The perfect storm is looming over America. Be careful if you need a housing valuation.
Appraisers age and retire. Fannie Mae and Freddie Mac have developed sophisticated automated appraisal processes that are causing more and more borrowers to abandon property verification. The housing appraisal industry will soon follow the horse and cart path.
In the meantime, you might just pay a lot more than expected when you apply for a mortgage and get a loan assessment (an estimate of all fees).
“We are receiving absurd requests from appraisers for an appraisal of $ 2,000, 3,000, 4,000,” said Joe Lydon, managing director of Lendsure Mortgage Corp. from San Diego.
One of my clients received $ 600 for a revaluation last September. Nine months later, the same appraiser offered a second refinancing job for the same home for $ 900. After our protest to the wholesale lender, the appraiser agreed to do the job for $ 650. (With the exception of FHA and VA simplified refinancing and Fannie, Freddie property inspection waivers, each new loan application requires a new assessment.) So, in essence, the borrower was charged more money for less work since the measurements had already been taken.
How about paying $ 5,000 for a purchase appraisal? This just happened in rural Colorado with one home buyer, according to a wholesale lender I work with. What should a buyer do? No rating. No mortgage. In case you’re wondering, the average appraisal cost in my store is $ 550, and I estimate the average local consumer price to be $ 600.
How about no appraisers other than higher fees? One of my wholesale lenders told me that she could not find an FHA appraiser to buy in the Yucca Valley. Note that Southern California is nowhere near the appraisal shortage I have heard of in central and northern California.
Valuations are the only unregulated piece of the real estate services pie. In most cases, mortgage lenders are required to charge everyone the same fee. Insurance companies must communicate their prices with the insurance commissioner and adhere to them. Real estate agents must sign commission agreements in advance.
Here’s how it works: Mortgage lenders must provide mortgage applicants with an estimate of the loan within three business days of applying for the loan, listing all fees, including the appraisal fee. Lenders have collection schedules either from their own valuation team or from designated valuation providers called valuation management companies or AMCs. Lenders rely on these commission schedules when issuing a loan to a borrower.
According to Lance Siegel, president of HVCC Valuation Ordering Services in Lake Forest, the management fee included in the total valuation fee is around $ 150.
Applications are returned from independent appraisers to the AMCU, for example, with an estimate of the delivery time and agreement on a certain price. Appraisers are not required to agree to the price provided to the consumer. They may demand a premium for long distance travel, difficulty, or whatever they want.
I interviewed several lenders asking if the lender or borrower is paying for the ever-increasing surprise fees. Only one lender I spoke to suggests the difference between the disclosed appraisal fees and the actual amount. All other lenders transfer it to the borrower in accordance with the so-called “change of circumstances” rule. This allows lenders to change the terms of the loan or the value of the loan (or both) in case of unforeseen problems, which requires the consent of the consumer.
Mortgage industry attorney Ray Snitschevel, chief operating officer of Firstline Compliance, believes the lender should eat up the additional fees. “If the information that the lender relied on (to provide the appraised value) was not incorrect, the lender should stick to it,” he said.
But be careful with borrowers: you can get stuck paying for a surprise fee, especially if they have a purchase contingency deadline.
Bigger price surprises are more common where there are fewer appraisers, such as rural areas and resorts. Think Big Bear.
So are these appraisal fee increases legitimate or more like a predatory “fee”?
Back in 2010, the Housing Appraisal Code of Conduct (HVCC) was adopted under the Dodd-Frank Act. The idea behind the code was evaluator independence. The HVCC also requires estimates to include much more data and information in their report. AMC also made their way, acting as an intermediary between the lender and the appraiser.
More or less, the workload on appraisers has doubled, and their incomes have halved. In the 1990s and 2000s, appraisers made between $ 175,000 and $ 225,000 a year, according to Lance Siegel. With the advent of the HVCC, salaries have dropped.
“Appraisers today make between $ 100,000 and $ 150,000,” Siegel said.
In 2014, I wrote about this, citing a 2009 appraisal fee of $ 375, which then jumped to $ 500. Appraisers previously dealt directly with lenders and mortgage brokers, receiving all commissions. At the initial stage of its existence, AMCs took from one third to half of the total fees for the assessment. This was in part due to a much slower market and more appraisers competing for orders. Today the market is hot and the number of appraisers is much smaller. Thus, appraisers have an edge over consumers, lenders and AMC.
Mark Schiffman, executive director of the Real Estate Appraisal Association, also points out supply and demand as well as the market. “We hear about it too – thousands of dollars,” he said, referring to the rise in fees. Should there be a compensation limit? “No. Install the floor, but not the ceiling.”
The whole idea of appraisal independence was that appraisers no longer had to humiliate themselves for their work. Too often in the past, they had to agree to a certain number in advance in order to get a job. Now it looks more like reverse extortion. If you want me to accept this order for examination, you will have to pay me X more.
What can you do to protect yourself from these unexpected accusations?
Before applying, check with your lender if they can confirm the offer price. If not, get a written assurance from your lender that you will not have to take any differences into account.
I asked the Consumer Financial Protection Bureau if it would initiate a rule-making process to close the loophole in the loan assessment. The agency declined to comment.
Freddie Mac evaluates the news
The 30-year fixed rate averaged 3.02%, up 9 basis points from last week. The 15-year fixed rate averaged 2.34%, up 10 basis points from last week.
The Mortgage Bankers Association reported a 2.1% increase in mortgage applications last week.
Bottom line: Assuming that the borrower receives an average 30-year fixed rate on the corresponding loan of $ 548,250, the payment last year was $ 33 more than this week’s $ 2,317.
What I see: Locally, highly qualified borrowers can obtain the following fixed rate mortgages at a cost per pip: 30-year FHA at 2.25%, 15-year notional at 2%, 30-year notional at 2.625%, 15-year notional high a surplus ($ 548,251 to $ 822,375) at 2.25, a 30-year high surplus of 2.75%, and a giant fixed 30-year value of 2.875%.
Note: 30 year FHA eligible loan limited to loans of $ 477,250 in the Inland Empire and $ 548,250 in Los Angeles and Orange counties.
Spectacular Lending Week program: 15 year flat rate 2.5% at no additional cost.
Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or email@example.com.