Proposed Appraisal Changes You Should Be Aware Of

Kenneth Harney, who writes a syndicated column
for the Washington Post Writers Group penned a
column recently from which I am borrowing liberally.

During the "go-go" days of making loans without
much concern about the quality and qualifications,
the appraisal process at times was compromised to
some degree by various market pressures.

There is a new proposed regulation, called the Home
Valuation Code of Conduct (HVCC) that was part
of a settlement involving New York Attorney General
Andrew M. Cuomo, and Freddie Mac (FHLMC) and
Fannie Mae (FNMA). It is scheduled to go into effect
May 1, 2009.

This came into play because Cuomo wanted to
investigate FHLMC and FNMA for alleged appraisal
overvaluations, and evidence of illicit pressure on
appraisers to "hit the numbers" needed to close loans.
Appraisers found themselves facing the prospect of
delivering appraisals at predetermined values, or not
being hired again to perform appraisals by unscrupulous
loan originators.

Part of the standards was to create Appraisal Management
Companies (AMC) to insulate the appraiser from any one
having a direct interest in the valuation and the outcome
of the process, including lenders, mortgage brokers, or
real estate agents.

The HVCC will effectively eliminate all of the business
relationships that have developed over years of working
together. Instead, mortgage loan officers, who tradit-
ionally would be the one to make the appraisal assign-
ment, will be forced to shift the assignment to third-
party AMCs.

It actually bans brokers from any involvement in
selecting appraisers, or having conversations with them
that could be construed as trying to influence the value.
Even the innocent practice of asking an appraiser to give
a range of what the raw data indicates before asking the
borrower to pay for a full appraisal will not be allowed.

There are some significant consequences for borrowers
if the HVCC goes forward and is implemented.

* The fee that you pay for the appraisal will actually
be split between the appraisal management company and
the appraiser. A professional appraiser typically
earned about $400 for a single-family (non-custom)
home appraisal. Now, the AMC will receive a good
portion of the fee, and the appraiser will probably
be asked to work for about half of what they earned
before. Or, the AMC will add their fee on top of the
traditional fee and the cost to you, the borrower,
will go up.

* Experienced, career appraisers may be priced out of
the market if they are not willing to work for about
one half of what they normally earned. This will
put many more inexperienced appraisers on the rosters
for the AMCs to select from. Appraisers who are
less experienced may create less reliable valuations.

* The AMC is selling their value by expediting the process
and offering quick turn-around times. If Appraiser A
does not respond quickly to a request, they will move
down to Appraiser B, and so on until they find someone
who can get the job done within their time frames. The
appraisers who are the busiest, which may translate to
being the most experienced and in demand, may not get
the assignment. The appraiser waiting for the phone to
ring will get the business.

* The appraiser may be asked to complete their evaluation
more quickly and not have an opportunity to do all of the
research that is warranted to assess the comparable proper-
ties, sales contracts and local market trends. This
will not lead to a better valuation process.

* Professional appraisal groups have argued that the AMCs
place quality last while they press appraisers to finish
the appraisal quickly, many times within 24 to 48 hours
from the time of the assignment. If the appraiser does
not have time to verify the important details of their
assignment, the result will be unreliable.

* Low appraisals will reduce a borrower's ability to
negotiate an acceptable refinance, and force buyers
to come up with larger down payments. It is much less
likely that an appraiser will err on the side of being
too high on a valuation.

There are still steps being taken before the HVCC proposal
takes effect. The appraisal groups and the National
Association of Mortgage Brokers plans to appeal to
Congress to change what they find most objectionable.

The old system worked very well for honest loan originators
and appraisers. If the lender used their quality control
systems to discover a concern over the valuation presented,
they always had the opportunity to request a review
appraisal by someone that they trusted and compare the
results.

This new AMC system puts more barriers in place to have
business conducted with effective communication, and it's
hard to believe that any of us will be happier with less
communication about something as important as your home
financing.

Interest Rates Are Crazy Good Right Now!

If you have been subscribed to this newsletter
for a while, you know that I try to use it
keep you informed about the latest mortgage
trends, and educate you on the basics of the
mortgage business.

This edition, however, I am going to depart
from that pattern to let you know what is
going on with interest rates right now.

As you may recall, there are three categories
to conventional lending right now: conforming
loans, conforming-jumbo loans, and jumbo loans.

Conforming loans are those that conform to
Freddie Mac and Fannie Mae (FHLMC and FNMA)
standards and where the loan amount does not
exceed $417,000 on a single family home.

Conforming-jumbo loans are eligible for FNMA
and FHLMC to purchase, but the loans amounts
exceed $417,000. In San Diego County, the
conforming-jumbo loans will fit within $417,000
and $546,250. Other counties will have
different limits above the $417,000 amount to
a different maximum.

Jumbo loans, strictly defined, used to be those
loans above $417,000. But now that the conforming-
jumbo category exists, jumbo loans are those above
the conforming-jumbo limits based on the county
maximums. In San Diego, it would be loans above
$546,250.

The following loans were based on a loan request of
80% of value, a credit score for the borrower of
740 or higher, on an owner-occupied single-family
home purchase. If any parameters are different than
this, you may expect a different quote based on
risk-based pricing that I explained in my newsletter
dated December 17, 2008. If you would like to
review that material you can see it at
dougbrennecke.blogspot.com.

Conforming, 30-year fixed rate loan

4.625% Loan fee of 1 point. (1 point equals 1% of the
loan amount.)

Conforming, 15-year fixed rate loan

4.375% Loan fee of 1 point.


Conforming-jumbo, 30-year fixed rate loan

4.875% Loan fee of 1 point.

Conforming-jumbo, 15-year fixed rate loan

4.625% Loan fee of 1 point.


Jumbo loans have been more difficult to price
favorably in this market. There has been less
willingness for investors to purchase these
loans, and this lack of liquidity in the market
restricts the availability of these loans and
makes the pricing (rate and fee combination)
higher. These quotes go to $625,500.

Jumbo, 30-year fixed rate loan

7.375% Loan fee of 1 point.

Jumbo, 15-year fixed rate loan

7.375% Loan fee of 1 point.

Jumbo, 30-year loan term, 1st 10 years fixed

6.000% Loan fee of 1 point.

Jumbo, 30-year loan term, 1st 7 years fixed

5.750% Loan fee of 1 point.


Other programs are available, and the interest
rate and fee combinations can be modified to
obtain lower rates or lower fees.

Please contact me at 619-846-4322 to discuss your
particular situation. Rates can change at any
time, and right now they are as low as they have
been in about the last 40 years.

Make sure that you research what is possible for
you so you don't overlook a money-saving opportunity.