I’ve received a lot of text/emails on a Bloomberg article announcing Wells Fargo is increasing its down-payment requirements from 20% to 25% in Greenwich (it’s actually for the entire Fairfield County) Many asked — what does this mean for Greenwich?
My answer: Greenwich is probably in one of the stronger positions in all of Fairfield County. I would note a few things.
- Having over 30+ years’ experience as a certified residential appraiser, Wells Fargo has a history of being a conservative lender. One reason is that Wells does not sell their mortgages, so they retain all market risk. When there is a re-set in the market, like we’ve had since the new tax laws in 2017, it takes time for the market data, or comps, to catch up.
- The appraisals or valuations models lenders use to underwrite mortgages are primarily based on closed sales data, and therefore, backwards looking. What do I mean by that? When markets decline, it takes time for the comps to catch up (same when a market is appreciating). Appraisers are required to use comparable sales that typically closed within the past 6 months. Since it takes time (2-3 months) for a comp to go from contract to closing, the majority of the comps available this fall are deals negotiated in Q1 and Q2 which can produce some inflated values. Lowering LTVs is a fast, clean way to protect against that risk.