We in the “biz” have been wrestling for most of 2009 with the product of the Home Valuation Code of Conduct (HVCC), Andrew Cuomo’s settlement with Fannie Mae and Freddie Mac.  That settlement produced a new middle-man in the home appraisal process–the Appraisal Management Companies (AMCs)–that resemble nothing so much as the ‘managed care’ companies that were inserted into the health insurance system two decades or so ago.

And just like that mess, the AMCs have failed to improve things for the consumer.  In fact, it can be convincingly argued that they have made things far worse.  The new protocol has consistently produced poor quality appraisals performed often by the least qualified and frequently out-of-the area appraisers, at dramatically increased costs to the consumer.  But in terms of creating new profits for banks who have now created their own internal AMCs, it’s been a resounding success.

Until now, this new process impacted only conventional loans.  Since most of the market activity has required FHA financing, this hasn’t been as debilitating as it might have otherwise been.  However as of January 1, 2010, it applies to FHA loans as well.  What does this mean for you?

It means that on FHA loans, your lender will now have:

• no control over scheduling of the appraisal
• no ability to communicate directly with the appraiser
• no ability to receive notification from the appraiser when there is a value or repair issue
• severely constrained ability to dispute bad appraisals
• higher appraisal costs
• slower appraisal turn around times
• longer escrows

The best thing you can do in the short-term is to plan for longer escrow periods.  I recognize that short-sale banks are not very cooperative on this issue.  But if you don’t attempt to educate them and plan in advance, you’ll be begging for extensions on the other end.  In the long-run, let your voice be heard and contact your congressperson and let them know what you think.

One piece of the Worker Homeownership, and Business Assistance Act of 2009 just signed into law last week by President Obama, was the expansion of the First Time Buyer Tax Credit to include move up and repeat buyers.  The new Move-Up/Repeat Home Buyer Tax Credit gives qualified homeowners a tax credit of up to $6500, and it is effective as of November 6, 2009.  Like the First Time Home Buyer Tax Credit, you must enter into contract before April 30, 2010 and close by June 30, 2010.   Click the link to check out qualifying details.

A note about getting the cash: while the law allows home buyers to “monetize” the tax credit to help with cash to close, this requires that banks be willing to make short term loans secured by a buyer’s future tax credit.  For reasons you can imagine, banks are not rushing to be the first in line to do this.  I don’t expect to see this happen any time soon.

That said, there are two things you can do to speed up receipt of that money.  First, after you buy, you can amend your 2008 returns and claim the credit as though you bought the home last year.  This may also help those lucky folks whose income in 2009 disqualifies them but who would qualify for the credit based on their 2008 income.  Second, prospective buyers can adjust their withholding in advance to save for a down payment.  Of course, you might have to pay that back later if you don’t buy a home, so only do this if you are really committed to buying.

It  looks like this is gathering momentum…

Senate May Approve Tax Credit Wednesday
The U.S. House and Senate are close to an agreement to extend the home buyer tax credit due to expire at the end of this month.

The Senate is expected to vote Wednesday while the House could approve it later in the week – likely before Friday when the monthly report on the unemployment rate will be released.

The measure that is slated to pass would cover homes under contract by April 30. Also, anyone taking the credit from a home purchased in 2010 would be able to take the credit when they pay their 2009 taxes.

First-time home buyers would be eligible for $8,000, but purchasers don’t have to be first-time buyers. Anyone who has owned a home for at least five years could get a $6,500 credit on a new residence.

Income limitations rise under the new plan with individuals earning up to $125,000 a year and couples earning up to $225,000 eligible. People who earn more would be eligible for smaller credits.

Source: The New York Times, Jackie Calmes (11/4/2009)

The Buyer’s Choice Act (AB 957/Gagliani) was signed into law by Governor Schwarzenegger on the 12th of this month.  Thanks to the efforts of California Assemblymember Cathleen Calgiani (D-Tracy), when buying foreclosed homes buyers may now use the title company of their choice.

This was desperately needed reform.  In recent times, a few title companies had developed relationships with banks that had large foreclosure inventories.  Those banks frequently used these S. California title companies to handle N. California escrows.  Aside from the obvious disadvantages of trying to work with an out-of-town escrow officer, practices above and below our sunshine state Mason-Dixon line are often different. Add to that the lack of existing relationship, the accountability that comes from working within your community, and the unlikelihood that those title companies will get future business from here in the north, and you have  recipe for indifference, at least on the buyer’s side of the transaction.

Where it really became a problem was in the fees.  S. California title companies frequently charge inordinately high escrow fees, doc prep fees, loan-tie in fees, and escrow pads that raise buyer’s last minute costs and make for unpleasant delays.   And although Assembly Member Gagliani may not have considered this, the requirements of new Mortgage Disclosure Improvement Act (MDIA) may well have mixed with these last minute overcharges to cause even further delays in closing and inconviences for all.

What we must wait to see is whether the selling banks will select from the many offers received the one that concedes the choice of title companies back to the bank. In other words, will the AB957 do nothing more than put this issue back into the pot of negotiable items?  Even if that happens, the banks’ advantage will last only as long as does the dearth of inventory.

So, in a complicated market unsure of its own direction and replete with poorly conceived, knee-jerk regulation, we should take a moment to celebrate one simple, clear-eyed piece of legislation that really does help consumers.

The new Home Valuation Code of Conduct (HVCC) appraisal rules went into effect here in Sacramento on May 1 and the sh*t is hitting the fan.  They are a nightmare and a perfect example of the law of unintended consequences.   What started as an investigation by New York Attorney General Andrew Cuomo of Washington Mutual and eAppraiseIT,  ultimately entangled Fannie Mae and Freddie Mac.  To stop further scrutiny into their business practices, Fannie & Freddie agreed to adopt the new appraisal code which professed to isolate appraisers from the unwelcome influence of interested parties (the Realtor and the lender) and allow appraisers to come up with more objective and reliable conclusions.

While it is unfortunately true that too many lenders adopted a coercive approach to handing out appraisal orders, there were certainly other ways to tighten things up.   And, at the same time that these new rules were being put into effect, HUD was loosening the criteria by which appraisers were able to become certified to do FHA appraisals.   How does that make sense?   Well, it doesn’t.

Now we have a new parasitic and profit hungry private beaurocracy–the Appraisal Management Companies (AMCs)–to obstruct deals.   All conventional and some government appraisals must now be ordered through a specific bank who in turn orders the appraisal through one of their “approved” AMCs.  The AMCs pay a fraction of what appraisers are accustomed to earning, extracting the difference for their profit while attracting  the least qualified and geographically most distant appraisers. The results are awful.

Ironically, the banks seem to trust these new HVCC appraisals even less then before.   They subject them to computerized valuation methods that frequently result in a requirement for an appraisal “review” that creates at additional expense to the consumer and delays on the transaction.  Oh and delays often cost the consumer further in the form of “per diem” penalties for closing late.

So, to summarize, HVCC frequently attracts appraisers willing to work cheap, produces very poor quality work that the banks don’t trust, costs the consumer more, causes delays,  and drives seasoned appraisal professionals out of work.    Nice work boys.

For homeowners waiting to find out if they qualify for a mortgage refinance or modification under the Obama plan announced last week, here is the first place to look.  Click the “self assessment” tools to guide you through the options and see if you might qualify either to refinance or to secure a loan modification.  There are then instructions for gathering up the required documentation and contacting the appropriate people.

Jim Wasserman of the Sacramento Bee had an article in the Sacramento Bee this morning that provides some excellent resources, including phone numbers to lenders other than Fannie & Freddie.  I can’t seem to link to the article anymore, so I’ve pasted it in for reference below.

Surviving Recession: Mortgage relief program has homeowners hopeful

By Jim Wasserman
Published Friday, March 6, 2009

Mortgage lending institutions reported high call volumes Thursday and thousands of Internet inquiries from struggling borrowers eager to find relief in President Obama’s $275 billion housing rescue plan.

“Within minutes of the plan being announced, there were 3,000 hits on our Web site,” said Eileen Fitzpatrick, a spokeswoman for federal mortgage giant Freddie Mac.

“As I understand it, the phones are ringing this morning,” Jay Brinkmann, chief economist of the Mortgage Bankers Association, told reporters during a conference call early Thursday.

Read the rest of this entry »

The second part of the plan announced last week to help troubled homeowners gets at the core of the problem:  how to help “at risk” homeowners who are struggling to keep their homes.  The key objective of the “Stability” piece of the plan is to reduce monthly mortgage payments to sustainable levels for those committed to keeping the homes in which they live.  If you’re a flipper, an investor, or worried about your vacation home, you can stop reading here.

We’re still waiting for March 4th and more detail, but here’s what we know so far:

• Do I have to be behind on my payments?  No, this is a big improvement over previous efforts.  You qualify without falling behind on payments if you can show that you are “at risk of imminent default” due to loss of income or employment, a big increase in your expenses, or a bad loan that is resetting to an unaffordable level.  Following the FDIC’s model of their IndyMac bank takeover, the government wants lenders to pro-actively send letters to those who appear to meet the eligibility requirements.  That will take a few weeks after the March 4th announcement, and the phones lines will be busy, so patience may be needed.
• Will this reduce my principal balance?  It could.  Unlike Part I, this part of the plan offers incentives to lenders to reduce principal balances if other measures fail to bring payments down to 31% of your monthly income. Principal reduction is  still voluntary and will be the last resort for lenders, but at least there are now financial incentives in place to encourage lenders and servicers to consider this.   Furthermore, if you exhaust all other options and are forced to seek protection under the bankrupcty laws, it looks like the courts will have the ability to  “cram down” the principal balance, allowing you to keep the home with a lower payment.
• Will all lenders be doing this?  No–and this is sort of a weak spot–it remains a voluntary program, but the government has placed substantial incentives on the table and expects most major lenders to participate.
• What incentives will lenders have to participate?  The government is going to pay loan servicers (the bank who sends your monthly statement but may not actually own the loan) $1,000 upfront for each loan they successfully modify plus an additional $1,000 per year for three years if the borrower stays current on the loan.  To encourage lenders to work with borrowers who are not yet in default, additional incentives are paid to banks and servicers who modify loans before the borrower falls behind.  Finally, a $1,000 per year (up to five years) is actually offered to the borrower who stays current on the modified loan for the ensuing five years.  This goes toward reducing principal even further.  Pretty good stuff.
• How do I qualify?  The home must be your primary residence, the payments must exceed 31% of your current income, and your loan must not exceed the current Fannie Mae/Freddie Mac loan limits for your area.  The standard national limit has been $417,000, however there were higher limits imposed in some areas for 2008, and the Plan reestablishes those for the rest of 2009.
• What do I do between now and March 4th?  If you think you may qualify, then get ready by organizing your current income: pay stubs, tax returns, and anything else; your expenses for your mortgage, property taxes, car payments, student loans, credit cards; and documenting and explaining any hardships that have contributed to your current inability to make your mortgage payments.

So, we wait for March 4th to know the rest of the story, but to summarize, Part I offers a little bit of help to “responsible” homeowners who can currently afford their payments.  Part II creates incentives that encourage banks and servicers to work with “at risk” homeowners before they get behind and damage their credit; offers the possibility of principal reduction to create a livable payment;  and will pro-actively contact homeowners who may be eligible.

All in all, this is an improvement over the litany of half-hearted, watered-down efforts previously made.  Let’s hope it has the desired effect.