Changes continue for lenders, borrowers
EAGLE COUNTY, Colorado ” It seems like a not a day goes by in recent months when I haven’t learned of a new rule (or some days, a dozen new rules) impacting the way mortgage loans are done. We have had a whirlwind of changes that some days just about makes you want to run for the storm cellar and stay there for a few years.
No one doubts that a lot of changes are necessary. There was a lot of abuse of the system and oversight had gotten far too lax. However when the government starts fixing things you can be assured they will fix a lot of what isn’t broken and overlook the obvious fixes that are needed.
One of the worst ideas to surface recently is a new regulation due to go into effect Jan. 1, 2009 regarding the way appraisals are ordered. Currently, a mortgage broker or lender may order the appraisal from any licensed appraiser and that work is generally accepted by all lenders. This allows the mortgage broker and the borrower to take care of one of the most time-consuming aspects of the loan process. While the appraisal is being completed, the borrower can be deciding on a number of other things such as loan amount, interest rate or program.
But all that will soon change. Lenders and mortgage brokers will have to order an appraisal from an independent clearinghouse that will then order the appraisal from its own list of appraisers. In the case of a brokered loan, the broker must commit to a particular lender and order it from that lender’s chosen clearinghouse.
Often these clearinghouses will set up a conference call between its list of appraisers who offer services in the area in question, and will auction off the appraisal to the lowest bidder. The clearinghouse charges the borrower a set fee, finds who will do the job the cheapest and pockets the difference. The clearinghouse then owns the appraisal, not the broker or the borrower.
The purpose of this is to keep the lender or broker from influencing or pressuring the appraiser to come up with an artificially high value. To an extent, that is a valid point because in some cases unscrupulous lenders have put pressure on appraisers. In fact, this regulation has stemmed from a New York State case where Washington Mutual allegedly pressured appraisers to inflate values or be dropped from the company’s approved list.
It is interesting to note that Colorado and many other states recently enacted laws that make it a criminal offense for a mortgage broker or lender to coerce an appraiser to inflate an appraised value, and that is an effective way to address this problem.
However, in the grand tradition of overfixing a problem the Feds have, in my opinion, created a monster that will cost consumers a ton of money and decrease consumer choices in terms of mortgages. This could be a cumbersome, burdensome mess that will probably cause more real estate sales to fall apart and closings to be delayed for weeks.
The reason I feel this way is that once the appraisal is ordered, the consumer and the mortgage broker will be stuck with that lender. If any of several issues come up (as they frequently do) the consumer must start over and pay for a new appraisal with a different lender. Even if the lender suddenly went out of business, the borrower and the broker would most likely have to start over and pay for a new appraisal.
For example, as brokers we have the option of booking a loan with numerous different lenders. Often the customer wishes to start the loan process but float the rate for a while. We can get the loan completely ready to go to underwriting, including having the appraisal done. When the moment is right, we lock the loan with a given lender and send it off to underwriting. Occasionally our chosen lender will (for somewhat arbitrary reasons) decline a loan, which means we send it to a different lender. Other times a lender’s guidelines may change in terms of qualifications or availability of a program even once a loan has been locked.
Under the new guidelines we will have to select the lender and order the appraisal through the lender’s selected outside clearinghouse. This eliminates the option of the borrower to get his loan ready and float the rate until he chooses. Also, if the loan should be rejected for some reason or become unavailable, we and the borrower would have to start over ” ordering a new appraisal and waiting seven to 10 days (or if there is a refinance boom, as long as a month) and deal with the same uncertainties again.
Also, when appraisals are bid out in this manner we will see appraisers from many different areas who claim to be experts in the Vail market suddenly driving in from Denver or Grand Junction to do appraisals. I can tell you from experience that this simply does not work. There are few requirements for an appraiser to call himself an expert in a given market other than to be licensed in the state and proclaim he knows everything about the properties in, for example, Beaver Creek and how they differ from properties in Vail Village.
Chris Neuswanger is a loan originator at Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage-related inquiries from readers.
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Are we seeing more bears because there are more bears on the valley floor, or because we’re all spending more time at home? It could be a bit of both.