Franklin Financial Group Blog

It is clear I was never an advocate of the HVCC, and I'm still not. As a matter of fact each day I think I dislike it more than the day before. The funny thing is my dislike of the HVCC is mostly driven by what it is doing to my customers, who are always my first priority. Since I have openly communicated my concerns about the HVCC, I thought it prudent to support my thoughts. The following are a couple of examples of how my actual customers paid the price of the HVCC.

First was the "Jones" family (for privacy I've changed the name). With rates being low they wanted to refinance their current first mortgage to save some money each month. We designed a program to do just that. Everything was going as planned until we received the appraisal. The appraiser brought the value of the home in $5,000 less than what we hoped for. With this lower value my borrower was now going to have to pay Private Mortgage Insurance or PMI. Being a licensed Realtor, I was able to access the local Multiple Listing Service (MLS) and found some sales comparables (comps) that the appraiser did not use. I adjusted the comps I found to match how the appraiser adjusted the ones they used, and felt I had provided proof that our subject property had been undervalued. Since the HVCC does not allow me to have any contact with the appraiser, I submitted my research to the lender who passed it along to the appraiser. The appraiser was unwilling to adjust the value they came up with. They essentially felt threatened by my challenge of the "opinion" of value, and took no consideration of the fact that I was providing information obtained professionally from the same place they had access to. The point is an appraisal is simply an "opinion" of value and I had provided enough evidence that the value could have been determined to be $5,000 or more higher (which was a 3.25% variance of what the value they set). No appraiser is "that good" where their value can be deemed 100% accurate. Anyways, the end result was our new loan amount was over 80% of the value of the appraisal and my customer ended up paying the monthly PMI which eroded much of the savings on the loan. The customer now has to make extra principle payments to get to 80% or less of the appraised value, for the PMI to drop off. They also may have to pay for another appraisal when they reach 80% of the appraisal used for the refinance loan. This prolongs the time in which they could be saving money and hurts them in the long run.

The next example was for the "Smith" family (again I changed the name to protect my customers privacy). On this loan, you probably guessed it, our subject property was undervalued. The appraiser brought the home in $50,000 less than we believed it to be worth. As a result, the interest rate the borrower was going to get was higher than we had originally planned for. So again, I was able to access the MLS and provide comps the appraiser had overlooked. I even went a step further to provide my research to another appraisal company to get their opinion on how I was looking at things. The second appraiser agreed with my findings and felt the comps I found supported a higher value. One of the comps I found that the original appraiser had overlooked, was on the same street and had sold within the last few months. It sold for $75,000 more than what the original appraiser estimated our value at, and was very similar to our subject property. My research provided evidence that our subject property could have been given an "opinion" of value that was $50,000 - $75,000 higher (actually the second appraiser commented as high as $100,000 higher than the original appraised amount). The result on this loan, after my research was submitted through the lender as a challenge of value to the original appraiser was that the value was increased by $25,000 (7.14% higher than the original value). While still lower than what another appraiser could have come in at, the adjusted value was high enough to get the loan done as originally planned (I actually gave up some of my service release premium, or commission, so the borrower would get the rate they were expecting). In the end the customer got what they were hoping for, but were put through a lot of extra time and frustration to get there. Had I been able to deal directly with the appraiser, I could have dealt with the value issues up front and saved my borrowers much of what they endured.

Mortgage professionals have been accused of pressuring appraisers to falsely inflate values. While I agree that this was done in the past, I was not attempting to do this in either example. I had a predetermined loan amount I was working from, which was based on my professional research done as a licensed Realtor, as well as my knowledge of the markets in which my borrowers lived. I was trying to get higher values on both loans because my research showed me that I was not being unrealistic or falsely inflating the values, and that the values that we believed in would benefit my customers in both cases by saving them money per month. This indirectly benefits the lenders they end up with because the lower the monthly payments, the lower the debt to income ratio risk becomes.

My borrowers were told their homes were worth less than what quite possibly someone else (another appraiser) could easily have appraised them for. This frustration felt by the borrowers may have been avoided had I been allowed to order the appraisal myself and provide my research up front. Appraising homes is not an exact science. It is someone's "opinion" of what a home is worth. There's no way to see exactly what a home is worth, or what someone is willing to pay for a home, unless the home is sold. Therefore, it is impossible to anyone to be 100% accurate on an appraisal for a refinance loan.

The price my borrowers (and many others like them) paid is that undervaluation of their property did (or almost did) cost them money each month. In addition, the loan process was extended due to the additional time necessary to challenge the original values. The new loans had lower rates and payments than the old ones we were replacing, so each day that passed before we closed was costing my borrowers money. While I can't place a monetary amount on what my borrowers endured throughout the process, they still "paid" for it in some fashion. Had my borrowers chosen not to complete the refinance (or been able to) due to erroneous information, they would have lost out or paid the price. Also, had they chosen for me to go to another lender, they would have had to pay out of pocket for another appraisal. I'm glad it worked out for my borrowers in both cases, but many are not so fortunate.

The HVCC is not helping consumers but rather costing them more money out of pocket and removes their ability to choose who (and sometimes how much)to pay for a critical part of their loan process. It is harming lenders who are losing opportunities for good loans that can replace some of the bad ones they had on their books. It is however benefiting appraisers and appraisal management companies who are getting paid no matter how accurate (or inaccurate) the information is that they provide. I feel it harms much more than it helps and should be gotten rid of as quickly as possible. If you agree please contact your local elected officials and let your voice be heard. The following is a link you can click on to find yours: http://www.usa.gov/Contact/Elected.shtml