NEW RULES IN THE MORTGAGE LENDING ARENA

There are  many new Rules, Features, Procedures and Forms that have come to pass in the last 12 months.  Lets take a moment and glance at some of them and how they might impact you.

 

Home Valuation Code of Conduct or HVCC for short. 

This new phenomena was created in a rather auspicious manner. The Attorney General for the state of NY sued the major Mortgage entities of Freddie Mac and Fannie Mae for their “practices” of accepting loans with suspect appraisals. In an effort to to avoid the lawsuit, and without the approval of their oversight BOARD (otherwise known as CONGRESS), they agreed to accept Mr Cuomo’s Code for acceptable appraisals. In a nutshell the premise is that no one that might gain financially from a loan transaction should have any involvement in the assessment of value. Great accusations were made of fraud and deceit.  Appraisers, attorneys and consumers were duped by all powerful mortgage lenders  says Mr Cuomo and we need to remove any involvement by Lenders.  SO here we are.  What we have seen is a system where appraisals now cost on average 25% more than before. This fee is now passed on to the consumer (YOU).  In addition, a new Market was created for entities called Appraisal Management Companies or AMC’s.  So these AMC’s are here to protect the consumers. They should equalize the obvious pressure by Lenders to meet certain values. And on the surface they seem to accomplish that goal.  No where in the HVCC is the intent to provide a better, more consumer friendly process and product. Its has had the opposite effect. Congress has learned that the AMC’s have allowed virtually any Appraiser to be on the “approved list”. And that the AMC’s are routinely putting the appraisal out for low bid.  Now lets understand this a moment, the intention of HVCC was to produce a better product, but the AMC’s charge you the consumer a FLAT FEE of lets say.. $375.  They will then send the appraisal request to the APPRAISER that BIDS the lowest amount.  Hmmm, so if one appraiser offers to do it for $300, then the “administrative” fee would be a reasonable $75.  BUT if the low bid process has appraisers with less skills and less clients willing to do the work for $200, then the AMC gets even more. And when it was proposed the AMC disclose what they paid for the appraisal, they fought hard to keep that a secret.  And that is what has happened in a lot of cases. This HVCC has become a tremendous limiter of our ability to help consumers. And as you might imagine, the more experienced appraisers with established businesses and more knowledge have generally refused to work for half of their normal fee. So what do we get for half the price? In many cases… half the quality. HVCC in a nutshell. 

Now lets be clear. There are bad mortgage lenders out there that do bad things. Just as there are bad doctors, bad  auto mechanics, bad attorneys and bad appraisers. But there were laws already in place that made appraisal fraud illegal.  Here at Mortgage Choice we have always chosen to use experienced appraisers with ties to the community they serve and a desire to do quality work.  

 

The New HUD REQUIRED Good Faith Estimate

HUD has worked on a  revision to the Real Estate Settlement Procedures ACT (RESPA) and we now have some new forms.  There is good news and bad news in these new forms. HUD has wanted to offer Full disclosure to the consumer for a long time and this seems to be a step in that direction.  The new Good Faith Document is now 3 pages instead of 1.   It lays out the rate and specific fees and the revenue generated by the rate you obtain. All of these things can only be good. But we need to be careful., Lets understand how your loan gets to its final resting place..

There are basically two ways a mortgage loan can become an income source for  a banking entity. IT is originated either through a retail or a wholesale arena. Retail is what you would think of when visit your local Bank office and speak directly with an employee of that bank.  Wholesale is everyone else which consists of entities like Mortgage Choice Inc or other Mortgage outlets that do not actually take deposits or service mortgage loans (take your payments). As you might imagine both avenues create revenue for the entity or they would not be in business (We are all For Profit organizations, or we would be Bankrupt organizations). There are two basic types of compensation in this arena and we generally call it Front end Fees and Back end Fees. The front end fees are most typically seen in the form of Origination or discount Points.  The back end fees are one of two things:  Yield Spread Premium (YSP) or Servicing Released Premiums (SRP). In a nutshell there is YSP or SRP paid on virtually every loan UNLESS you pay a large “Front end Fee”. 

The reason this is important is because the new legislation requires ONLY the disclosure of YSP, not SRP.  

The new GFE has a section devoted to urging you to shop but it is skewed toward focusing on YSP instead of the more  important parameter of RATE and Total closing Costs. 

Please take time to ask your Lender to explain fully not only what IS disclosed on the new forms but also what is no longer disclosed… your TOTAL “cash to close” needs. 

Think of it this way….   Is it really important which entity made greater revenue on a loan or whether you received a better Interest rate.  Full service Brokers/Bankers may have more costs associated with a loan than a discount shop, but they generally offer more services, are more knowledgeable, and have a greater grasp of your overall needs. 

Let me ask you… would you purchase Car “A” even if it was more expensive, just because Car “B’s” company made greater profit but sold the car for less?