Hurricane Irene’s impact is still being felt from North Carolina to Vermont, but the massive clean-up, at least on the ground, has begun. Current estimates of the property damage from this weak hurricane/ tropical storm range from $2 to $7 billion.
However, there is more destruction from Irene that is not so readily seen, and which is only beginning to be felt. It is the destruction of purchase and refinancing plans for thousands of homeowners in North Carolina, Virginia, Maryland, Delaware, Pennsylvania, New Jersey, New York Connecticut, Rhode Island, Massachusetts, New Hampshire and Vermont. With the damage to homes so widespread in these states, Fannie Mae and Freddie Mac are requiring appraisal re-inspections on properties in scores of counties and cities for which loan applications have been approved but were not closed as of August 27, 2011.
Re-Inspections are standard practice after disasters, and understandably so. The interests of lenders and investors must be protected (not to mention the interests of the taxpayers who ultimately are standing behind these loans). Yet the specific requirements for re-inspections can vary from simple drive-by exterior inspections to, unfortunately what is being required in the aftermath of Irene, both an interior and exterior re-inspection.
Not only must the re-inspection include a look inside the house, but the re-inspection itself must be performed by the same appraiser that did the original appraisal. Often in previous disaster situations these re-inspections were authorized to be completed by any licensed appraiser or even, in certain circumstances, by licensed home inspectors. This seems like a reasonable accommodation to protect the interests of consumers from financial harm. But no such luck in the wake of Irene.
The potential harm that these re-inspections can mean for affected homeowners includes:
1. Significant closing delays
2. Rate lock expirations
3. Fees for the re-inspection
4. Potentially higher mortgage rates/costs
Let’s consider each point. First of all, loan closings will be delayed as these appraisers must fit the re-inspections into their schedules around their current—and likely more profitable—assignments. Might some purchase contracts be lost? Second, consumers are likely to see their original or even extended rate locks expire due to the delay. Third, consumers will be subject to paying fees for the re-inspection. A quick survey of appraisers revealed a wide range of charges for re-inspections from a low of $75 to a high of $250. Finally, the delays and rate lock expirations could lead to consumers having to settle for higher mortgage rates or paying more to obtain their original rate. Fortunately, mortgage pricing has not changed significantly since the storm hit—but it could in the weeks ahead.
Disasters are an unfortunate part of life all across the US. But in times of economic distress, natural disasters can be particularly cruel and can prolong the suffering. It is in times like these that we look to our government for assistance—not to fix everything and make it all the way it was before —but to expedite assistance and provide guidance that minimizes the pain. It unfortunately appears to me that the stringent re-inspection guidelines issued following Irene have the potential to inflict more pain and punishment on people who were hoping to experience something positive by buying a home or refinancing a mortgage.
John Walsh is the President of Total Mortgage Services, an expanding mortgage banker. Mr. Walsh founded Total Mortgage Services in 1997 with a customer-centric approach and a mission of responsible lending. John Walsh can be reach at [email protected]
or for more information on Total Mortgage Service please visit http://www.totalmortgage.com.