Though mortgage rates and home prices are at enticingly low levels, the lure to hook homebuyers and those refinancing is snagged on more restrictive underwriting and appraisal conditions.

Fannie/Freddie included add-on fees to the loans they insure, contingent on the type of property, credit scores, and the size of the down payment. Wells Fargo increased the minimum acceptable credit score a borrower must have to be eligible for financing by one hundred points if his down payment less than 20%, and has lowered the total debt-to-income ratio ceiling from 45% to 41%.

Additionally, Fannie/Freddie have given lenders the authority to arrange appraisals, a duty previously performed by the mortgage loan broker. Appraisers on Fannie/Freddie loans are now required to complete a market condition addendum to their appraisal report stating pricing and sales trends as they see them in addition to their opinion of value presented in the HUD Residential Appraisal Report (1004). [See first tuesday Form 200 (HUD 1004)]

first tuesday take: More stringent underwriting policies and add-on fees will filter out homeowners who are absolutely qualified. Also, with lenders in charge of arranging appraisals, control is commandeered from the borrower and his mortgage loan broker, bypassing the competition that keeps lenders from profiting on arranging an appraisal and appraisers from improper evaluations.

Also, appraisers will likely increase their fees as compensation for their investigation into the current trend in market conditions and what they see as that trend for future pricing which they must now address in the market condition addendum for secondary mortgage market loans. It’s a small item, but who gets stuck with this cost? The borrower, unless they can push it off onto the seller.

Re: “New fees, rules roil home-loan market” from San Francisco Chronicle