Government insured loans such as FHA or Veterans Administration (VA) have not impacted because they do not sell their loans through the Fannie/Freddie mortgage market.

So what’s the big deal? Haven’t all real estate loans required appraisals?

Maybe a little history lesson will help.

In 2007, New York Attorney General Andrew Cuomo sued an appraisal company accusing it of colluding with Washington Mutual Home Loans of using only appraisers who inflated property values, which “helped set the mortgage crisis in motion.” This case was settled out of court.

As part of the settlement, Fannie Mae and Freddie Mac agreed to adopt a set of rules spelling out how appraisals will be handled for any mortgage that they would be a part of, and that is a very high percentage of the mortgage loans across the United States. These became the HVCC guidelines,  just four pages long. The main purpose is to keep lenders and appraisers honest by limiting the chance that the appraisal process will be influenced by someone who is part of the loan process.

“The HVCC is designed to promote professional appraisals free from inappropriate pressure from lenders, borrowers, or mortgage brokers.” – Federal Housing Finance Agency

Sounds reasonable to me.

In reality, it has created a new layer of bureaucracy. Mortgage lenders are the ones who order appraisals, and with this “wall” between them, someone is needed to contact the appraisers.

American Motor Corp.

To fill that void, we welcome Appraisal Management Companies (AMCs) to the mix. The AMCs assign appraisers from a list as the orders come in from the lenders.

Here are a few of the rubs:

• The cost of most appraisals have increased
• Appraisers are now asked to do more work if they want to stay on the list
• The actual appraisers are being paid less, there is another hand in the till
• AMCs are assigning appraisers based on geographic location, such as Virginia (a rather large state)
• Many appraisals are now missing items that impact value, resulting in low appraisals
• Many transactions are being renegotiated or canceled due to low appraisals

The Regional Sales Contract for residential real estate used in Northern Virginia has a contingency that the home must appraise at or above the contract sales price. Only in fire-sale prices do we see appraisal above the contract price since appraisers follow the market and not lead the market. As a result, it it essential that appraisers have all the information when calculating value because any missing data may result in an appraisal far below actual value.

So home sellers are not the only ones impacted when appraisals are off the mark… ask a buyer who negotiated a good deal only to have it fall apart because the appraisal came in too low. Yes, the seller can say, “sorry, the deal is off with you. Bye, bye now.”

And unknown to the buyer who thought he had a “done-deal” and now needs to start looking again,  there may be another home buyer with more cash on hand to snap up that great deal. On the other hand, the seller may be left waiting another month for another offer that will probably be lower than the last one.

So I decided to invite him to tell the story… enjoy!

by: Sweth Chandramouli, an Alexandria, VA mortgage broker, blogger and yet another former retired high-tech guy now with Ethical Homes.com

Conforming loan limits in the metro DC area may be changing significantly in coming months, potentially dropping by nearly half by the end of the year.

The Housing and Economic Recovery Act of 2008 (HERA) increased the conforming mortgage loan limit to $417k, and also created “high-balance” conforming loans in high cost areas, which would have rates that were slightly worse than “regular” conforming loans but still better than traditional “jumbo” mortgages. The high-balance limits were based on median sales prices in those high-cost areas, and for the metro DC area, the limit for 2009 was set at $625,500. In February 2009, Congress passed the American Recovery and Reinvestment Act of 2009 (ARRA, aka the economic stimulus bill of 2009), which temporarily increased the limit for high-cost areas such as DC to $729,750.

The ARRA limits expire on 12/1/09, however, at which point the limit for the DC area will drop back down to the HERA limit of $625,500. (12/1/09 is also the deadline for first-time home buyers to take advantage of the $8000 tax credit, so first-time buyers who need loans in the $626k-$729k range should be especially motivated to close their purchases by December 1st.)

That change will affect many people in the DC area, but far more widespread will be the change that will probably occur on January 1, 2010. HERA resets the conforming and high-balance limits each January according to a specific formula; that formula does not allow the basic conforming limit to decrease from year to year, but it does allow the high-balance limit to decrease or vanish entirely, and based on current calculations, that’s exactly what will happen in most parts of the U.S., including the metro DC area–on January 1st, barring any new stimulus bills passed by Congress between now and then, any loan in the DC area above $417k will probably be treated as a “jumbo” loan with significantly higher rates and tighter qualifying requirements.

We’re going to be monitoring this situation closely, and have contacts at Fannie Mae, Freddie Mac, and in Congress who are trying to get more information on whether there are in fact any plans to enact another temporary stimulus bill that would increase the limit for 2010, but for now, borrowers should assume that the high-balance loan limit in the DC area will drop to $625,500 on 12/1/09, and go away entirely on 1/1/10.

For the detail-oriented people out there:

• HERA sets the high-balance limit at the lesser of 115% of the median MSA sales price (as published by FHFA each October) or $625,500, which means that all MSAs w/ median sales prices above $544k are capped at $625,500, and all MSAs w/ median sales prices below $363k are not considered high-cost and are capped at the regular conforming limit (currently $417k). In October 2008, FHFA’s published median MSA sales price for the DC MSA was more than $544k, so the limit for 2009 was $625,500.
• The exact FHFA numbers for 2010 won’t be published until October 2009. NAR does publish very similar statistics, however, and based on NAR’s numbers for the last quarter, as well as FHFA’s own HPI numbers, most MSAs (including DC) will have median sales prices below $363k, which is why we are assuming that high-balance loans will effectively be eliminated as of 1/1/2010.
• The exact history of high-balance conforming limits in the last few years is actually more even more complicated. In Feb 2008, Congress passed the Economic Stimulus Act of 2008, which raised the conforming limit to $729,750 in the highest-cost areas, but which expired on 1/1/2009. Also, Fannie Mae, Freddie Mac, and the lenders that work with them took some time to implement the changes in ARRA 2009, during which time the practical limit was still the HERA limit of $625,500. So the high-balance limits in the highest-cost areas such as DC were $729,750 from 2/2008-1/2009, $625,500 from 1/2009-2/2009, then legally $729,750 but still practically $625,500 from 2/2009-4/2009, and then $729,750 from 4/2009 to the present. Expect a similar series of confusing changes in late 2009 and early 2010, especially if new legislation is passed to change the limits yet again.

That’s not a typo!

• below 700, add 1.5%
• 700-720, add .75%
• 721-739, add .25%

Meaning, if you have a $350,000 loan then you will be charged a delivery fee of .75%, or more simply pay $2,625 more.

This add-on probably won’t stop anyone from buying, and with rates so low with few discount points if any, why make a big deal of it? Because, when someone buys a home, they pump money right back into the economy buying everything from furniture to paint. And if they have $2,625 less to pump back because of the “delivery fee” then the economy will enjoy less of the economic stimulus of the process.

The two companies are promoting this fee to loan officers as adding extra protection. Oh, that is protection for themselves.