Banks Hurting Themselves and the Little Guy

I'm sure everyone knows by now how hard it is to get financing. If you are buying a home right now, your credit score needs to be super high, your income readily flowing(not just now, but for the last several years), and be prepared to have some underwriter crawling up your you-know-what. Now this is because the banks several years ago gave out too much money to people who couldn't afford it and now they are in full cover their butts mode. Guess I would be also if I were them. The crazy part is they, the banks, have swung so far the other way they are in serious danger of hurting themselves again.

Case in point....

To make sure that the homes they are giving out mortgages to are not going to be money losers down the road, they have gone after the appraisers to tighten their guidelines. Sounds like a sound solution? When an appraiser searches for comps (similar properties that sold recently) they are being instructed to take off the value of the seller assist (money that the seller gives back to the buyer for settlement costs) if any. Still kind of makes sense? When a seller gives a seller assist they have effectively lowered the price of the home. Now, what if you're buying in a neighborhood where most people need a seller assist to buy the home? Think about it for a moment........

If evertime a house is sold, the comps are not the most recent sale prices but 3 to 6% less, what does that do to the value of that neighborhood? It effectively decreases the value of the neighborhood 3 to 6% with every sale. This is a true declining market at that point and who did it? Well the banks did it. Now if one of the earlier clients of the banks can't make his mortgage payment for whatever reason, and the bank ends up foreclosing on the property (taking it back from the borrower) they are left with a property that is worth less than what they lent on it previously. Ooops, way to take aim at your own foot and fire!

Of course there is a simple solution.....instruct your appraisers to not deduct the sellers assist in instances where the sales in that particular neighborhood have a high percentage(over 50%) of seller assists.

Sounds like "common sense" to me. Unfortunately, "common sense" just isn't that common anymore. I just dont understand!