Fannie Mae and Freddie Mac’s Proposed Appraisal Changes
04/28/2008

Due to a lawsuit brought about in New York, a settlement was reached between the state of New York and the GSE’s (aka Fannie Mae and Freddie Mac) whereby the GSE’s would implement the Home Valuation Code of Conduct (HVCC) and in turn, the state of New York would drop their case against them.

What Will Change?
Appraisals have generally been handled at the point of sale - either by the mortgage originator or the realtor in any purchase or refinance transaction.  This proposal seeks to completely remove both the loan originator and the real estate agent from the transaction.  In fact, they are explicitly forbidden from having any contact with the appraiser who delivers the report.

It is my opinion that the proposed solution is well-intentioned and very easy to implement, but it is not well thought out.  There are other, far superior solutions which exist, but the GSE’s appear to be taking the easy road.  There are many alternative ideas out there - including appraiser peer review, lender reviews of appraisers, and regulatory audits and reviews.  Those solutions, while more cumbersome to implement, will provide a superior solution to the problem at hand and avoid driving many small businesses out of the real estate industry.

 How Will This Impact Consumers?

• Consumers will no longer be able to easily shop their loan through a mortgage broker.  Since the ultimate lender that they will use must order the appraisal from an appraisal management company of their choosing, that appraisal will no longer be usable at any other lender.  Therefore consumers will be locked in very early in the process to a particular lender and will not be allowed to shop their loan unless they are willing to come up with another $300 to $500 for a new appraisal when they change lenders.
• Service levels will likely decline for a number of reasons.  Many of the best appraisers out there have built their business on service and under the new system, service will simply be less important in the overall picture.  The appraisers who remain will be held to a lower standard simply because the people who are directly impacted by their work (home buyer, mortgage originator, and realtor) are completely removed from the process.
• Mortgage rates will likely increase because of reduced competition.  If passed, this ruling will likely force many or all mortgage brokers out of business.  Brokers have been a significant competitor to the large banks for the past 20 years and without that competition in place, rates will almost certainly increase in the long term.

 How will this impact real estate agents?

• Agents are banned from any form of communication with the appraiser.  No more discussing additional comps that may have been overlooked.
• Agents’ role as primary coordinator of the transaction is severely diminished
• Power is shifted away from agents and toward the large lenders who will be the sole point of contact for the buyer on many key pieces of the transaction

What can be done?
There is a brief window where you can register your opinion with the GSE’s:

Comments may be sent to Fannie Mae by clicking here, and Freddie Mac by clicking here.

Huge Changes Coming For Investment Property Financing
04/24/2008

On April 22, 2008, Freddie Mac announced that the maximum number of financed property limit will be changed from 10 to 4. The rule goes into effect on August 1st, 2008 and has a number of implications to investors. First, if an investor was planning to take advantage of some of the excellent deals on foreclosures that exist here in the Atlanta, Georgia market, they need to act now. Second, if an investor was planning to refinance an existing investment property with an agency loan and they own more than 4 properties, this new ruling will prohibit them from refinancing as of August 1st. Again, the time to act is now.

While this news would have been a non-issue a few short months ago, there are currently very few options for real estate investors today outside of the two main agencies - Freddie Mac and Fannie Mae. Fannie Mae is expected to follow suit and reduce their max property rule to match Freddie Mac’s.

You can read the entire bulletin here:

100% Financing, Mortgage Insurance, and Investment Property Update
04/11/2008

There has been a tremendous amount of confusion over the past several months with Fannie Mae, Freddie Mac, and the mortgage insurance companies making sweeping changes regarding 100% financing.  Since we have sort of stabilized for the time being, I wanted to give a quick overview of what is and is not still available.

A conventional loan with 100% financing on one mortgage is gone.  The mortgage insurance companies will no longer insure any loans over a loan to value of 97%.  We are one of the few lenders who can still do 100% financing on a conventional loan in the form of an 80/20 piggyback, however, this is limited to borrowers who have a credit score of 720 or higher.  Additionally, the number of lenders who will do the first mortgage dwindles every day, and I expect that this program will also be down to a 97% maximum CLTV in the very near future.

The one bright spot in terms of 100% financing is on government loans.  VA loans continue to be eligible for 100% financing, of course only those few borrowers with a VA Certificate of Eligibility are able to qualify for this loan.  On FHA loans, the guidelines technically require a 3% down payment, but through downpayment assistance, we are able to get around this and do 100% financing in most cases - assuming the appraised value comes in high enough to support it.
Finally, on investment properties the majority of the mortgage insurance companies have given us a stay of execution on the proposed rule of no mortgage insurance on investment properties.  Therefore, we can continue to do investment properties in Atlanta with an LTV of up to 90% for borrowers who have a minimum credit score of 680.  However, we have inside information that indicates that on or around May 1st, many of the MI providers will eliminate mortgage insurance on investment properties nationwide.  This could change, but I would not bet against this happening.

As it has been for the past several months, the key to navigating this ever-changing market is to be sure that you are working with a mortgage professional who is staying on top of all of these changes and watching out for your interests.