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Mortgage disclosure rules are changing. The old rules were that you didn’t really know the fees until you got to the closing table. You got an estimate but things could be added and adjusted at the last minute. In some cases you really don’t know until the last minute and this variability is legitimate. Of course brokers and lenders took advantage of this and added extra fees at the last minute that most people had no choice but to go along with.

Then the rules were changed to say that a borrower had to be disclosed with good numbers at least 3 days before the closing. Now we are getting somewhere. The idea is to give the borrower a chance to review the numbers with enough time to back out without the pressure of closing weighing into their decision.

Now they are turning all of this on it’s head. The new rules say that a broker or a lender has only one opportunity to disclose the loan. The fees cannot change from the first disclosure. The governement strikes again.

There are a tremendous number of very valid reasons that the fees and costs of the loan can change during the process. In my opinion, this rule makes no sense. I guess you could call it “too much of a good thing”. Everyone needs proper checks and balances to prevent the occasional temptation to cut a corner here or there but this is crazy.

My thinking is the the consumer simply needs more education on the mortgage process. If you understand what is going on and what the factors are you are able to make good decisions. The process becomes a partnership between the originator and the borrower. If the ignorance mistakes were removed from the the mortgage origination process, most of the unpleasantness that we have seen in previous years could have been avoided.

Related articles

• Report: 1 in 3 Loan Applications Denied (abcnews.go.com)
• Will ‘good faith’ be bad for borrowers? (huntingtonhomes.freedomblogging.com)

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I hear a lot of complaints about HVCC and appraiser independence from broker and lenders:

• Appraisals are taking longer
• They cost more
• I don’t want to use that appraiser
• I don’t like the values
• I can’t talk to the appraiser

Then I hear the appraisers view:

• I’m not making as much money
• I am not getting paid as quickly as I used to
• Changes are frustrating
• There is no one to call when you have a question or there is a problem

Frankly, they are all true. Under the new guidelines appraisals do take longer, they do cost more, the broker / lender cannot pick the appraiser, and the appraiser does not get paid as much. It sure is a different way to get the job done.

Appraisals have been ordered and controlled by loan originators for a long time. It seems that most complaints and issues people have about the new system has more to do with the expectations that come from working in the old system for so many years. Brokers / Lenders expect certain things based on what is good for them and what they are used to. Appraisers expect certain things based on what is good for them and what they are used to.

The best way to get on with the business at hand is to update our expectations of the appraisal process post mortgage meltdown. Once that is done we can all set about making some changes to smooth out the process and address some of the flaws.

Appraiser Independence is a new concept in the mortgage business and it is good for the consumer and the industry as a whole. Truer values, a smoother process, and more long-term  value to the consumer as well as Wall Street will benefit everyone.

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The Home Valuation Code of Conduct, HVCC, has been under fire by groups like the National Association of Mortgage Brokers, NAMB, since it’s inception. What is all the fuss about?

HVCC was created to provide protection for the consumer from undue influence being placed on appraisers to provide an inflated home value during the mortgage process. Loan originators would tell the appraiser the value they were looking for when an appraisal was ordered. Very often, it was a problem for the appraiser if the value determined by the appraiser was lower than the requested value by the originator.

Appraisers frequently relied on a relatively small set of banks and brokers to provide them with work. If values kept coming in lower than the value desired by the originators, how long do you think it would take for the originators to move the business to someone who would be more “flexible” with their values.

When the government started examining the causes of the mortgage meltdown, inflated home values were a significant factor.

The appraisers very loudly proclaimed that it was the originators fault. They were right. As an insider, I can say there was a lot of pressure put on appraisers to “make the value”. The HVCC was born.

The concept is that a third party will sit between the person ording the appraisal and the selection of appraiser to perform the work. If the originator did not know who the appraiser would be  and was expressly forbidden from interacting with the appraiser then it is obvious that the values would be much closer to a true market value.

Let’s take a quick look at why this is a good thing. An originator “nudges” an appraiser to bring an appraisal in at an artificially high value. The loan gets done and everyone is happy. Right? Not necessarily. What happens if the homeowner decides to refinance or move 2 years later. The value has probably gone down due to market conditions and that drop is seriously magnified by the inflated value used for the previous loan. Now an 85% loan to value is 110% and the homeowner is way underwater in the loan. What do they do now?

In the end, it didn’t help the homeowner at all. The only real beneficiary of this was the originator who got paid a percentage of the higher value. The bank/lender now has a loan against an overvalued asset and the homeowner is just plain up the creek.

Undertand me, there is plenty to say about how the government implemented HVCC. In true government fashion, there are plenty of holes and it favors the big banks. I know, your shocked. What puzzles me is that anyone is taking the complaints of the brokers seriously.

Don’t misunderstand me, there are plenty of good brokers out there – I would say even the majority of the ones complaining about HVCC. The problem as I see it is that they are barking about wanting to control the appraisal process again and masking it with claims of the appraisals costing more or that values on rural properties are not as accurate as they should be. To that I say, how much did it cost all of us to save a  few dollars on the cost of an appraisal? What price can you put on losing your home to foreclosure because you can’t refinance or sell it when you lose your job?

In the end, there are a number of ways that HVCC could and should be improved but let’s not forget that HVCC is about appraiser independence first and foremost and to that I say, it’s about time.

Related articles

• FHA Adopts Some HVCC Guidelines – Mortgagee Letter 09-28: Appraiser Independence (appraisalnewsonline.typepad.com)

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It looks like Fannie Mae is getting into the rental business. They are instituting a new program where, if you qualify, you can hand over your deed but continue to live in the home and pay rent. I say, what a great idea! I heard this idea being talked about at least 18 months ago but better late than never. It strikes me as a win-win situation. It gives a person time to deal with losing their house and doesn’t displace the kids.

You probably didn’t end up in foreclosure and lose the house because you forgot to pay the mortgage. It is very challenging for families in that situation find alternate housing and cover the expenses of moving. Fannie Mae’s rental program is also good for their bottom by keeping money coming in from the property. It is refreshing – and unusual – for the government to get it right. I would also bet that if this program goes well, there may be a buyback option offered down the line.

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Related articles

• Fannie Mae offers borrowers option to foreclosure (sfgate.com)
• Fannie Turning Borrowers Into Renters (hsh.com)
• Leasing back your house after foreclosure (fresnobeehive.com)
• Fannie Mae to Allow Borrowers to Lease Homes (nytimes.com)

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Fannie Mae reported a $19 Billion loss in the third quarter and is asking their boss, the government, for $15 Billion to keep their head above water. The third quarter numbers bring the total to $111 Billion in losses since the government took over in September of 2008. Let’s say it together now – WOW! Between the health care debacle, crap and trade, stimulus, tarp, etc. it would appear to me that the only one actually losing their shirt is the taxpayer…

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Related articles

• Banks Choosing Treasury Bonds Over Loans (blogs.wsj.com)
• So, Paulson lied? He’s misled America from Day One (michellemalkin.com)
• Treasury denies Fannie Mae tax credit plan (sfgate.com)
• Fannie Mae Seeks $15 Bln in US Aid After 3Q Loss (abcnews.go.com)
• Fannie Mae posts $19 billion loss on bad loans (money.cnn.com)