FHA Adopting Appraiser Independence

October 12, 2009 by 1 Comment

FHA appraisals will soon seem similar to those of Fannie and Freddie's HVCC.   I'm hopeful from reading the Mortgagee Letter 2009-08 that FHA's route of improving the relationship between appraisers and loan originators will be healthier than HVCC's (where the banks are profiting from their ownership interest in the unregulated AMCs).

The new requirements go into effect on loans with FHA case numbers issued on or after January 1, 2010.  From the Mortgagee Letter:

"Historically FHA prohibited mortgagees from accepting appraisal reports completed by an appraiser selected, retained or compensated, in any manner by real estate agents.  To ensure appraiser independence, FHA-approved lenders are now prohibited from accepting appraisals prepared by FHA Roster appraisers who are selected, retained or compensated in any manner by a mortgage broker or any member of a lender’s staff who is compensated on a commission basis tied to the successful completion of a loan….

FHA does not require the use of AMCs or other third party organizations for appraisal ordering, but recognizes that some lenders use AMCs and/or other third party organizations to help ensure appraiser independence."

This could be my favorite part:

FHA-approved lenders must ensure that…the fee for the actual completion of an FHA appraisal may not include a fee for management of the appraisal process or any activity other than the performance of the appraisal.

Currently with HVCC (Fannie/Freddie) many appraisers are losing 40-60% of their appraisal fee to AMCs.  Imagine if the AMCs had to disclose this on the HUD to the consumer on conventional loans.  If an appraisal cost $500, the AMC is earning around $250 just for ordering an appraisal.  

Will FHA help right the wrongs of HVCC?  Let's hope so.   You can read some interesting comments on my post about this matter at Rain City Guide.

 

Filed Under: Appraisals, FHA

Have You Been Burned by a Bad Appraisal from HVCC? Take Action Today!

September 15, 2009 by 6 Comments

NAMB, the National Association of Mortgage Brokers, has a call to action that many people beyond the lending industry may feel strongly about: HVCC.  The Home Value Code of Conduct is a controversial act that was created to not allow mortgage originators to be involved with the selection of an appraiser.  Overall, the results have been a mess.  Instead of punishing the few, the masses are taking the hit with many appraisals being done by those who will take the lowest bid and/or who are not familiar with the neighborhood where the appraisal is being done…while the Appraisal Management Companies, the channel where many appraisals are ordered, are taking about half of the appraiser's fee for placing the order–guess what?  Most of the AMC's are owned by banks and title companies.  AMCs are unregulated!  HVCC is wrong and bad for consumers.

I have no issues with an appraisal that comes in lower than expected as long as it was done properly.

What can you do about HVCC?

Members of Congress are back in session and they need to hear from you–their constituents.  HR 3044 is a bill that would put an 18 month moratorium on HVCC (the Home Valuation Code of Conduct).  Please contact your Congressman today and ask them to co-sponsor HR 3044.  I just sent an email to Congressman Jim McDermott…it took me less than 5 minutes.

And please be sure to sign this petition.

Feel free to share this post with your friends, family and co-workers…especially if they have been impacted by HVCC.

Filed Under: Appraisals, Legislation

A Call to Action to Stop HVCC from NAMB

July 16, 2009 by 2 Comments

HVCC has proven to be a disaster and may wind up impacting you at the very least when you do your next real estate transaction (if it doesn't create lower home values from bad appraisals done on purchase transactions in your neighborhood).

The National Association of Mortgage Brokers has a call to action to try to stop or atleast put a moritorium on HVCC so that it can be further researched.

Please call your Representatives today and urge them to cosponsor H.R. 3044.  The bill was introduced by Representatives Childers (D-MS) and Miller (R-CA) and it calls for an 18 month moritorium on the Home Value Code of Conduct (HVCC).  Click here for a copy of NAMB's press release on H.R. 3044.

When you speak with your Representative, simply ask when they plan to sign on as a cosponsor of H.R. 3044.   Click here for contact information for your Representative.

New Home Appraisal Rules Stir Industry Backlash – Associated Press (July 14, 2009)  

Low Ball Appraisals Spark Uproar – Washington Post (July 3, 2009)

Filed Under: Appraisals

HVCC issues impacting transactions in Western Washington

June 25, 2009 by Leave a Comment

Aubrey Cohen of the Seattle PI wrote an article interviewing several mortgage professionals about HVCC and how it's impacting local real estate transactions, including me.  From the article:

But even Porter had one transaction held up for more than two weeks because of a [a bank's] appraisal management company review, jeopardizing the transaction's interest-rate lock.

"It's creating havoc for people who are trying to sell their homes and not allowing some homeowners to refinance at lower rates (possibly preventing a future foreclosure)," Porter wrote in an e-mail.

Mortgage Master is a Correspondent Lender and HVCC allows correspondent lenders to create their own appraisal department as long as it meets HVCC's criteria.  I, as a mortgage originator, cannot have any say in selecting who the appraiser will be and I do not know who the appraiser will be on my transactions until I receive the appraisal.  Appraisals are ordered by a separate department that is removed from origination or production. 

What happened in the situation referenced above had to do with an appraisal that was ordered prior to HVCC's effective date.  The bank the mortgage is being sold to required a field review by their AMC (even though the home came in at a slightly higher value than what we needed for the transaction).   The AMC's value actually came in slightly higher than what our appraisal did–costing my client $250 in field review fees, delaying the transaction by a couple weeks and creating anxiety over a lock potentially expiring.

HVCC is hampering home values.  Everyone should care about this issue and contact their representatives in Congress today…especially if you're considering buying, selling or refinancing your home.  If home's in your neighborhood are appraising and selling for less due to bad appraisals, it impacts your home's appraised value–your neighbor's homes may become the sales comparables that your appraiser will have to rely on to arrive at a value of your home. 

Filed Under: Appraisals

HVCC: Why Should YOU Care?

June 6, 2009 by 7 Comments

You may or may not have heard about HVCC.  You'll have the opportunity to learn about it first hand if you obtain a conventional mortgage.  In a nutshell, mortgage originators and processors (anyone considered to be in "production") are no longer allowed to order appraisals or know who the appraiser willbe until AFTER they receive the appraisal.  HVCC just went into effect in May, I wrote a post about my experience at Rain City Guide where a Real Estate Agent asked me:

If I understand you correctly:

  1. We don’t know who the appraiser is
  2. We cannot contact the appraiser even if we knew.   [Note:  the real estate agent CAN contact the appraiser if they somehow know who it is…the loan production staff cannot].
  3. We have no idea when the appraisal will be done.

The Home Value Code of Conduct was created as a result of the New York Attorney General investigating Washington Mutual (once a large bank) and eAppraiseit (an appraisal management company) for manipulating appraisers to produce higher values. 

HVCC was suppose to create a professional distance between mortgage originators and appraisers so that an appraiser could perform their task without pressures to produce a higher value.  Appraisals now go through an appraisal management company (which take on average 40% of the appraisal fee from the appraiser) to create this distance and supposedly reduce any conflicts of interest.  However, the code was amended to allow AMCs (appraisal management companies) to be owned by the very banks who are ordering the appraisals. 

From Fannie Mae's HVCC FAQs update on May 9, 2009 (Question 36):

Q. May an AMC Affiliate with, or that owns or is owned in whole or part by the lender or a lender-affiliate, order appraisals?

A: Yes, an AMC affiliated with, or that owns or is owned in whole or part by the lender or a lender affiliate, may order appraisals…

This smacks of the WaMU eAppraiseit scenario all over again!

So big bank owns an AMC where they order all their appraisals through and if a mortgage originator is brokering a loan to that big bank, the appraisal may be ordered through that AMC.  Big bank/title company collects an average of 40% of the appraisal fee from the appraiser just for ordering the appraisal.  If an appraisal cost $500; the AMC keeps $200 just for controlling and placing the order.  The appraiser, who once collected $500 for producing the report now receives $300.  Many appraisers are having to increase appraisal fees in order to make a living since AMCs are stripping them of 40% of their income. 

Instead of being able to select an appraiser by their qualifications, experience or expertise in a certain area; it's a crap-shoot based on which appraisers are participating (agreeing to lower compensation) with the AMCs.  

From CNBC's Diana Olick on the impact of HVCC:

"As many brokers expected, the HVCC is also resulting in some lower appraisals. Since the appraisers now may be unfamiliar with the local market, they will err on the lower side. Of course it may also be that the lack of a relationship with the lender is removing the 'expectation' of a certain appraised value. If the appraisal comes in lower than the sale price, then the deal is off."

HVCC does not allow second appraisals to be ordered due to low appraisal as it's considered "value shopping".  

With a refinance, no value can be provided to the appraiser–I can't even let the appraiser know what the home owner thinks the value of their home may be.  The home owner, if the appraisal comes in low, is out the appraisal fee (typically around $500).  

The National Association of Mortgage Brokers has been trying to battle this code with strong political opposition.  (NOTE to Mortgage Originators: NOW is the time to belong to your local chapter of NAMB if you care about the future of your industry).

The intentions of HVCC to stop the strong-arming of appraisers to create false values are good.  The results are terrible and many of us are trying to have this reversed.  I encourage you to please sign this petition and to contact your representatives in Congress.   

HVCC is going to hurt the consumer and will only help pad the pockets the owners of the Appraisal Management Companies.  

Filed Under: Appraisals, Fannie, Freddie and FHFA

FHA Appraisals Tougher starting April 1st – No Foolin’

March 26, 2009 by Leave a Comment

HUD is adopting Fannie and Freddie's reporting requirements for declining markets.  Per Mortgagee Letter 2009-09, as of April 1, 2009 appraisals for all FHA insured mortgages must include the Market Conditions Addendum.   Be preparared for second appraisals and limits to cash-out refinances if your property is determined to be in a declining market.   From HUD's letter:

"a declining market is considered to be any neighborhood, market area, or region that demonstrates a decline in prices or deterioration in other market conditions as evidenced by an oversupply of existing inventory or extended marketing times."

In addition to providing three recent comparables (properties similar to home being appraised that have recently closed in the area); appraisers are required to:

  • At least two of the three recent sales (comparables/comps) must be within the last 90 days of the effective date of the appraisal.
  • Include a minimum of two active listings or pending sales.  The appraiser must insure the active listings and pending sales "have reasonable market exposure to avoid the use of over priced properties as comparables."
  • Include the original list price, any revised prices and total days on the market.
  • Adjust active listings to reflect list to sale price ratios for the market.
  • Adjust pending sales to reflect the contract purchase price whenever possible or adjust pending sales to reflect list to sales price ratios.
  • Include an absorption rate analysis to determine market trends.
  • Known or reported incentives or sales concessions must be noted for any comp that's used on the appraisal.

To read the entire Mortgagee Letter, click here. 

Filed Under: Appraisals, FHA

Auburn, Washington Homeowner Asks: Will Obama’s Plan Help Me?

February 19, 2009 by Leave a Comment

They bought their home with 10% down payment back in 2007 using two mortgages which only required interest only payments for the first 10 years.  They opted for this route because they wanted to buy this home before their other property sold (buying simultaneous)…the other property never sold and is now a rental.  This morning I received an email asking:

"Please advise how the stimulus package can help me.  I would like to lower my monthly mortgage payments and not have interest only loans."

March 4, 2009 is when we are suppose to have the details on how President Obama's plan will work.  From The White House Blog:

I have both a first and a second mortgage.  Do I still qualify to refinance under the Homeowner Affordability and Stability Plan?

As long as the amount due on the first mortgage is less than 105% of the value of the property, borrowers with more than one mortgage may be eligible to refinance under the Homeowner Affordability and Stability Plan.  Your eligibility will depend, in part, on agreement by the lender that has your second mortgage to remain in a second position, and on your ability to meet the new payment terms on the first mortgage. 

Will refinancing lower my payments?

The objective of the Homeowner Affordability and Stability Plan is to provide creditworthy borrowers who have shown a commitment to paying their mortgage with affordable payments that are sustainable for the life of the loan.  Borrowers whose mortgage interest rates are much higher than the current market rate should see an immediate reduction in their payments.  Borrowers who are paying interest only, or who have a low introductory rate that will increase in the future, may not see their current payment go down if they refinance to a fixed rate.  These borrowers, however, could save a great deal over the life of the loan….

I am not an appraiser…when I look at what's recently sold in this homeowner's neighborhood, it looks like home values are down roughly 15% from when they bought two years ago.  Appraised values are based on what other homes in your neighborhood have sold for in the past few months.  Since they put 10% down two years ago with interest only products, they are underwater on their mortgages.

The first and second mortgage combined are around the 105% loan to value…but it sounds like this will be up to who ever the mortgage servicers are for both the first and second mortgages and if the new program will be limited to true conforming limits of $417,000 or if it will include those areas that qualify for the conforming high balance limits ($506,000 for King, Pierce and Snohomish counties).  At least they have a 8 years remaining on the interest only period of the mortgage.

There are still more questions than answers at this stage.  This homeowner's investment property will not be included in this plan.

I'm hopeful that the new plan to be revealed in early March will help this family.  At this point, they cannot refinance without it.   

Filed Under: Appraisals, Economy, Refinance

Declining Home Values: Good for Buyers – Bad for Refi’s

September 16, 2008 by Leave a Comment

Last Wednesday’s Seattle PI featured a front page article by Aubrey Cohen: Home values drop by double digits.   According to data by the NWMLS, the median sales price for houses in August 2008 for Seattle was $464,800; a 7.8% drop from July 2008 of $428,500 and 14.5% drop when compared to the median sales price from August 2007 of $501,000.   King County also dealing with a double digit drop.   The median sales price for houses in King County in August 2008 was $423,950; a 4.7% drop in one month with July 2008 at $445,000 and a 11.2% drop compared to August 2007 at $447,345.

If you’re a home buyer in this market, you’re in the drivers seat…and sitting pretty at that.  Listings are up 18.3% in King County (condos and houses) as compared to August of 2007; giving you plenty of choices.  Sellers are more likely to contribute towards your closing costs and prices are more attractive than recent years.

What if you all ready own a home and you’re considering refinancing?  Even though your home is your castle, the appraiser must use 3 recent sales (over the last 6 months is preferred) of homes similar to yours to come up with an appraised value.  This can be a little tricky with fewer sales AND lower sales prices.   Using the King County figures above and rates I’ve quoted at Mortgage Porter, this is how a refinance could be impacted:

Joe and Suzy purchased their home in King County for $447,345 in August 2007 utilizing a 30 year fixed mortgage at 6.625% with a loan amount of $357,900 (20% down payment).  They are now interested in taking advantage of our lower rates and decide to refinance since rates are close to a full 1% lower with zero points and they’re going to stay in their home for at least the next five years.   They have not paid additional towards their principal and their current balance is now around $354,250 with a principal and interest payment of $2,291.67.

An appraisal reveals that their home, based on what others like theirs have recently sold for, is now worth $423,950.  The best priced rate/term refinance (assuming perfect credit) is an 80% loan to value.  80% of $423,950 is $339,160.  If Joe and Suzy want to drop their rate by one point, they would need to bring in $15,000, not including closing costs if they want to avoid private mortgage insurance.  (Second mortgages are now pretty tough to come by these days).

Joe and Suzy’s home may be worth more than average.  Loan originators do not know what the value will be until we receive the appraisal.  I do have some resources available (such as researching comps via the title company) however, it’s just a rough idea.  Be wary of any loan originator who promises you that your home value will be perfect for a refinance.

Joe and Suzy’s options (if they want to refi) are:

  1. Bring in $15,000 plus closing costs (approx. $2600) to closing to pay down principal to 80% of present value.  Principal and interest payment = $2,033.44 – based on 30 yr at 6.00% at 0 pts (apr 6.063).   A savings of $258 per month, at a cost of $17,600, Joe and Suzy really need to decide if this is the best use of their money.  Based on their monthly savings, they’ll break even in approx. 5 and a half years.   
  2. Private mortgage insurance.  Paying off the entire mortgage balance plus closing costs provides a loan to value of approx. 85%.  Principal, interest and mortgage insurance based on 5.875% at 0.75% pts (apr 6.005) = 2,227.70.  This is a monthly savings of $63.97.  Suzy and Joe do not have to bring in $15,000 to pay down their principal, however it will take almost 7 years to break even on the cost of this refinance. 
  3. Rates with LPMI (lender paid mortgage insurance) are not competitive for this scenario. 
  4. FHA has monthly and upfront mortgage insurance.  Unless their motivations are other than reducing their rate, this is not a valid option for this scenario.

Even if our local market has hit bottom, appraised values will be impacted for several months until home values begin to appreciate.   Appraised values are a reflection of what has sold in the past.  Appraised values may continue to trend lower for refinances. 

Glenn Crellin, director of Washington Center for Real Estate Research at Washington State University states (from Aubrey Cohen’s article) regarding the recent drop in rates from the Fannie/Freddie takeover his expectation is:

"those decline in rates are going to be relatively short term." 

And to those who are trying to get the "bottom" of the market for home prices, he says it’s "nearly impossible".  Let’s face it, we really won’t know where the bottom is until prices are heading back up.

If you are considering refinancing, I do recommend that you contact your mortgage professional soon and "be real" about your home value.  I don’t encourage waiting with median sales price declines at 4.7 (King County) to 7.8 (Seattle) per month as it’s eating away at your equity and refi options. 

If you are considering buying a home, proceed with getting preapproved so you’re ready to make an offer should you find the home you’re looking for.

Related Post:

When Appraisals Come in Low for a Refi

Filed Under: Appraisals, Economy, Refinance, Residential Purchase, Seattle
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