"Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it."
- Ronald Reagan
I know last month’s news letter was about letting go of things outside of your control, but I just can’t control my mouth any longer. In the last 90 days the mortgage industry has seen sweeping changes to our practices in the name of “mortgage reform.” From the outside, the philosophies sound great, but in application they will end up taxing the mortgage industry (time, money, effort) and hurting the consumer.
You might have heard about the Home Valuation Code of Conduct (HVCC), which came from an agreement reached between the Attorney General of New York (Andrew Cuomo), the Office of Federal Housing Enterprise oversight (OFHEO), Fannie Mae and Freddie Mac. This regulation was intended to keep Loan Officers away from influencing Appraisers to hit a specific value, to stop PUSHING the value. A noble and worthy objective, unfortunately The Cure Is Worse Than The Disease (1) in practice.
The regulation makes me order the appraisal through an Appraisal Management Company (AMC), the AMC then randomly selects an appraiser for the job and sends them an order with no link to me, my company, or the value of the home until the appraisal is complete (so far so good). Here’s where it gets screwed up:
1. We have no idea and no say if this appraiser has 20 years experience or 2 months.
2. We have no means of communicating a rush situation for a short deadline.
3. We have no way to follow up with the appraiser to make sure they received the order and scheduled the appointment.
4. If an Underwriter has questions or problems with the appraisal, we have to try and communicate that back to the AMC, then on to the appraiser, who has no link to us or the client and looks at the Underwriter’s question as a nuisance.
5. If the appraiser makes a mistake or misses some comparables (they are human) we have no way of making him aware he missed something (remember we can’t influence value).
I just had a client whose appraisal was so bad, three Underwriters flat out rejected the report. Guess who had to pay for a new appraisal, rate lock extension, settlement deadline extension and rescheduling of movers? THE CONSUMER, THE ONE THE GOVERNMENT WAS PROTECTING…. Unfortunately this is happening all over the country, slowing the process and efficiency of a free market economy and costing the consumer money, time and energy, not to mention tremendous stress.
Or how about the Mortgage Disclosure Improvement Act, which was intended to keep consumers informed about APR changes and give the consumer time to consider their options in case of a change. I fully support the philosophy, but the problem is that we live in the real world. In the real world of real estate, purchase prices change, contracts get renegotiated (think closing dates, seller paid closing costs, repair items discovered during inspections, etc.) and the Loan Officer has to roll with the changes as quickly as possible to keep the closing on time and as scheduled.
That’s simply not going to happen any more thanks to the MDIA. The act now requires us to wait 7 business days from application to close any real estate transaction and re-disclose any APR changes greater than 1/8th of a percent and then wait 3 business days before closing. There will be countless consumer dollars lost to expired rate locks, buyers paying sellers to extend settlement deadlines, sellers paying extra interest on their mortgages because the buyer could not perform, not to mention the buyers who can’t close on time because of the law and end up losing deals all together. This is all because of the unintended consequences of lawmakers who don’t know ____ about the real business of loans and mortgages.
Government has a role in our society, but society is best served when government stays in the background. There’s a reason lawmakers are making laws and not running successful businesses, it’s because they don’t have a clue how to do it or they would be out doing it, trust me. Let’s keep the ugly dragon of government in the cave, once the beast is loose it’s almost impossible to contain!
"Government is not a solution to our problem, government is the problem."
- Ronald Reagan
(1)http://www.appraisalpress.com/news/articles/hvcc_the_cure_is_worse_than_the_disease
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