the Underwriter for additional comparables. When I checked the appraisal I was confused as all comparables indicated by the appraiser appeared to be within HUD guidelines making the loan insurable – so why is the underwriter suspending the file?
A: The Secondary Market continues to become more conservative in reviewing and accepting collateral. Unfortunately, many mortgage professionals and appraisers have not been keeping current with the various changes in market values.
Remember, the investor manuals, handbooks and suggested review procedures are just as presented – guidelines for collateral analysis and not hard and fast rules in many cases.
Reverse Mortgage Loans carry a dual collateral performance requirement. The loan must be “insurable” by FHA/HUD guidelines and it must also be “saleable” in the Secondary Market.
In the case of your question, there would appear to be a disjoint between current secondary market standards and insurability. More than likely, the Underwriter is requesting additional comparable information because the 3 current comparables may meet HUD guidelines, but one or more may be unacceptable to the Secondary perhaps because of its age, location or the number of days on the market prior to sale.
Additionally, if the property is located in a declining market, the appraiser may not have made the appropriate/necessary adjustments or commented sufficiently to support the value indicated.
In general, be aware that the review of comparables has become much more conservative than in the past – a quick review list for comparables prior to submission for underwriting should indicate the comparables as compared to the subject property are:
more current than not – the comparable sale date ages should be less than 90 days if at all possible. Be aware of the number of days on the market for a property – that is a big indicator as to the stability, supply and demand for properties in the neighborhood.
More “closer” than not – the comparables should be less than ½ mile if at all possible and represent similar types of neighborhoods – the further the comparable is from the subject, the greater the likelihood that there are other factors which could effect its appropriateness as a value support for the subject property.
More similar than not –the lot and physical structure type/age/design of the comparable should be as similar as possible to our subject – look at the pictures of all comparable as compared to the subject.
More “toward the middle” than not – the final value suggested by the appraiser – is it more in the “middle” than at the upper end of reconciled values. Generally high end values should be avoided in markets where declining values, over supply, or unstable conditions are noted by the appraiser.
Also, look at the date of your appraisal as opposed to the date of your submission to underwriting and the estimated closing date. For example, a 45 day old appraisal, while “current” could contain comparables that as of the date of the report were already 120 days old, which now are 165 days old and will possibly be 6 months or more old by the time the analyst in the Secondary Market reviews the file for purchase and pooling.
Think of the changes that have occurred in many housing markets in the past six months and ask yourself, what is the likelihood that properties similar to the subject would continue to hold their values?
Lastly, impress upon your appraiser to provide supportive comments and justifications for choices and values beyond the “standard” language. While it is the Underwriter who determines the final value of the subject property, it takes a team effort. There is plenty of “room” for the appraiser to provide additional narrative support in the report and in most cases, that additional information would be of benefit to the underwriter and the borrower(s).
Q: Is it permissible to take a HECM application prior to counseling?
A: The origination of a HECM loan is a two-step process involving the actual completing of the forms as well as completion of required counseling. There is no prohibition to taking an application prior to counseling, however, no services resulting in costs to be paid for by the Borrower(s) can occur prior to counseling and the Borrower(s) properly executing the counseling certificate.
My question would be more common sense in approach – knowing the added value and protections to the Borrower(s) which counseling provides, is it in the Senior’s best interest or the Originator’s best interest to engage the application process prior to counseling?
Please take a moment and provide us your feedback which we will feature in next month’s column.
A note about our subject matter expert: Mr. Rosynek has been involved in mortgage lending for over 30 years with the last 5 + years exclusively providing reverse mortgage lending solutions. To contact Mr. Rosynek or to learn more about 1st Reverse Financial Services, please visit www.1streverse.com or call 877-574-1000.
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