New Appraisal Rules Bad for Consumers and Recovery

June 9, 2009

By Brian Short, CMC, CRMS, GMA

Beginning on May 1st of this year (2009) any home buyer or homeowner getting a new mortgage on their house will be up-charged $150-$250 for their appraisal and generally charged an additional $968 to close their new loan!  You mean, you never heard about this?  You thought the government was doing all it could to stimulate the struggling housing industry?  Guess again!

A year ago, one attorney general in New York, with a famous last name,

NY AG Andrew Cuomo

NY AG Andrew Cuomo

Cuomo,  struck a deal with Fannie Mae and Freddie Mac to keep them out of a potentially very ugly and very public law suit because of blind eyes they had been turning to a now bankrupt bank, Washington Mutual. 

You see, WaMu (as they are known in the banking world) had a side business they were operating where they started an Appraisal Management Firm where they required their loans to include an appraisal only from those “independent” appraisers who would join their firm and work for 3/4 of what most professional-level appraisers would work. 

Keep in mind, this did not lower the cost to the consumer.  Their appraisals still cost the same.  It was simply another income stream for the bank and a way to control who did their appraisals.  These appraisers soon learned who “buttered their bread” and were very careful to give the federally chartered bank the value they needed to get their loan closed.  Sounds fishy, huh?  YOU BET IT DOES!

Now enters the young Cuomo, called Andrew, with his eyes on bigger political prizes.  He uncovers this corruption and sues WaMu, Fannie Mae and Freddie Mac – who all seemed to know that WaMu was doing this.  (Countrywide/Bank of America STILL own their Appraisal Management firm – Landsafe!)  To head off this embarrassing high-profile lawsuit they struck an “out-of-court” settlement which goes far beyond the jurisdiction of the state attorney general.

He asked for, and received, assurances that no Fannie Mae or Freddie Mac loans would ever be accepted by federally chartered banks who required that their appraisals were done by their own appraisal management firms?  Right?  Wrong!!  Wrong!!  Wrong!!

This new agreement which went into effect on May 1st exempted ALL FEDERALLY CHARTERED BANKS!  The new agreement, crafted in Albany, NY was never approved by Congress or any state legislature. It was drawn up in some back-room to avoid a trial against a corrupt bank doing corrupt business with a corrupt Appraisal Management firm they owned – most likely known about by both corrupt Government Sponsored Entities (GSE’s) Freddie Mac and Fannie Mae!  And to top it off, ALL FEDERALLY CHARTERED BANKS are exempt!  This new “back-room agreement” only affects mortgage brokers and bankers who are generally supervised or chartered by state banking regulators.

WaMu is NoMoIf that was not enough, it now requires all appraisals to be ordered through APPRAISAL MANAGEMENT FIRMS!!!  This very same corrupt system that WaMu used to artificially inflate their appraisal values to ensure that their loans would close – making sure that no independent third parties were involved in the process of assigning values to the properties under consideration!  What?!?!? 

I thought it was the corrupt Appraisal Management Firm model of business that had proven itself to be untrustworthy in the New York back-room in that courthouse in Albany?  Why is it that Mr. Cuomo would wrongly insist that ALL APPRAISALS now be ordered and up-charged by centralized corporate middle-men who do not know local property values, local building standards, and local business practices.  This new layer of New York mandated bureaucracy is required all across the country without a single vote or hearing from industry insiders on how it would negatively affect the struggling mortgage and Real Estate industries. 

These “middle-men” are unregulated by any federal or state agency but have been given the task of arranging for 70-80% of all mortgages being closed in the country and up-charging the cost of that appraisal by $150-$250 per order and passing that cost on to the unassuming buyer or homeowner.  Those $300 appraisals are now costing $400 – $500 for someone outside the state to assign the work to someone with whom they have a working agreement who may or may not live in the area, ever work in the area, or have ever researched the housing market in the area of where the appraisal needs to be done. 

What is their qualification for getting to do this appraisal for this Appraisal Management Firm?  They have promised to work cheap and fast!  Is that who you want to do your appraisal?  Cheap and fast?!?  Who benefits from this arrangement?  The host of newly formed unregulated and unsupervised Appraisal Management Firms are making out like bandits!  Everyone else in the transaction is supervised by a state or federal agency or governing board – Realtors, Mortgage Professionals, Home Inspectors, Insurance Agents, Surveyors, Builders, Title Agents, Appraisers – they’re all tested, licensed, and regulated.  Who tests, licenses or regulates the Appraisal Management Firms?  Why should they be making any money in this transaction?  What are they professionals at doing?  Looking at the next name on a list of random appraisers who have agreed to work for what they will pay them – even if they are not local professionals themselves.

It is reported that this new layer of middle-men have added another 5-10 days on the already very slow loan underwriting timetable causing delays in loan closings which cost the borrower an additional $500-$1,000 to extend the rate lock so they still receive the rate they agreed to receive at the time of the loan application.  Some have estimated that this new over-reaching agreement will cost Americans $2.8 BILLION EVERY YEAR and cause weeks of delays in closing Real Estate mortgages!

Let me make sure I get this right – the consumer is paying anywhere from $650- $1,250 to get an inferior appraisal done which takes longer to get back simply because a nationally chartered bank had an Appraisal Management Firm in their “back pocket” and they were so corrupt that they are no longer in business.  That was the punishment put on all American borrowers by one attorney general in one state up in the northeast because he had dirt on some crooks at Fannie Mae and Freddie Mac?  This can’t be good! 

Would you like to join the thousands of housing industry professionals in calling those who forced this on you and your neighbors without a single vote or hearing?  CLICK HERE to see who you can call and make your voice of protest heard.

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A Formula for Recovery – Including Investors

December 1, 2008

By Brian Short, CMC, CRMS, GMA

California HomesIt was announced at the end of last week that the National Association of Realtors was asking the Department of Housing and Urban Development (HUD) to re-open the FHA 203(K) loan program to investors as a part of the formula for helping reverse the continued downward spiral of the US housing market. 

The FHA 203(K) loan is a government insured rehabilitation loan I have used to help home owners, either buy and rehab a home they plan to live in or to rehab the home they current live in.  Either way, it works much like a construction loan with up to 5 draws for major projects to improve the condition of a distressed or out-dated property.

The borrower would be required to qualify for the final loan amount including the costs of the buffalo-vacant-housesimprovements and the money is only released after the work is completed and inspected to meet whatever codes or requirements necessary.  The borrower is required to front the money for the repairs or use a contractor who will agree to be paid in stages as work progresses.

Improvements can be made from a long list of “qualified improvements” including updating kitchens, bathrooms, HVAC, electrical or plumbing systems, roof, windows, flooring, siding and even adding square footage by adding a master bedroom or bathroom.

One of the beauties of this loan is that the current mortgage must be rolled into the final loan so the borrower is left with only one final “all-inclusive” mortgage at a great FHA fixed rate. 

Names BreesHowever, in the late 90’s there were investors who were involved with some fraudulent deals with builders, appraisers and title companies who abused this program and HUD cut off all non-owner-occupants from using the FHA 203(K) loan.  This decision shut down a lot of investor rehab activity until the sub-prime market began to pick it back up about 5-6 years ago.  Two years ago, most of the non-owner-occupant rehab activity came to a crashing halt, once again, as the sub-prime programs evaporated and now, some neighborhoods are riddled with empty homes which have been vacant for several months and are in need of repair or normal improvements to ever get them sold.

Over the past 2 years appraisal standards have increased, property values have decreased and vacancy rates have increased.  All of this leads to the need of investors to be enticed back into the market with favorable loan programs to reward their willingness to take on part of the risk of getting the housing market back out of the ditch.

NAR has called for a three year window for investors to be allowed back into the FHA 203(K) loan sold_houseprograms.  I would echo their call but not put a 2 or 3 year limit in place at this point.  Let’s take this one year at a time and call for Congress to immediately allow the non-owner occupant to qualify for the FHA 203(K) loan without further penalty and renew this provision again for another year at the end of 2009, 2010 and 2011 if necessary until we see normal numbers come back for the housing market.  This plan is much better than a government bail-out plan and rewards those who are willing to take on risk with the rewards of profit to be made on investor houses they have repaired and updated to get off the market.