HUD Postpones Implementation of HVCC for FHA

Breaking news is that HUD has Postponed the implementation of HVCC for FHA loans until February 15th, 2010. This delay is too allow time for Lenders to adjust to the changes. It is a two part action plan:

1) Prohibition of Mortgage Brokers and commission based lender staff for the appraisal process

2) Appraiser selection for FHA Connection

This will be effective for all case numbers after the 15th of February.

Appraisal Review: Is it a Blessing or a Curse?

If you are in the Real Estate Industry you have been involved in a transaction that has required an appraisal review. Appraisal reviews come in several different sizes and shapes. I think that it is important to know a few key terms before I go on. The following terms AVM, Desk Review, and Field Review are a few of the terms that you will most likely come across in the coming months.

AVM – Automated valuation of a property. This is derived from the best available data at the time the AVM is ran and does not take into account distressed sales or condition of the property.

Desk Review – The original appraisal is reviewed by another appraiser. They critique the original appraisal pull new data and much like the AVM do not take into account many of the items that may make a property unique or valuable. Many times the reviewer is not even native to the area that they are reviewing.From the information they gather they Agree or Disagree with the original value. If they disagree a new value in their best opinion is derived. This will be the value that the Lenders now based they decision off. (I must note I have never had a desk review come in higher than the original appraisal so my example assumes the value was less.)

Field Review – The highest form of a  review. A new appraiser actually goes out to the property and inspects it. They take the original appraisal, new data and information that they obtain from the inspection and come to a conclusion of value. Like a desk review they will agree or disagree and the value that they come up with supersedes any previous value given.

How and Why?

At this point you may be asking yourself if there is an appraisal in the file and the value is in line with the purchase price why then would we need a review? That is a very valuable question. First, HVCC (see previous post) changed the way that the world of appraisal operated. This was brought into play to reduce the risk of overvalued appraisals to protect both the Lender and the Consumer. Brokers had “undue influence” on the value based on a relationship with the appraiser. FHA is not part of the HVCC regulations at this point so Brokers can still order through an appraiser that they have a relationship with.Important update: FHA is now subject to HVCC. So when a loan is submitted and the underwriter is underwriting the loan they almost always (always in my book) run an AVM. If that AVM does not support the value of the appraisal that we have submitted they will ask for either a desk or a field review. The cost of a desk review is much less so many times this is what we opt for. Important Suggestion: If you have a property that is unique in nature, lacks comps, has to be seen to be appreciated skip the desk review and go straight for the Field Review. Yes it will cost more money but a low desk review plus a field review is both more expensive and time consuming. After all time is money. Another Option: In some cases the lender will allow you to order a second full appraisal which at least you could choose the appraiser and cut down on time. This is not always the case so ask first before assuming this can be done.

Side Note: Collateral is the most valuable asset to the lender so this will always be scrutinized the most.

Now that we have an idea of how the review process is triggered let’s take a look at an example:

Purchase Price: $200,000

Original Appraised Value: $200,000

Desk Review: 150,000

Field Review: $195,000

If the buyer is doing a standard FHA purchase they are putting 3.5% down. The value in this case is going to be based on the Field Review as it superseded both of the previous values. The new loan will then be based on $195,000.

Buyer Options:

1. Ask for a price Reduction to 195K based on the field review and send the review with it.
   
2. Pay the difference in Value and Original Purchase Price out of pocket; 5K
   

Given the two options I ask the question is Appraisal Review a Blessing or a Curse?

In my opinion, if the buyer gets the reduction in price and pays a Fair Market Value for the house then it is a blessing. Anytime you get something you want for less money it is a blessing. However, if the reduction is not granted then is my buyer overpaying for the property? Do they have the money to pay the difference? Are they in danger of losing the home?

These are only my thoughts.

What are your thoughts on Appraisal Review? If you have had an experience with it please feel free to share the experience.

Matt Freeman, an accomplished Mortgage Broker, is the author of this article. If you are interested in more information like this please take the time to opt in to receive updates. You can do this now California Home Strategies by simply entering your name and email. Thank you again for taking the time to read through this today.

Changes taking Place! Summary of HERA/MDIA implementation

The industry continues to undergo change. The most recent of the changes was what they are calling MDIA. This stands for Mortgage Disclosure Improvement Act. This is a sub component of the Housing and Economic Recovery Act, also known as HERA. HERA impacts the HVCC or Home Valuation Code of Conduct that was implemented in May and affected how appraisals were ordered and done. MDIA, HERA, and HVCC are all so confusing are they not. They continue to develop all these little abbreviations that mean something and each is a Federal Guideline that is overlayed by the wholesalers that we work with. An overlay is an additional requirement laid over the federal guide for that wholesaler. WOW!

So what things should you be aware of and how do they impact you as a consumer? The following are five major changes of the HERA disclosures:

1. Saturday is now a business day
2. Upfront fees cannot be collected until the borrower “receives” the initial Truth in Lending from the lender . The only exception is the credit report fee
3. Initial Truth in Lending now required  on all purchase and refinances on primary residences and second homes
4. Initial Truth in Lending must be received seven days prior to the closing/signing date
5. An increase in APR by greater than .125% requires re-disclosure of the Truth in Lending at least three days before the closing/signing date. If mailed the Truth in Lending is considered “received” 3 business days after mailing.
   

The said new changes went into effect on July 30th, 2009. This was a bill that was signed and passed in 2008. It is my “Opinion” that it is another plan that was not well thought out and will lead to some growing pains ut was done with the right intentions. We will all get used to the plan and it will be virtually painless.The bottom line was to make lending:

• More Transparent
• prevent deceptive lending practices by making more obstacles and checkpoints
• protection against abusive lending practices for borrowers
• Consistent lending practices among all lenders
• Borrowers are more informed and more confident about the mortgage process

A few more things to be aware of are the borrower must receive a copy of the appraisal 3 days prior to the close/sign date. The appraisal cannot be ordered until three days after the initial disclosures have been sent to the borrower. Borrowers do have the option to waive the right to receive a copy of the appraisal. At this point HVCC applies to conventional loans but please be aware that this may extend to all types of loans in the near future.

Call your Loan Officer for clarification on this subject.

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