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GSEs Look to Follow FHA’s Lead on Streamlined Refis

From the Housing Wire, Fannie and Freddie are considering a change with regard to how “Streamlined Refi’s” are appraised:

In particular, the GSEs are considering a plan to allow some borrowers to refinance without the use of an updated appraisal.

“If they refinance someone, rather than doing a loan mod, do they need a new appraisal if they already have the credit?” Federal Housing Finance Agency director James Lockhart told reporters after a speech, according to a Bloomberg report. “That’s an issue that’s being discussed. They’re looking at it.”

The article continues:

The U.S. Department of Housing and Urban Development has permitted so-called “streamlined refis” without appraisals on FHA loans since the early 1980s, according to a department Web page. It’s a program limited, however, to rate and term refis — no cash-out refis here — and borrowers must be current on their loan. The VA has a similar program.

In contrast, the GSEs generally require a new appraisal on any refi, whether cash-out or a rate or term refinancing. It seems likely, although Lockhart did not specify details, that Fannie and Freddie are looking to follow the lead of the FHA in terms of making it easier for borrowers to refinance in certain situations.

What do you appraisers think? Are there some circumstances where allowing a refi without an appraisal makes sense?

Comments
  1. David Donnelly

    What did we learn from the S&L Bailout of the 80′s?

  2. Chuck Robertson

    IF the borrower is not located in a declining market, not having to pay for an appraisal would certainly lower his cost of borrowing. However, if the subject property is located in a decling market, it would be foolish of the lender to not want an appraisal to evaluate the collateral.
    I would hope the lender would at least order a Fannie Mae 2075 which does not include an opinion of value, but verifies that the property is there and that there are no detrimental conditions at the site or in the surrounding neighborhood. These are much easier for appraisers to do, take little time and are usually very profitable while still charging much less than for a full appraisal; therefore, the borrower still saves money.

  3. Daniel D. Fuller

    I think the lack of an appraisal continues the bad laon process setting the stage for another loan crisis at the next downturn market.
    What fools

  4. This is ludicrous how in the world would they even know the value of a property in today’s declining market if you do not have an appraisal done. Most people trying to Refi today their property is worth less than what they owe. It appears FHA is becoming the new Sub-prime

  5. In reality someone already owes the money regardless of what the property is now worth. It is a mixed bag because the lack of appraisals on many loan products helped get us into this problem. A streamlined refi can simply make their payments more affordable. Housing is a cash outflow and everyone needs a place to live. Even upside down in the short term, better loan terms will help more people afford what they already have and we will all benifit in the long run by slowing down the bleeding. Getting an appraisal at this point in time will only stop the process. Bad loan practice is lending money based on values from AVM’s and tax records, and qualifying borrowers on the small starting payments of an ARM.

  6. Greg Mitchell

    When will this stop? Loaning money in a declining market is risky business for real estate more so than when appreciating? What are these knuckleheads thinking? Start regulating and license the mortgage brokers and follow up with the people who made the bad loans to begin with. All previous loans were originated with names on all closing documents and checks written so why are we not reading about fraud from the brokers, lenders, appraisers, and title companies? Its to big to tackle just like AIG, GM etc. When will this stop and common sense prevail! Totally frustrated.

  7. Anonymous

    Refi:This is not a new loan
    just a change in the rate or
    term of a loan already in place, the loan has already
    been established and the value of the property was establised before the loan
    was made. Why should another
    appraiser get paid any amount to give another opinion of value.

  8. Anonymous

    Why should another appraiser get paid for a current opinion value? Great question! I assume there are many who are too young to recall the Savings and Loan crisis. The purpose of an appraisal is to estimate the market value based on a specific date! That appraisal is only valid that day and as we have all found out, times can change and not always for the best!
    The question to ask is why do lenders, FHA, etc. always desire to cut out the appraisal? Do they waive the loan fees from the lender or title company? Of course not! This, along with bad appraisers, is exactly what got us into this housing/mortgage mess to begin with. From what I gather reading this blog, there are still fools out there calling themselves appraisers and not understanding the purpose of the appraisal for a lending transaction. To them, I ask…would you make a loan on a property in a poor economy not knowing what the property is worth?
    This is very similar to the aauto bailout. If a company is $80 billion in debt, do you loan them another $15 billion? Just because a lender has the loan now, doesn’t mean they should automatically refinance the loan or do it without an appraisal. At the very minimum, the condition of the property may have changed. Get real people!

  9. Anonymous

    Every market is different, but from what I am gathering, most markets in the US have or are experiencing declining property values, certain states more than others. For example purposes, let’s say a lender has the existing mortgage and made the loan 2-3 years ago. The borrower pays on time so they figure just avoid the appraisal. Is this wise? In my area, property values have declined from 5-30% in one year alone. The lender refinancing a loan is assuming the same debt ratio, but in fact the borrower could be “backwards” in their loan by refinancing without the appraisal. Isn’t this part of the problem of the current housing/mortgage crisis?
    In the S&L crisis, most borrowers had at least 20% down. Today, most borrowers are lucky to have a down payment. Thus, there is no room for error, yet these “experts” and some “appraisers” see no problem with avoiding the appraisal. Only a government operated entity would consider such a risky plan. Seems as though we will never learn, but what do they care, they will get bailed out again if something goes wrong.

  10. Kim Heisler

    As long it is only being used on loans where they have the existing credit and no new money is being given,it makes sense. In that case, the value means nothing to the lender, he’s already there. If any new money is going out the door then a new appraisal should be completed. More and more Hollywood is coming into our government agencies…can you say “Dumb and Dumber”?

  11. Dan Fic

    Does not the condition of the property and neighborhood change? Would the homeowner tell this to the lender? I think not if it is detrimental to obtaining a revised loan.

  12. Bob Vogel

    Why would anyone allow Fannie and Freddie to lend money without an appraisal?92% of the working public are still employeed and are helping pay for Fannie and Freddie’s terrible management of of the mortgage industry.

  13. Diana Hernandez

    First of all it does not make sense to refinance without an appraisal if the lender is not willing to do the loan modification. The loan modification in most cases only changes the interest rate and may extend the term longer than the original loan without incurring any new debt and does not require an appraisal. Since most homes are “upside down” in value to refinance will incur more debt for the borrower even if the borrower is asked to pay for the closing cost out of pocket to lower the interest rate. This is only going to give us more of the same down the line and it helps no one but the lender! Get real and quit trying to plug a hole in the dam with gum….please!!

  14. Marilynn S. Kornfeld

    Appraisals are most important to determine value within a period of time. A necessary inclusion to determine a new or refinanced loan. Ratio of loan to value is very important. Otherwise, we will never get out of this mess!!

  15. The reality is that if the property is worth less than the loan amount, and a refinance is not done, the lender may end up doing a note modification instead. To get a lender to consider a loan modification, the homeowner commonly needs to be behind in payments. Many of these mod’s end up with lower rates and a principal reduction. Wouldn’t it be better for the lender to offer a streamline refinance so that people don’t feel like they have to fall behind on their mortgage to get their lender to adjust their rate???

  16. Tim Schutte

    I understand teh frustration, but I think some folks are missing the reason behind this.
    It is ONLY for folks that have NOT missed any payments and are currently in GOOD STANDINGS on their loans.
    However they may be about ready to take a step in the ARM that they took out and with the record low interest rates we have right now they could refinance at the low rate and keep their payments affordable.
    In some cases it could mean the difference between them being able to continue to make the payments on the house and having to face foreclosure becuase they can not afford the new payment after the the ARM adjustment.
    The money is already loaned and the folks have made their payments. Yes they are upside down and the house is worth less than they paid so if an appraisal is required then they would have to come up with the difference to refinance to get the lower rate and they of course do not have the difference so they would not be able to refinance.
    If the appraisal is waived for the refinance, they do a NO MONEY OUT refinance to get the lower rate and lower payments and can keep making their payments.
    It makes a lot of since to me, to this these and avoid these folks from going to foreclosure.
    IF WE want to see an end to the housing crises the first things that has to happen is stop the number of foreclosures that are taking place.
    Personally this idea makes a lot more since that spending Billions bailing out companies that have proven they don’t know how to run a business.

  17. URIEL VARGAS

    FHA was the Sub prime in the ’80s. All these people making these comments must be new in the business. If we don’t help the people that want and need the help of refinancing their homes, we’re never going to get out of this cycle. The government already gave $350 BILLION with a Capital B to these banks, and are we out of this mess yet? I don’t think so. What happened with the idea that was mentioned on July of this year to do a refi on O/O properties for up to 90% of the current value? The government should modify the program by subsidizing 1/2 of the difference of the amount owed and the new loan amount which is 90% of the current value. Later on when the borrower wants to sell, he or she would have to give 1/2 of the equity to the government that helped them out. This would make more sense.
    In regards to who created this mess? We all did it. The banks created these STATED PROGRAMS, the people abused them, Realtors sold the properties, and Loan Officers made the loans. If the loan limits for FHA would have been higher we probably wouldn’t be in this mess. Let’s help the people help themselves, do the refis with the New Great FHA Loan and stop blaming and pointing fingers. We need to act as a unit and get this economy back on its feet.

  18. Peter Gorman

    It makes sense to me. The initial loan has already been made and the collateral evaluated. The new loan is based primarily on the borrowers ability to repay. If the borrower can lower their rate/terms without a new appraisal, why not?

  19. Doug

    Obviously as an appraiser I would like the work. I live in an area where everyone that bought two years ago at 95 to 100 percent borrowed is underwater. The question is “how much underwater?” I just did an appraisal where it was worth 30 per cent less than when purchased just 1.5 years ago. Why would the government insure that loan for full price? Why would we the people want the government to insure that loan for full price? Why would the borrower want to continue to pay a 100,000 mortgage on a 70,000 property even if the rates are lower?

  20. Doug Watson

    … and the beat goes on. Government regulators will never fully get it because they are all so far removed from reality and how things work in the real world (outside of a life-long government career). The appraisal is an insurance policy against loss. It provides a sound basis for how much money to lend on a particular property. Borrowers frequently get in over their heads through reckless spending habits and they rely on refinances to bail themselves out. Lenders should never lend when loan to “current” market value is above 90%. 110% LTV loans and loaning based on “credit-worthiness” are the very same ideas that have gotten us into financial problems before, and apparently here we go once again.

  21. Concerned Taxpayer

    Long story however the good part will be at the end. The Government seems to claim they don’t know to fix this Economy problem. They know how just won’t do it. It is immoral what Banks, Lenders, and large corporations do to make a buck. The multibillion dollar company I work for now pays me less than what I made in 2002 while all has gone up my salary has gone down year after year while the Corporation makes record profits quarter after quarter and cries that the numbers are not good and executive pay bonuses of millions year after year is a slap on the face of good American working employees. This needs to end by Government Regulation. So what if we start getting called Socialists or Communist, at least we will have food on our tables and a roof over our heads. Problem is they don’t have the guts to do what is right for us the people of the United States. We keep footing the bill of their mistakes and incompetence. Ask any real middle class people what they need and do it to help us it’s really simple, stop going in circles, we all are out of time here. The rules of loaning money to people that don’t need it, alias “The wealthy”, still apply and will probably forever” because that is how the system was built, to make the Rich, Richer. All claims that regulations don’t allow for lenders to just type in a few digits in a computer terminal to change a rate from unrealistic known scam practice from lets say 8%, 9% or more to 5.06% hit enter and give immediate relief to millions of homeowners that trusted the system and did what they were told over and over and over is just a plain lame excuse. Buy Real Estate and build your Nest Egg, buy a second come for retirement so you don’t live in a trailer (no pun intended) when your Retire and need to live from Social Security. This puts you on another Black List of “NO, You don’t qualify for loan modification or refinance because you must be Wealthy!!!”. What they did not tell folks was, big bad bird will come over and take the Nest with all the Eggs and not even say thank you and then ban you from buying a Home or Car, etc because your credit is now dust. This ensures you stay where you belong and the system works as designed. Middle Class or Blue Collar workers and continue to be the cheap labor worker Bees that makes Millions and Billions to highly paid executives and large stockholders. Lower interest rates for all existing loans specially on declined markets disregards of the value of homes, forget the appraisal is pointless you can do a desk appraisal in minutes and see a clear picture without having to see the dead lawns around. Do it without discrimination, streamline the process of documentation to short docs. Of course you must be employed and needs to make sense, however what is happening today makes no sense. Too bad if the banks don’t make BILLIONS in profits or get more FREE banks like WAMU or Downey Savings to other banks, where we stockholders lost their shirts by bad government moves that benefited again the wealthy. At least they will stay in business and will help the Citizens of the United States of America. We don’t seem too united at this time. Call it “Financial State of Emergency” and suspend some regulations that get on the way for a year or two till all stabilize then think, and think well a better way that is fair for all. Fix it and Keep It Simple.

  22. Joe Klein

    Remember, all real estate is local. National (or State) statistics mean nothing. Given the declining local markets and the increased threat of foreclosure, wouldn’t a lender want to know an up to date value of their security, whether refinancing or not. Evidently, not! Penny wise, pound foolish?

  23. RWincz

    Dont know why everyone is trying to eliminate the most important aspect of a
    loan and that is evaluating the colateral. Good credit means nothing in this economy. A client may have previously never missed a payment but if they lose their jobs next month, they could fall behind like anybody else and then the bank will be screwed. Lenders need to find somewhere else to save the customer money.

  24. Larry L'Heureux

    If we are really trying to save the consumer some big bucks lets do away with the unnecessary title insurance over and over again. And let’s face it, doing a title search for 95% of single family homes and especially refis is a clerical duty not something worth a percent of the deal and never over say $25 an hour.

  25. Danni

    It has been my experience of the year that the lenders themselves have no clue of market value in various area of the nation. One is not equal to the other by any means. appreciation/depreciation is different from market to market, even within miles especially in recreational areas. Appraisers are the lifeline to that knowledge and should never be overlooked within this ever changing market.

  26. Darlene Kobsa

    The appraiser actually LOOKS at the property. Even if values are stable, the appraiser is the only person that actually sees the condition of the property.
    If they are looking to save the public money, I agree with Larry L’Heureaux. modify the necessity for title insurance.
    I also agree with Mike Vogt, what are NAR and the Appraisal Institute doing to help their appraiser members.

  27. DWhitman

    I am amazed at the lack of understanding displayed by many of the comments here. As someone who was a mortgage lender during the high interest rates of the Carter Admin. up until the S&L meltdown of the early 80′s and then as an REO administrator during the meltdown, and then becoming an Appraiser for the past 20+ yrs, maybe I have a unique perspective regarding this mess we are in. Streamlined Refi’s to adjust Rate&Term only (lowering payments) are a GOOD way to encourage homeowner’s to stick with their homes until the market turns around. Why shouldn’t a good borrower be rewarded. The Lender is already stuck with the loan regardless of current loan to value ratio, and as long as the Borrower is making the payment, there is no way they can change their collateral position. Streamlined Rate&Term Refi’s make it easier for that good Borrower to keep making their payments by letting them at least take advantage of the current lower 30 year rates. It does not matter what the property is worth, or whether the Borrower can even “qualify” for the loan, because the lender already has a payment history that tells him that this Homeowner is commited to their home and lowering the payment will only help keep the homeowners committed to their home, reducing the likelihood of a default in the future.

  28. z. Parker

    What i do not understand is, how could people not think where these people would get the money to pay the original loan if their company (where they get their money in the first place)close their door or close the business and get bankrupt which is an 90% chance. Now, If lenders will continue to lend money/ies and not stop right now – because they hope that they could get more money if they will continue loaning – these foreclosure will just get worse millions of times. These foreclosures are not done yet whether they are on arms or fix or conventional or 30 years whatever you name it. Because businesses, small or big are suffering and more of them are going to close it’s door in the near future, people should hold on tight to the money that’s left in their hands really tight and never think that these recession will end in two years or three years. To think about it really good, how could small business and big business continue if people do not use them if there’s no job meaning no money. Auto industry and housing industry are 2 of the biggest money source in the world and they are the ones that under the ground right now. Refinancing is not the answer to continue payment for the monthly on the house to prevent default that lead to foreclosure. That is an insult if you say so. Owning a house is not for everyone just because they have a job. People know if they could afford to buy a house or not and they should use their small brain same as other Realtors or Loan Officers and Lenders as well. Appraisal should be done on houses that are 10 year old or older houses so the buyers would know if the house they are buying is worth their earnest money and effort. Sellers should be interviewed honestly and Realtors should know what to ask the homeowners that would like to sell (this should apply in the old days before foreclosures became popular)before they list it (and not just think about the commission they will get). Personal experience when we are trying to sell our house, the person doing the appraisal (I’m not saying all appraisers are the same) is telling us the bathtub in the 5 year old house needed to be fixed because it is not safe. He is rediculous and he knows that, because how could that be? We bought the house from the builder, it went to an appraiser just 5 years ago..what I’m saying is the house is in perfect condition, we did not even go the room where he said the problem was? And there are only 2 adults living in the house and both are not home during the day, they only at the house when mostly they need to bathe and take a shower. Bathtub is the last thing they think of using. What I’m saying is, to save a little bit of money, everybody should use common sense, and everybody should have a proper documentation of the house.

  29. Bruce Swearingen

    When is FHA,VA,Fannie & Freddie going to come to there senses. What is being done, especially in this market, is going to be a disaster. Between them & Cuomo the Mortgage Industry will suffer severely. I am an appraiser and the new laws and regulations are going to creat problems they don’t even know exists.

  30. OJ

    How could anyone be so stupid to come up with an idea like that!
    Have the powers to be brain-dead or what?
    What ever happened to doing things “the right way. oops, I forgot, thats Washington politics.

  31. Will

    Can you even do a good appraisal in this economy? Wouldn’t that require saying that values are declining, unemployment is going up, foreclosures have increased? They already know all this stuff cause it’s happening almost everywhere. The last time I started marking the “declining” box the lenders thought I was nuts! “We can’t have an appraisal with that box marked!” It’s all a scam. So they just want us to continue to grease the skids and stay out of the way. Beyond verifying that the property is there and that there isn’t anything too serious loans have gotta be made. They are greasing the process at every other point so the appraisal process has to be greased too.

  32. JOHN CHINN

    THIS IS WHY I HAVE TROUBLE WITH LIBERALS. THEY NEVER LEARN. IT’S ONLY THEIR INTENTIONS THAT COUNT. THE FACT THAT THEY HAVE COST THE AMERICAN TAXPAYER, LIKELY, THEIR FUTURE, MEANS NOTHING. ONLY “GOOD INTENTIONS.” FANNIE MAE AND FREDDIE MAC NEED TO BE PERMANENTLY SHUT DOWN. THEY’VE , IN ABUNDANCE OF PROOF, DEMONSTRATED WE CAN’T AFFORD THEM. NOR THE MEMBERS OF CONGRESS WHO BACK THEM.

  33. jack

    There is an existing loan.
    The choice between refinance and lower the interest rate and the payment or foreclose and sell the property for 50% or some case 40% of the current loan amount.
    Sample:
    A home was sold in 2006 January for $320,000. Two loans one for $256,000 and other for $64,000. Both ARMS.
    One of the borrower lost her/his job due to economy.
    Bank refused to refinance and lower the interest since property only “worth” / appraise at $250,000 now.
    Conclusion: Property went on foreclosure and sold for $165,000.
    Show me the logic in loosing $155,000 because the loan to value ratio is upside down.
    For the bank the property worth the outstanding loan amount. The reason bank employees walk away taking a $150,000 dive because the bank shareholders are kept in the dark.

  34. Christi

    REFI with the same bank. Not a new loan. All this means is the owner gets the opportunity to keep the same mortgage amount at a lower rate. Why should an appraisal be needed for that? The amount of the loan is not changing–only the terms.

  35. David Feather

    Here’s a novel idea! Why don’t we just get ride of appraisers completely and stop pussy footing around with finding ways to kill them off slowly.
    In the past 9 months they have:
    Created a regulation (HVCC) that requires them to surrender 50-60% of their income to AMCs. Even though it’s officially delayed…it’s not delayed. Banks have already met the January 1st 2009 deadline so it’s as good as done.
    Came up with a new form 1004MC (stands for More Crap) for appraisers to complete. This should a few more hours to our workday…and you guessed it..for the same fee $140 to us…and $260 to the AMC.
    Lastly, they now want to eliminate the need for appraisals on refi work.
    Come on guys…is that all you can throw at us. You stupid bunch of government p*ss**s sure you can do something better than that to put us out of business.
    Although I have written off our appraisal business I stand firmly for the class action lawsuit that will follow this fiasco.

  36. Edward Hamann

    I think the industry is forgetting 1 of the 5 Cs for determining a good loan. Collateral. Look what got the US into the financial problems of this country ….no paper loans and insufficient collateral.
    The NAR should fight this to protect the integrity of the process and IF they want to be known as a place where appraisers can go for a voice this is their time and place to stand up,

  37. Dennis McLoughlin, RAA

    WHAT A STUPID IDEA! REMEMBER THE S&L CRISIS AND WHAT WE ARE IN NOW! THAT WOULD BE EVEN WORSE.

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