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HVCC Loan Busters! The "Too High" Appraisal Can Bite You In the Butt, Too

They say you can't be too rich and you can't be too thin. But can an appraisal be too high?

I am fighting my first HVCC appraisal issue, so please don't laugh when I tell you my problem: The appraisal is TOO HIGH.

The appraisal came in $65,000 OVER the contract price.

With every single mortgage person and Realtor out there complaining about values coming in TOO LOW, I was too embarrassed to even mention this appraisal to my co-workers.

The lender refused to underwrite the file.

Why? They would like me to amend the contract so the buyer pays $65,000 dollars MORE for the property. This way, appraisal will match contract.

NO PROBLEM! I know I would be absolutely thrilled to pieces if someone told me I would need to pay $65,000 more than my negotiated price for the house as a condition of getting a LOAN.

Or, more realistically, would I feel like slugging my mortgage broker?

Before HVCC came along (in April), I called 2 appraisers to ask about the value of this property. We USED to be able to do such questionable, underhanded things, you know.

Both appraisers warned me the value would be LOWER than the $500,000 selling price. Still, seller and buyer were happy with the price, so we forged ahead, KNOWING that since transaction rolled into May, we would be subject to HVCC.

Why wouldn't lender be HAPPY to have an even LOWER loan to value?

Since a mother is selling to a son (we call this a non arms length transaction), lender will not allow anything but a "true market value". Naturally, lender has assumed it is being sold under market.

Wait, they didn't NEED to assume. Appraiser wrote this right on the appraisal.

LOAN BUSTER!!!!!

Funny thing, seller thought she was getting top dollar, not that she was discounting it (because it was being sold to her son). Son was happy since house had been valued much higher last year, figured market had "bottomed out" and he could finally afford to buy it.

Never mind that LENDERS are selling their own REO properties at under market values EACH and EVERY day, and approving loans to buy them.

Mother and son? Not allowed.

What else is wrong with this picture?

Lock is ticking with a 4.75% rate that cannot be replicated...will need a costly extension because of this delay
Buyer must pay another $500 if he wants to get another appraisal and change lenders....then risk that it comes in at the wrong value...and pay the new higher rates.
Buyer not qualified for a higher loan, does not have the extra down payment
Buyer would need to pay higher taxes to buy at higher price
Bank is not taking into consideration price is lower as a result of no real estate commission.
Let Mom "gift" him the extra $65,000? Easier said than done. Another can of worms awaits.
"Janet, don't play Realtor and let them sort this through themselves"? Here's the truth: Right now, I really wish there was a great Realtor involved.

My thanks to ActiveRain members Brian Brady, Laurie Manny, and Harrison Long, who all helped me gather comps from Orange County to offically challenge the appraisal.

Written by Janet Guilbault, Mortgage Banker/Broker based out of the San Francisco Bay Area.

Posted by Janet Guilbault California Mortgage Banker/Broker on 06/10/2009 12:09 PM

Comments (26)

HVCC in the Mortgage / Finance Channel

hvcc, appraisals, declining values, approval strategies, activerain, mortgage broker, real estate loan

Post is included in group: The Ninety-ninth Percentile
Post is included in group: Realtors®
Post is included in group: Mortgages
Post is included in group: LOANS

26 Comments on HVCC Loan Busters! The "Too High" Appraisal Can Bite You In the Butt, Too

JUN

This is so sad.

I sell a new home for $50K under market and the appraisal comes in at contract price. Why, because that's all they have to do.

I just sold a short sale for $400K, a good $150K under market and what is the appraisal? A stinking $400K. Why? Because that's all they need.

That has got to be the craziest thing I ever heard. What is wrong with people?

Your post coupled with Lenn's comment shows you that it isn't the lenders needing help, but the appraisers. HVCC is crushing us in the stupidest ways it is so sad.

Janet- EVERYONE MUST SIGN the petition to get RID of the HVCC!!! Dont ya think??

YUCK!

Good job on challening it!

I only challenged ONE so far, and it was with Wells! I WON too!

Thanks for the info & the feelings/thoughts!

Here's the link to sign the petition, and information!

http://activerain.com/blogsview/1108362/call-to-action-hvcc

or click here.

D

Lenn: I think sad is a very good word for what has happened here. They had the nerve to tell me transactions like this mess up values for the rest of the neighborhood.

You have got to be kidding! Like the bank's REO dept NEVER messed up any values?

Melina: I swear we will look back on this someday and realize banks completely lost their marbles.

Steve: Let me count the ways it is crushing us? I am used to being crushed. But what about the people this was supposed to help????? Our customers.....

At the very minimum, if a buyer pays for an appraisal he should be able to use it at another bank if first bank won't take the deal.

Darin: I think I will win this one too because the head of the appraisal dept at the bank appears to think I have a pretty strong case for the challenge.

You won yours? Darin, you rock.

JUN

Janet - is this the transaction we spoke about a few weeks ago? I'm curious, why didn't you go FHA?

Too much. We should start an over under pool on when this joke known as HVCC disappears. I still can't believe that the USA bought into an idea which originated from the Atty General from that progressive real estate Mecca known as the not so great state of New York. HVCC really fixes nothing and only places more burden on clients and lenders, while the overall service and report content quality deminishes.....Hmmm.... how 'New York' is that??? Coincidence, I think not.

Sign the petition :-)

JUN

So I see you haven't gotten your HVCC vaccination yet Janet! We are all infected at this point and the lenders are really having a tough time dealing with the symptoms. Your scenario is a new one; you think they'd be thrilled their mortgage is collateralized against a property worth far more than what the borrower is paying. It's a strange new world and I appreciate your perspective; hopefully we'll find a cure for HVCC sooner rather than later.

That has to be the most bizarre thing I have heard of - among a plethora of bizarre appraisal stories!

JUN

Mike: I can get vaccinated??? Sing me up!

Scott: Don't want to blame New York....still....could there be anything WORSE for the consumer than HVCC?

Ya think people need anything that makes the mountain harder to climb right now?

Donne: Have plenty of down payment so really don't need FHA. PS Our bank is using HVCC on FHA deals anyway.

You're using HVCC on FHA loans! Why? There's no reason for that.

JUN

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You wrote:

At the very minimum, if a buyer pays for an appraisal he should be able to use it at another bank if first bank won't take the deal.

Has there been a change in the ability for a buyer to have an appraisal assigned from one lender to another??? I haven't seen that written anywhere.

We just had an appraisal assigned from one lender to another with approval of all the parties, buyer, lender 1 and lender 1.

The buyer paid for it.

JUN

Janet,

There's nothing in the HVCC that would preclude the lender from making the loan solely because the purchase price is lower than the appraiser's opinion of value. This is definitely a quirky thing based either upon some atypical specific requirement the lender has created, (I've come across a fair number of these through the years), or, more likely, it was based upon an edict issued by some glorified clerk/underwriter working for the lender, (this happens all the time). Usually these types of things come from someone who has no idea what they are doing and is afraid to ask someone else for help with the file.

It is not uncommon for me to appraise properties above sale prices. In cases of intra-family transfers, like yours, this is the rule, not the exception. My only concern with these types of transactions is when the sale price is substantially above the market value. I often see this in estate sales, when the seller is from out of the area and is not knowledgeable about the market. In these cases, I usually include vernacular in the report recommending the client confirm with the seller that they are aware the property is being sold substantially below its market value. I usually call the client in these cases and reiterate the same on the telephone.

I have encountered many cases through the years where an unscrupulous realtor lists a property for an out of state owner and then has a "friend" buy the property for say one half the market value. I always tell these realtors I'll pay ten or twenty thousand more for the property, in cash, today, and they always just grin at me and chuckle. By specifically noting these large disparities in my reports, I would hope that I have kept a few heirs from getting ripped off.

If I were you Janet, I would escalate this to the highest possible level within the company first, and only then, if all else fails, would I change lenders. Good luck!

David: I appreciate your professional opinion.

Lender is CitiBank. They absolutely will not agree to even underwrite the loan unless the contract matches the appraisal in the case of a non arms length transaction.

They sold at $500k. Appraisal was $565k. I appealed. They took it down to $530 but still would not strike the statement that it was being sold under market.

Because of this loan is in its last lock extension, we may not have time to complete the loan and get the rate that was locked. Clients are confused and upset with this turn of events.

I do not think this would have happened if there wasn't a gag order against me discussing with appraiser. HVCC has cost this client big time. HVCC is NOT good, and I don't even want to think what it has added to the cost of doing a loan.

JUN

Janet, we just closed a house this week that we were sure would appraise higher than the $480,000 contract price because we knew the comps. What did it appraise? EXACTLY $480,000 and you could see where the appraiser had manipulated it, such as the fact that the sq. ft. adjustments were $27 in a house with very upscale finishes, pool/spa, etc.

Why did it come in there? Because that's all they needed! Just like Lenn said.

Sharon

JUN

Because I am an also an appraiser, I think it's obvious what I think of HVCC. We need to contact all our representatives and let them know we don't want an official of NY to make laws for the entire country!

JUN

Janet,

Sorry they were unwilling to be reasonable. What they're doing is totally wrong, however, it doesn't have anything to do with the HVCC. I am still of the opinion that the HVCC isn't fit to be used as toilet paper! Hope you can find a way around this.

David

JUN

To those that suggest signing some of these petitions that are floating around, all they are doing is strengthening the NYAGs position. The petitions are being circulated by and signed by appraisers and loan officers, the two groups that are being impacted by the HVCC. All Cuomo will do is say is that the petition is proof that the HVCC is doing it's job. There is a video out there that also is completely innacurate about the HVCC and serves to strengthen it.

The HVCC is not a law, is is simply a business agreement. Businesses can agree to do business in any lawful way they choose. I see no laws being broken by the HVCC.

The bigger issue that no one talks about is the incompetence of appraisers being used by the appraisal management companies.

The poster child for this is a transaction in which a retail loan company uses LSI under an agreement LSI has with thier parent company. LSI assigns the appraisal to a company called "Sterling Appraisal" in SoCA. Sterling Appraisal, which is nothing more than a self described call center, sets up an appointment for this Vacaville property to be appraised and then scrambles to find an appraiser. They find one in Sacramento, who is obviously not competent to do the appraisal. The appraiser goes to ATLAS PEAK IN NAPA COUNTY for a comparable, among many other significant errors in the appraisal. Over values the property and as a review appraiser, I require that the original company that ordered the appraisal, order another appraisal from a competent appraiser. I talked to the appraiser in question and he told me he was paid $120 of the $400+- to do the appraisal.

Does anyone see a problem here? I see many.

The HVCC is flawed, but it is fixable and I am pro HVCC. That generally gets me flamed, but with proper changes, it could benefit and protect consumers.

We do not, however, need the HVCC. If appraisers could just learn to say "NO", and quit succumbing to improper influence, which obviously, my poster child described above, could not, the HVCC would never have shown it's face in the first place and Cuomo could have worked on his presidential aspirations in another way, with another industry.

Hi Janet - HVCC has so many layers that need to be peeled away before we see all the creepy crawly affects hiding under the rocks. I'm waiting to hear the reports on principal vs. lender/AMC when the lawsuits start to roll, which I believe is just a matter of time.

JUL

I don't really understand this. What difference does it make to anyone what a seller wants to sell their home for? Taxes are all I can fathom, and they will be assessed at whatever the tax assessor feels is right. so the son will probably end up paying on a tax base 65K higher than his purchase price, but other than that, why would anyone care? Very bizarre.

AUG

SOLUTION: raise the price but have mom "gift" back the money as down payment. It happens all teh time, he still gets same loan, mom still sells to son, bank will do the loan, everyone is happy.

oh yeah, and only FHA appraisals are re-assigned as they follow the party, or in some cases stay with the house, and get a new buying party. Conventional do not. USPAP requires a new report for a new lender. Personally I do a new report at a greatly reduced fee, but I do re-inspect the subject and check for new comps, I at least have my sketch and notes form the first appraisal, so saves tons of time. But with conventional, its not so easy anymore, the NEW lender can't just call me up and order a new report, it has to go through a management company, and gets assigned to someone who will take pennies for hours of work. Too bad for the customer, they will end up paying for a whole new report, at full price so the management company gets their cut, and maybe a whole new opinion that may or may not be similar to mine. I have said NO to many a loan officer, and only work for lenders who do not "pressure" me. Give me a break, appraisers have to have some backbone. I rarely get pressured, or they can take their business somewhere else. HVCC is killing me, I spent years developing good relationships with good loan officers and mortgage brokers to have it taken away by that IDIOT in NY. It simply needs overturned and get rid of the appraisers who don't do their job right. I would think a pattern would be noticable if that end was investigated!! Check out the appraisers in the failed deals, don't punish us all. I would LOVE to be one of the appraisers to review those reports.

Anthony what planet are you on? obviously you have not had to loose business due to being forced to use management companies. I have applied to over 30 management companies but still get NO work, why? I will not work for $200-$275. HVCC is the cause of now using inferior appraisers and getting inferior reports since those of us that are GOOD, experienced appraisers will not take a cut in pay. Management companies are getting all the money and paying a small (very small portion) to the appraiser doing all the work. My guess is they are using all mls photos (and not bothering to drive by the comps as required) not really doing the desk work and pre-inspection work that takes me several hours to do. bet they do not even fill out the new market conditions form right. PLEASE let me review some of the reports. I know management companies will send the orders to those accepting pay of $200-$275 instead of $350 or $400. They will get what they pay for, and down the road there will be a multitude of failed loans, and those appraisers might be to blame. HVCC will put many good experienced appraisers out of business, and we all loose. Quality costs and we havn't raised fees in many years, expenses go up, gas, paper, ink, but we had not raised the fees to the customer for 5-6 years. Personally an appraisal should cost $500 and not a penny less. Realtors earn their fee, and so do we. (I am both, I'm a real estate Broker and an appraiser)

The banks expect us to all work for less, while they make a killing. Seems out of wack to me.

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