Cheaper mortgages and taxpayer bailout ahead


My two biggest takeaways from the Mortgage Bankers convention held in Boston three weeks ago were; 1) your cost to get a home loan will be substantially reduced in the coming years. And 2), Fannie Mae and Freddie Mac are on the path to another bailout at taxpayer’s expense.

Fannie Mae introduced Day 1 Certainty, which offers freedom from paper-based processes by lenders. This allows Fannie to directly validate income, assets, employment and possibly waive the appraisal process on refinances.

In exchange for using the Desktop Underwriter validation service or DU (Fannie’s automated credit decision process), lenders will get representation and warranty relief from Fannie, meaning no loan buybacks on those validated components.

Freddie Mac is working on a similar implementation in terms of validation but a more liberal swath at the appraisal waiver to include purchases and refinances.

Nationally, the cost to originate a home loan in 2008 was $4,500. In 2016, the cost climbed to $7,000, according to the MBA.

Orange County loan officers earn about 1 percent of each loan amount funded. Loan processor annual earnings are in the range of $45,000 to $75,000. Underwriter earnings are typically north of $100,000.

These charges get baked into the interest rate (no-cost loan) or itemized fees charged to you directly on your loan estimate.

In due time, these rolls will be diminished because there will be less information to collect, fewer calculations to make and a lot less critical analysis. There will be no need to pay the kind of keep that loan officers and the like command today.

Regarding Fan and Fred’s path to bailout, nationally we are in the midst of an appraiser shortage crisis. So, Mel Watt, director of the Federal Housing Finance Agency (Fan and Fred’s alleged regulator), gave his blessing to Fan to waive some refinance appraisal inspections; Fred can waive perhaps 25 percent of all appraisal inspections.

The Home Valuation Code of Conduct (HVCC) – eventually spun into Dodd-Frank – that 2009 law forced appraisers to do double the work for half the compensation. As a result, America lost tens of thousands of appraisers to other industries because they could not financially survive the recession and compensation cut.

Fan and Fred have a lot of valuable appraisal data in a common platform called Uniform Collateral Data Portal. Going forward, fewer appraisal inspections will naturally dilute the detailed data of local market knowledge that Fan and Fred rely on today.

If you can’t get inside of a home, how will you know if the property was gutted of its fixtures and its worth substantially lessened? What about upgraded properties that don’t get their due credit of higher value? Worst of all, this will invite a national wave of loan fraud that will be tough to prove because interior inspections will never have been completed.

Director Watt is just kicking the can down the road. He’ll be long gone when Fan and Fred come calling on you and I to bail them out again.

If you have questions or comments, please contact Jeff Lazerson by clicking here.

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Jeff Lazerson - Mortgage Columnist since 2011