Sometimes my personal life and public life as a columnist overlap.
Besides my home in Mesa, Ariz., I also own a condominium in Concord, N.H. This isn’t an unusual investment for me, because my sister and my two nieces and their families live in New Hampshire, so having a condo in the area gives me a place to stay when visiting and touring the much cooler climates of New England.
With interest rates at record lows, I decided to refinance my condo, working with my existing mortgage holder, Wells Fargo. I would have done this earlier, but the development (which I believe is the nicest in the Concord metro) where I have my condominium has been hit hard by foreclosures. This makes my refinancing a gamble, especially as it is hard to predict what the appraisal numbers might be.
I already accept the fact that the condo is worth less today than when I bought it, but I had paid at the purchase almost 30 percent of cost, which was just before the financial world began to tumble and the housing crisis hit. So, I’m guessing the value of my Concord condo today is somewhere around the value of my existing mortgage. But, I’ll know for sure when the appraisal comes in.
Coincidentally, before I decided to refinance, I was contacted by the marketing firm representing Total Mortgage Services LLC, an independent mortgage originator based in Milford, Conn., asking me if I would like to interview the company’s president, John Walsh, on the subject of preparing for an appraisal.
By the time I got around to interviewing Walsh I had already begun the refinancing process. I probably should have waited until after talking to Walsh.
Here’s what he had to say:
"Appraisals are the No. 1 reason why loans are getting declined these days, because the appraised value coming in is lower than expected," he began. "It’s an important part of getting a loan. If you don’t have the right appraisal, you can have an 800 credit score and have debt-to-income ratio of 5 percent but you still won’t qualify for a loan because your appraisal doesn’t come to value."
He added, "If you have a $250,000 loan and you think your house is worth $300,000, but homes in your neighborhood sold for $200,000, there is a very likely chance your home is not going to appraise for $300,000."
That made me nervous, but I was soon soothed when he added, "People don’t realize they have a say in the appraisal process. The most important thing is to have key information at your fingertips."
Hmm, what information?
Well, for example, accurate square footage of the residence.
"A lot of times the field card at town hall is not correct," Walsh said. "And the appraiser doesn’t have the right square footage."
Secondly, it’s important to find out what comparable homes have sold for in your area. Appraisals are done with the key information of what the most recent "like" homes in the closest proximity to your house (within a mile, if possible) have sold for.
"Having the information as to what has sold recently in the neighborhood is very important," Walsh said, "because the appraiser is going to go on the list of transactions from the town, but a lot of that is not up-to-date, so we see plenty of cases where a homeowner has said to us, ‘There’s a house that sold right across the street that’s exactly the same house and it sold for $40,000 more than the highest comp this particular appraiser is using.’"
He continued, "We’ve had countless instances where having more information made a deal that didn’t work the first time because of the appraisal work."
My problem with my Concord condo was the spate of recent foreclosures, so I asked Walsh about that phenomenon.
He wasn’t optimistic.
"You can say a short sale is this extenuating circumstance or that extenuating circumstance, but if the only homes in your area to sell are the short sales, that becomes the market," Walsh said. "On the other hand, you can make the point, perhaps, that the short-sale properties had the kitchen features ripped out, the copper was stolen and the Sheetrock was destroyed. That’s a material difference. Again, it’s all about knowing the information so as to be able to ascertain if that short sale was a true indicator."
You can appeal an appraisal, Walsh said. "Sometimes the appraiser doesn’t have information that is up-to-date or accurate, so the borrower does have the ability to point out those mistakes and say, ‘I would like the appraisal to be re-evaluated based upon this new information.’"
Walsh founded Total Mortgage Services in 1997 and today it is licensed in 27 states plus the District of Columbia. The company’s reach extends from Maine to Florida and then skips westward to Illinois, Texas and California.
As I always do when I come across a nonbank mortgage originator, I ask how the company survived the recession when so many in that industry folded up like the house of cards they were.
His answer: "We never did any subprime loans, we never (did) option ARMs or any of the other exotic loans. We stuck to the good-credit, low-loan-to-value customers we felt were going to continue to pay their mortgages. Our philosophy was we were not going to put people into mortgages they weren’t going to be able to pay."
Total Mortgage’s conservative lending policy must have worked, because, Walsh said, "In 15 years, we’ve never had to buy back a single loan."
So what’s Walsh’s outlook for the housing the industry?
"The housing market has come close to bottom if not being at the bottom," he said. "We are starting to see purchase activity pick up a bit. I’m more optimistic than I’ve been in several years about the housing market.
"With rates as low as they are, it’s a tremendous time to buy or refinance. People are starting to take advantage of that. When you can get a home with an interest rate in the mid-3 percent range on a 30-year-fixed, that’s cheap money."