Low appraisals hurt subprime borrowers

BALTIMORE - You face foreclosure. You quickly move to refinance but qualify only for a double-digit subprime rate. You take it, pay for an appraisal and learn your house is worth $425,000. Then the lender reduces your appraisal by $100,000.
That’s the situation Mark Allen, of Gwynn Oak, faced after being downsized at work.
“I took a part-time job to feed my family, keep gas in my car and continue my job search,” said Allen, a single parent of three. “When I finally got a full-time job, I was so far behind I couldn’t catch up. I had to refinance to save my home, but when they dropped my appraisal by $100,000, I was floored.”
Allen accepted that his monthly mortgage payments would go up by $1,000 and that he would only receive 70 percent loan to value, but he questions whether dropping his appraisal was legal.
A loan officer from Quality Home Loans, a lender that downgrades appraisals, said, “Appraisals can be downgraded for a lot of reasons, like market saturation, houses that stay on the market too long, or if when doing a public records search we see that though additions were made to a residence, the proper permits were not obtained. So then we disallow those additions.”
Real estate lawyer Stephen Greenwood said he thought lenders are “being oversensitive” to avoid financial problems such as those that affected New Century Financial, which went bankrupt.
“I don’t know if it is actually legal to decide to reduce somebody’s appraisal,” he said. “Then again, the lenders are the ones loaning the money, and they want to make sure their risks aren’t worse than what they already are.”
Ashidda Khalil, executive director of the Baltimore branch of the Neighborhood Assistance Corporation of America, was familiar with the practice. “Imagine your neighbor with the identical house in the same condition gets 100 percent LTV, and not only do you get double-digit interest rates and only 60 to 70 percent LTV, but now they drop the value of your home by tens of thousands of dollars,” she said.
Khalil cautions borrowers to steer clear of lenders that drop appraisals. “There is legitimate help out there that doesn’t seek to further victimize the borrower,” she said.
(www.examiner.com)