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April 26th, 2009 1:40 AM

Dear Friends,

Beginning on Friday, May 1st, there will be a dramatic change and the ultimate loss of control by the mortgage broker in regards to appraisals on any refinance or purchase transaction. The mortgage broker, due to the implementation of the Home Valuation Code Of Conduct or the HVCC, will not be allowed to order an appraisal nor communicate with an appraiser on any transaction. This new procedure has several consequences which will hurt appraisers, mortgage brokers, realtors and ultimately the borrower.

The bias towards banks in their capacity to control the procedure in choosing an appraiser, is seen as a hindrance and a loss of independent valuations of real estate. The measures to assure 'integrity' in valuations are short sighted and will create new challenges for the mortgage industry. The bank will be given the power and the control to decide the following:

1. To hire a specific appraiser

2. The appraiser hired can be an 'in-house' appraiser

3. The appraiser hired can come from an Appraisal Management Company or AMC. This is the newest setup in which former independent fee appraisers are now required to enroll in an AMC. This requirement will reduce appraisal income substantially. It has been reported that up to 40% of the appraisal fee paid by the borrower will end up with the AMC. The remaining monies will be allocated to the appraiser. This action alone will in time, devastate the income of current fee appraisers. The future looks bleak for many independent appraisers as profit margins are depleted resulting in business bankruptcy.  

4. The cost of the appraisal. The costs for the appraisal will increase as you now have a middleman, as the Appraisal Management Company will be seeking their compensation for every appraisal ordered to insure compliance of the newest regulations.

If there is a loan denial with one lender, there might be a possibility the appraisal in question might not be used by another financial institution. If this happens, the borrower has to pay for another appraisal creating additional costs.

5. The time frame in which the appraisal is ordered. This can cause a major problem. If a real estate purchase must close in 30 days, the bank or the financial institution has the sole responsibility insuring the appraisal is completed in a timely manner in order to close escrow. Due to the tremendous influx of transactions flooding lenders, with underwriting times hovering over 10 business days for some, the likelihood of an appraisal order or a purchase completed on time is circumspect. 

Another element to the time frame includes the confusion brought about by appraisal delays for rates that are locked for a 21, 30 or 60 day period. If the appraisal is not forthcoming, there's a good chance a borrower will forfeit an interest rate promised during the very beginning of the transaction. This can be costly and frustrating to say the least. If your loan was locked at a 4.250% rate, only to see the rate go up to 4.875% due to an appraisal mixup or delay, the loss of time, money and goodwill are the unfortunate results.

6. The appraised value. The bank or the financial institution in its power to control the appraisal process from start to finish, now has the capability to suggest the ultimate value to be rendered by the appraiser on the subject property. In my 27 years in the mortgage industry, I've come across situations where a bank has lowered the value of an independent fee appraisal intentionally in order to deny a loan. Moreover, you will find 'in-house' appraisers tend to be more conservative in their valuations of real estate which can cause additional loan denials if the Loan To Value or the LTV is over the guidelines for that particular loan. In this example, the borrower has just lost the appraisal fee. If the borrower seeks to pursue the same loan with another institution, an additional appraisal fee will be required. This can be a costly and cumbersome process for anyone seeking a mortgage loan. 

7. Purchase Price. Let's say you're buying a house for $350,000. The mortgage broker with the assistance of the independent fee appraiser can logically ascertain the value of the properties in the neighborhood by checking the comparables of sold or active listings during the past 6 months. With this information, one can safely say the buyer can proceed with the transaction. After May 1st, the mortgage broker is not allowed to communicate directly with any entity employed to appraise the property in question. The broker as well as the realtor are in limbo until such a time the appraisal comes in at the agreed upon purchase price. It's all up to the bank in deciding if and when the appraised value meets the purchase price.

8. The demise of the mortgage broker? I hope not! While the HVCC has Draconian measures in its exclusion of the mortgage broker in ordering appraisals, there will be concerted efforts by many in the industry to relax these initiatives. Once we come to realize the confusion and the delays these new guidelines will impose on all types of transactions, there will be modifications.

The mortgage broker has become the scapegoat for the sub-prime mess and to some, the numerous financial abuses which we are now engulfed. I dare say there are always bad apples in any industry. There have been mortgage brokers guilty of taking advantage of clients by charging exorbitant fees and promising nonexistent rates or programs to the unsuspecting or unsophisticated in financial transactions. Nonetheless, the greed, incompetence and the corruption in government and the corporate offices of Wall Street are the true originators of a business and moral philosophy bereft of honesty or integrity. The economic hardships and the continued suffering of Americans during the past several years, is due to the abuses of powerful interests, hellbent on securing the awards of control and power at all costs.


The Home Valuation Code Of Conduct came into effect from a lawsuit filed by the New York Attorney General. The HVCC was devised due to First America and its subsidiary EAppraiseIt, in conspiring with Washington Mutual to inflate real estate values. It is ironic to know that a major financial institution and the fraudulent actions of their cohorts, is the basis in which undue harm and the dismantling of the mortgage broker industry is a looming probability. The unfair assertion that mortgage brokers are to be penalized for the actions of a major bank involved in fraud is totally without merit. MoneyTeam has been around for almost 20 years. Hopefully we'll be around for a few more. We're hoping for the best!

Please check the answers to questions in regards to the implementation of the HVCC by Fannie Mae: http://www.oasissolutionsllc.com/hvccfaqs.pdf

Thanks Again


Posted in:General
Posted by Jesse Dorado on April 26th, 2009 1:40 AMPost a Comment

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