Beginning this Friday, May 1st, new rules for appraisals for conventional conforming loans go into effect. Great news, right? All those fraudulent appraisers will be reigned in along with all those nasty mortgage brokers, real estate agents and lenders that "forced" values in the run up to the RE bubble. I am not so sure that the new world order will help all that much. In fact it may result in artificially continuing the slide in real estate values.
In a nutshell the HVCC is meant to keep the originator of the loan, whether it is a mortgage broker or loan officer, from influencing the appraisers opinion of value of the subject property. By removing this pressure the appraisers will be "free" to evaluate the market price of a home. What has really happened is that the local independent appraisers are looking at the real possibility of being run out of business by larger national or regional appraisal consolidation / management companies.
These are the entities that likely led to some of the abuses that forced the new rules on us in the first place. LandSafe ( owned by Countrywide ) or Hanson and LSI are large appraisal managment companies that hire "local" appraisers on a contract basis for national lenders. When I use the term local I mean within 20 miles. Local for these AMCs means within 100 miles or more. Any real estate agent that has to deal with one of these companies has likely received a call from one of these guys or gals asking for comps. If you gotta ask one of the agents involved in the deal then you have no business appraising the value of a home in that market.
In the interest of full disclosure as a both a broker and a loan officer for a mortgage bank I have never asked an appraiser to "get me a value". The logic is fairly simple. If an appraiser is capable enough to research, analyze and write a report that they can make all the disparate parties in a RE transaction happy then who am I to think I should try to influence their opinion. You have an underwriter, buyer, seller, and thier agents. Each with their own motivations in a deal. Never would want to be an appraiser, even if I owned a bullet proof vest.
The new rules will certianly shield the appraisers from the loan offier and brokers but they won't insulate them from the agents. In fact there will be likely more contact between agent and appraiser as most lenders will require the appraisers to get the sales contract from one of the agents associated with the deal. So who has more to gain from a property "coming in at value"?An agent that makes 3% to 6% on a deal or the loan officer that will make .5% to 2% of the loan amount.
So will Real Estate values go further down the toilet than they already have as a result of the new rules? Those that are slightly paranoid would have us believe that HVCC is a government plot drive values even farther down than they already are. Plot or no, what will certainly happen initially is longer times in getting loan closed. And it is going to be a big pain in the ass for those of us that have to become accustomed to yet another new world requirement in the return to old time underwriting guidelines.
Wednesday, April 29, 2009
Sunday, April 26, 2009
Comments from an Originators Desk
The web is full of commentary on the state of mortgage lending. There are hundreds of websites and blogs addressing the issues the mortgage and housing industry. The intent of this blog is to be a consolidator of sorts, pulling interesting factoids from sites, blogs and traditional news outlets I feel are relevant while adding my own personal opinions.
As a Loan Officer for a Mortgage Bank I see how changes in lending affect borrowers everyday. The national news media and some websites have blown the problems with lending way out of proportion. A careful read of some blogs and websites is sufficient to determine if the authors actually have experience with lending or are just grabbing an opportunity to jump on a soap box and complain.
Dispelling a myth:
It should be no surprise, those loan officers that did well in the frenzied real estate market up to the middle of 2008 that relied on sub prime and Alt A products for loans are either 1)now out of the business or, 2) trying to figure out how to analyze a borrower's fianancial statements. This has led to some to even suggest that lending has become so restricted that "no one" can get a loan. The fact is that the majority of potential borrowers can qualify for a loan. The issue is that the reliance on the above mentioned products created a set of expectaions that are impossible to meet now. Lenders that said, " send it in, we will get it done" led borrowers and their RE Agents to believe that it was enough to want a loan to be approved.
To a certain extent the baby has been thrown out with the bath water with respect to the removal of some loan programs. From my perspective a No Doc loan on a primary residence for a borrower with a 800 FICO and 35% 40% down represents little risk of default, yes even in a decling market. The reason is simple a credit score that high shows that borrower manages their finances very well and has done so for a significant period of time. The second reason is that anyone with that amount of skin into the game is highly unlikely of defaulting. For the record, Stated income loans were the stupidest thing ever devised on the planet apart from the Edsel.
Qualify to buy -- Just because there has been a return to some of the "old time" underwriting standards doesn't mean everyone is shut out. It means that the individual, and the lender, a borrower selects for their mortgage needs had better set reasonable expextations with the borrower and the agent right up front. There is still aconsiderable amount of flexibility in mortgage lending. However, it is not smoke and mirrors any longer. Its based on verifiable facts.
As a Loan Officer for a Mortgage Bank I see how changes in lending affect borrowers everyday. The national news media and some websites have blown the problems with lending way out of proportion. A careful read of some blogs and websites is sufficient to determine if the authors actually have experience with lending or are just grabbing an opportunity to jump on a soap box and complain.
Dispelling a myth:
It should be no surprise, those loan officers that did well in the frenzied real estate market up to the middle of 2008 that relied on sub prime and Alt A products for loans are either 1)now out of the business or, 2) trying to figure out how to analyze a borrower's fianancial statements. This has led to some to even suggest that lending has become so restricted that "no one" can get a loan. The fact is that the majority of potential borrowers can qualify for a loan. The issue is that the reliance on the above mentioned products created a set of expectaions that are impossible to meet now. Lenders that said, " send it in, we will get it done" led borrowers and their RE Agents to believe that it was enough to want a loan to be approved.
To a certain extent the baby has been thrown out with the bath water with respect to the removal of some loan programs. From my perspective a No Doc loan on a primary residence for a borrower with a 800 FICO and 35% 40% down represents little risk of default, yes even in a decling market. The reason is simple a credit score that high shows that borrower manages their finances very well and has done so for a significant period of time. The second reason is that anyone with that amount of skin into the game is highly unlikely of defaulting. For the record, Stated income loans were the stupidest thing ever devised on the planet apart from the Edsel.
Qualify to buy -- Just because there has been a return to some of the "old time" underwriting standards doesn't mean everyone is shut out. It means that the individual, and the lender, a borrower selects for their mortgage needs had better set reasonable expextations with the borrower and the agent right up front. There is still aconsiderable amount of flexibility in mortgage lending. However, it is not smoke and mirrors any longer. Its based on verifiable facts.
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