Thursday, December 10, 2009

Are There Consequences of Home Inspections as a Growing Trend for Lenders and Mortgage Insurers?

I’m a home inspector wondering if I’m now being asked to work for the lender and the mortgage insurance companies and what, if any consequences might affect the home buyer consumer.

I have seen a growing trend over the last 6 months or so, where my buying client’s lender and even the mortgage insurance companies have asked for my professional opinion on the physical condition of a subject home, stemming from the appraiser’s comments.

I have no problem doing this as it helps my client’s in the home purchase process. After all, I am in the service business. I obtain permission from my client to respond and discuss the home inspection with the lender or related parties on their behalf. My statements are qualified, limiting my liability with no guarantee or warranty to the home’s condition and reference the initial inspection report, as the case should be.

I understand why these questions are being asked of the inspector. I also think it’s a testament to the growing value and credibility of the home inspection industry and service today.

However, it does raise a couple of questions/concerns:

1) COST - If this becomes a common practice, I will need to charge my client for the time and added liability exposure. Based on half dozen or so I’ve been involved with, a client could be charged an additional $95.00. There tends to be a lot of back and forth requests & confusion on what the underwriter is asking/needs and how to wordsmith it to meet the request, maintain the integrity of the inspection and report and not provide more than what’s asked for (see following consequence point).

2) CONSEQUENCES - These requests so far appear to have been based on the appraiser’s stated observation(s) raising concerns with the underwriter, needing a better understanding of the apparent physical condition and risk as it may affect the loan’s collateral asset. My home inspection observations are more comprehensive as the “expert” opinion. Apparently the underwriter knows the appraiser is not a qualified home inspector. Consequently, each case has come with the risk of opening a new can of worms for the buyer in obtaining the loan or obtaining the loan with the initial terms as my (inspector’s) observations may reveal a bigger or unknown concern for the underwriter than identified in the appraiser’s inspection.

3) CONFLICT of INTEREST – Maybe? My client, the buyer/borrower, has a different objective and perspective than the lender/mortgage insurer has regarding risk tolerances and purpose of the inspection. They clearly are not the same. So, a home inspection for a buyer may inadvertently cause problems with the financing because of the more comprehensive assessment of the home’s physical condition and the lender/mortgage insurer are now expanding the physical condition into the lending process. Under some scenarios, I could see a buyer foregoing a home inspection if it could conflict with the loan. If that’s the case, would the lender “require” a home inspection? What if the buyer doesn’t want or approve the disclosure of the home inspection to the lender? What if the buyer, by a chosen option, pays for a home inspection only to have the inspection be the basis for denying the loan or modifying terms that won’t work for the buyer? They could incur some considerable out-of-pockets expenses (home inspection and appraisal) for information benefiting the lender and not them.

Anyhow, just some noted observations of the recent trends and changes in our market place. I’m sure we’ll all adjust accordingly. More factors for a consumer to be aware of in the home buying process.

I hope this is helpful. Any additional comments or insights to consider?

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