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Fannie, Freddie appraisal secrecy hurts first-time buyers
By Jeff Lazerson
What’s up with mortgage rates? Jeff Lazerson of Mortgage Grader in Laguna Niguel gives us his take.
Rate news summary
From Freddie Mac’s weekly survey: The 30-year fixed-rate mortgage averaged 4.06%, down 1 basis point from last week. The 15-year fixed averaged 3.64%, down 2 basis points from last week.
The Mortgage Bankers Association reported a 2.4% percent decrease in loan application volume from the previous week.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $484,350 loan, last year’s payment was $171 higher than this week’s payment of $2,329.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages at zero points: A 15-year FHA (up to $431,250 in the Inland Empire, up to $484,350 in Los Angeles and Orange Counties) at 3.25%, a 30-year FHA is at 3.375%, a 15-year conventional at 3.375%, a 30-year conventional at 3.875%, a 30-year FHA high-balance (from $484,351 to $726,525 in L.A. and Orange counties) at 3.75%, a 15-year conventional high-balance (also $484,351 to $726,525) at 3.75%, a 30-year conventional high-balance at 4.25%, a 15-year jumbo (over $726,525) at 4.0% and a 30-year jumbo at 4.625%.
What I think: This month marks 10 years since the property appraisal process was turned on its head.
Named Home Valuation Code of Conduct or HVCC, the feds put a firewall between mortgage loan originators and appraisers with the primary goal being appraiser independence.
All of this was subsequently memorialized into Dodd-Frank.
What a disaster.
Consumers ended up paying 33% more for what tended to be-very conservative appraisal valuations. The data required to complete an appraisal report almost doubled with appraisers losing almost half of the appraisal fee to the newly installed appraisal management companies that directed the business. Previously they earned 100% of the fee.
Fannie Mae and Freddie Mac, which fund about 66% of all home loans, have been building separate property appraisal data libraries right under our noses. Lenders were required to upload these data-rich appraisal reports through a web-based platform named Uniform Collateral Data Portal.
Consumers pay for these appraisals whether the loans ultimately fund or not and whether the loans were sold to the mortgage giants or not. I will bet you Fan and Fred most likely keep the reports (without asking your permission).
Now, consider the first-time buyer who typically has a small down payment. Fannie and Freddie have created institutional discrimination against low down payments. Sellers and their real estate agents know that if the value comes in lower the than sales price, it’s much easier to cure that property value gap with a larger down payment.
For example, the contract price is $600,000 with a 5% down payment. The appraisal comes in at $585,000. If the seller is unwilling to renegotiate the price, the buyer would have to come in with a down payment of $30,000 and cough up $15,000 more — totaling $45,000 that he or she probably does not have.
Conversely, with 25% down, the loan gets priced slightly higher at a 76.9% loan-to-value instead of a 75% loan-to-value.
The chutzpah starts with Fan and Fred keeping our neighborhood property values a secret.
My gosh, we paid for those appraisals that enrich their data libraries. After all, once any new sale closes, the sales prices become public anyway. Why on earth won’t Fannie and Freddie publish the proximate value of your home just like Zillow? Zillow values hold no weight. Fan and Fred values hold all the weight when it comes to loan approvals.
If buyers had a close idea of what Fannie and Freddie computers are likely to approve, they won’t get involved in bidding wars they can never hope to win.
So, each and every time, the low-down payment buyer risks losing about $500 for a property inspector and about $600 for an appraisal. All because inwardly focused and entitled Fan and Fred are smug bugs in a rug.
And, they claim to be championing first-time buyer homeownership.
Jeff Lazerson - Mortgage Columnist since 2011