As Dorothy, The Lion, The Scarecrow, and The Tin Man were fearful of their fate on their path to the Emerald City, there are some major concerns regarding appraisals and refinancing that are up for consideration when moving through a divorce process in 2009. Are they just fears of the imagination as in the Wizard of Oz movie or real monsters out to sabotage plans for refinancing?
The short answer: It depends. The solution: Discover (today), Plan (today), Keep Current (through the process).
Appraisals
Fannie Mae has drawn a line in the sand for all lenders to be out of direct communication with appraisers. This means that a lender is required to use a service that will order appraisals for the lender with approved appraisers on a rotating basis. The theory is that the lender would be unable to collude with or pressure the appraiser for an inflated and unrealistic value.
This is great for preventing loan fraud and eliminating inflated appraised values which can and has lead to many problems. The downside is that in most cases you will need to purchase two appraisals: one to value the property to plan the divorce and another for the purposes of refinancing (if that is part of the overall plan).
The other major downside is that an appraised value is subjective. Give three appraisers a property to appraise and there will be three different values. The value you may receive from appraiser one during the discovery period may be very different from the value that the bank appraiser will give during the refinance process.
Market Values
True market value is defined as what the next person is willing to pay for that product and the laws of supply and demand govern this basic concept.
On the demand side of our real estate economics: people are generally scared, financing is tighter, people are losing their jobs, or they think they might lose their jobs. As a result the pool of buyers has shrunk dramatically. This is a very large piece of our real estate economy right now.
Things are getting better on the first time home buyer side. With the $8,000 tax credit and some financial fears abating, real estate demand is increasing in certain price ranges and marketplaces.
Fortunately, on the supply side, things have come to a grinding halt. Housing starts are very low in our local market and across the nation. Locally, geographical and political barriers tend to keep our supply growth to a minimum in a good market, let alone in a bad market like this one. The current credit markets affect supply as well keeping new inventory coming on board. Builders are finding financing less than available so they are not building as much (or in some cases, not at all).
Declining Markets
Currently we are seeing market values decline, especially if the property is in need of a loan amount greater than $417,000. Declining Market is a term that banks, Fannie Mae, and mortgage insurance companies use to describe a local market. According to several investors and mortgage insurance companies, the Seattle/Tacoma/Bellevue market is classified as a declining market.
What this means to you is options for refinancing or purchasing will require a greater equity position or a higher down payment depending on their strategy.
Time can be a big issue regarding this issue of declining markets. Example: Mr. & Mrs. Smith use an appraiser for a value during the divorce discovery process and 9 months later the property is re-appraised (for the refinance) by the bank for a lower value. That can be problematic for meeting decree requirements if the value declines and there is not as much money available for cash out purposes.
The problems are a little scary and daunting, but suggested are some solutions…
Discover (Today)
A potential solution in cost savings and expectation setting is to have your client consult with a trusted mortgage consultant early in the process. Having established a relationship with a trustworthy lender will allow them to do two things: 1) Find a “street level” solution for a potential refinance or purchase 2) Order the appraisal through their trusted lender, you MIGHT be able to use it for the purposes of refinancing and value determination for our court system. Any savings right now is a good thing.
Credit discovery is very important as well. Finding out that a client has a credit score of 620 when you need a 720 score today is more helpful vs. when you find this fact out 30 days before you are ordered to refinance.
Credit repair takes some time. A good mortgage planner has solutions to help clients increase their credit scores.
Plan (Today)
The advice and reporting given by a good mortgage planner can help a you blend in all of the variables to your situation. A skilled mortgage consultant will blend appraised values, credit issues, income issues, and asset issues.
Discovering that a you have three viable options today along with payment structures, advice, and a street level explanation of how the options affect you, can take a great deal of stress out of an already stressful situation.
Keep Current (Through the Process)
Since divorce situations take time, it is important to keep current on values, bank guideline changes, changes in credit status, and any other issues that can affect the mortgage planning process. A trusted mortgage consultant can help keep you on track and informed of any changes as they move through their divorce process.
Jeff can be reached for additional questions or concerns about this article.
www.mcginnismortgage.com
Decoupling has been fortunate to enlist the expertise of mortgage broker Jeff McGinnis for this handy guide to refinancing during your divorce. While we do not endorse real estate or finance professionals, we find Jeff’s article practical, informative, and quite a good read.
