Mortgage Blog

It’s been a while since I have blogged. Lots of procrastination involved. And frankly I was burned out and frustrated by all of the changes in the mortgage industry, (mostly negative). I still have strong opinions regarding these issues that I share with clients and friends, so I will start sharing on this blog once again.

Refinancing: Even though rates are still pretty low – 5% average for a 30 year fixed, they never hit the super lows we were expecting a year ago. If you’re current rate is above 5.25% it will probably make sense to look at refinancing. The biggest obstacle however has been appraised values. With the recent drop in real estate prices, and tightened regulations, it is tough to obtain a loan if you do not have much equity. It is very common for me to have to turn away several clients each day because of value issues. A typical refinance loan will require 20% equity in the property, in order to avoid mortgage insurance. When someone inquires about a refinance, one of the first things I do is check the recent comparable home sales to make an educated guess of appraised value. My “guess” is extremely important now because of the changes to appraisal ordering made in May 2009. The change is known as HVCC, (Home Value Code of Conduct). This new rule attempts to stop appraiser fraud or collusion by taking out the personal relationships that banks and mortgage brokers have with their appraisers. In order to obtain an appraisal, I now have to order directly through an independent appraisal management company, (AMC). The AMC then assigns the appraisal to an independent appraiser. I am not allowed to contact the appraiser directly. I cannot ask the appraiser if he believes there are enough comparable sales to support value. Essentially, I have no input or control over this process. On the surface this may sound like a good idea right? Clean up the industry; get rid of the fraud and the corruption!

This is just another example of regulation doing more harm than good. What this regulation has done is decrease home values even more. Here’s why: I personally have witnessed dozens of real estate transactions that have been cancelled due to appraiser’s incompetence. When an out of area appraiser is assigned an appraisal in an unfamiliar area, he doesn’t know the details of the community, neighborhood, etc... that could affect value. If he does not know these details, he may appraise the home for much less than what a willing buyer would pay for the home. If the appraisal comes in low, then the transaction may be cancelled or price reduced, thus decreasing value even more.

I’m not saying that this happens every time. However it happens with enough frequency to have a negative effect on values.

I believe appraisal fraud was probably the least important contributing factor to the Real estate meltdown. The fact is when the real estate market was hot; appraisers had comparable sales available to substantiate the values in their reports. It was not their fault that the real estate market took a dive. They were just doing their jobs. In my 25 years in the real estate and finance industry, I cannot remember any appraisal fraud.

Of course this is not how the regulators see it. They think that having a personal relationship with someone you do business with is a bad thing. What’s wrong with sharing your knowledge with an appraiser so that he has as many facts as possible? What’s wrong with asking the appraiser up front if he believes there are enough comparable sales to support the value range requested, before your client has to spend their money on a “shot in the dark“ appraisal.

If you applied these types of restrictions on other industries, the result would be catastrophic to our economy.

Enough ranting, back to refinancing possibilities: if lack of equity is an issue, there is one loan program that might be able to help. It does not always require an appraisal and if it does require an appraisal it may allow a new refinance loan up to 115% of the home’s value.

It’s called HARP or Home Affordable Refinance Program. If you have an existing home loan that was originally underwritten as a Fannie Mae or Freddie Mac loan, (we can look it up for you to make sure), you can refinance to a lower rate with very little or no fees at all. There is no mortgage insurance despite the lack of equity. This program is designed to help those homeowners that have little or no equity. Rates for this program are anywhere from 4.5% to 5.375% currently.