Having been in the mortgage industry for so long, having seen a great many changes since 1983, recent changes seem different from earlier changes in one big way. The period between 2007 and 2009 doesn’t really seem like a long period of time in the big picture, but these changes are making for some long days in my mortgage industry world. Where many of the changes in the past were market driven, today’s changes are “putting fires out” driven. And it seems to me, those changes are being made without the necessary foresight and investigation required to have these changes be viable solutions to the problems they are meant to address.  Take these two, for example:

Home Valuation Code of Conduct (HVCC):

Before this change went in to effect, a loan originator could choose an experienced, qualified, local appraiser to be hired to do the appraisal inspection/report for their refinance or purchase transaction. Limited analysis of rapidly defaulting home loans brought to light that there were cases of undue pressure on appraisers that were playing a big part in the appraisers providing over-inflated values. The solution was to not allow loan originators to speak to appraisers and limit what other parties to a transaction may say to an appraiser that must be hired anonymously through an appraisal management company. Of course, the appraisal management company wants to be paid, so they first increased appraisal fees, then secondly took a piece of the appraiser’s compensation to accomplish this. The appraisers the appraisal management companies hire have to be willing to accept the lower compensation for the same work, limiting the available pool the appraisal management companies draw from, and often the appraisal management companies hire appraisers for jobs that are not from the area the subject property is located in and/or appraisers that have less experience than that of the appraiser an originator may have chosen to hire for the job before. The latest report referenced by TBWS on a comparison between 2^nd quarter 2009 when HVCC went in to effect, comparing the 3^rd quarter 2009 results to 3^rd quarter 2008 results before HVCC was in effect, and guess what? Cases of appraisal fraud, including over-inflated values, are UP 46% since HVCC was instituted.

Real Estate Settlement Procedures Act (RESPA):

There have been several proposed changes to RESPA to help make the Good Faith Estimate and Truth-in-Lending disclosures with their respective information complete, clear and concise. Limited analysis of the homeowners defaulting on their home loans brought to light that many of those homeowners didn’t fully understand the loan program they used to buy/refinance their home. It also brought to light that a limited number of loan originators were “churning” loans and being compensated through yield spread premiums on those loans that bank employees were not required to disclose to their borrowers. The objective is to help the home loan applicant better understand the loan product they have chosen and the loan products available to them to use as the tool for their refinance or home purchase. Further proposed changes currently in the comment stages are proposing that yield spread premiums disclosed by mortgage brokers but not by the rest of the mortgage originators be eliminated, not just disclosed because the average homeowner isn’t savvy enough to figure out what they are. The results? The disclosure forms are longer, more confusing for first time homebuyers, and if the latest change proposed by R1366 is approved, will eliminate yield spread premium and fix the compensation of loan originators, so that those seeking home loans will HAVE to pay points to get their loans (although 44% of borrowers chose NOT to) unable to scale their interest rates up and down to offset charges for risk factors associated with their individual circumstances and/or get the lowest annual percentage rate for their individual plans/goals/objectives.

The difference from earlier changes and the common denominator I see in today’s changes? They HURT the consumer!!!! They are NOT helping anyone other than the factors pressing for changes that will make them money and/or eliminate their competition. They will chase what is left of the quality appraisers, loan originators, and real estate brokers out of the business. The rules don’t need to be dramatically changed like this…the original ones just needed to be enforced! Greed, fraud, poor judgment are still a part of our world – how about we focus on enforcing existing regulations/ laws to address these issues since this human element can’t be removed?

You CAN do something to change the changes. Let your elected officials know your experience with HVCC if your transaction(s) fell apart because of it. It isn’t too late, because a bill is moving forward requesting a moratorium on HVCC.  Let your elected officials know if you don’t want to HAVE to pay thousand of dollars more for an interest rate that is SET, and you believe you are intelligent enough to understand – or have confidence in the support you can get to help interpret –your disclosure forms, the forms the newest MDIA regulations give you 6 business days to receive and review before an appraisal may be ordered. If you attend HUD approved homebuyer education programs, you are taught how to figure these out.

We’ve come a long ways these past 2 ½ years…but I think we’ve taken some wrong turns at some Y’s along the way. I think it’s time We The People take some initiative and steer our own vehicle. Let your voice be heard – it’s your constitutional right!

I have a suggestion. How about we get back to basics – buyer beware, read before you sign, get reputable professional guidance if you don’t understand it, “buy local” through recommended companies/ representatives.

See you out there!