Nashville Real Estate Forum

Tips from the Trenches

The Next Train Wreck

By Gary Moore
Mortgage Planner

Two things I do:

1—Find good news you can use, showing practical ways that homebuyers and homeowners can use mortgage programs and strategies to their advantage.

2—Tell you the truth, and tell you first---sort of a “you heard it here first” of the loan biz.

Today’s good news: I have a new Jumbo program---$417,001-$2,000,000 with good rates---5.75% for a 30-year fixed and 4.75% for a 5/1 ARM. Jumbo rates spiked two years ago as mortgage buyers ran like a scalded dog away from those loans.

Yesterday’s good news: Last week I told you about the new “Refi-Plus,” which enables a homeowner to refinance, even though his or her value has dropped and the appraisal is too low to refinance under normal loan guidelines.

Now that you are softened up, I must say that today we are down with some tough truth: The next train wreck in the mortgage business---as if we need a new one---is appraisals.

Three new things about appraisals: Home Valuation Code of Conduct, the Market Conditions addendum and Fannie Mae and Freddie Mac going to FHA-like standards for repairs.

Home Valuation Code of Conduct (HVCC)

We can no longer order appraisals or chose an appraiser---or speak to an appraiser, according to this new guideline, which I predict will be short-lived.

For conventional loans, there must be no contact between a mortgage originator or processor---no one from the mortgage company---and an appraiser, in an effort to thwart possible fraud conspiracies between mortgage people and appraisers. Appraisals must be ordered by the lenders, not your mortgage company, so that there can be no appearance of an appraiser being influenced.

There is already an industry movement underway to scuttle this program, and there will probably be some lawsuits. Some of my lenders say they are ready to ditch the program at the excuse of seeing the first lawsuit.

Here is what this means and what will change:

1---The appraiser cannot call me before going to a property and say, for instance, “I can’t find comparable sales to support the value you are looking for. Do you want me to go ahead with the appraisal, or stop before your customer is out the expense?”

2---After receiving an appraisal for which there are repairs, I cannot call the appraiser to ask a question or to ask for a clarification.

3---If I get a low appraisal, I cannot call the appraiser with comps.

4---On a refinance, the mortgage company cannot provide the appraiser with a targeted value. So, the appraiser does not what amount that he or she should attempt to support. Appraising is a blend of art and science, after all.

Those are some practical limitations that I will be aware of---or any mortgage originator---in communicating and in making a loan go smoothly.

The Realtor and the buyer will not like that this step will add about a week to the loan process, I predict.

The appraisers may not like it, because their fees will be cut.

Customers will not like it, because appraisals will cost more.

Large corporate giants---known as Appraisal Management Companies---such as Fiserv, LSI and Equifax will be ordering the appraisals, and making their cut---which is why the appraisers may actually get paid less for their work, and which is why borrowers may pay more.

Appraisals will be paid for in advance by the customer’s credit card. Someone from the AMC will call the borrower after the loan goes into processing and get the credit card payment.

You can put the HVCC in the category of punishing all to curtail the few.

On the plus side, this applies to conventional loans but not FHA and VA.

Market Conditions Addendum

All appraisals must now include the “Market Conditions Addendum.” The appraisers must analyze up to three years of data to quantify declining values in an area. The appraisers have to analyze this stuff up one side and down the other, including reams of explanations, an absorption rate analysis, days on market analysis, details about pending sales and existing listings, at least two comps within the last 90 days, and more. The idea behind this is a fear that values are declining so rapidly, old comparable sales are out of date and unrealistic.

In the next to last paragraph of the four-page directive, it says that HUD has complied with the Paperwork Reduction Act in putting out this announcement. Ya think?

My most efficient appraiser said that the first one of these addendums he did took him five hours to complete.

The appraisers also say that this will not affect their ultimate finding of value---that the comparables are still what they are. Yeah, and I can fly over the moon.

Bottom line: Values will be less.

More Repairs on Conventional Loans

FHA lightened up on repair requirements three years ago, but an FHA appraisal still requires that all utilities be turned on, and it will require the repair of certain things that pertain to “livability.” Conventional guidelines are now instructing appraisers in the same way.

(Check out http://brentwoodhomeloan.com. Mortgage Planner Gary Moore produces Tips from the Trenches, copyright 2002-2009, designed as a resource for consumers and for Realtors who seek ongoing improvement, from the perspective of business partner and teammate. Contact me at 615-579-8658 for group or personal training and to pre-approve your prospects into the program which best serves their unique picture.)