For the past 6 months I've been strongly encouraging my clients to select a local bank for their mortgage financing. From the litany of horror stories I'm hearing from other Realtors here about the big bank mortgage process ("process" is a generous term, "mess" would probably be more accurate), I've become even more emphatic about working with local lenders.
So what is the problem with the big lenders for home purchases here in Sullivan County, and why do I think the smaller, local lenders are better?
There are two main problems with the big lenders. First, in the aftermath of the loosey-goosey anything goes years, they've imposed such tight and inflexible underwriting guidelines that make it difficult, if not impossible, to get a loan approval in a low density rural area like Sullivan County. A large national lender, for example, may require that the valuation be supported by 3 comparable sales (within 20% square footage and similar age and style) that have closed within the past 90 days within a single school district or township. Those underwriting standards may work fine in a dense suburb like Levittown, but they don't work here. This is an example of the tightest criteria I've heard of, and aren't necessarily common to all national lenders or applicable in all situations. But even with somewhat more liberal criteria, a great value house can face a tough mortgage approval unless all the stars are lined up just right.
The second problem relates to the appraisal process itself, particularly in the wake of the "Home Valuation Code of Conduct" (HVCC) requirements from Fannie Mae and Freddie Mac that went into effect on May 1st. HVCC is well intentioned, and designed to eliminate any influence on the valuation (appraisal) process by those involved in the loan origination and sales process. One main purpose of HVCC is to shield appraisers from pressure to "bring in the value", and eliminate the fear that future appraisal assignments rest on that.
In order to meet the requirements of HVCC, most big lenders have farmed out the appraisal process to third party appraisal management companies (AMCs). The AMCs are generally large regional and national companies (with their own profit motive) that then take the appraisal orders from the lenders and assign them on a rotating basis to one of the independent appraisers who have agreed to do appraisals at the price offered by the AMC. The problem here is that the AMC doesn't necessarily look to give the appraisal assignment to the appraiser who is most qualified to do that particular appraisal, but rather one who will do it at the lowest cost. The appraiser may or may not 1) be based in Sullivan County, 2) have much experience with doing appraisals here and 3) be a member of the Sullivan MLS, which is the primary source of the most recent sales data. I've had appraisers sent from Dutchess and Westchester counties who didn't even know we had an MLS!
Some local appraisers, who have a very comprehensive understanding of this area, are also turning down AMC assignments because they can't make a living at it. An AMC may get paid, say, $325 by a lender for an appraisal, and then farm that out to an independent who they pay $200. Now, $200 may be plenty to do a good appraisal in a higher density suburban area, when the travel time between appraisal appointments is maybe 10 minutes and the latest sales data is publicly available online to the appraiser. But here in Sullivan, an appraisal can be much more time consuming and involved, and not just because of increased travel time. Because our county still doesn't offer online property transfer data, and the data available from third party vendors like First American is typically two to three months behind, it can take considerable effort to gather data on non-MLS sales. Also, appraisals here often require lengthy narrative explanations to support the valuation, particularly when no comps are available that fit the lender's parameters.
And if an appraiser does go out on a limb to support broadening the parameters, what can they expect? Grief from a desk reviewer in some office six states away who couldn't find Sullivan County on a map if their life depended on it.
The end result of this is that the big lenders have set up huge, faceless bureaucracies that would make Orwell or Kafka proud. It seems that their primary purpose isn't to get people into houses, but to avoid any charge of influence or shady dealings at any cost.
By the way, if you do succeed in getting a mortgage approval from a big lender, don't think you're home free. Don't be surprised if next month, a week before you're scheduled to close, the lender does a desk review of the appraisal before issuing the final closing documents, and pulls the loan commitment. Or they ask for a second appraisal because a concession for a repair item is referenced in the contract.Details