Non-Warrantable Condo, Delayed Appraisal, and Rate-Lock Pressure
Devon is preapproved for a $400,000 conventional loan with 10% down. He ratifies a contract on a $415,000 condominium with a 30-day close. The condo project has 22% investor concentration and one owner holds 12% of units; the lender's condo questionnaire flags it as non-warrantable. The appraisal is ordered on day 3, but the appraiser needs a 10-day extension because of access issues. Devon's 60-day rate lock expires on day 28, and closing is scheduled for day 30. The seller refuses an extension. Devon asks his MLO to 'just use the original appraisal value' from a prior listing and to waive the condo review. The MLO's lock desk quotes a 15-day extension at 0.25 points ($1,000).
1. What origination and compliance risks arise from waiving the condo review and using the prior listing's appraisal value?
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The MLO cannot waive a required condo review or substitute a prior listing's value for an appraisal. A conventional loan requires an appraisal ordered by the lender and performed by an independent appraiser; using an old value or a value from a listing is not a valid appraisal and would misrepresent the collateral. The condo project is non-warrantable because of investor concentration and single-entity ownership, so the loan may not be eligible on the conventional product at all. The MLO should not pressure the appraiser or underwriter to ignore the project review. The correct path is to determine whether a portfolio or non-warrantable condo product is available, re-underwrite the file, and disclose the changed loan terms. Proceeding as requested would create fraud and repurchase risk.
2. How should the MLO handle the rate-lock extension cost and related disclosures?
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The MLO should first determine why the lock is expiring. If the delay is caused by the lender or appraiser, passing the $1,000 extension fee to the borrower may be inappropriate and could create a tolerance or UDAAP issue. If the borrower causes the delay, the fee may be chargeable, but it must be disclosed as a finance charge on the Loan Estimate and Closing Disclosure and included in the appropriate tolerance bucket. A lock extension is not automatically a valid changed circumstance; the lender must document the reason. The MLO should also compare the cost of extending the lock with the cost of relocking at current pricing, and should not let the lock pressure drive an unsafe or non-compliant closing.
3. What sequence should the MLO follow to preserve the best chance of closing while remaining compliant?
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The MLO should immediately confirm whether a non-warrantable condo product is available and whether the borrower qualifies. In parallel, the MLO should obtain the completed appraisal and condo questionnaire, update the AUS or manual underwriting, and issue revised disclosures for any changed terms. The MLO should ask the seller for a short closing extension and document the request. If the lock must be extended, the MLO should obtain written borrower authorization for the fee and disclose it properly. The MLO must not order a second appraisal to reach a desired value, use a prior listing value, or close before the condo review is complete. If the product is unavailable, the honest answer is that this property may not work under the current program.