Gail Berberich’s dream home would be a lot sweeter if she could take advantage of the historically low interest rates banks are offering.

But because the two-bedroom, 2½-bath ranch is atypical by design, Berberich says she can’t refinance because she can’t get an appraisal. She can’t get an appraisal because, in the wake of a nationwide mortgage meltdown, the rules for valuing a home have gotten a lot tighter.

“I am so angry,” said Berberich, a small-business owner who has never missed a mortgage payment and boasts a credit score in the low to mid-700s. “We’re doing all the right things. We’re paying our bills.”

If Wisconsin has been largely insulated from the collapse of the housing market, one area it is having an impact is when buyers, or homeowners looking to refinance, go to their banks to see about a new mortgage.

Appraisals that overvalued homes — often at the urging of lenders looking to close deals — were one factor in the housing bubble that popped last year.

In response, lenders have gotten more picky about the criteria appraisers use to back up the values they assign to homes, such as by requiring comparable sales data over a shorter amount of time or smaller geographic area, according to Cathy Lacy, a real estate agent with Coldwell Banker in Fitchburg.

The softening of the housing market has meant there are fewer sales to choose from, and if you have an unusual home — say, one with a lot of environmental features or that is in a rural setting — the problem is compounded.

Before, there was some “wiggle room” in such cases, said Steve Stiloski, the president of the Wisconsin Chapter of the Appraisal Institute. Now, “there is no putting a square peg in a round hole.”

Berberich’s home is in some ways a square peg. Built on 80 wooded acres with insulating concrete forms — basically foam molds into which concrete is poured to form walls — and heated with an outdoor wood-burning furnace, the home would be unusual anywhere. But it’s one of a kind in rural Richland County, where Berberich and her husband, Larry, live.
Berberich said she and her husband had no problem getting a loan to build the house 2½ years ago. But with interest rates now below 5 percent in some places, the 6.1 percent rate she got with the original mortgage seems high. She estimates they could save $260 a month if they were able to refinance.

Kurt Bauer, president and CEO of the Wisconsin Bankers Association, said he’s been hearing similar stories from members of the group who do mortgage lending.

Bauer said the problem is primarily with the secondary mortgage market — mainly Fannie Mae and Freddie Mac, the government-sponsored enterprises that provide mortgage capital to lenders.

They have been tightening their lending standards and on May 1 put into place the Home Valuation Code of Conduct, which lenders and appraisers have to follow if lenders want to sell the companies their loans.

“If the bank wants to sell the loan to the secondary market, it’s more important to have the comparable sales comparisons in the neighborhood,” Bauer said.

Ironically, tighter appraisal standards might in some cases be at cross-purposes with the push by the federal government to move toward more energy-efficient homes.

The federal stimulus bill signed in February provides tax credits for adding energy-efficient windows and insulation, for example, but also for less common green technologies, including geothermal heat pumps and solar water heaters.
Pamela Pennington, a real estate agent with Restaino and Associates, recently helped a seller complete the sale of a Fitchburg-area home with a geothermal heat pump and other green features.

“What you’re dealing with is an orange in an apple orchard,” she said of the house.

The house appraised out, Pennington said, and the deal was completed, but to help the process, she provided the appraiser with research on what homes with similar features were selling for nationally. She didn’t know if the appraiser considered that information.

“There are no (comparables) for these significantly green homes,” Pennington said.

Putting a value on energy-efficient home features has long been a challenge, but it’s harder with new appraisal standards, according to Robin Pharo, director of the Wisconsin Environmental Initiative’s Green Built Home program, which certifies environmentally friendly new homes and remodeling projects.

That’s not to say problems financing green homes are universal.

Mike Vilstrup, a builder and president of the Madison Area Builders Association, said he had no problem getting financing to construct two green-certified homes this year.

“If you work with your lenders and everybody attacks it as a team, there are ways to make things work,” he said.

William Malkasian, president of the Wisconsin Realtors Association, said efforts to tighten the mortgage industry have “gone absurdly too far.”

Rules like those for appraisals and for measuring a borrower’s credit worthiness are being implemented nationally, he said, but “real estate is local” and Wisconsin is different from California and Florida, for instance.

But even though Stiloski, of the Appraisal Institute, said “your chances are slim and none nowadays” of getting a traditional mortgage if you have an unusual property — especially a rural one — he still feels the increased oversight will ultimately be a good thing.

“There was so much abuse of the system that the government is finally stepping in with some much-needed regulation,” he said.