Home Appraisals Causing Problems for Loans
As the market values for homes drop, computerized home appraisals are being watched closely. During the booming real estate market, these appraisals were blamed for inflating the values of many homes. Now, after the burst of the housing bubble, these appraisals are being blamed for underestimating home values across the US. This lower value causes problems when a homeowner attempts to refinance their mortgage or borrow against their house.
Lenders use these computerized appraisals for home-equity loans, loan pre-approvals, mortgage modifications, and mortgage originations. They act as a check on in-person appraisals, but have been valuing homes at lower and lower values because of the recent dip in the housing market. Banks are much too cautious when it comes to these numbers, so they will often not accept an in-person appraisal that values the home higher than the computer.
With these lower values in hand, banks are suspending equity lines of credit if a home’s value drops below a certain level. Many homeowners are suing the banks that take away this credit, even after posting a much higher in-person appraisal value. “The discrepancy is so great that you have to know whatever method they are using is not accurate,” says Gary Cohen. His $510,000 equity line of credit was suspended by CitiBank when his home’s value dropped from $1.6 million to just over $1 million is the span of four years.
The computerized appraisals come up with a home value based on the historical repeat-sales data and comparisons from similar properties in similar areas. Some of the bigger issues with these valuations are that many homes that were built during the housing boom have only been sold once and that transactional data is weighed too heavily. Until banks learn to use better judgement or new housing legislation is passed, it looks like equity lines of credit should be scrutinized before a homeowner obtains one.
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