Appraisal Hell - Fannie and Freddie think they are helping?!?!

This article appeared in the Wall Street Journal on May 17th, it did not make the evening news! It is a reality of Fannie and Freddie trying to help, and once again this is hurting the consumer, the lender, the industry and will again bottleneck the process.

Please, read this article and then write to your congressman-congresswoman, Barney Frank, The President, Elizabeth Warren (harvard law professor) hell even write to the kid flipping burgers down the street. I can assure you that the kid flipping burgers will be able to get far more accomplished in the financial world then any politician can!

Fannie Mae and Freddie Mac's new rules are raising appraisal costs, critics say

The rules, intended to improve the accuracy of home valuations, push most large lenders to use third-party appraisal management companies.
By Kenneth R. Harney May 17, 2009

Reporting from Washington -- How about this scenario the next time you refinance or apply for a mortgage: The real estate appraisal that used to cost you $325 now costs $450, even though the appraiser doing the work is getting only $175 or $200.

Plus, your appraisal-related charges may now be subject to add-on fees that you'd never heard of before -- $50 to $100 extra in "no show" penalties if you get stuck in traffic and miss your appointment with the appraiser. Or an extra $50 to $150 tacked on if the property is worth more than $500,000.

On top of all this, your mortgage loan officer requires you to pay for the appraisal upfront with a credit or debit card, rather than including the fee with the usual lender origination costs at settlement. In some cases your card may be charged more than the anticipated cost of the appraisal, leaving debit cardholders in a potential overdraft situation.

Worse yet, the person conducting your appraisal may be new to the field -- willing to work for a cut-rate fee -- and may not be as familiar with local value trends and pricing adjustments as an appraiser with more experience.

And if your mortgage application is denied by one lender, you could be forced to pay for a second appraisal because the new lender may not accept the first one.

That scenario is now reality, according to critics of the controversial new appraisal rules imposed nationwide May 1 by Fannie Mae and Freddie Mac. Advocates of the rules vigorously deny that the new system is flawed and say any increase in appraisal costs should be manageable for most consumers.

The rules, which go by the name Home Valuation Code of Conduct, are intended to improve the accuracy of appraisals by eliminating pressure on appraisers from loan officers. The code pushes most large lenders to use third-party "appraisal management companies" that contract with networks of independent appraisers around the country who have no direct contact with retail loan officers or mortgage brokers.

Mortgage brokers, who formerly chose appraisers and kept a competitive eye on appraisal fees, say Fannie's and Freddie's rules are adding 20% to 30% to consumers' appraisal costs. Jeffrey T. Hawk, vice president of Maryland Mutual Mortgage in Forest Hill, Md., says a standard appraisal that previously went for $325 jumped to $400 or more May 1 when he was forced to use management company appraisers.

Some applicants also are balking at handing over credit card information upfront when they're not sure what the charge will be. "I lost three clients the first week" because of the credit card requirement, Hawk said.

Buddy McCombs, senior vice president of EverBank, a Jacksonville, Fla., lender that buys loans originated by Hawk's firm and now contracts with management companies for appraisals, concedes that "there's probably a little increased cost" with the new system, "but I don't think it's devastating.

Sacramento-based appraiser James Facchini of American Pacific Appraisal Co. says, "What's terrible is what's happening to [long-established] appraisers who won't work for the low fees" management companies pay.

"On May 1," Facchini said, "I lost almost my entire customer base" -- mortgage brokers who now can't pick up a phone and order an appraisal from him.Instead, Facchini and other appraisers either have to sign up with management companies or find other employment. What "really bothers me," he said, "is that the consumer has no idea what's going on."

After Facchini signed up with one management company, he said, two consumers commented to him after he finished his appraisal, "Wow, you really charge a lot.

They were each being hit with $550 appraisal fees, although Facchini was getting just $250 through the management company. As he sees it, that leaves $300 of "slush" somewhere in the process -- some going to the management company, but the rest probably "flowing to the lender for doing absolutely nothing."Rich Kuegler, a vice president at MDA Lending Services Inc., a national appraisal management company, says payments to firms like his are compensation for creating, managing and reviewing a network of thousands of individual appraisers -- MDA has 9,000 under contract across the country -- and for the "processing and administrative" costs that have been taken off the backs of brokers and lenders.

As to appraisers' complaints about fees, Kuegler said, his firm offers them "the ability to have a steady stream of work, training and support." In other words, appraisers can expect to make up in overall volume what they're sacrificing per assignment.mailto:assignment.kenharney@earthlink.net

Distributed by the Washington Post Writers Group.

Posted by Bill Nickerson

Vice President

Mortgage Network

Acton MA 01720

EMAIL WEBSITE

Please email with your questions or comments anytime. This new policy, "HVCC" has become one more piece of the lending world that has been taken away from us. This is hurting you and me in several ways.

And the Average Rate is???

And the Average Mortgage Rate in the United States is....

Who knows!?

One of the most complex answers these days is to tell a client what they can get for a mortgage rate. As I have spoken before about how Fannie Mae and Freddie Mac are broke, mortgage rates now take spreadsheet analysis to figure out the rate.

At the close of business Friday, the Freddie Mac average 30 year fixed rate was posted at 4.78%. Sounds good right...well their is more to the story. Before I say anything derogatory about the media today, this rate comes with .7 Points. Take your loan amount and multiply by .007 and you get the additional fee. On a $417,000 loan, this comes to $2919.00. You wanna write me a personal check for $3000.00? I will get you a better rate!

Oh yeah, you know this is based on closed mortgages, this has nothing to do with the mortgage rate of today, right. You knew this! Well, rates are way off since Wednesday, the mortgage back security market took a well deserved bath after weeks of rallying, mortgage rates finished in the low 5's Friday night. Mortgage rates can change by the hour and do change throughout the day.

If we back out the Points, this same average rate comes to 5.00% with 0 points. But wait, there's more! You must have a credit score of 740 or better, you must escrow your taxes with your lender, no cash out and have around 30% or better in equity in your home. That's pretty easy, right? The average homeowner in Massachusetts lost a little over 20% of there equity since 2005-2006, so in the case it may be hard to get the perfect sceanrio to work for you. In many cases, their are compensating factors, but without running your loan through the underwriting system of today, it's all just chatter of what the rate is.

One of the small problems, most banks, lenders and credit unions, cannot even close on a mortgage in under 30 days as we used to be able to. Why does this matter, rates are based on Lock Periods. 15, 30, 45, 60 and even 90 rate locks come into play. It used not matter because we could close on a refinance in under 30 days and quote a great rate. Some of our investors don't even let us lock a loan for less than 60 days unless we have the appraisal in or a complete application package, but that is a blog for another day. The difference, might be a 1/4 percent higher for that long term rate lock. Purchases always take priorority, so don't worry if you are buying a home.

Do you have a second mortgage or a line of credit and the combined loan to value (CLTV) exceeds 80% of your appraised value, you may not be able to get a mortgage depending upon what the second mortgage holder says. We are finding that many of the second mortgage holders will not subordinate these liens to the new first mortgage holder. This is very important and is causing a bottleneck in the industry. If the combined loans equal greater than 80% of the appraised value, you may not be able to get a mortgage at all. Many of the banks will not work with or assist their own clients. Very short sighted if you ask me.

I just happen to have a local bank in my back yard here in Acton, MA, I won't mention their name but they have been around since the 1800's and they have 2 branches in Acton. They currently have 16 mutual clients that I am trying to refinance there home, average savings is a little over $250 per month on the first mortgage. BUT, the CLTV (combined loan to value) exceeds 80% and therefore this little bank will not grant us permission to refinance the client.

"Uhmph...let's see, our client is going to save money, we keep the second mortgage open and continue to make money off them, they are in a better financial position and it will be easier for them to pay us back. Yup, it's final, DENY them the right to refinance their mortgage". said the little bank with the marble foyer!

Everyone is in a better position financially, the client is saving money, the Bank is in a better cash flow position with the client and I make people happy. Here is the funny thing, I referred many of these clients to the bank for there lines of credit, what a fool was I. Now, I am able to PULL all 16 loans from the little bank and I am going to place them with a competitor that is willing to out the customer as well as assist in jumpstarting this economy. What a novel idea!

So before you judge your Mortgage Lender on what they are quoting for a mortgage rate, find out the details of your situation. As I have been saying since Christmas, mortgage rates are at 5.00% and on any given day, they may swing a 1/4 percent in either direction. but we do have to know all the details, your credit score, your equity or down payment, is it a condo, the size of the loan amount, and I can go on and on.

Here a just a few things to be careful of:

• Do not use a free credit reporting agent to base your life on, most of us don't even charge for the $15 or so for what a REAL credit report costs and it will be far superior to something you are getting online.


• Do not go by the assessed value of your home, it means nothing to us or anyone else in the mortgage world, this is only a number for the local towns to base a tax rate on. Typically these values are set the previous year and are ow obsolete.


• Don't go by what your friend or neighbor got for a mortgage rate, that was a rate that was locked in on that day. And you have no idea what fees were paid to get that rate. In a lot of cases, that friend doesn't even know what he paid in fees because he was chasing the "Rate" and not a proper financial plan.


• If your credit scores are under 680, be prepared, this may costs in upwards of 2 points to get the same rate as someone with a score of 740.


• Do you own a multi family? Condo? Have a second mortgage or line of credit? Taking cash out? These are all very quick items that Fannie Mae and Freddie Mac charge extra for.

As always, buyer beware. In general, lenders get there mortgage rates from the same pool of funds. Rates should be very close to one another. Ask as many questions as you can! Rate is important, but if you don't know all the facts, that rate could cost you very dearly for what you didn't know. Always ask for a Good Faith Estimate of Closings costs, this is a breakdown of all the fees that are charged by the lender, attoreny, town and state. Great for comparison, and without this, you really cannot compare apples to apples.

That's all for today! The next installment will be about HVCC, never heard of it. If you are in the real estate business, you better know what this means. It is affecting us dearly!

Feel free to email me anytime with questions or comments, I love the feedback.

Bill Nickerson

email website
978-264-4803 bill@billnickerson.com

Providing Mortgages Since 1991