Vermilion Realty Blog

Earlier this year one of the suggestions by the administration to help homeowners was to refinance.  With low interest rates, a refinance could significantly reduce mortgage payments and make more money available to the homeowner.  Following is a letter written by a client to his senator in Washington D.C.:

I attempted to refinance my home. I have a manufactured home, site built guesthouse and barn on 5 acres in Arizona. I worked with a local bank on a refinance. Had I been successful, I could have lowered my monthly payment by $300. Cash I could have used to stimulate the economy with additional spending.

Our credit scores are between 800 and 811. We have an excellent credit history as well as adequate resources. With the refinance we were asking for no cash out, just enough to pay off the current mortgage and cover refinance charges.

When the appraisal was done, the results were lower than expected but still resulted in a loan to value ratio of 77%.

However, living in a rural area with few sales (driven by the stability of the neighborhood and the reluctance of people to sell due to home prices) the appraiser had a difficult time finding comparable sales. One was 10 miles away. One sold 9 months ago. None of the comps had a guest house. Because of the size of the adjustments to arrive at a “comparable sale” the appraiser had to make large adjustments as a percentage of the comparables’ sales price.

My loan was rejected because the adjustment percentage exceeded Fannie and Freddie guidelines.

I spoke with the VP of Real Estate Lending at the bank.  He wanted us as borrowers considering our credit record, assets and amount being borrowed. But by exceeding Freddie and Fannie guidelines, the loan was not saleable in the secondary market and the loan could not be made.

I suspect I am not the only one in this situation. Perhaps more emphasis should be placed on the credit worthiness of the borrowers and not on an arbitrary guideline from Fannie and Freddie, especially in this market environment. Is it perhaps time to review these guidelines?