Even as we speak a lot of refinance applications are being denied for lack of equity. There’s a lot more scrutiny of loan applications right now, and that includes scrutiny of the appraisals in those application packages. Just in the last week I flagged several unreasonable appraisals in review, and in each case meaning that application was denied by my client (the bank). Now if those borrowers want to get a loan they have to try and hang their applications on a less vigilent lender. Some of them might succeed but others probably won’t. I can tell that for many of these borrowers everything is riding on getting the new loan.
As the rejection rate goes up, so does the level of scrutiny on the deals they do fund. The lenders might not want to tighten up but they have no choice as evidence mounts that the markets are in decline.
As I have been saying for the last few weeks, the passing of July 1 marks the end of using yr2005 sales as comparables in appraisals, so now appraisals are coming in lower than they would have even just a couple months ago. There’s no escaping this trend. The market psychology is shifting quickly. I seriously doubt that lowering the interest rate would stop it at this point.
