NOVEMBER 2009
OREGON MORTGAGE PROFESSIONAL MAGAZINE
www.NationalMortgageProfessional.com
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since 1993. HUD is proposing an initial increase of approximately $1 million that would be in place within one year of the enactment of this rule. To maintain consistency with industry standards, HUD may propose that the net worth requirements be increased further in future years to a level comparable to those required by GSEs and other market institutions. These changes will help to ensure that FHA lenders are sufficiently capitalized to meet potential needs, thereby permitting HUD to mitigate losses and decrease risks to the FHA insurance fund. FHA will revise current procedures for streamline refinance transactions to establish new requirements for seasoning, payment history, income verification and demonstration of net tangible benefit to the borrower; provide for collection of credit score information when available; and to cap maximum loan-to-value (LTV) at 125 percent. An appraisal will be required in all cases where a borrower wants to add closing costs to the transaction. These revisions bring documentation standards for streamline refinance transactions in line with other FHA loan origination guidelines, ensures the borrower’s capacity to repay the new mortgage, and prohibits the dangerous practice of loan churning, where borrowers raise cash through successive cash-out refinancings that put them further in debt. New guidelines will be provided on ordering appraisals for FHA-insured mortgages and existing policy on FHA requirements regarding appraiser independence and geographic competence will be reaffirmed. Mortgage brokers and commission-based lender staff are prohibited from ordering appraisals. FHA does not require the use of appraisal management companies (AMCs) or other third-party providers, but does require that lenders take responsibility to assure appraiser independence. While FHA’s existing policies regarding appraiser independence are consistent with the Home Valuation Code of Conduct (HVCC), FHA will adopt language from the HVCC to ensure full alignment of FHA and GSE standards. FHA’s appraisal validity period will be reduced to four months for all properties, including existing, proposed and new construction. Previous validity periods were six months for existing properties and up to 12 months for proposed and under construction properties. This provides for more accurate home values used for underwriting FHA-insured mortgages during volatile housing market conditions. FHA will provide new guidelines that allow a second appraisal to be ordered under a limited set of circumstances when a borrower switches from one lender to another and restates the requirement that the first lender must transfer the appraisal to the second
lender at the request of the borrower. Lenders seeking approval to originate, underwrite or service an FHA loan must meet the eligibility criteria for a supervised or non-supervised mortgagee. Mortgagees with this approval status must assume liability for all the loans they originate and/or underwrite. Loan correspondents will continue to be able to originate FHA-insured loans through their relationships with approved mortgagees; however, they will no longer receive independent FHA approval for origination eligibility. These policy changes will require the FHA-approved mortgagee to assume responsibility and liability for the FHA-insured loan underwritten and closed by the approved mortgagee. These changes align FHA with the GSEs and will potentially increase the number of loan correspondents who are eligible to originate FHA-insured loans, while providing for more effective oversight of loan correspondents through the FHA approved mortgagees. For more information, visit www.hud.gov.
MBA study shows increased production profits in Q1 of ‘09 Mortgage bankers made an average profit of over $1,088 on each loan they originated in the first quarter of 2009, according to the Mortgage Bankers Association (MBA). This profit marks a marked improvement over the fourth quarter 2008 results in which average profits were $148 per loan, according to the MBA’s Quarterly Mortgage Bankers Performance Report. This new report measures the performance of independent mortgage bankers and subsidiaries of banks, thrifts and hedge funds. “It is clear the refinance boom in the first quarter of 2009 contributed greatly to an increase in overall production volumes, allowing production operating expenses per loan to finally drop,” said Marina Walsh, MBA’s associate vice president of industry analysis. “The average share of refinancings to total originations for these companies jumped to 66 percent in the first quarter, from 42 percent in the previous quarter. As a result, the average production volume for each firm was $213.9 million in the first quarter of 2009 compared to $125.6 million in the fourth quarter of 2008.” Among the principal findings of the MBA report are: 85 percent of the firms in the study posted pre-tax net financial profits in the first quarter 2009, but in the fourth quarter 2008, only 53 percent of the companies posted profits; mortgage banking production profits were 54.58 basis points or $1,088 per loan, exhibiting a significant improvecontinued on page 12
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away from the subject property. The latter does good work, has access to all market data and has time in his schedule. A known and trusted appraiser has served a radius of 60 miles for 20 years successfully, has performed many appraisals near the subject, has access to all MLS data, but lives 43 miles away from a subject property requiring evaluation. The bank assigning the appraisal is not able to confirm the availability of any other competent appraiser; however, there are a number of other appraisers located near the subject. In the above examples, it is easily understandable why appraisers may be selected some distance from a given property. It is only fair also to acknowledge that reports have been circulating that accuse banks and AMCs of sending appraisers from one large city to another, sometimes 50 to 100 miles apart. It is equally understandable why, in such cases, there would be major concern for such broad-reaching, geographic area, appraiser-stretching, assuming that the property is a residential property, not having any unusual characteristics addressable by local appraisers. I would place no specific limit on how far an appraiser should travel to perform an appraisal. It is not unusual for commercial appraisers to travel across country or even into other countries to perform highly-specialized assignments. This is not usually the case
mortgage trigger
with standard residential properties; however, some appraisers routinely cross state lines and cover several cities competently. Other appraisers never leave their city or even their part of their city in their practice. I suggest to you that all of these situations can and do produce acceptable practices. In the end, an appraiser closest to a property, one that is capable of delivering the most professional service, is usually the best choice. In conclusion, distance alone is not a sufficient factor to determine whether a specific appraiser is the best for a particular assignment. Many other factors must be considered, and all factors must be evaluated. One of the primary considerations is whether the appraiser is able to deliver a fair, unbiased and honest appraisal, free from outside pressure. The mere fact that different appraisers are being used than those used in the past is not a legitimate basis to criticize the system. This is especially true when we consider that the old system has cost taxpayers billions of dollars, due to fraudulent loans where the “appraiser next door” may have performed the appraisal. It is the responsibility of those selecting appraisers for a particular assignment to find the best person for the job, not simply the one closest in proximity. Charlie W. Elliott Jr., MAI, SRA, is president of Elliott & Company Appraisers, a national real estate appraisal company. He can be reached at (800) 854-5889, e-mail charlie@elliottco.com or visit his company’s Web site, www.appraisalsanywhere.com.
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brought nine state law claims, including misappropriation of trade secrets, fraud, unfair competition, tortuous interference, breach of contract, and unjust enrichment. The credit bureau defendants moved to dismiss the plaintiff’s claims against them, arguing that the claims are preempted by the Fair Credit Reporting Act (FCRA). Judge Michael Anthony Telesca held that the FCRA expressly preempts each of the plaintiff’s claims against the credit bureau defendants. “The plaintiff has not identified the legal basis for the credit bureau defendants’ alleged’ duty and obligation to maintain the confidentiality” of trigger leads, the judges wrote. The judges also dismissed the plaintiffs’ fraud complaint as inadequately pleaded, characterizing their complaints as “unadorned, the defendants unlawfully harmed me accusations.” The Court reviewed the plaintiff’s remaining arguments and found them
to be without merit. Accordingly, the Second Circuit Court affirmed the District Court’s order of Sept. 30, 2008. These two court losses, combined with the support that mortgage trigger leads has received from the Federal Trade Commission (FTC) many times, means that this product, like it or not, will most likely be around for a long time. For more info on the FTC’s position via their consumer alert on the subject of trigger reports, visit www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt171.shtm. Terry W. Clemans is the executive director of the National Credit Reporting Association Inc. (NCRA). He may be reached at (630) 539-1525 or e-mail tclemans@ncrainc.org. Visit the National Credit Reporting Association Inc. (NCRA) on the Web at www.ncrainc.org.