There has been a lot of buzz out there this year about how mortgage brokers created the current crisis in mortgage lending. Say it isn’t so! Well, it isn’t.
Mortgage brokers can only work within the framework of guidelines set up by the investors (banks) who buy loans from them. The bank sets down rules for minimum credit score, max loan to value, documentation requirements, etc. Mortgage brokers do not approve loans. They fit customers into programs that investor banks offer. Barring actual fraud on behalf of the broker it’s the bank that decides if a borrower is credit worthy.
One of the things being talked about right now is inflated appraisals. A new ruling attempts to address appraisers being influenced by lenders and brokers to come in with a certain value on a property. There is no doubt that some lenders do try to inflate appraised values to get a loan transaction approved. However, most lenders, brokers and appraisers are ethical and don’t engage in this type of activity.
This new ruling, dubbed “The Home Valuation Code of Conduct” proposes sweeping changes in the way appraisals are ordered. Under the new rules lenders and brokers would not be able to directly order an appraisal in a loan transaction. The lender / broker would not be able to use a trusted appraiser for a home purchase or refinance transaction. The appraisal would likely be ordered though an appraisal clearing house and would be farmed out to the next appraiser on the clearing houses list. Like any other business there are good and bad appraisers but we would have no say in who did the job! Appraisals are not an exact science and the same property might appraise by different people with as much as a 15% swing in value. So your $200,000 sale could appraise for as much as $230,000 or as little as $170,000.
This could really throw a monkey wrench into your home buying or selling plans.
The only person who will unquestionably get a chance to talk to the appraiser is the LISTING AGENT. The Listor will have an opportunity to present the most relevant sales data to the appraiser when the property inspection is done. So, you home sellers should List your property with a Realtor who has excellent market knowledge and can help to facilitate the successful valuation of the home. A top notch Listing Agent is going to be more important than ever if these proposed changes are adopted, so, you home owners who are ready to sell make sure you interview your agent to ensure they have a solid understanding of the value of your home based on relevant and recent sales data. It may be the difference between getting your sale to the closing table or not!
Written by Ken Mascia
Prime Capital Mortgage, 248.644.1200
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{ 2 comments… read them below or add one }
Stuart Fearer 05.27.08 at 12:03 pm
By and large I agree with Ken’s comments, except that he includes lenders in the the same category with mortgage brokers which is not true of trhe HVCC. (not that I support the HVCC as written)
I agree with the appropriateness of the listing broker transmitting the best knowledge, but most lenders and brokers ordering the appraisal place the “selling” (co-brokering) agents contact info into the order. Unless the appraiser is savy enough to hunt down te lister, he/she gets bypassed. There are, unfortuately, too many poorly trained appraisers out there that do not understand how MLS works that will miss out on this source of information.
Ken Mascia 05.27.08 at 12:19 pm
Hi Stuart,
I’m not sure what you mean by “he includes lenders in the the same category with mortgage brokers which is not true of trhe HVCC”? Lenders also would be required to have no access or direct communications with the appraiser.
Also, even if the selling agent is listed in the order, the appraiser still has to contact the Listing Agent to gain access to the property. The selling agent cannot authorize access for the appraiser. At least in Michigan, there is no way to “bypass” the listing agent.
Thanks for your comments.
Stuart, what is your position, as an appraiser, on the HVCC?