What the heck is collateral underwriting and why should you (and your Realtor) care?



Perhaps you currently have a mortgage; or your planning to get one. Despite at least 4 periods of recession since 1966, homeownership rates have hovered between 62% in 1966 to nearly 70% in 2005 and is currently in a slow upward climb standing at approximately 65%. Chances are pretty good that you will eventually be purchasing a home and going through the loan process at some point in the future. And while the rates of home ownership have remained relatively steady over the decades, the process of securing a mortgage seems to be ever changing, especially since the last recession that rested squarely on a lending industry gone wild. Many of the changes that we are seeing in the mortgage application and qualifying rules are a direct result of the consequences of a previously under-regulated industry. These changes, whether you support or rail against them, are intended to protect consumers and minimize risks to banks, borrowers and our economy.

One of the recent changes that is significantly effecting buyers and sellers has come at the hands of the Federal National Mortgage Association, or Fannie Mae. It is modifying the way homes are appraised and may well impact home values over time.  Collateral underwriting is reshaping how home appraisals are done and is creating more friction between the purchase price and the home’s appraised value, resulting in greater potential for a transaction to fall apart before it has a chance to close. This can be frustrating for both buyers and sellers and the best line of defense is to make sure that you  have a Realtor who understands what is changing, and how best to work within the system to get the best outcomes for her clients.

As a seller, it is absolutely essential that your Realtor does everything she can to price the home in such a way that allows you to get the highest value possible, AND that the home appraise for that value. That requires an in depth analysis of your local market, and the skills to present that analysis as evidence to support the price the home sells for. It is no longer good enough to take a stab at pricing. Your Realtor must be willing to put an appraisal presentation together, and meet with the appraiser at the time of the appraisal to provide information that might otherwise be missed. And should a home not appraise for the purchase price, there are questions that an informed Realtor can ask, and specific things that she can ask for that might change the outcome.

As a buyer, your best interests are served by a Realtor who is aware of changes effecting each step of the transaction and can prepare you for potential issues. You don’t want to be hearing about the effects of collateral underwriting just after the home you’ve fallen in love with fails to appraise.

Feel free to post questions or comments about this, and contact me if you’re interested in finding out more about how I can assist you to sell or purchase a home in the new frontier of mortgage lending!

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