Subprime Fallout: Some mortgage companies now require more than one appraisal and use the lowest to underwrite your loan.

Mounting pressure on lenders in the subprime markets – who are taking some hard hits from a record number of loan defaults and foreclosures – is forcing them to revisit the way they qualify people for loans. And as Congress investigates whether banks and mortgage companies wrote too many risky loans without adequately screening customers or educating homeowners about the dangers of such loans, the entire lending industry is jumping on the band wagon and promoting the trend toward tighter guidelines.

When you apply for a loan, the lender determines the value of the property you intend to buy by hiring a professional appraiser to do a written evaluation and estimate of its worth. That way if you fail to make your payments, the lender can fall back on a sale of the home at the going rate, as a practical way to recoup their monetary losses. But if the appraised values are unrealistically high, the lender could get stuck holding the bag with a property that is worth only a fraction of the amount that they loaned.

In recent years many lenders have been too liberal when approving mortgages, especially in the subprime market. To correct this trend, they are now sometimes requiring not just one, but two appraisals. Then the mortgage company or bank can pick the lower of the two valuations and use that to decide how much money you can borrow. While this will make it harder for buyers to borrow, it will also make it harder for homeowners to sell their properties for top dollar, because even if someone agrees to a high price, the appraiser might decide that the house is worth less. In that case, the bank will only agree to lend the lesser amount of money, which could be an obstacle in an otherwise smooth transaction.

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