Appraisal Scoop

Second Appraisal Required On Cash Out FHA Refinances

Just a quick heads up about a change to the guidelines for the FHA 95% loan to value cash out refinance program effective for all case numbers issued after January 1, 2009. This change does not apply to the standard 85% loan to value program.

The guidelines already included additional requirements that many loan officers have overlooked when taking applications for 95% loan to value cash out refinances:

• The subject property must have been owned by the borrower as his or her principal residence for at least 12 months preceding the date of the loan application.
• If said property is encumbered by a mortgage, the borrower must have made all of his/her mortgage payments within the month due for the previous 12 months, i.e., no payment may have been more than 30 days late and is current for the month due.
• The property that is security for the refinanced mortgage must be a 1- or 2-unit dwelling.
• Subordinate financing may remain in place, but subordinate to the FHA insured first mortgage, regardless of the total indebtedness or combined loan-to-value ratio, provided the homeowner qualifies for making scheduled payments on all liens.
• Any co-borrower or co-signer being added to the note must be an occupant of the property.  Non-occupant owners may not be added in order to meet FHA’s credit underwriting guidelines for the mortgage.

In Mortgagee Letter 2008-09, FHA already made it a requirement that two appraisals were required when the loan amount exceeds $417000. Those loans are also limited to 85% LTV (loan to value).

Now HUD has extended this requirement to any loans with an LTV above 85% beginning with any case number issued on or after January 1, 2009.

From Mortgagee Letter 2008-40:

In addition, FHA will now require a second appraisal for all cash-out refinances where the LTV, exclusive of the UFMIP, will exceed 85 percent of the appraiser’s estimate of value.  This second appraisal requirement applies regardless of the loan amount or the location of the property, i.e., whether the property is in a “declining area” or is not.  This second appraisal requirement for cash-out refinances is effective for all case number assignments on or after January 1, 2009 and is to adhere to the instructions set forth in ML 2008-09.  Please also note that cash-out refinances with LTVs exceeding 85 percent will be over-selected for post-endorsement technical reviews (PETR) to assure the quality of the underwriting.

Mortgagee Letter 2008-09 sets out the requirements for the 2nd appraisal. It must be done by an FHA approved appraiser engaged by the lender and the costs may be passed on to the borrower. If the second appraisal has an estimated value more than 5% below the first appraisal, the maximum mortgage must be determined based on the lower appraised value.

If you are a mortgage broker, please take note of that last sentence. This means that wholesale lenders are going to be picking these loans apart even more closely than they have been. And they haven’t exactly been easy with the underwriting lately to begin with. Also, remember that the borrower should be prepared to have as much as $900 of their cash out eaten up by appraisal fees!

I will Post the new requirements tomorrow regarding The revised Home Valuation Code of Conduct (the"Code") The Effective Date for any Lenders selling loans to FHLMC to comply with the new "Code" is May 1, 2009.

Source: Bryan Schroeder - ActiveRain

AUTHOR: Bryan Schroeder is a Certified Mortgage Consultant in Salem, OR.  Bryan has worked in the mortgage industry for over 15 years and areas of expertise include FHA and Conventional loans, Lot loans, and New construction.

 

State Law Regarding the Use of BPO's

The Appraisal Institute has released a document listing the applicable laws regarding Broker Price Opinions. The list covers every state and breaks the states into three general categories: Unlimited Authority, Limited Authority and Broad Authority.

Here is a link to the list: Download BPO_State_Laws

First Impressions - The 1004MC - Part Four - "House Cleaning"

I have been developing a workshop on the 1004MC and as I work through the process, every day is one of discovery. Despite having read 08-30 and the FAQ's, along with the existing appraisal guidelines, I am not certain that I have all of the answers, but I do have more than a few questions and observations.

On the plus side, reading and re-reading has provided perspective and possibilities as to what Fannie Mae wants, how we can provide it, efficiently and effectively. Still, I am no expert, and like others, I am second-guessing based on what I know thus far. With that understood, here are a few more of my observations.

First, the 1004MC is not (and I repeat not) a new appraisal form. The 1004MC, like its number-sake is an underwriting form that appraisers are required use. If appraisers designed the 1004MC, it would look different, as would the URAR    Download MCA_Appraisal_Report.pdf

Haves and Have Nots

The 1004MC requires the appraiser to provide "all of the information to the extent it is available or provide explanation if the data is not available". With the advent of multiple listing systems, computers and technology, how will you sidestep providing the data? If someone in your market area is "filling in the form", you will need to do the same.

"Use sales and listings of properties that compete with the subject, determined by the criteria the buyer would use". Your assignment, appraise a home in a new tract. What (from the buyers perspective) is competitive to the subject, only new homes? People "buy new" for a reason, often because they want to be the first ever in the home, at other times because it is the best deal. Are re-sales in the same area "competitive", from the buyer's perspective?

Click here to continue reading . . . .

FHFA Announces "Revised" Home Valuation Code of Conduct - Effective May 1, 2009

 Washington, DC – Federal Housing Finance Agency (FHFA) Director James B. Lockhart announced that Fannie Mae and Freddie Mac will implement a revised Home Valuation Code of Conduct (Code) effective May 1, 2009. The Code is based on an agreement between the Enterprises, the New York State Attorney General Andrew Cuomo and FHFA to improve the reliability of home appraisals. Following a comment period on the original Code, modifications were made by the Enterprises to reflect comments received. The revisions will facilitate implementation in the marketplace.

The revised Code builds on existing Fannie Mae and Freddie Mac seller-servicer guidelines to increase the reliability of appraisals for loans sold to the Enterprises for their portfolios or for securitization. The Code applies to lenders that sell single-family mortgage loans to the Enterprises beginning May 1, 2009 and will help assure that borrowers, homebuyers and secondary mortgage market investors receive fair and independent property valuations.

“The Enterprises have a strong interest in ensuring the soundness of the appraisal practices that lead to appraisal reports supporting the mortgage loans they purchase from lenders,” said Director Lockhart.

“FHFA supports this effort by the Enterprises to strengthen the appraisal process against the possibility of improper influence and coercion. The Code strikes a balance of assuring enhanced protections for appraisers while maintaining lender ability to address unprofessional appraisal practices and to perform quality controls on appraisals received. I appreciate the work of Fannie Mae and Freddie Mac on the Code and of the Attorney General’s Office throughout the process.”

Fannie Mae and Freddie Mac will be providing information on the Code to market participants in early January to address implementation questions in advance of the May 1, 2009 effective date.

Related Articles:

Regulators Reach Final Apprisal Reforms

http://www.fhfa.gov/webfiles/277/HVCC122308.pdf

Fannie, Freddie agree to new appraisal guidelines

Santa Clause - Former Real Estate Appraiser!

Santa gets firsthand look at consumer cutbacks

By Adrian Sainz

Robert Ecker was bored with retirement, so he went back to work as a housing appraiser in Stockton, Calif. He trained four other appraisers during the real estate boom -- all of them are now out of the business.

   "Since the real estate market closed down, I grew a beard and now I'm doing this," said Ecker, dressed in the trademark red suit with white trim.

"The older kids are asking for clothes now, rather than gifts," he said. "Most of them are asking for one gift."

From Stockton to Miami, from ritzy Las Vegas to gritty Detroit, cities with the worst real estate markets led the U.S. economy into recession. Skidding home prices and soaring foreclosures have magnified the broader woes of unemployment, stock market turmoil and hard-to-get loans. Holiday shoppers are making a list, checking it twice, and then scratching off the nonessentials.

Click here for the full article!

AMC’S - The first set of letters that spell appraisal de-valuation.

This is part 1 of a series regarding appraisal devaluation.

The appraisal industry as of late has dealt with many issues that are resulting in the de-valuation of the industry. Management companies, data companies, and others have had little problem with stepping in and twisting appraiser’s arms behind their backs. Appraisal fees are no longer quoted from appraisers, but are dictated to them by many companies.

Fiserv, LSI, MDA Lending Solutions, and Rels Valuations are all now working with Wells Fargo as appraisal management companies. The fees that are charged to the lenders in my service area are $340.00. The fees offered to appraisers range from $160.00-$190.00.

The picture that comes to my mind when I consider the situation is that of a pimp. These management companies are offering appraisal work at just below the area normal ($350.00) and retaining appraisers that are unable to get full fee work. The AMC’s are asking appraisers to undress and partake in the “oldest profession”.

Here we are in a climate of national financial turmoil, a good deal of which was caused by Wells Fargo. Why should Wells Fargo or any other lender that took bailout funds be allowed to make decisions liked this? By hiring someone willing to do work that essentially has no room for profitability, means that they are attracting the bottom of the barrel, and quite frankly, always have in regards to the competency and ability of the appraisers who have always worked with them.

National Policy Enables Price Fixing

The tides have shifted thanks to the agreement brought out by Andrew Cuomo’s office in New York. The HVCC will most likely turn out to be one of the most harmful things to appraisers that have ever been drafted. Even if it does not go into effect, the damage is done. AMC’s have used it to promote their systems as being HVCC compliant and have prompted many lenders into using systems that they never needed to use.

What this agreement between Cuomo and Fannie Mae and Freddie Mac has done is one of the single biggest blows to small business I have seen in my life time. Most appraisal firms are small offices of 1-5 people. You are lucky to find many that actually have administrative staff. There are the exceptions in every market, but for the most part appraisal offices are simple small business. This agreement does destroy any local affiliation or networking an appraisal company may have with the lenders that will be required to comply to the policies enacted with this agreement.

Keeping commissioned personnel on the origination side away from the appraisers makes sense, especially considering the amount of horror stories we have all heard over the past few years. Where the damage sets in is with the ridiculous way these lenders are now doing business. Prior to the inclusion of AMC’s on a massive scale, lenders that wanted to do unethical work could simply threaten appraisers to go along or get cut off from future work. Once all this is policy goes through, or if it doesn’t it still changed the way lenders work with appraisers, the system has been set up to allow non-regulated entities to essentially provide appraisal work without any regulation whatsoever. If an AMC pushes a value, or intimidates an appraiser there is no regulatory body to report them to. The lender still gets to drive values indirectly by hiring a third party to do it for them.

Click here to continue reading . . . .

Appraiser Claims Fraud in Rezko-Obama Deal

From "Fitzgerald renews interest in Rezko-Obama deal" by Jerome R. Corsi © 2008 WorldNetDaily

Since arresting Illinois Gov. Rod Blagojevich, U.S. Attorney Patrick Fitzgerald has renewed interest in convicted fundraiser Tony Rezko's part in the purchase of Barack Obama's Chicago mansion, according to a former real estate analyst who says he was interviewed by the federal prosecutor in the past 10 days.

 Kenneth J. Conner told WND he was interviewed by investigators from Fitzgerald's office regarding the purchase of the Obama mansion and the adjacent vacant lot that Rezko's wife, Rita, purchased simultaneously.

As WND reported last week, Connor filed a civil complaint in October with the Illinois Circuit Court in Cook County alleging he was fired by Mutual Bank of Harvey, Ill., because he objected to land appraisals submitted on behalf of the Rezkos and the Obamas, with the complicity of the bank.

Connor previously confirmed to WND that he told the FBI, months ago, when he initially was fired, that the bank and the Rezkos were engaged in "fraud, bribes or kickbacks, use whatever term you want," to benefit the Obamas. Connor said his lawyer, Glenn R. Gaffney, also has been interviewed by the FBI about the Rezko-Obama deal within the past 10 days.

Click here to continue reading - Source: WorldNetDaily 

Additional notes of interest:

• Connor has filed a wrongful-dismissal case against Mutual Bank
• Connor's complaint charges his "inconvenient appraisal" was removed from the loan file
• The FBI, through a federal grand jury, subpoenaed the Connor file in Oct. 2006

Comp Searches are for Suckers * - Appraiser "Lollipop Guild"

Re-blogged from Sara Goodwin's ActiveRain blog:

Regardless of if and when the HVCC will be placed into existence (in January 2009, March 2009, July 2009? Ever?), many appraisal management companies have done their due diligence of marketing to lenders that they will have to go through a middle-man such as themselves in order to conduct business in 2009.

‘And why not start today?' they will say to their potential new clients. And their potential new clients will say ‘Why not?'.

Once the lenders start their contracts with these management companies they will discover that what they are used to might be a thing of the past. ‘No comp searches? Really?' the lenders will say.

This is when these lenders will search out you and me.

We are the potential* suckers that will give them the ranges of values that they seek... that bit of confidence that will push them forward with the appraisal process. But will you and I receive the order for our troubles? Heck no. They now have a contract with this appraisal management company who will dole out the appraisal request that should have been ours to one of their desperate minions.

Will we turn into these desperate minions? Perhaps (let's face it, these are tough times). But in the meantime why give away the milk for free?

‘And what if this is a lender that has not signed on with an AMC... a potential new client?' you say. Just require an appraisal order prior to any work on a property is done. Many of us have made that our practice for years.   Source: click here

* I am not accusing any of us of doing free comp searches or being suckers in general.

Author: Sara Goodwin - Ashcroft & Associates - Portland, OR - Profile

Update on the HVCC and the AMC's push for business

I'm annoyed today. I received two conflicting pieces of information on what has been going on with the HVCC. The first came from an appraiser friend in Maryland, who received an email from their state board representative who was at a national meeting of the appraisal foundation. That email said:

 "I know you are all concerned about the HVCC that resulted from the FannieMae/FreddieMac agreement with the State of New York.

From what I could learn at The Appraisal Foundation's Board of Trustees meeting, it is highly unlikely that the HVCC will go into effect on January 1 of next year. We know that Fannie and Freddie have a new Federal oversight manager, which will certainly want to review all their policies and procedures and is unlikely to simply tell them to keep doing everything they have been doing - especially since the head of one of the Federal Financial Regulatory Agencies, the Comptroller of the Currency, sent a comment letter saying the agreement exceeded their authority because it allowed one state to set policy for banks throughout the country.

Furthermore, mortgage legislation passed in the house that affected appraisals had not yet gotten through the Senate when the current financial crisis hit big time and pushed everything else onto the back burner. It is not likely to be taken up until Congress resumes after the holidays. When it is revisited, it is highly likely that the HVCC will turn out to be much different than originally drafted, if it survives at all.

As of a few days ago, Fannie Mae and Freddie Mac were still waiting to hear from the Federal Housing Finance Agency if there will be a revised Home Valuation Code of Conduct released and if so, what the time for implementation will be. The last public comment made by FHFA Director James Lockhart - that indicated FHFA was planning to release a revised HVCC sometime in October - is the last thing the GSEs have heard, according to agency representatives."

So, good news for us all, right? But later that day I got an email from a loan officer that sent me a message she got from Wells Fargo, essentially stating that if she wanted to send loans to Wells Fargo, she had to use an AMC.

Click here to continue reading . . .

The ABC’s of AMC’s: Appraisal Management Companies Examined

AUTHOR: Micheal W. Armentrout, VP AM Appraisals, Inc. Mike has been involved in full time real estate valuation since early 1992 and has experience in numerous Central Ohio markets.

The review and possible adoption of the Home Valuation Code of Conduct (HVCC) in early 2009 has the entire appraisal industry biting its nails in anticipation of the Federal Housing Finance Agency’s final decision, but what does this really mean?

It certainly leaves few options except for the majority of lending based appraisal work to be distributed by Appraisal Management Companies (AMC’s). This means that no loan tied to Fannie Mae, Freddie Mac or HUD can have an originator who stands to profit from that loan, request a valuation directly from an appraiser. Since most appraisers at least understand the basics of the AMC model, I thought it was time to give a basic analysis for those readers who are not familiar with the appraisal process.

[Wells Fargo Wholesale Lending has issued an Appraisal Order Training document for brokers to use one of four approved AMCs.  Fee schedules are included: Download WellsFargo_Appraisal_AMC_HVCC_Appraisal_Process.pdf (252.1K) ]

Having been around for over 15 years, the premise of AMC’s is a solid concept in that it offers lending institutions a method to outsource appraisal ordering, tracking, and quality control. This lessens the burden on lenders to maintain complex networks of personnel which have historically had to implement appraiser approval and removal procedures as well as in house reviews and audits of appraisals. The cost savings factor is obviously appealing, particularly in light of the current financial woes of the banking crisis.

 Secondly, AMC’s have been viewed by policy makers and governmental agencies as a potential solution to a problem that many appraisal professionals have been drawing attention to for years; pressure on appraisers to obtain specific values. By eliminating pressure for pre-determine values, the belief is that this would also negate an appraisers fear of reprisal or loss of a client based on a lower than expected value conclusion and the result would by truly unbiased valuations. For this reason, HVCC was initially supported by many appraisers but has since caused the majority to change their opinions as months of analysis have led to a dramatic opposition to its implementation.

With these positive sales points for AMC’s, many might conclude that they are a viable fix for the entire finance process but as with most things, there is another side to the story.

Click here to continue reading . . . .