Consumer Beware HVCC - Home Valuation Code of Conduct may cost you much more $$$ and aggravation. 2nd Post!!
The following dialogue is from a fellow mortgage professional Roger Ingalls who gave me permission to re post this very important matter. Please take note & TAKE ACTION ASAP..
Your Appraised Value Could Fall 10% in Two WEEKS
OK, that was rather alarming, but I needed to get your attention on an urgent risk, and a limited opportunity. I will explain. Perhaps, too thoroughly.
No one, anywhere, is talking about this in the mainstream media. I have, to people that have inquired about refinances lately.
Effective May 1st (two weeks), ALL lenders, loan originators mortgage brokers and loan officers will be prohibited from selecting an appraiser, or communicating with an appraiser in almost any fashion. Most lenders have already implemented the changes, and some are waiting until May 1st.
I will provide links for further reading below, so for now, just humor me.
So, why does that matter to the average borrower, and why will that lower appraised values?
1. Appraisals will be ordered blind, through an appraisal management company (AMC). They charge more, and pay the appraiser considerably less, keeping the remainder. Typically it will make an appraisal about $100 more expensive, and they typically pay the appraiser about 50% of the charge. The payment is ALWAYS taken upfront, usually by credit card, before it is even scheduled, and NEVER at the door.
2. On a refinance, Loan Originators (like me), will NOT be allowed to tell the AMC or appraiser what the borrower thinks the property is worth. We will not be able to discuss beforehand if the assumed value is reasonable, nor challenge/discuss the appraised value (the bank can…to lower it!). That means that your $500 appraisal is more of a gamble than it is now.
3. Since the banks select the AMC’s, the appraiser is now more beholden to the bank, than he was to the borrower or the loan originator. Previously, it was evenly balanced. Banks do not backlist appraisers that understate value, but they do penalize appraisers that overstate value (which is why I NEVER pressured an appraiser to change his value). That will cause appraisers to instinctively become more conservative in valuations, as a survival tactic.
4. Independent appraisers usually are paid about $400-$450 locally. That allows them sufficient time to do excellent work, and really study the subject property, and to research the best comparables. Going forward they will be paid about half that amount. It is reasonable to assume they will attempt to recover their loss by doubling their work load, and spend half the time on each appraisal.
OK, so I could be wrong. And I am sure not EVERY appraisal is going to be undervalued.
But I think I am right, at least on average, and so does most everyone in the industry I talk to.
The difference between hitting 80% loan to value and 90% loan to value on a refinance is pretty easy to quantify. It means about 0.7% mortgage insurance added to the payment, or about $145/mo on a $250K loan. There are other examples, and they are almost all bad.
So, IF you are sitting on the fence, hoping for better rates, or dealing with more urgent matters (like getting your taxes done!!), I beg you to consider taking action now, while we can still use independent appraisers with a few lenders.
Before your appraised value falls 10% in two weeks. Maybe.