Overcoming Objections with Scott Evans: HVCC Edition
Hi folks, it’s been another interesting month in the mortgage business. Add to the underwriting delays, unexpected rate hikes and general frustrations of originating mortgages – HVCC has been an absolute nightmare.
When I saw the NAMB Call to Action, I took a few moments to document my personal HVCC experiences and sent out the following via email to my database. I think it would be great if all of us did the same thing, because at the end of the day it’s the consumer who ends up losing out.
I am a mortgage broker in Atlanta Georgia. I have been in business for myself for 12 years now. I am writing to share some concerns about the implementation of HVCC that we have experienced since its implementation on May 1st. Let me highlight some of the larger issues:
1) The appraisals are taking significantly longer to be completed than when I could order my own. The consequence of this is that we can’t lock in our interest rates for the consumer until we have the report in our hand because a) we don’t know whether we would meet value and b) when we will actually receive the report (time frame). As you know the shorter the period we can lock the rate in, the better the rate we can obtain for the consumer. The worst part was that later in May when the interest rates spiked (literally overnight), many of our clients were not protected with interest rate locks and now may never be able to refinance.
2) The quality of the appraisers is a significant issue. We have had numerous complaints that the people are dressed inappropriately, take very little time to assess the house and are in general not professional. My understanding is that this stems from the fact that they are paid by the AMC’s, significantly less than what appraisers were being paid under the old system. Therefore, the good appraisers aren’t willing to work for that cheap, creating a system that breeds the retention of less experienced appraisers…or at a minimum, the good ones that really need the work; need to spend less time on each report to make similar money.
3) the most common complaint from real estate agents is that the appraisers don’t know the local area. They come from far and wide and in general have know idea about the neighborhoods, school districts and all the idiosyncrasies of the local area that affect value. Think about your own local neighborhood….if an appraiser came from 60 miles away, would they really be able to provide the best review of the comparable sales not knowing anything about your area???
4) The most frustrating thing for consumers is that they must pay upfront to “play the game”. Let take refinance transactions. Before HVCC, I would spend my own money (usually $25 per loan) to have my appraiser do what we call a “pencil search”. It would be a quick look at comparable sales to see if there was at least a chance of obtaining the value that we needed. They would either say, 1) won’t be an issue, 2) it is close to meeting value but I can’t say for sure or 3) there is no way we will be able to make value at this time. The benefit to the consumer by me providing this valuable service was that they at least knew whether it was worth spending the money on an appraisal. If it wasn’t going to meet value, why have them waste their money. If we weren’t sure, at least they knew it was a calculated risk. Under HVCC, it is like going to Las Vegas and sitting down to a craps table. You have know way to know what you’re going to get. In the last 45 days, I have had over 20 customers spend $300 – $400 for an appraisal, only to find out that it was useless.
5) If you feel like the appraiser made mistakes, the AMC’s will let you send in your concerns and they will have the appraiser revisit it. This is also a flawed system. Think about the average consumer. They don’t do this for a living so how are they supposed to come up with support to challenge an appraisal. Only if they happen to know a real estate agent that is a friend will they be able to produce any information that may be able to change the ultimate outcome. But because no one can talk to the appraiser directly, our limited experience with this is that the appraiser just works on justifying their position, not taking anything else into account. Think about it, what is the incentive for them to do anything but justify their original report. They don’t have to speak to anyone, so it is real easy to just list the reasons why the additional information wasn’t used and leave the report as is.
6) These reports were supposed to be “portable” according to Fannie Mae. Reality we have found is that they aren’t. I have 10 lenders we use as a mortgage broker. 3 of them will not accept appraisals that were not ordered through their AMC, the other 7 say they will. But here is the catch, the only way they will accept it is if we can provide a letter (on bank letterhead) saying that the appraisal was done in compliance with HVCC. We have yet to find a lender that will actually write a letter like this on letterhead. Even though all of the appraisal reports have disclosures that say they will, that apparently isn’t good enough. So once again, if we have to go in a different direction (and there are many good reasons why this may occur and be in my client’s best interest), the customer would be forced to pay for a 2nd appraisal and hope that that one still worked.
While I understand the intent of this new regulation, it is having and will continue to have, ongoing negative repercussions on consumers and home values in general. If we allow inexperienced appraisers with little local knowledge continue to providing these critical reports, there are far reaching consequences for the industry, consumers and the housing market in general.