Posts Tagged Federal Government

HVCC could be phased-out by year-end

Although H.R. 3044 which would put an 18-month moretorium on HVCC seems to have gotten stalled, but some members of the House Financial Services Committee were able to tack a repeal of HVCC onto H.R. 3126, the Consumer Financial Protection Act (CFPA) as an amendment. H.R. 3126 passed committee 39 t0 29 with most Committee Republicans voting against it.

H.R. 3126 has been fought furiously by banks and credit card companies because is severely limits how they can put the screws to you and I when getting or servicing loan or credit card.

If passed by the House of Representatives it will go on to the Senate. President Obama has requested that CFPA be on his desk for signing into law before the new year.

As a brief review, HVCC is the Housing Valuation Code of Conduct, which was the brainchild of New York State Attorney Andrew Cuomo. He was wrongfully assuming that A) appraisers are all pansies, and B) because they are pansies they could be easily bullied by mortgage loan officers and real estate agents into artificially inflating the value of a home.

Well, for the most part appraisers are a pretty honest bunch and housing bubble was much more than just inflated appraisals due to some unscrupulous loan officers, real estate agents and appraisers. All HVCC did was add an additional layer of cost and time to the process: Appraisal Management Companies, or AMC’s.

AMC’s are the go-between for loan officers, Realtors and the appraiser. A buffer if you will. The AMC’s run interference and isolate the appraiser from talking to the loan officer or Realtor, the idea being that if a loan officer or Realtor can’t talk to the appraiser they can’t pressure them into “hitting a target value” to make the deal work.

Well, the market decides the value, all the appraiser does is compare the subject property to comparable properties that sold within a given period and a given distance from the subject property. In short: it is what it is.

There are a number of problems with AMC’s though:

  1. AMC’s increased the price the consumer pays for an appraisal because it added a middleman into the process.
  2. Appraisals have to be paid by the borrower before the appraisal is done, it can no longer be rolled-up into the loan like before.
  3. AMC’s take up to 60% of the amount collected from the borrower as “administrative costs” and appraisers are making only 40% of what they did just last April.
  4. Because of this the good appraisers have exited the business, leaving green appraisers who will work for pennies on the dollar, and thus;
  5. We are getting shoddy appraisals using comparatives that are not comparable properties. And, because we can’t talk with the appraiser we can’t go to bat for our borrower by questioning why the appraiser used a short-sale or a bank foreclosure as a comparable as compared to a genuine sales transaction, which represents the true market value of a home.

All HVCC has done is add another layer of bureaucracy, increased costs to the borrower, and hindered refinances that can help a borrower by reducing their interest rate and putting more cash in their pocket each month, thus reducing the chance of defaulting on their mortgage.

You’d think this would be a good thing, huh?

So let’s hope H.R. 3126 passes the House and the Senate and we can start moving forward with real economic recovery and your home will start increasing in value again as real, honest and competent appraisers get back to work doing what they love to do.

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APR, what is it and why it doesn’t matter

You see APR after every interest rate quoted, whether it’s for an auto loan, credit card or a mortgage loan.  What does mean?  How is it calculated?  Does it really matter in the larger scheme of things?  All good questions.

APR means “Annual Percentage Rate”, which is a number that is supposed to somehow tell you the “true” cost of a loan.  The idea is that this number reflects the actual cost of a loan based on any fees required to originate and fund it.  With credit cards the interest rate and the APR are almost always the same because they just give you the credit card and there are not  closing costs involved.  Same with most auto loans.  But with mortgages the quoted interest rate and the APR are almost always different.  Here’s why.

APR is figured by subtracting the fees associated with originating a loan from the loan amount than re-amortizing the payments you’ll make to come-up with “true” cost of the loan.  So if your loan is $200,000 and there are $7,000 worth of fees associated with the loan, the APR would be the dollar amount of actual payments over the term of the loan recalculated into $193,000 rather than $200,000, hence the sum is a higher percentage.

Originally, our government came-up with this figure in an attempt to simplify the home loan shopping process since a borrower could go around to various lending institutions armed with this one figure to see who had the best deal.  However, it doesn’t really work that way because there are way to many variables, both in loan products and in what is considered an “APR item”.

First lets look at what are considered APR items.  HUD says that any fee associated with originating a loan that would not be associated with a cash transaction is an APR item.  However even that is left to the lender’s discretion.  For instance, on the Good Faith Estimate anything in the 800-series section should be considered an APR item as well as Per Diem interest (the interest that has to be prepaid from the closing date of your loan to the first day of the next month) and of course things like up-front fees for mortgage insurance or funding fees through the VA and escrow fees from a title company or attorney.800-section-gfe1

Some of these items are self-explanatory, such as “Loan Origination Fee”, “Credit Report”, “Mortgage Broker Fee” and “Underwriting Fee” because you wouldn’t have those fees if cash were exchanging hands.  However some other such as appraisal and title escrow fees could or could not be included, and lenders use this to their advantage when quoting you so that their fees/APR will look more competitive.  They will leave-out appraisal and title fees since in a cash transaction you may not get an appraisal done or have a title company handle the money transaction or issue a title insurance policy.  But lets face it, it would be financial suicide to buy a home without knowing how much it’s really worth and having a third party handle the transfer of funds from buyer to seller is the safest way to go since they won’t release the funds to the Seller until the title is recorded with the County Clerks office the the Buyer is the legitimate owner of the property in it’s entirety.   Also, title insurance guarantees the buyer that the title is clean and free of encumbrances (liens from collection agencies, bail bonds, contractors, angry neighbors, etc.) and guarantees that if one shows-up for the Seller after the transaction that it won’t effect the Buyer.

So the smart move, even in a cash transaction, is to get an appraisal and use a title company or attorney to complete the transaction and get title insurance.  So legitimately these fees should be included, but many lenders don’t to be more competitive in their quotes.

Second, APR is calculated assuming the loan will be held to term (10, 20, or 30 years) and never refinanced or the house sold.  The fact is that people move on the average of every 7 years and refinance every 4, racially skewing the APR calculation and making it worthless in the real world.

So in my opinion, the only figures that matter in a purchase or refinance transaction are:

  1. What’s the interest rate?
  2. What’s the monthly payment? (Remember, the lowest interest rate doesn’t always equal the lowest payment)
  3. What are the closing costs involved?
  4. How long will it take to amortize and recoup the closings costs? ( In a refinance scenario)
  5. Who is paying the closing costs? (In a purchase scenario)

This is where a mortgage professional can sit down with you in person and answer these questions for you and show you the mortgage options available to you.

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Congress looking at increasing tax credit up to $15,000

Congress is considering a new tax credit that would modify the current $7,500 tax credit for first time home buyers to $15,000 for any home buyer.  This could really help a lot of people.

Here’s how it will work: Home buyers would get 10% of the purchase price of the home as a tax credit when they file their 2009 tax returns.  The maximum amount of the credit is $15,000.  If the tax payer usually pays less than $15,000 in taxes the credit can be split over two tax years, so the home buyer would get a $7,500 in 2009 and another $7,500 in 2010.  And this is a true tax credit, not a tax deduction, so the home buyer gets $7,500 deducted from thier tax liability, not from their gross income.  For someone owing some money this could mean they owe less or nothing at all.  For someone already getting a tax return this would add up to $15,000 on top of it.

I’m sure for most middle-class home buyers this could mean a nice surprise at the end of the year.

The only way they could make it better?  Make 90% to 100% of the rebate available at the closing table to be used as the down payment.  $15,000 would be more than 6% down on the average home in Salt Lake City.  Fannie Mae and Freddie Mac require 5% down payment and FHA requires 3%, so 6% would give the average FHA borrower the required 3% down plus an additional 3% to cover any closing costs not accounted for by seller concessions (which on short-sales there are no seller concessions to cover closing costs).

Let’s hope the Feds figure this out and either do something like that, or maybe the State of Utah could front the rebate money and make it due upon filing of taxes or in the case of those not getting a refund, repayable over, say, 10 years at a minimal amount of interest (such as not exceeding the note rate of the loan).

For Salt Lake City, UT today’s average mortgage rates are as follows:

30-year fixed: 5.25%

15-year fixed: 4.625%

Conforming Jumbo 30-year fixed: 5.75%

FHA 30-year fixed: 5.50%

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