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By Brian C. Coester
CEO
Coester Appraisal Group
Appraising the
Valuation Process
On the Web
Home Valuation Code of Conduct: •
bit.ly/hvcc
House resolution No. 3044: •
sctsm.in/HR3044
Sure, you can’t order an appraisal for most
loans — but you can help clients prepare
Editor’s note: At press time, House resolution No. 3044 (
sctsm.in/HR3044) — proposing an 18-month moratorium on the Home
Valuation Code of Conduct — had yet to leave
committee.
There is no doubt that the Home Valuation Code of Conduct (HVCC) changed the way mortgage brokers have done business in the
past few months. It is essential that as
a broker, you understand what exactly
has changed and what you can do to
make the most of it for you, your customers and your business.
Simply put, there often is now a
middleman involved in the appraisal
process for loans backed by Fannie
Mae and Freddie Mac — and, starting
Jan. 1, for Federal Housing Administration (FHA) loans. These middlemen are
either appraisal-management companies (AMCs) or lenders’ in-house
appraisal-management companies.
They are tasked with ensuring that appraisals are done properly and that appraisers are not influenced to inflate
property values or to omit any problems with the property in their report.
An AMC doesn’t actually complete
the appraisal; rather, it assigns an appraiser to complete the report in the
local market area. The management
company collects the payment, assigns
the appraisal, and checks on, updates,
reviews and delivers the final report to
the lender.
Appraisers now just perform the appraisal — nothing much more or less.
They check back with the management
company for updates, inspection dates,
potential problems or delays.
Once the appraisal is completed, the
appraiser submits it to the management company for review and for final
submission to the lender’s underwriting department. The management company, not the lender, communicates
any necessary revisions or addendums
back to the appraiser.
For brokers, the difference now is
that you cannot order the appraisal or
otherwise communicate with the appraiser when it comes to loans to be
sold to Fannie Mae or Freddie Mac. You
won’t even know who the appraiser is.
If the management company is good,
then it should have a list of local appraisers from which it can get the appraisal done quickly and accurately.
The appraiser essentially will do the
appraisal “as is,” and the AMC will report any deficiencies with the property
or market area to the lender.
The appraiser’s goal is to obtain
the most accurate value possible. The
lender uses the appraisal as a tool
continued on page 22 »
when making a lending decision, and
it wants to know what is good and bad
about the property. As such, the appraiser will put everything in the report.
Before the appraisal is ordered, advise
the borrower that any repairs or property deficiencies should be addressed
before the appraiser comes out.
There are a few things that you, as a
broker, can do to help your clients get
Brian C. Coester is the CEO of Coester
Appraisal Group, a national appraisal company that specializes in helping clients with
their valuation needs. He was born into the
business and is a certified residential real
appraiser. He is a former college football
player, an avid weightlifter and a martial arts
enthusiast. Reach Coester at (888) 485-1999
or bcoester@coesterappraisals.com.
« GFE continued from page 20
The tolerance related to fees and the
opportunity for error should concern
brokers, however. Brokers must have
solid procedures to ensure originators are aware of all fees relating to the
lender. In turn, lenders must be aware
of the fees included on GFEs that loan
originators provide.
Brokers who charge advance fees
before issuing GFEs also will be required to refund those fees to the
borrower before submitting the loan
to the lender. If brokers fail to do so,
lenders will deny the loan submission
to stay compliant with the Mortgage
Disclosure Improvement Act, the Truth
in Lending Act and the Real Estate Settlement Procedures Act (RESPA).
Helping borrowers
Getting past fees and charges on Page
2, Page 3 can be interpreted with relative
ease. At the top of the page, three categories describe fees that can and cannot
change at settlement and by how much.
Perhaps the most significant item is
transfer taxes. This fee cannot change
between initial disclosure and closing.
Brokers and lenders, therefore, must
solidify their relationships with third-party vendors — or create internal policies for verifying this information — or
they may experience expensive long-term repercussions.
The tradeoff-table section on Page 3,
intended to illustrate the seesaw
relationship between closing costs and
interest rates, should help loan originators discuss loan options with borrowers. The originator must accurately fill
out the first column, “The loan in this
GFE,” to reflect the parameters of the
loan disclosed in the GFE.
Technically, the other two columns
of the tradeoff table — “The same loan
with lower settlement charges” and
“The same loan with a lower interest
rate” — can be left blank. The intention
of the table, however, is to illustrate to
borrowers that:
By accepting a higher interest rate, •
they can pay lower upfront settlement charges, or
By paying greater settlement •
charges, they can lower their interest rate.
Finally, the bottom of Page 3 provides
a “shopping chart” section for borrowers to compare different GFEs provided
by different lenders. Because columns
for Loan 2, Loan 3 and Loan 4 are intended to be related to GFEs provided
by other loan originators, there’s no requirement for their completion.
Other concerns
Beyond going page by page in the
new GFE, there are additional important points of which brokers should
be aware.
The official GFE • provided by HUD
doesn’t contain a signature line for
borrowers or co-borrowers. This is
perhaps the only area that HUD has
allowed for variation between its official form and those brokers, lenders
or service-providers provide. HUD
will allow signature lines to appear
on the forms and has confirmed that
their appearance won’t constitute a
compliance violation.
“Brokers should
focus on
conforming to
changes and ensuring
they maintain appropriate
policies and procedures.”
HUD says no statements • may be
added to the form for borrowers to
indicate they acknowledge receipt of
the settlement-costs booklet or the
Consumer Handbook on Adjustable-Rate Mortgages. These statements
often appeared on previous versions
of many GFEs. HUD’s interpretation
is that the new GFE is an official form
and no longer a format. Therefore, no
additional information may be added.
If a loan disclosed • in a GFE is for a
construction loan and the closing will
take place more than 60 days from
GFE issuance, the lender may provide a statement to the borrower that
a revised GFE may be issued no more
than 60 calendar days before closing. If the lender fails to provide this
notice at the time of issuance of the
initial GFE, the lender loses the right
to revise the GFE without otherwise-recognized changed circumstances.
The lender will be held to the tolerances based on the fees provided.
Loan originators must provide bor- •
rowers a list of service-providers for
any services for which borrowers may
shop. This notice also must be issued
at GFE disclosure and must provide
sufficient information to identify the
service-provider company, as well as
the fee related to its service.
•••
Considering the many priorities of lawmakers and rule-makers, change likely
represents the only constant on which
we can rely.
To remain compliant and to understand the implementation schedules
and implications involved with current,
pending and unforeseen changes to
lending rules, brokers may want to consult with legal experts or compliance
professionals.
The final effectiveness of the RESPA
rules and their impact on the industry likely won’t be felt until well after
they take effect. In the meantime, brokers should focus on conforming to the
changes and ensuring they maintain appropriate policies and procedures. •
