CNC Mortgage Blog

On August 1, 2009 some more changes will take place in the mortgage industry. Banks, lenders and mortgage brokers will no longer be allowed to collect fees upfront for any purpose except to obtain credit reports. In the past many institutions required the applicant to pay ahead of time for an appraisal or maybe an application fee. Appraisals were costing around $325 and a credit report around $25 so it was normal to ask the customer to pay $350 at the beginning of the loan process. No additional fees can be collected until the lender has sent out disclosures that include the Truth in Lending (TIL) with a final Annual Percentage Rate (APR) calculation.

Once the borrower has received the disclosures the appraisal can be ordered. There would be two ways to pay for the appraisal. One would be for the customer to send a check to the broker after receiving the disclosures and the broker or lender could pay for the appraisal; another option would be for the borrower to pay for the appraisal with a credit card and the lender could have the credit card information to pay for the appraisal. This credit card information could be left with the lender at the time of the initial application.

On May 1, 2009 almost all banks adhered to the Home Valuation Code of Conduct (HVCC). There were some important changes that took place in the appraisal process.

Appraisals need to be ordered through the banks Appraisal Management Companies (AMC) who in turn will order appraisals from their group of registered and licensed appraisers.

Loan officers and lenders will no longer have direct contact with appraisers. Nor can the expected value be communicated to the appraiser. There is a feeling that the new appraisal process will be holding down housing prices. The Minneapolis Startribune on July 26, 2009 ran an article on this in the business section titled “New Rules Hamper Home Sales.”

One situation I could foresee would be a purchase where for example the sellers were asking $300,000 for a house, there were multiple offers at that price but the appraiser could only find comparable sales at $280,000. The bank then would only lend on a value of $280,000 eliminating many buyers who could not make up the difference if they needed a mortgage.

I have seen one case where this benefitted the borrower. A condo was negotiated and appraised for $125,000. Wells Fargo ordered an appraisal review and the reviewer came back with a value of $117,000. This was a foreclosed property that was owned by Fannie Mae. The appraisal review was shown to Fannie Mae and they accepted the sales price of $117,000. The buyer saved $8,000on his purchase.

Not all banks are adhering to the HVCC. Those banks that do not sell loan to Fannie Mae and Freddie Mac and keep their loans in their portfolio are not obligated to use the HVCC for appraisers and can either order appraisals directly or allow brokers to order the appraisals.

The National Realtors Association is asking congress for an 18 month moratorium on the implementation of the HVCC.