How mortgages practice social distancing

 Loan Guidelines  Comments Off on How mortgages practice social distancing
Mar 272020

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By G. Steven Bray

The realities of social distancing and shelter-in-place orders are impacting the real estate industry.  For those who are trying to buy or refinance a home, those realities could impact your ability to close your loan.  The Federal Housing Finance Agency (FHFA) has taken notice and in response has instructed Fannie Mae and Freddie Mac to ease some of its loan guidelines in two areas.

With respect to appraisals, the FHFA recognized that a standard appraisal in which the appraiser visits and inspects the home is not consistent with virus containment measures.  Instead, Fannie and Freddie have agreed to accept appraisal alternatives with some conditions. For most purchase transactions, if the lender uses what’s called a desktop appraisal – for which the appraiser relies on public records, multiple listing service information, and other third-party data sources to identify the property characteristics – and the estimated value is within limits established by Fannie and Freddie, the lender won’t be held accountable for the value, which means the lender should be willing to close your loan.

With respect to employment, the FHFA recognized that many employers are either shut down or their employees are working remotely.  The traditional verification of employment the lender performs before closing may not be possible. The new guidance allows lenders to accept an email from the borrower’s employer or evidence the employee is still on payroll – such as a recent pay stub or bank statement showing direct deposit of a payroll check.

While these accommodations are great, it’s up to individual lenders to agree to use them.  As lenders still bear some responsibility for loans that default, and given the current economic situation, you may find that your lender isn’t willing to take the risk.

Waive the appraisal to save some money

 Loan Guidelines, Residential Mortgage  Comments Off on Waive the appraisal to save some money
Sep 212017

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By G. Steven Bray

Fannie Mae and Freddie Mac for a while now have allowed some borrowers who refinance their mortgages to forego an appraisal. Each has internal, computer-based valuation models, and if they feel sufficiently confident in a homeowner’s estimated value, they will accept it in lieu of an appraised value.

This month, both Fannie and Freddie announced they will start waiving appraisal requirements for some purchase transactions. The change could save a homebuyer $500 and shorten the mortgage process by a week or two.

Neither has released its formula for deciding when to offer the waiver; however, it’s expected that most waivers will go to homebuyers making large down payments, and that waivers will be offered on only 5% to 10% of transactions. Your mortgage lender will notify you of the waiver option after plugging your transaction into Fannie’s or Freddie’s computer-based underwriting system.

Even if you receive a waiver offer, you still can choose to get an appraisal. I suspect a significant number of homebuyers will waive the waiver and order an appraisal to make sure they’re not paying too much for their homes.

Why are appraisals so expensive? – Part 2

 Regulations, Residential Mortgage  Comments Off on Why are appraisals so expensive? – Part 2
Jan 202016

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By G. Steven Bray

Yesterday, we started discussing why appraisal costs have soared. We identified regulations requiring that lenders order appraisals through middlemen. Let’s look at a couple other factors.

– Regulators have increased appraisal requirements. Appraisers not only have to estimate the property’s value but also have to assess the strength of the area’s housing market. FHA appraisers now have to crawl into a home’s attic or crawl space among other new requirements.

– Finally, the new integrated disclosures regulation requires lenders to quote appraisal fees exactly at loan origination. Given that little is known about the property this early in the loan process, appraisal companies that provide the quotes must consider the risk that the property has complexities. Thus, their quoted prices have risen.

– The new regulation also has virtually eliminated the market for appraisal orders. When you eliminate market competition, you get higher prices.

The added workload and lower pay pushed a number of appraisers out of business, and the inability to control appraisal fees because of appraisal company middlemen makes the profession unattractive for potential new appraisers. As a result, a number of housing industry experts is warning of a coming appraiser shortage. For homebuyers, this initially could mean delayed closings. Eventually, it probably means even higher appraisal prices as that may be what’s necessary to attract new people to the profession.

Why are appraisals so expensive?

 Regulations, Residential Mortgage  Comments Off on Why are appraisals so expensive?
Jan 192016

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By G. Steven Bray

“Back in the day, I could order an appraisal for $350.” So began a conversation with a couple other “old-timers” in the mortgage industry about the current high cost of appraisals. The only problem is “back in the day” was only a couple years ago. Today, a typical conventional loan appraisal costs $500 and an FHA appraisal can cost $600. Why has the cost increased so much in such a short time?

Several factors are to blame, and we’ll examine them today and tomorrow.

– After the financial crisis, regulators decided that because a few loan officers at Washington Mutual Bank had leaned on appraisers to falsify values that all loan officers should be punished. (Reminds me of elementary school, but then again, so do a lot of things the government does.) As a result, appraisals now are ordered through an appraisal company middleman. And, of course, the middleman charges a fee.

Initially, the middlemen just took their fee from the appraiser’s fee, meaning appraisers received less. However, recent legislation required that appraisers receive their usual fee, so middleman fees forced appraisal prices to rise.

Tomorrow, we’ll examine a couple other factors and the effect these may have on the broader housing market.