I need help! My LENDER wants me to increase my FannieMae offer by $11k?

[ALLEN KEYS]

My lender wants me to increase my agreed upon (signed contract) offer by $11k. A little background.... I have a signed contract between me and Fannie May to CLOSE at the end of this month (Jan 2014) on an REO property with an agreed upon purchase price of $31k. I also have a contractor willing to do the requested rehab for just under $35k which is the max allowed for a Home Path property*. (*$35k is allowed if the property appraises over $100k).

Long story short, the lender called my real estate agent for her best guess of what the ARV (after repair value) would be once the rehab is complete.... Her answer was that the property would be worth about $67k.

With that information, my lender informed me that they cannot finance a property that will appraise for less than $60k. Therefore, she suggested that I contact the seller (Fannie Mae) and tell them to increase the purchase price from $31k to $43k..... and contact my contractor to scale down the amount of rehab from $35k to $21k in order to get the loan approved....

Her theory is that if the appraiser "sees" that I purchased the property for $41k, he or she will most likely say that the property is worth more than $60K.....

I'm new a this real-estate investing thingy but that just doesn't seem right. Has anyone else heard of, or been in this situation?

Thank you in advance for your advice.

Allen