LETTERS From CAMP Rehoboth |
CAMP Money |
by Chris Beagle |
My Home Is Worth What?
This past weekend, while enjoying a libation at one of Rehoboth's fine establishments, I ran into a client who is in the process of refinancing. Normally, at some point during a similar encounter, at least a brief update as to where things stand at the moment would be in order. Normal, however, has become a relative term to an ever-changing and volatile lending environment. In this particular case, the borrower finds himself, like many others presently attempting to buy or refinance, in the unenviable position of being told his home isn't 'worth' what he expected. In recent months, despite the media repeatedly reminding us that values have fallen, the message doesn't have quite the same meaning, unless it hits us directly. As a Loan Officer, the message has been hitting me until I can barely stand up. For the borrower, the news could possibly mean the difference between a once happy vacation home and the verge of a default and possible foreclosure. While locally, for the most part, we've not seen the declines that much of the country has, we still find ourselves in uncharted territory. Gone are the days where 'value' was simply what someone was willing to pay. Gone are the days where the appraisal maintained its quiet influence on the overall home buying or refinancing process, as the primary means of validating, if you will, the 'worth' of a home. The appraisal has come under increased scrutiny for its ability to determine value in an impartial, fair and, in many cases, legal manner. This was the impetus behind a lawsuit filed in 2007 by New York Attorney General, Andrew Cuomo, against eAppraisalsIT and its parent company, First American, for caving in to Washington Mutual, which allegedly pressured appraisers to submit so-called inflated appraisals. As a result of the lawsuit, Fannie Mae and Freddie Mac, the largest purchasers of home mortgages in the country, adopted the Home Valuation Code of Conduct, which took effect May 1st. The HVCC was designed to address issues of appraisal coercion and independence, and to serve as the standard of conduct to be followed by lenders or any other party involved in the transaction. As a result of personal experiences and research in the last several weeks, here's what's now happening, and what may affect you.... Perhaps the most influential change for the industry, real estate agents and loan officers are no longer allowed to contact an appraiser directly and inquire on any level about the value of a home. Instead, the HVCC virtually mandates that all appraisal orders must be placed through appraisal management companies (AMCs) who, in turn, select an appraiser from its own pool of appraisers. Doing so means both purchase and refinance transactions are taking longer as an additional layer is created in the process. Instead of the loan officer ordering the appraisal directly, the order first goes to the AMC, who then orders the appraisal thru one of its appraisers. Resulting, are not only longer turn-around times, but also increased costs to the borrower as many locked loans must be extended in order to account for the longer period. If the lock is not extended, it can also mean a higher interest rate. Either way, it's more costly to the borrower. Out-of-area appraisers are performing many appraisals, most of whom may not have nearly the same familiarity with local trends and the various factors which influence value. Remember Economics 101, location, location, location. Less-experienced appraisers are performing appraisals, who often undercharge in order to compete with their more experienced counterparts and become favored-status providers by AMCs. Experienced appraisers are likely to want to work with AMCs who are willing to pay the appraiser his/her full fee. For the 'benefit' of their services, many AMCs are simply charging borrowers a higher fee than the appraiser's fee, and keeping the difference. The preferred practice means a separate fee to the AMC, but this may be a small price to pay for such an important part of the overall transaction. Finally, the HVCC also bars appraisers from interacting with agents, mortgage brokers, loan officers, and others. Preventing appraisers from interacting with clients as part of their normal business is a restriction not imposed on any other provider under RESPA (Real Estate Settlement Procedures Act). In fact, RESPA encourages competition between and interaction of the parties involved in a real estate transaction, so long as disclosures are made and influence is eliminated. As a consumer, perhaps the best advice is to ask questions and know and trust who you are working with. If your lender is continuing to pay the appraiser his/her full fee, it will likely mean a better-quality appraiser is conducting a better quality appraisal. While the HVCC's overall intentions are certainly worthy and necessary in theory, as it now stands, does all of this serve the industry well? Does it reassure any single party involved in the process that we're now being better served by a system that is possibly creating a new set of problems? It's too soon to tell. For now, the industry is in a transitional period, where all parties are attempting to adjust to new rules and a new way of conducting business, in an already turbulent environment. The HVCC's mission can work in the best interest of consumers and the industry, and revisions to its guidelines are not only likely but necessary. Otherwise, are we any further ahead today than we were? I wonder. And so should you. Stay tuned.Chris Beagle is a Senior Loan Officer at Fairway Independent Mortgage Corporation. For more information, contact Chris at 302-260-7090. |
LETTERS From CAMP Rehoboth, Vol. 19, No. 08 July 03, 2009 |