HVCC rules and regulations start today!

One may start by asking what is HVCC? The term HVCC stands for the Home Valuation Code of Conduct. It has been designed so that the lender chooses the appraiser that values the collateral that the lender is lending against. It was felt that the Broker had undue influence on the appraiser that they worked with. In short, it was felt that we as Brokers could control the value of an appraisal simply by asking our appraiser to push. Certainly I do believe that there were cases that the appraiser may have been influenced by a Broker. I am not naive. However, in the end there were underwriters, desk reviews, and field reviews that were three points of quality control. Essentially the Underwriter or staff appraiser or the appraiser that performed the field review all had a chance to change the outcome. IN many cases they did change the outcome.

FNMA and FHLMC also known as Fannie Mae and Freddie Mac entered into an agreement with the Federal Housing Finance Agency and the New York Attorney Generals office to follow certain procedures on all loans delivered to the agencies. The policy requires the lender to order the appraisal on all conventional 1-4 family properties effective as of 5/1/09.

Do FHA and VA adhere to the policy? As of now it is not required that either FHA insured loans or VA guaranteed loans follow the new policy. The Brokers will still order FHA appraisals and VA has always been controlled by the lender.

Who are the appraisal companies that are being used and what does this do to the appraisal profession? The Lenders are using approved appraisal management companies that have appraisers approved under their umbrella. The Lender orders from the management company and the management company selects one of the appraisers they have on staff. The Problem is that the appraiser have taken a large pay cut for the same amount of work. For an appraisal that they made $375 on they now will be limited to $200 or so dollars. How would you like to take a 50% pay cut? Also, business as you know it networking and such is partially out the door. Time to specialize as an FHA appraiser.

Payment – The management companies can be paid by the Broker or the consumer online. Many of them accept Visa, Mastercard or AMEX. This will have to be done prior to the order beginning to take place. It will be critical to get this done right away so that the timeline of your purchase is not thrown out of wack. Yes, I will need the three digit security code from you:( Another part of the payment that is completely annoying is that it will vary from management company to management company and by location. The lack of standard fee practice will get confusing and will lead to an apparent lack of professionalism when you have to say on the GFE.

Turn Times – They will be five business days in a perfect world. Want a rush give me some more money. No longer can you ask your appraiser to swap an appraisal so that you may meet a deadline. I am sorry in advance to my Real Estate partners. This will be another thorn in our side to overcome. The good news is we have gotten quite good at overcoming the thorns.

Appraisal Conditions – This will be something that will also slow down the process as it has to go through the lender as well. Tack on a few more days. Hopefully they will condition less since they chose the companies that we will have to work with.

Consumer and the Broker will get a copy – The consumer will get a copy three days prior to the close of escrow or sooner. The borker will have a copy available on the website for their file.

Assignment – Decide that you want to use another lender? Well the appraisal will only be assigned if the loan is declined. Therefore you will have to go through the process again. Yeah!!!!!!!!!!

These are only a few of the requirements of the HVCC regulations and I am sure they are not the last that we will have to abide by. The industry is changing and like all Metamorphosis it is a little painful. The punishment is a little tighter than necessary but for now this is what it is. Hang on for the ride and don’t be surprised when the lender still asks for an appraisal review.

As Always thank you for reading,

Matt Freeman

Fannie Mae/ Freddie Mac Costs

Fannie MAE and Freddie Mac have gone to risk based pricing. This is not new news as loans have always been priced and approved based on levels of risk. When you as a consumer are looking to be financed the lender is evaluating three things. We refer to them as the three c’s.

Credit – this is your history of repayment of other loans such as auto, note loans, installment, student loans and revolving debts such as credit cards. Your mid fico score is seen to be a fair reflection of your repayment history. Experian, transunion and equifax are the three bureaus who produce these snapshots in time that generate your scores.

Collateral – this refers to the property and the down payment or equity position you are in. Having 20% equity in a home is considered the breakeven point for a lender in the event they have to foreclose. Naturally the greater the equity the lower the risk. Someone with 40% plus is not likely to let a home slip away and has the ability to price to sell if they get into a dangerous position.

Capacity – this is your ability to repay the debt. Your income, more importantly claimed documentable income is what they are looking for. This is the arena that was most widely abused in recent years and as a result has become the most scrutinized and most important. Income is only part of capacity as length on the job, type of job and how you are paid are additional factors that are very important. Your debt to income ratio is your housing and other credit related minimums divided by your gross monthly income. The goal is to not have this exceed 43%. that means that the house and all the debt represent 43% of your GROSS income.

Traditionally, if you he a 620 fico score, 20% equity position and documented your income on a purchase you would qualify for the lowest wholesale rates we have to offer. However, this has changed drastically and it is undergoing another set of revisions.

Today you have to have a 740 fico to be in the top tier and from there it drops off fast. Those who want to refinance and take no cash out of their home with a 695 fico and 20-25% equity have to pay a 1.5% risk adjusment. This means that their par wholesale rate will be much higher than those with 740. Yield spread premiums are paid to brokers by wholesalers for selling higher rates or to absorb these costs. (another blog entirely) today the Ysps are not large enough to cover that 1.5% so the costs are passed on to the client making loans more expensive.

This one example is a cheaper example of the pricing adjustments that have been passed onto us all. So although rates are low it does not mean that you will get a low rate or if you do you may have to pay for it. Raising costs and adjustments is just one way for these companies to make up for losses.

The end result is that government loans such as FHA, VA and USDA do not impose such adjustments. Do not he suprised if your broker or loan officer tells you that FHA may be a more cost effective approach to financing your home. As always consult your professional and ask them to explain or show this to you in a manner that makes sense.

Good luck and until next time.