Do Mortgage Underwriters Use Common Sense?

I heard two things today from two separate underwriters that was infuriating. Neither of them made any common sense. Do mortgage underwriters use common sense?

The first one had to do with an appraisal that was done for a refinance and the appraisal value came in low. I worked up an “appraisal challenge” and sent in 4 new comparable properties as well as my reasoning behind why I thought the original appraisal showed a mistaken value. I clearly had good comps that supported a higher value, and I had two pages of narrative to explain why. The underwriter called me and told me I was wasting my time, and that no appraisal challenge would ever be victorious, and that a lowball appraisal value would never be overturned.

I finally realized that even if an appraisal came in low, the underwriters were not interested in today’s reality. And that is because of the fact that a $500,000 lowball appraisal, even if the reality is that the place is worth $550,000 today, every underwriter believes the place will probably be worth $500,000 next year; so why not let the low appraisal stand. Whether or not the underwriter has sound logic and reality on their side or not, it certainly does not seem fair, does it? An appraisal is supposed to be a valuation as of the date the appraisal is done, not one year from now!

The second thing that was infuriating was related to another refinance loan I am doing. I am refinancing a first trust mortgage to a lower interest rate, and the client has an equity line currently in place. The appraisal came in low enough that the bank says that the client has to close out and get rid of their equity line. The 1st trust mortgage is $400,000, and the equity line is $100,000, and the appraisal is $615,000. They are limiting both mortgages and capping them out and 80% of the appraisal. 80% of $615,000 is $492,000. Since the existing first trust and equity line total $500,000, they are saying that the equity line must be closed out and eliminated.

I was trying to make an argument that we could drop the equity line to $92,000, and that way the $400,000 1st trust and the reduced equity line of $92,000 would equal 80% of the appraised value, and fall within their limits.

But the underwriter explained that although that may make common sense, that even if you scaled back the equity line limit from $100,000 to $92,000, that the borrower could still go back to the bank that holds the equity line after settlement of the first trust refinance and ask to have the equity line extended back up to $100,000. I asked the underwriter if they had read the newspapers lately, as it seemed that banks were reducing or eliminating equity lines arbitrarily, and that no bank would increase an equity line these days. But my logic made no sense to them, and they wanted the entire equity line eliminated.

It seems like mortgage underwriting has become arbitrary, and restrictive beyond any common sense. I’m not sure what will happen next, but I cannot imagine it will be good or make getting a mortgage any easier.