A perfect storm is upon America. Be careful if you need a residential assessment.
Evaluators are aging and retiring. Fannie Mae and Freddie Mac have developed sophisticated and automated appraisal processes, which are allowing more and more borrowers to forgo home inspections. The home appraisal industry will follow the horse and buggy trail soon enough.
In the meantime, you could end up paying a lot more than you expected when you apply for a mortgage and receive a loan estimate (an estimate of all fees).
“We get absurd requests from appraisers to take appraisals for $ 2,000, $ 3,000, $ 4,000,” said Joe Lydon, managing director of San Diego-based Lendsure Mortgage Corp.
Looking back: Valuation reform problem: higher fees, lower values
One of my clients was billed $ 600 for a refinance appraisal last September. Nine months later, the same appraiser offered the second refinance job on the same house at $ 900. After our protest to the wholesale lender, the appraiser agreed to do the job for $ 650. (With the exception of the FHA and VA simplified refinancing and Fannie, Freddie’s home inspection waivers, every new loan application requires a new appraisal.) So, in essence, the borrower was charged more. money for less work because the measurements were already done.
How about paying $ 5,000 for a purchase appraisal? This just happened in rural Colorado for a home buyer, according to a wholesale lender I work with. What should a buyer do? No rating. No mortgage. In case you were wondering, the average evaluation cost in my shop is $ 550, and I estimate the local average consumption fee is $ 600.
Beyond the higher fees, what about the lack of available assessors? One of my wholesale lenders told me that she couldn’t find an FHA appraiser for a Yucca Valley purchase. I will note that Southern California is a far cry from the shortage of evaluators I have heard of in central and northern California.
Appraisals are the only unregulated piece of the real estate settlement services pie. For the most part, mortgage originators have to charge everyone equally. Title insurance companies must post and adhere to their prices to the Insurance Commissioner. Realtors are required to have signed commission contracts in advance.
Here’s how it works: Mortgage lenders are required to provide mortgage applicants with loan estimates within three business days of applying for the loan, showing all charges, including appraisal fees. Lenders have fee schedules from their appraisal committee or designated appraisal providers – called appraisal management companies or AMCs. Lenders rely on these fee schedules when providing the loan estimate to the borrower.
The AMC management fee built into the total assessment fee is about $ 150, according to Lance Siegel, president of the HVCC assessment ordering service at Lake Forest.
Offers return from independent evaluators to AMC, for example, by estimating their delivery time and agreeing to a certain price. Appraisers are not required to accept the price provided to the consumer. They may charge surcharges for distant travel expenses, complexity or anything else they wish.
I interviewed several lenders, asking them if the lender or the borrower is paying the ever-increasing surprise fees. Only one lender I spoke with pays the difference between the disclosed appraisal fee and the actual fee. All other lenders pass it on to the borrower under what is called the “change of circumstance rule”. This allows lenders to change loan terms or loan costs (or both) for unforeseen issues, all of which require consumer consent.
Mortgage industry attorney Ray Snytsheuvel, COO of Firstline Compliance believes the lender should bear the additional costs. “Unless the information the lender relied on (to provide the appraisal quote) is incorrect, the lender has to stick to it,” he said.
But beware, borrowers may be forced to pay surprise fees, especially if they have a deadline to purchase.
Big price surprises more often occur where there are smaller rater populations such as rural areas and resort destinations. Think of Big Bear.
So, are these assessment fee increases legitimate or do they look more like “predation fees”?
Let’s go back to 2010, when the Code of Conduct for Home Valuation (HVCC) was enacted as part of the Dodd-Frank Act. The idea behind the code was the independence of the assessor. HVCC also commissioned assessments to have much more data and information as part of their report. AMCs have also entered, acting as an intermediary between the lender and the appraiser.
More or less, the workload of assessors has doubled and their income has been cut in half. In the 1990s and 2000s, appraisers made between $ 175,000 and $ 225,000 a year, according to Lance Siegel. Since the advent of HVCC, wages have fallen.
“Appraisers make between $ 100,000 and $ 150,000 today,” Siegel said.
In 2014 I wrote about it, citing an assessment fee of $ 375 in 2009, which then climbed to $ 500. Appraisers previously had direct relationships with lenders and mortgage brokers, receiving all fees. In its early days, AMCs took about one-third to one-half of the total assessment fee. This was in part due to a much slower market and many more appraisers competing for orders. Today, the market is hot and the population of appraisers is much smaller. Thus, appraisers have the upper hand over consumers, lenders and AMCs.
Mark Schiffman, executive director of the Real Estate Valuation Advocacy Association, also points out supply and demand and the market at play. “We hear it too – thousands of dollars,” he said, referring to rising fees. Should there be a limit to compensation? “No. Fix a floor, but not a ceiling.
The idea behind appraisal independence was that appraisers would no longer have to crawl for work. Too often in the past, they had to agree in advance to touch a certain number in order to get the job. Now it looks more like reverse extortion. If you want me to take this expertise order, you’re going to have to pay me X more.
What can you do to protect yourself from these surprise charges?
Ask your lender if they can confirm the price of the appraisal offer before submitting a request. Otherwise, get written assurance from your lender that you won’t have to eat up the differences.
I asked the Consumer Financial Protection Bureau if they would initiate a rulemaking process to close the loophole in appraisal loan estimation. The agency declined to comment.
Freddie Mac Rate News
The 30-year fixed rate averaged 3.02%, 9 basis points higher than last week. The 15-year fixed rate averaged 2.34%, 10 basis points higher than last week.
The Mortgage Bankers Association reported a 2.1% increase in mortgage application volume from the previous week.
At the end of the line : Assuming a borrower gets the 30-year average fixed rate on a compliant loan of $ 548,250, last year’s payment was $ 33 more than this week’s payment of $ 2,317.
What I see: Locally, well-qualified borrowers can get the following fixed rate mortgages with a cost of one point: a 30-year FHA at 2.25%, a 15-year conventional at 2%, a 30-year conventional at 2.625 %, a 15-year contract with a conventional high balance ($ 548,251 to $ 822,375) at 2.25, a 30-year conventional high balance at 2.75% and a 30-year jumbo set at 2.875%.
To note: The 30-year FHA-compliant loan is limited to loans of $ 477,250 in the Inland Empire and $ 548,250 in Los Angeles and Orange counties.
Eye-catching loan program of the week: A 15-year fixed at 2.5% free of charge.
Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or email@example.com.