topic Re: Is this too much a coincidence??? in Mortgage Loans

Is this too much a coincidence???

Anonymous — Tue, 05 Jul 2011 23:05:54 GMT

Just got the appraisal on the home I'm trying to buy. The appraised value is EXACTLY equal to the selling price.

What is weird is that the owners originally had the home listed about $30K higher a few months ago. I can't believe the owners would have listed that high without a market analysis. Which leads me to wonder if the appraiser (with the knowledge of the selling price as she put together the appraisal) made the adjustments needed here and there to have the appraisal match the new selling price exactly.

Am I being cynical to think that the various players in this process might all be in cahoots with each other. I'd hate to feel like I'm being played for a fool.

On the other hand, I'm grateful that the home didn't appraise any lower - then, financing would be a problem for the LTV. Still, I was expecting it to come in much higher, and thus being able to get out of PMI a bit early.

Re: Is this too much a coincidence???

Booner72 — Tue, 05 Jul 2011 23:28:25 GMT

Isn't it pretty common for the appraisal to come in at the exact selling price?

Re: Is this too much a coincidence???

Anonymous — Wed, 06 Jul 2011 00:37:50 GMT

Dunno. That's why I posted the question. This is my first home purchase, and I had not come across this on the board here.

Re: Is this too much a coincidence???

Booner72 — Wed, 06 Jul 2011 02:23:47 GMT

Yah, I dunno either except what I've heard around - my question was more to someone who Does know than u or I.

Re: Is this too much a coincidence???

Anonymous — Wed, 06 Jul 2011 05:26:24 GMT

This doesn't exactly answer your question, but maybe you should think of the price like this.

There's a reason you're buying the house for $30k less than it was listed 3 months ago, because the listing was $30k too high three months ago -- otherwise, someone else would have purchased the house for that price.

Re: Is this too much a coincidence???

Anonymous — Wed, 06 Jul 2011 12:11:18 GMT

Well I know for a fact on my first home purchase the appraiser was told what my home needed to appraise for. So it happens I think at the end of the day its all back scratching all parties involved want the deal go through.

On the other hand I had a good realtor tell me this once. Equity is virtual and your home can appraise for anything but it doesn't mean someone will pay that for it. Unless there is a line of people offering to pay more for the home you are buying then its worth no more than what you paid for it....

Re: Is this too much a coincidence???

Lel — Wed, 06 Jul 2011 16:09:52 GMT

@Anonymous wrote:
Just got the appraisal on the home I'm trying to buy. The appraised value is EXACTLY equal to the selling price.

What is weird is that the owners originally had the home listed about $30K higher a few months ago. I can't believe the owners would have listed that high without a market analysis. Which leads me to wonder if the appraiser (with the knowledge of the selling price as she put together the appraisal) made the adjustments needed here and there to have the appraisal match the new selling price exactly.

Am I being cynical to think that the various players in this process might all be in cahoots with each other. I'd hate to feel like I'm being played for a fool.

On the other hand, I'm grateful that the home didn't appraise any lower - then, financing would be a problem for the LTV. Still, I was expecting it to come in much higher, and thus being able to get out of PMI a bit early.

Sometimes I like to believe in a world in which everyone - sellers, buyers, agents, appraisers, etc. - have perfect information (and when I use the term "perfect", I'm referring to the economic/statistical meaning of perfect). In this world, it would be normal for the selling price and appraisal price to fall in line with each other. However, the information that is available to all the parties is not truly perfect, but there is theoretically enough information for everyone involved to make educated decisions about the purchase price of a home.

Many people have raised the question of whether real estate agents, brokers, and appraisers are working in concert to inflate the price of a home. This has almost certainly happened, but the extent to which it did is a matter of debate. However, the potential problem was considered to be significant enough that the Home Valuation Code of Conduct was established. This, unfortunately, led to some problems with accurate appraisals of homes, because in some cases appraisers were sent to neighborhoods far away for which they had poor understanding of the market.

Nevertheless, to me it's not entirely surprising that the appraisal came in at your purchase price, because as stan mentioned, market forces had already driven the price of the house down, to the point that you considered it to be an appropriate price.

With regard to PMI, I believe that it is based on the selling price and the LTV calculated on the selling price, not on the appraised value. So even if the appraisal had come in much higher, it wouldn't help get out from under the PMI burden any sooner.

Re: Is this too much a coincidence???

Jazzzy — Wed, 06 Jul 2011 20:47:37 GMT

@Anonymous wrote:
Well I know for a fact on my first home purchase the appraiser was told what my home needed to appraise for. So it happens I think at the end of the day its all back scratching all parties involved want the deal go through.

On the other hand I had a good realtor tell me this once. Equity is virtual and your home can appraise for anything but it doesn't mean someone will pay that for it. Unless there is a line of people offering to pay more for the home you are buying then its worth no more than what you paid for it....

My husband is a real estate appraiser. Part of the documentation he has to correlate when doing an appraisal is the selling price. It's required that he know that information to meet certain appraisal standards. Also, he has to go back and include transfers within the past so many years (I forget how many exactly). So, oftentimes prior sale information is included in the appraisal as well. My husband even has to account for seller concessions such as paid closing costs, etc. That information can often upend a deal.

I think (...or at least hope) the days of telling an appraiser what a property "needs to appraise for" are over. In fact, my husband has turned in real estae brokers and mortgage brokers for trying to apply that kind of pressure.

In the end, a good appraiser protects buyers. My husband has had many buyers thank him for preventing an over-sold situation.

Re: Is this too much a coincidence???

Anonymous — Wed, 06 Jul 2011 22:20:52 GMT

I guess I could just as easily look at this as a glass half full situation. The appraisal does confirm for me that I'm not over-bidding on the home.

On PMI, I have heard it both ways. One, that the loan-to-purchase price is the deciding factor. The other that loan to appraised value is how it is decided. Of course, one is stuck with the dictated minimum length of time, regardless of changes in appraised value.

Frankly, if one can keep having to pay PMI because the appraised value has fallen lower since purchase, even if they've paid off 78% of their loan, then why can the opposite not also be true? If a home has improved in value, either due to a favorable market or to investments in improvements, and the bank can reasonably expect to sell the home for this increased amount, then how can they be justified in not using the loan-to-appraised value calculation.

Here is some info from one website http://michaelbluejay.com/house/pmi.html:

And here's one more thing you can do: If your house has increased in value then you suddenly own a lot more of it, and you can cancel your PMI even earlier. For example, let's say you put $5,000 down on a $100,000 home, and in a couple of years the value shoots up to $119,000 because it's a hot real estate market. You own the $5000 you put into the house, plus the $19,000 it increased, for a total of $24,000. (You also own the equity you built from making mortgage payments, but because of how mortgage interest works, most of your payments for the first few years goes to interest and not principal, so we'll ignore paid equity for our example.) So the $24,000 you own divided by the $119,000 value of the home means you own over 20% of your home. So you don't need PMI any more. But to cancel the PMI you'll need to convince the lender that your home is really worth $119,000 now, so you'll have to pay for an appraisal which might run $400 or so. You'll have to weigh the cost of the appraisal against the amount you'll save by canceling PMI early to see if it's a good deal for you.

Re: Is this too much a coincidence???

Anonymous — Wed, 06 Jul 2011 23:02:35 GMT

@Anonymous wrote:
I guess I could just as easily look at this as a glass half full situation. The appraisal does confirm for me that I'm not over-bidding on the home.

On PMI, I have heard it both ways. One, that the loan-to-purchase price is the deciding factor. The other that loan to appraised value is how it is decided. Of course, one is stuck with the dictated minimum length of time, regardless of changes in appraised value.

Frankly, if one can keep having to pay PMI because the appraised value has fallen lower since purchase, even if they've paid off 78% of their loan, then why can the opposite not also be true? If a home has improved in value, either due to a favorable market or to investments in improvements, and the bank can reasonably expect to sell the home for this increased amount, then how can they be justified in not using the loan-to-appraised value calculation.

Here is some info from one website http://michaelbluejay.com/house/pmi.html:
And here's one more thing you can do: If your house has increased in value then you suddenly own a lot more of it, and you can cancel your PMI even earlier. For example, let's say you put $5,000 down on a $100,000 home, and in a couple of years the value shoots up to $119,000 because it's a hot real estate market. You own the $5000 you put into the house, plus the $19,000 it increased, for a total of $24,000. (You also own the equity you built from making mortgage payments, but because of how mortgage interest works, most of your payments for the first few years goes to interest and not principal, so we'll ignore paid equity for our example.) So the $24,000 you own divided by the $119,000 value of the home means you own over 20% of your home. So you don't need PMI any more. But to cancel the PMI you'll need to convince the lender that your home is really worth $119,000 now, so you'll have to pay for an appraisal which might run $400 or so. You'll have to weigh the cost of the appraisal against the amount you'll save by canceling PMI early to see if it's a good deal for you.

From what I understand PMI no longer works this way. So anyone thinking of this should just disregard it. Hopefully Shane or some one with a little more mortgage insight will chime in and explain this better.

Re: Is this too much a coincidence???

ShanetheMortgageMan — Fri, 08 Jul 2011 10:08:25 GMT

Bank can remove PMI whenever they want, but MUST remove it in accordance to the Homeowners Protection Act: http://www.frbsf.org/publications/consumer/pmi.html

How Do You Cancel or Terminate PMI?

Cancellation

Under HPA, you have the right to request cancellation of PMI when you pay down your mortgage to the point that it equals 80 percent of the original purchase price or appraised value of your home at the time the loan was obtained, whichever is less. You also need a good payment history, meaning that you have not been 30 days late with your mortgage payment within a year of your request, or 60 days late within two years. Your lender may require evidence that the value of the property has not declined below its original value and that the property does not have a second mortgage, such as a home equity loan.

Automatic Termination

Under HPA, mortgage lenders or servicers must automatically cancel PMI coverage on most loans, once you pay down your mortgage to 78 percent of the value if you are current on your loan. If the loan is delinquent on the date of automatic termination, the lender must terminate the coverage as soon thereafter as the loan becomes current. Lenders must terminate the coverage within 30 days of cancellation or the automatic termination date, and are not permitted to require PMI premiums after this date. Any unearned premiums must be returned to you within 45 days of the cancellation or termination date.

For high risk loans, mortgage lenders or servicers are required to automatically cancel PMI coverage once the mortgage is paid down to 77 percent of the original value of the property, provided you are current on your loan.

Final Termination

Under HPA, if PMI has not been canceled or otherwise terminated, coverage must be removed when the loan reaches the midpoint of the amortization period. On a 30-year loan with 360 monthly payments, for example, the chronological midpoint would occur after 180 payments. This provision also requires that the borrower must be current on the payments required by the terms of the mortgage. Final termination must occur within 30 days of this date.

Re: Is this too much a coincidence???

Anonymous — Fri, 08 Jul 2011 15:05:05 GMT

@ShanetheMortgageMan wrote:
Bank can remove PMI whenever they want, but MUST remove it in accordance to the Homeowners Protection Act: http://www.frbsf.org/publications/consumer/pmi.html

How Do You Cancel or Terminate PMI?
Cancellation
Under HPA, you have the right to request cancellation of PMI when you pay down your mortgage to the point that it equals 80 percent of the original purchase price or appraised value of your home at the time the loan was obtained, whichever is less. You also need a good payment history, meaning that you have not been 30 days late with your mortgage payment within a year of your request, or 60 days late within two years. Your lender may require evidence that the value of the property has not declined below its original value and that the property does not have a second mortgage, such as a home equity loan.
Automatic Termination
Under HPA, mortgage lenders or servicers must automatically cancel PMI coverage on most loans, once you pay down your mortgage to 78 percent of the value if you are current on your loan. If the loan is delinquent on the date of automatic termination, the lender must terminate the coverage as soon thereafter as the loan becomes current. Lenders must terminate the coverage within 30 days of cancellation or the automatic termination date, and are not permitted to require PMI premiums after this date. Any unearned premiums must be returned to you within 45 days of the cancellation or termination date.
For high risk loans, mortgage lenders or servicers are required to automatically cancel PMI coverage once the mortgage is paid down to 77 percent of the original value of the property, provided you are current on your loan.
Final Termination
Under HPA, if PMI has not been canceled or otherwise terminated, coverage must be removed when the loan reaches the midpoint of the amortization period. On a 30-year loan with 360 monthly payments, for example, the chronological midpoint would occur after 180 payments. This provision also requires that the borrower must be current on the payments required by the terms of the mortgage. Final termination must occur within 30 days of this date.

I have read this language before. But, this is where the confusion seems to happen. My lender has told me that if I choose, I can order and pay for a new appraisal at some point in the future (say, after doing some improvements or the market in my town has rebounded). If the new appraised value decreases the LTV to 80%, I can request to cancel PMI. It isn't strictly whether the loan is paid down to 80% of the original purchase price or the appraised value at time of purchase.

Re: Is this too much a coincidence???

Anonymous — Sun, 10 Jul 2011 19:09:21 GMT

Been gone from here for a minute (I will post my story later) but I just put an offer in of 249K on a house that was listed at 240k in order to cover closing cost and my appraisal came back last week at......... 249K so no I never believe that it is a coincidence. FWIW it's a VA loan.

Re: Is this too much a coincidence???

ShanetheMortgageMan — Wed, 13 Jul 2011 05:03:12 GMT

DrW75, the mortgage lender can make whatever guidelines it wants to for PMI removal as long as it's no more stringent than the HPA sets forth, so in your situation they are allowing you to remove it sooner.

Re: Is this too much a coincidence???

Anonymous — Wed, 13 Jul 2011 22:52:49 GMT

Are you using a broker or a local bank to purchase the home? One of the most important factors in an appraisal is comp. sales in the last six months. If using a broker, it is now illegal for the broker to even speak with the appraiser. The days of an appraiser just putting up an appraisal amount that is needed is hard to do. They have to back up the value of the home with many different factors.

Re: Is this too much a coincidence???

Anonymous — Thu, 14 Jul 2011 16:30:11 GMT

I'm working directly with the lender.

And yeah, she had the three comps needed, but the allocation of various values here and there to balance them out seems to me to be very arbitrary. Such as "special features", which isn't defined anywhere and could mean anything. My home was "average", while the compared home was "good" for a difference of $4k. Same for site improvements . . . again, it seems very arbitrary; one comp didn't even have grass, and that was only a $3K downgrade (and I know landscaping costs a heck of a lot more than that). And design/style . . . come on, really? And one of the comps, the highest valued home had less than half the acerage of mine and wasn't even adjusted at all for the smaller lot, whereas the other two, which were lower in value compared to my house, were bumped significantly up for the fact that their acerage was a bit lower that my home.

I guess it is all a mater of trust, and I'm just becoming too cynical. Mostly, I was irritated that the abosultely fantastic lot didn't warrant a bigger bump.

By my math, matching the adjustment for the lower acerage that was done for a similar comp (which had a lower overall value due to its age), I come up with a value for my house that is nearly $12K higher than what I got on this appraisal. That's a big difference and could ultimately amount to significant $ in PMI.