Refinancing Nightmares

Click on the title to link. This article talks about three refinancing nightmares for people. The thing is that two of the three are typically predictable from the very beginning. They should not turn into nightmares because you should be working with people and can look at them and know if it is an issue. The only thing in here that is truly a crap-shoot is the appraisal. They, indeed, can be nightmares right now.

Appraisal Under Scrutiny

Click on the title to link. Our poor intentioned, poor planning government has so screwed up the appraisal process for loans it should be a case study in college of what not to do (any questions about where we stand on this issue?). They revamped the appraisal process to "protect the consumer" from over inflated appraisals. Instead it has:

1. Driven up the costs for appraisal because competition is over.
2. Caused appraisals to come in under value because the appraisers are so scared of the lenders over analyzing their work and not giving them move orders.
3. Made it so that you, the consumer, can no longer get at least a "feel" for what your house may appraise before dropping 500 bones.

The current appraisal system is the poster child for anti-government interference.

Bank Appraisals

Something we keep running into is the fact that bank appraisals are coming in lower than they are for us. All we can conclude is that banks are so conservative now that they are only using appraisers that are ultra conservative. They all have to be ordered through the stupid HVCC process. But we, none the less, continue to see it. Case in point, we just closed on a client who had a Bank of America appraisal that came in $82,000 lower that it did for us. Again, it is being ordered through the same system. But the banks are doing something because they continue to come in low. Just another reason not to work with a bank.

Appraisal Update

Special Edition: The FHA's Non-HVCC; Mortgagee Letter 2009-28

The FHA released Mortgagee Letter 2009-28 last Friday, September 18, 2009, and it will likely have a dramatic impact on the FHA appraisal business. This document, which can be viewed in its entirety by clicking on the following link, "Mortgagee Letter 2009-28," is described by the writer, David H. Stevens, Assistant Secretary for Housing-Federal Housing Commissioner, as follows: "This Mortgagee Letter provides clarification and reaffirms Federal Housing Administration (FHA) appraisal requirements related to appraiser independence and announces new requirements pertaining to entities that are eligible to order appraisals for FHA insured mortgages."

The new requirements of importance to appraisers contained in this mortgagee letter are:

1) Mortgage brokers and commission based lender staff are prohibited from involvement in the appraisal process.

2) FHA-approved lenders have new responsibilities to ensure that FHA appraisers are ".compensated at a rate that is customary and reasonable for appraisal services in the market area."

3) "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." "AMC and other third party fees must not exceed what is customary and reasonable for such services provided in the market area of the property being appraised."

The Appraisal Institute, in a news release on Saturday, hailed this as an overall victory for appraisers, describing the FHA's actions as ".reversing a policy that inadvertently capped fees for real estate appraisers." The news release also noted that ".FHA's new policy separates the services (and fees) charged by appraisers from those charged by AMCs, allowing each to float at reasonable and customary levels. The previous policy inappropriately restricted the combined fees to just the customary and reasonable fee for the appraisal in the market area where the appraisal is performed." In their release, the Appraisal Institute referred to the July 1, 2009 letter authored by themselves in conjunction with the ASA, NAIFA and ASFMRA in which they urged the FHA to rescind its previous policy. In that letter, the four appraisal organizations noted that: ".many highly qualified and experienced appraisers are decli ning to perform assignments for AMCs. In many instances, those com panies are being forced to use appraisers from distant locations with less experience and training, or more pointedly: those who will work for less. Using less experienced and less qualified appraisers to perform FHA assignments is not a good business practice and is not good public policy." A copy of this July 1st letter can be viewed by clicking on the title of this post.

The Appraisal Mess

Another article in the ABQ Journal this past weekend was entitled "Unintended Consequences". It was a good article about the appraisal mess that has ensued since the government created the Home Valuation Code of Conduct (HVCC). The intended purpose of this law was to create a barrier between the lender and the appraiser. The idea was needed and worthwhile because lenders could/would sway appraisal values, thus inflating values. The big problem, however, is the governments apparent continued inability to actually think through completely the ramifications of their actions. It is always interesting to us how they never seem to consult those who are involved and directly affected by their actions. For example, they just changed the law regarding the Truth In Lending (TIL) to protect the borrower from surprise fees. That is awesome, but it is causing delays in closings because the process they created sucks (to be frank).
What they have done with the HVCC is put appraisers in who do not know the market well, are not the cream of the crop, are undervaluing appraisals because they are so freaked out they will get sued or fired, and/or have run off all the good appraisers who do not want to deal with all the garbage. The number of certified residential appraisers in NM dropped from 60 to 15 in less than a year. That is a 75% drop. As the Journal article quotes Chuck Olsen, who we have worked with before many times, "I don't disagree with the concept...But I can see absolutely no prose to this - everything's a bunch of cons." He also says the impact has been entirely negative in terms of its impact. We could not agree with him more. If the government were a coach they would have been fired for such poor execution. There are many ways to improve the system so that it actually achieves it intended purposes. But what do we know, we only deal with it each and every day.