Freddie Mac

HvCc appraisal flu hits Northern Virginia…

Home sellers and buyers in Northern Virginia have felt the pain of the HVCC, the Home Valuation Code of Conduct. These new guidelines (May, 2009) dictate how real estate appraisals are conducted for all mortgage loans that will be sold to Fannie Mae and Freddie Mac.

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.

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.

Freddie Mac

Fannie and Freddie loans are more expensive April 1

The L.A. Times recently published a piece discussing how Fannie Mae and Freddie Mac were raising fees, and toughening credit rules depending on FICO credit scores. So start watching for “delivery fees” if you are putting down less than 30%.

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.