The $4 Trillion Hangover - 07.20.10 | Video Marketing and Mortgage News Designed for Mortgage and Real Estate Sales

5pence: (July 21, 2010 3:03pm)

As big as this bill is I'd say it's a foregone conclusion is that there will be many unintended consequences.

Danielle: (July 21, 2010 10:28am)

@ Bizz Money - Yes, the buyer is basically paying for it, but as long as they understand it, then it shouldn't be a problem. I explain to my buyers that in a discount, a person would buy their rate down, paying the lender up front for a lower rate over the course of the loan (which I normally do NOT recommend, by the way). In this situtation, you (the buyer) are 'selling your rate up' by allowing the lender to pay you YSP up front for a higher rate over the course of your loan. This YSP goes towards reducing your closing costs out of pocket down to the minimum down payment required. The buyers like it. I even show them the rate sheets and let them know that I paid for a service (guess who) to keep me informed on the way the mortgage rates are trending, so I can strategize to get the lowest rate possible for the YSP they need. Yes, the lenders allow it, but make sure the borrowers are still coming up with the full downpayment and watch the 6% seller concessions rule. See my post below.

Danielle: (July 21, 2010 10:13am)

Part 3 - Final part - Since Brian and Frank mentioned using YSP to compensate, I felt they really should clarify this detail. Although the verbiage of the proposed rule change (http://portal.hud.gov/portal/page/portal/HUD/press/testimonies/2010/2010-05-13 specifically states "seller concessions", chances are good that it will refer back to all concessions from third parties.

Danielle: (July 21, 2010 10:12am)

Part 2 cont. - This includes the lender and broker, which includes YSP. (On page 195 of 485 in 4522.2 4.8.b Types of Sales Concessions, the Sales Concessions can include loan origination as well as closing cost assistance.) This was highlighted to me by a lender I was using recently when I have been letting my borrowers choose a higher rate to bring their out-of-pocket down to the minimum down payment required. Therefore, if you have a contract with the seller already giving 3% seller concessions, you CANNOT allow Box A to be a negative number. In fact, a stricter interpretation of the rule could argue that the YSP itself in Box 2, page 2 of the GFE could be a contribution by a third party (the lender) towards the loan origination costs. By that interpretation, the YSP in its entirety in Box 2 could be counted against the 3% seller concessions limit. To be continued in Part 3

Danielle: (July 21, 2010 10:10am)

I agree with pamelaw. The 3% seller concessions will INCLUDE any net credit from the YSP in Box A Your Adjusted Origination Charges. So, if you have Box 1, page 2 Our Origination Charges of $500 and Box 2, page 2 Your Credit for the Interest Rate Chosen -$1200, then Box A Your Adjusted Origination Charges would be -$700. This $700 goes towards the 3% seller concessions rule! If you read the original 4155 rule on seller concessions, the verbiage states "Contributions from sellers or other third parties to the transaction that exceed 6 percent...". (http://www.hud.gov/offices/adm/hudclips/handbooks/hsgh/4155.2/41552HSGH.pdf This quote is from page 196 of 485 in 4155.2 4.8.c Lender Requirements Regarding Sales Concessions.) This includes the lender and broker, which includes YSP. (On page 195 of 485 in 4522.2 4.8. b Types of Sales Concessions, the Sales Concessions can include loan origination as well as closing cost assistance.) To be continued in Part 2.

bplo: (July 21, 2010 9:42am)

I'm an LO for a mortgage broker. Is anyone else having issues getting licensed due to credit issues? I was told by the state of Ga that you will be denied unless you have a BK or all accounts are current. This is happening to a lot of LO's I know.

5pence: (July 21, 2010 9:35am)

‘‘(c) FEDERALLY REGULATED FINANCIAL INSTITUTIONS.—The requirements of subsection (a) shall apply to an appraisal management company that is a subsidiary owned and controlled by a financial institution and regulated by a Federal financial institution regulatory agency. An appraisal management company that is a subsidiary owned and controlled by a financial institution regulated by a Federal financial institution regulatory agency shall not be required to register with a State. ‘‘(d) REGISTRATION LIMITATIONS.—An appraisal management company shall not be registered by a State or included on the national registry if such company, in whole or in part, directly or indirectly, is owned by any person who has had an appraiser license or certificate refused, denied, cancelled, surrendered in lieu of revocation, or revoked in any State. Additionally, each person that owns more than 10 percent of an appraisal management company shall be of good moral character, as determined by the...

5pence: (July 21, 2010 9:29am)

‘‘(c) FEDERALLY REGULATED FINANCIAL INSTITUTIONS.—The requirements of subsection (a) shall apply to an appraisal management company that is a subsidiary owned and controlled by a financial institution and regulated by a Federal financial institution regulatory agency. An appraisal management company that is a subsidiary owned and controlled by a financial institution regulated by a Federal financial institution regulatory agency shall not be required to register with a State. ‘‘(d) REGISTRATION LIMITATIONS.—An appraisal management company shall not be registered by a State or included on the national registry if such company, in whole or in part, directly or indirectly, is owned by any person who has had an appraiser license or certificate refused, denied, cancelled, surrendered in lieu of revocation, or revoked in any State. Additionally, each person that owns more than 10 percent of an appraisal management company shall be of good moral character, as determined by the...

5pence: (July 21, 2010 9:20am)

‘‘(i) CUSTOMARY AND REASONABLE FEE.— ‘‘(1) IN GENERAL.—Lenders and their agents shall compensate fee appraisers at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised. Evidence for such fees may be established by objective third-party information, such as government agency fee schedules, academic studies, and independent private sector surveys. Fee studies shall exclude assignments ordered by known appraisal management companies. http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h4173enr.txt.pdf

5pence: (July 21, 2010 9:06am)

It supposedly does, I'm trying to take a look at the final now but it's feels like it's taking literally taking forever to load. This is going to take hours at this rate lol. I'll report back the good and bad I find related to us.

cpappraisal: (July 21, 2010 8:56am)

I agree...I won't accept work for those fees and the language is BS. It seems as if the cutomary fees are what is customary to AMC's not appraisers. I really hope this new bill addresses that issue....

5pence: (July 21, 2010 8:50am)

Think of it this way - customary and reasonable to who? To the appraiser? Certainly not. Who decides what's customary and reasonable? The bank/AMC. Our free bidding process was stolen by those simple words because "appraisers" accepted them - they swallowed the whole hook, line and sinker.

5pence: (July 21, 2010 8:46am)

FHA - same thing. Customary and reasonable is a bunch of chit. We are independent contractors - there is no customary and reasonable.

cpappraisal: (July 21, 2010 8:33am)

I ask this because it appears as though the language is following FHA in where it says we are to be paid a "Customary and Resonable Fee" but that has not made a difference. I was still asked to take $200 for FHA appraisals....

cpappraisal: (July 21, 2010 8:30am)

What about FHA?

cpappraisal: (July 21, 2010 8:29am)

They sure do....I think that is why they purposely make these bills soooooo long. Thank you for your input it is appreciated. I would so love to be able to go back to doing appraisals. I loved doing it, just can't afford to do it for $200....thanks again.

5pence: (July 21, 2010 8:21am)

The big thing is that the GSE's have to accept all appraisals. If they try to accept only HVCC compliant appraisals they can be fined $10k a day up to $20k a day - because HVCC is dead as that illegal POS should be. This leaves it open for all banks and credit unions to order directly from the appraiser.

5pence: (July 21, 2010 8:14am)

cpappraisal : I'm waiting to see the final bill to give it a good once-over. From what I've seen in past bills, amc's can't dictate our fees and if they try to it's a violation. Don't take this as written in stone until I get a chance to see the final. Our polits have a way of sneaking things out and putting things in when no ones looking - so, don't quote me until the final is available.

cpappraisal: (July 21, 2010 8:12am)

It really isn't the whole AMC thing that bothers me it is the fact that we have to pay for them. We didn't ask for them so why do we have to pay for them. If they would somehow regulate them to collect their own fees seperate of ours, I would not have so much of an issue with the AMC's and I would be able to go back to doing appraisals but I refuse to and can not afford to do an appraisal for less than $350 so I am hoping somewhere in that bill our compensation issue is addressed.

cpappraisal: (July 21, 2010 8:07am)

Thank you...anything about our compensation? I still don't see why we have to pay for AMC's....

5pence: (July 21, 2010 7:44am)

cpappraisal: On the whole the bill looks pretty good. Kanjorski did a good job. The POS HVCC is dead. Federally regulated banks that own AMC's = those AMC's are also federally regulated and can not be state regulated. Not good. I haven't read the whole thing either and I'm hoping nothings changed in what the Pres signs today. This from Todd Harper aide to Kanjorski : "Nothing in the bill prohibits mortgage brokers from ordering appraisals. We were very specific in writing the appraisal independence standards. Please read section 1472 of the bill, and you will see that we incorporate mortgage brokers on an equal basis with all other participants in the mortgage market place. The discussion has been over whether to go one step further and put an explicit provision in the bill saying that lenders must accept the appraisals ordered by brokers. The Senate would not agree to this provision. So, some lenders in the future may allow for broker-ordered appraisals and some may not."

cpappraisal: (July 21, 2010 7:23am)

5pence you there? I know you keep up on all this legislation so I was hoping in a nutshell you can tell me what the bill that was just passed by congress means for us appraisers. I haven't had a chance to read it. Too busy working my other job...

Bizz Money: (July 21, 2010 7:06am)

Seller's Contribution = 3% Buyer's Contribution = YSP. Yes the buyer will now have to contribute instead of receiving because the YSP will be paid by the Buyer in the form of a higher interest rate.

Bizz Money: (July 21, 2010 6:21am)

same person

Matty Ice: (July 21, 2010 5:46am)

I have not been on the website in several days. I know financial reform bill passed and is law and understood the goal was to limit broker compensation tied to rate. However, I have yet to hear exactly that lender can have NO YSP. Frank(and any others) - please advise on this....does anybody know EXACTLY how this law will be implemented as it applies to us brokers? Are we capped at 3% total? Can we make NOTHING on the back at all? Can we only make it on the front or on the back? Please advise....also, when will rule go into affect? January 1st? before......does anyone know for sure? lots of questions....looking for answers.

5pence: (July 20, 2010 6:53pm)

It's an OPEIU - Office and Professional Employees International Union, AFL/CIO, CLC. Unions are for employees. A Guild is for independent contractors, like us. Maybe I'm pusing it too much here, but I see a whole lot of benefits that I've never encountered in any appraisal organization or coalition. We can get discounted health care and discounted continuing education and maybe even discounted E & O. The more members we have the more benefits that can be spread around. It's only $150 a year. I'm going to try to start one here in Washington State. It's the best deal I've seen yet offered by anyone or any organization. The AGA was formed in 2004 because the founders saw what was happening to our profession - going down the tubes. They had foresight..

5pence: (July 20, 2010 5:57pm)

Hi Randy : While noble, a coalition can only fight at the state level. With AMC's being Federally protected like their TBTF parents, state efforts can not touch them. Understand that the Guild already has a slew of lobbyists and lawyers fighting at the Federal level. With the multi-billions in funds they control the government goes out of their way to listen to them. There are already hundreds of thousands of members. Just sayin.... give it a look over. It's not a union - a union would not work.

94513Realtor: (July 20, 2010 4:38pm)

I contacted HUD to make Public Comments regarding Seller Contribution/ New Loan to Value / Credit Score. [ Docket # FR-5404-N-01.] You will need to follow the instruction posted in the Federal Register to submit your comments. This is the link: http://edocket.access.gpo.gov/2010/pdf/2010-17326.pdf This is 9 page PDF on issue and how to CORRESPOND for public COMMENT deadline 8-16-2010 from Lemar C. Wooley, Office of Public Affairs HUD HQ Washington, DC (202) 708-0685 ext: 6631 They do not make easy to comment. Perhaps a POLL survey like you guys do would benefit HUD ?? Thanks for all your information.

W.R.Buchanan: (July 20, 2010 1:52pm)

5pence: We have a new group in CA which is an advocacy only type of group.It is called the CCAP, California Coalition of Appraisal Professionals. www.CaCAP.com.The Appraisers Guild has been trying to Uninonize the appraisers and so far it isn't working very well, mainly because unions in CA are causing way too many problems for this state.Whereas I totally agree with the overall approach, but we have found that the idea of unionizing appraisers is not being met with much success.Our approach is to get at least 1,000 members (out of 13,000 current in CA) and at $100 ea , we will be able to fund a credible lobbyist to interact with state lawmakers. We are already having a significant affect on the OREA in this state with respect to writing proposed guidelines for regulation of AMC's. We are the only outfit in CA actually advocating for appraisers at the state and national level. Join CCAP now. You need a voice ,, Here it is!!! Randy

GODLIKE: (July 20, 2010 1:51pm)

I see nothing wrong with a buyer paying a higher interest rate if they don't have the down payment and closing cost money. If you don't penalize people somehow for being in a weak position then there will be no reward for people doing what they are supposed to be doing. There are some people, some times and some situations that a person does not deserve a home. If they can't save a minimal amount of money to allow them to get into a home then that's defacto proof they will have trouble with a new, probably higher, house payment. Get real people!

JDrobeck: (July 20, 2010 12:45pm)

You guys are crazy, this 3% thing will be terrible for our low end market. On a 50k home its a whole lot more than 1.5%. If the LO bumps the rate, are we not just creating a higher cost loan for the customer? I figure on 50k the buyer would have to come up with an extra 1500 bucks. That's a whole lot. . . .

5pence: (July 20, 2010 11:05am)

To me this blatantly illustrates the FHA's own severe lack of confidence in their "new" valuation and underwriting policies modeled after the GSE's and HVCC for the loans they're insuring. So to add to the consumers financial hardship they must pay the "VIC" to play in the FHA casino. It's surreal.

iam 2520: (July 20, 2010 10:58am)

Just doing the math, unless you are closing at a +/- 90% LTV you are upsidedown " . " So what remains is reserves and funds to close. YSP is only for the buyers but if you have not the funds to close we might as well have 3% fixed rates. Just further limiting the # of entry level homebuyers qualified to purchase. Cash, Income & Credit. Nothing changes still need all three, the question is how much.

5pence: (July 20, 2010 10:43am)

Make the banks and the GSE's make a "real" market that is not wholly supported by the taxpayer and watch all this crap go away.

sansonj: (July 20, 2010 9:51am)

I think was is equally big as of 07/31/10 the FHA HUD $100 down program will be gone. USDA is also out of money. The good news is that these home values are so stinking low people can come up with proper education and advise on getting their down payments. FYI, nothing wrong with 100% financing- it should go away when we start appreciating above a certain deviation (10 year average per local marker + 2% above them each % above that we remove the low downs until we control the market).

5pence: (July 20, 2010 9:34am)

Att California appraisers: I suggested in the past that appraisers form Guilds. I joined the Maryland American Guild of Appraisers, Guild 44. Website is www.appraisersguild.org. Click on California - they now have a Guild! The Guilds are affiliated with the AFL/CIO and have their lawyers & lobbyists. The AFL/CIO lobbyists!! and lawyers!! State coalitions are great, but there is power in numbers. It's only $150/yr to join. You wonder about guilds? The best example of a Guild is the realtors NAR. They are not a union but the next best thing. The AMA american medical association is a guild. The NLA national lawyers association is a guild. The screen actors guild. Going to the state level is excellent but stepping it up to a national level is the next step. The Maryland Guild has reknown members of the AI & other appraiser organizations. Something to consider, that's all. The main thing is to be pro-active. They outlawed state regulation of TBTF AMC's so we need to go national. Join!! IMHO

5pence: (July 20, 2010 8:57am)

This move by the FHA, and the raising of the MIP, is using the borrower as a hedge against their own risk taking-risk in their non-existant quality underwriting & their skippy out of town appraisers that are beloved for their low costs and not their skill or accuracy but more for their manipulative value to the AMC/banks. Allaying the risks they're taking by putting it on the borrower (as a hedge) is going to close the market to many worthy borrowers, newlyweds, 1st time buyers, independent business owners, 30 yr olds finally moving out of their parents basement, Detroit. It's just not right to use the borrower as your hedge against risk in avoidance of doing things the right way, with quality underwriting and real valuations to accurately measure risk. This is a blanket measure to avoid real underwriting. Why can't they follow the tried & true VA way??!! They used to be like VA. Now they're becoming more like the GSE's, because that's where the taxpayer money is. It's so casino-like.

GODLIKE: (July 20, 2010 7:48am)

Re the MIP increase. First FHA didn't need any stinkin'help from the Govt. Then suddenly they needed things changed - and very quickly. Immediately after they got the increases they had a windfall and were able to fund the fight to end Homelessness. I'm not sure what to believe.

pamelaw: (July 20, 2010 7:39am)

The proposed rule states that a seller concession limit of 3% includes any interested party to the transaction - this would include the mortgage lender/broker paying closing costs. This hurts in Florida where clsg costs are a significant part of the transaction. 6% may be a little high, but 3%? Come on FHA! Thought you were in it to serve the underserved.

indykjb: (July 20, 2010 7:25am)

Why a Builder Confidence index? Here's why: Home Building is a large key to employment and economic recovery. When homes aren't getting built, the plumber, electrician, HVAC, framer, drywaller, roofer, concrete guy, etc is not working. If you are wondering why unemployement is so high, it's because builders aren't selling therefore they are not confident to build and key many many many people employed in our country.

joecolorado: (July 20, 2010 7:21am)

"we should keep in mind that the sales price of a home is based on and/or limited to the appraised value of the property"-where did that tripe come from?There is ABSOLUTELY no link between price,cost and value-NONE.perhaps if some real estate professionals realized that fact,we would not be in this mess.Appraisers are supposed to be indepedent in estimating the value of a home from the market,If there are sales concessions,anything over and above the"typical"is adjusted accordingly.whether its 6%or3% should make little difference to an appraiser as S/He should be an uninterested 3rd party reporting the market facts.sales price is not based on value.The seller can employ an appraiser to estimate the value prior to putting the home on the market to reinforce his/her confidence in his/her asking price,the seller can ask any price S/He wants for the property,but its value should reflect the market.

GODLIKE: (July 20, 2010 7:09am)

Ride it out! It's not as big a deal as they're making it out to be. When the stock market drops you only lose money if you sell. Same thing here. House prices rise and fall all the time.

Theo Rising: (July 20, 2010 6:53am)

Part 2: at a typical expense of 5-7%. We don’t seem to be alarmed at that cost, yet FHA now wants to take exception to the amount of the Seller’s Contribution, where that contribution would directly help the Buyer. By the way, a Seller is not required to provide that 6% level of assistance, as that is a negotiable number. Finally, we should keep in mind that the sales price of a home is based on and/or limited to the appraised value of the property, so one cannot possibly jack the price up beyond that, anyway. Here’s a novel idea (and a workable solution!): limit the total allowable expense to the Seller at 10% (which, effectively, is the very same thing that is being proposed), and then let the Real Estate Agent and the Buyer negotiate amongst themselves to figure out how best to make the deal work. Let the fun begin…

Theo Rising: (July 20, 2010 6:52am)

Part 2- at a typical expense of 5-7%. We don’t seem to be alarmed at that cost, yet FHA now wants to take exception to the amount of the Seller’s Contribution, where that contribution would directly help the Buyer. By the way, a Seller is not required to provide that 6% level of assistance, as that is a negotiable number. Finally, we should keep in mind that the sales price of a home is based on and/or limited to the appraised value of the property, so one cannot possibly jack the price up beyond that, anyway. Here’s a novel idea (and a workable solution!): limit the total allowable expense to the Seller at 10% (which, effectively, is the very same thing that is being proposed), and then let the Real Estate Agent and the Buyer negotiate amongst themselves to figure out how best to make the deal work. Let the fun begin…

Theo Rising: (July 20, 2010 6:49am)

This is yet another fascinating (nee, troubling) move by FHA, which is apparently in a good deal of financial difficulty, but can’t quite figure out how to set its’ ship aright. Recently, FHA increased their upfront Mortgage Insurance premium to 2.25%, up from 1.75%. Was this because the actual cost of their premium went up, or was it merely an effort to raise needed funds to cover losses from defaults? Let’s go with the losses from defaults. Now, let’s do a little math: if the minimum required down payment is 3.5% of the purchase price, but they add a 2.25% premium to the loan amount, the Buyer is left with only a 1.25% equity position in the property! Haven’t we discovered that having almost no equity in a property becomes a supportive reason to walk away when things get tough? So, in an effort to raise funds to cover losses they just create another category of Buyers who are at higher risk of defaulting. Fascinating… The idea that Sellers are overpricing their homes to qualify them for an FHA purchaser is somewhat amusing. I’m betting that almost all sales where an FHA loan is procured involves a Real Estate Agent, at a typical expense

GaryP: (July 20, 2010 6:31am)

Here's another point. What is going to happen to those low cost, "affordable" neighborhoods that depend on FHA financing for the majority of transactions. I could definietely see a scenario where they could turn into real estate deserts because of a lack of available financing. This would only exacerbate the current default situation as sellers are forced to walk away from these homes because of a lack of qualified buyers. Even if there are some transactions taking place, they will be reduced because of the lack of recent comps for valuation. I'm already seeing that issue in some outlying or rural areas. Even if we do hit the numbers, the comps are over a year old and UW'ers are rejecting these comps. This trend could conceivably move inward to urban, FHA dependent neighborhoods. As with everything else with regultory and guideline changes, its yet another example of "unintended consequences."

GaryP: (July 20, 2010 6:22am)

Eleanor, my max FHA loan amount is $271K, but we rarely do FHA loans in that price range. Even if we were, 3% would be fne for those loans. The issue comes in loans like gsuarez1 mentioned, the low income, low cost loans that are below $100K. I understand Frank's point about using what we ake on the back to help pay fees, but if I read the Frank/Dodd Bill correctly, we have a choice between making origination and money on the back (whatever you call it - SP, SRP). So, if the indirect compensation is going to the borrower as a credit, how do we get paid? I suppose Barney & Chris expect us to all work as a charity. Somebody please show me where I am wrong on this.

frankgaray: (July 20, 2010 6:01am)

Could be Eleanor... maybe the public comments will help guide them in that area.

Eleanor: (July 20, 2010 5:39am)

I think you will see the HUD change affect "non-high cost" areas... areas that are not doing FHA at $600K are a little different than the FHA max areas of $300K. #justsayin

frankgaray: (July 20, 2010 5:27am)

Cool info Jack.

jack: (July 20, 2010 5:19am)

The actual Petition to Foreclose fiqures for Nantucket YTD is 38 units. Compare this to last year when only 5 petitions were filed through July 19. A whopping 760% increase. The Nantucket man isn't the only one affected. The Martha's Vineyard man the other Rich Man's island has had 49 filings YTD compared to last years filings of 13. A mere 377% increase. www.haltourforeclosure.com

frankgaray: (July 20, 2010 5:18am)

We're not supporting the seller credit. But let's be real. HUD is going to do it regardless of what the industry says is right. In fact I plan on directing my contact at HUD to pay attention to today's poll question which speaks for itself. All we're saying is that when it comes down, and it will come down, you can still work within our current environment to get your deal closed. If I came across as supporting it, that isn't how it was intended.

John S.: (July 20, 2010 5:14am)

Frank, A good idea to price the loan accordingly in order to accommodate the borrowers closing cost shortfall. However, by having to do so, the government again is forcing a greater expense to the borrower in the form of a higher interest rate. I vote to keep the 6% seller contribution.

lkt02: (July 20, 2010 5:08am)

I have to agree with gsuarez1. By taking away the 6% seller contribution, especially on your lower priced transactions, you will just be leaving that many more buyers on the sideline. Please don't support this or even think it is positive in anyway,shape or form. Personally I think this could effect my business and others by an additional 25 to 30% on top of everything else that has already transpired.

gsuarez1: (July 20, 2010 4:32am)

Guys please don't be supporting FHA's attempt to lower the seller concessions. Earlier in the year this idea was floated as a means to combat appraisal fraud. Well we all know in Feb FHA adopted HVCC "like" regs that should be doing the same thing. Why aren't we giving that change a chance before layering other severe changes atop it? The reduction in seller contributions unfairly hurts high cost/low property value states, and low end buyers. Here in FL, where a $75k FHA loan is commonplace, closing costs can easily top $4.5k. I repeat- all we are doing is setting ourselves up for early defaults by taking every last penny a buyer may have up front instead of focusing on reserves!