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Rick Pelleriti

Ridiculous Underwriting Guidelines - A True Story

Saturday, April 23, 2011 - Article by: Rick Pelleriti - American Capital Corp. - Message

This is a true story about a loan in process. It shows you how ridiculous some of the underwriting guidelines have gotten.

We received an appraisal back, and the good news is that the value came in just as expected. Further, the appraiser wrote that there were no repairs needed, and the house was in good shape, i.e., there were no structural issues that would affect marketability.

So far, so good. But wait....we are not out of the woods yet.

For whatever reason, the appraiser decided to take a couple of pictures of "peeling paint," and a gutter spout with some rust on it.

Even though the appraiser mentioned there were no repairs needed, the mere fact that these pictures were included causes a potential problem. The initial reaction from the underwriter is that these problems have to be fixed before this loan can close.

Guess what? The Seller sold the house "as-is," and typically would not be interested in making these repairs. Further, if they did move forward, as we all know, it takes time to find a handy-man, or someone who has the specific skill set to make these repairs, and we all know how much time that might take.

This is time you don't have when the Seller wants a relatively quick close of escrow.

So...there is a lesson to be learned here for potential buyers, and their Buyer's Agents -- and for that matter - the Sellers and their Listing Agents -- don't be so quick to sign off on a loan contingency or appraisal contingency until the LENDER has signed off on the appraisal.

Lenders have the right to be more strict than a Fannie Mae guideline.

Oh - and just so you know - we are diligently working the issue -- which means escalating it/negotiating with the lender to see if it is a deal killer. It may just mean the Seller may have to get these very minor items fixed if they want to sell their house - and that would mean a Purchase Contract extension.

Fun stuff, huh? Be careful out there....

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