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My good friends and associates, Brian Woody and Ian Coates of First Colonial Appraisals, Richmond, VA, traveled with the guys from www.thinkbigworksmall.com to present the petition to rescind the HVCC to Attorney General Cuomo in New York City.  Watch this clip http://www.thinkbigworksmall.com/mypage/player/tbws/20174/953322 or watch the interview later that day of Marc Savitt, President of the National Association of Mortgage Brokers on Fox News http://www.foxbusiness.com/search-results/m/27463034/home-valuation-fraud-s-impact-on-housing.htm#q=home+valuation+code+of+conduct.

As a mortgage broker, I have worked with numerous appraisers over the years and, like any other industry, while a few may not be as diligent as you’d like, most are good, honest and hardworking individuals committed to providing good service to their customers.  The HVCC implemented earlier this year has cost consumers millions in extra fees and, many times, the ability to achieve their home financing goals.  What was supposed to protect the consumer has only created more bureaucracy and higher fees. 

In addition, since HVCC regulations often prevent the appraiser from being able to use common sense and knowledge of a market, values of properties all across the country have been further depressed.  For a great overview of the issues surrounding the HVCC regulations, see Reuters article “Petition to Rescind HVCC Strikes Hot Button with Real Estate Industry and Consumers”.  The petition was presented to New York’s attorney general, Andrew Cumo, this past Wednesday with approximately 120,000 signatures.  It’s time for legislators to realize they need to really look at the problems and issues we are facing as a nation and seek appropriate solutions rather than passing ‘off the cuff’ legislation that does nothing to address the problem or protect consumer but merely creates more bureacracy. 

Last night, in a vote of 98-0, the Senate approved legislation that will extend the first-time buyer tax credit through next year and, as a bonus, is proposing a $6500 tax credit to current homeowners that have owned their homes for at least 5 years.  The legislation has been sent to the House for vote.  Other measures to meet the growing need of jobless Americans include extensions of unemployment benefits.  In states hardest hit by jobless claims, benefits could extend up to 99 weeks, a significant increase over the 65 week maximum benefit period during the 1970s.

The updated first-time homebuyer tax credit benefit also increases the income limit on a single borrower to $125,000 annually and qualified home values up to $800,000, so the new legislation not only extends the benefit, it increases the number of Americans that will qualify.

First time buyers wanting to take advantage of the $8000 tax credit must contract and close on their new home by 12/1/2009.  While there continue to be persistent rumors that the credit will be extended into next year, until that legislation is passed, borrowers have about another month, at most, where they could potential contract on a home and get their loan closed in time to get the credit.

There is legislation proposed in both the Senate and in the House which extend the credit time-frame and/or expand it to include all borrowers.  It has been a year since the implosion of the mortgage industry with the govenment take-over of Fannie Mae and Freddie Mac, the collapse of Lehman Brothers and many other lending institutions.  The tax credit has been instrumental in bolstering the sales of homes despite rising unemployment.

While we are approaching the slowest sales season for home sales, the holidays and winter months, proponents of extending the tax credit see it as a way to keep the housing market moving forward.  Detractors, however, see rising deficits and increased government spending as problematic for the long-term.

As the legislation stands currently, a first time buyer (defined as someone that has not owned a home in the last 3 years) with an adjusted gross income of $75,000 or less ($150,000 for a married couple) has to contract and close on their home purchase on or before December 1, 2009 to be eligible for the full $8000 credit.

Additional changes in underwriting guidelines apply to a borrower’s tax returns.  As a result of “ongoing concern with fraud and misrepresentations” Fannie Mae is making new requirements concerning lenders obtaining transcripts of a borrower’s tax returns.  The new guideline will require the lender to obtain written permission from the borrower, both at application and closing, to obtain the borrower’s tax transcripts to verify income documentation provided by the borrower with their loan application.

Verification of employment guidelines are also being made.  Previously a lender, if underwriting a loan that has received an approve/eligible through DU, was required to obtain a verbal Verification of Employment (VOE) within 30 days of the closing date.  Since many large corporations have complex and cumbersome Human Resource systems that can take up to 3 weeks to respond to a request for verification of employment, the new guidelines are going to present some serious issues since they require the VOE to be obtained by the lender not more than 10 days prior to closing.

Whether a borrower is applying for his/her first mortgage or fifth, the tightening of underwriting guidelines across the board are making lending more difficult.  Borrowers with superior credit rating are not given any ‘exemptions’ from these underwriting guidelines.  As the holidays approach and fears of recession continuing well into 2010, borrowers are left wondering if getting a new mortgage is even possible. 

There have been numerous cases recently in my own experience where highly qualified borrowers were denied financing based on unreasonable guidelines or a lack of ‘common sense’ underwriting.  When borrowers with superior credit and significant assets can not get financing due to lack of a common sense approach to underwriting then it’s safe to say those less qualified are doomed.  If borrower’s from all walks of life are unable to buy homes, the economic recovery that everyone is desparately seeking will be a long time in coming.

Fannie Mae, which purchases a great majority of the conventional home mortgages currently underwritten in the US, made recent changes in their qualifying guidelines which are the result of “a comprehensive review of current underwriting and eligibility policies with a specific focus on current market conditions.” These include “increased unemployment, stock market fluctuations, and heightened concern about fraud in the mortgage lending process,” in the policy announcement 9-19 from Fannie Mae’s selling guide.

The maximum age of credit documents is reduced for both existing construction and new construction, 30 days reduction for existing (120 to 90) and 60 days reduction for new construction (180 to 120). 

Additionally, Fannie is making dramatic changes in its guidelines for construction financing, especially construction-to-permanent loan programs.  Fannie’s announcement claims this is due to fears of change in a borrower’s financial circumstances during the construction period when utilizing a single-closing loan program.  The most significant change is the lower LTV (loan-to-value) requirements.  Now, if upon the completion of construction, the borrower’s total loan-to-value is not 70% or less, the borrower will be required to go through underwriting and closing a second time.  This change alone can cost the borrower thousands in additional closing expenses.

Lending in the US is already limited to those able to provide extensive documentation as to their income, assets and credit history.  The harder it is for qualified, A+ credit customers to get financing, the longer the economic recovery will take. 

Next, additional changes from Fannie Mae.

Washington Post’s September 7 article “Mortgage Market Bound by Major US Role” by writers, Zackary A. Godfarb and Dina ElBoghdady is an excellent overview of the events and circumstances that led to the mortgage meltdown.  In addition, it gives  the average individual a better understanding of exactly what is at stake as a result of the government’s intervention in salvaging lenders that were on the verge of bankruptcy.

Bottom line, all the bad loans that created this situation are still there, the difference now is taxpayers are now ‘on the hook’ instead of private banks and lending institutions.  The numbers are staggering and the risky loans are still there, they are just backed by the government now. 

When the next wave of foreclosures starts late this year and into early 2010, U.S. taxpayers will ultimately pay the price of the bailout.  What this will mean to an economy already struggling to just to stabilize is anyone’s guess, but it probably won’t be positive.

On July 30, the new Truth-in-Lending (TIL) guidelines went into effect drastically changing the processing of mortgages in this country.  While it has been law for some time that borrowers must receive a Good Faith Estimate and Truth-in-Lending disclosure within 3 days of applying for a new mortgage, the new guidelines require that borrowers receive a new TIL if the APR changes more than .125% during the course of processing the loan.  Re-disclosure requires the borrower to wait at least 7 business days before s/he can close.  (Business days being defined as Monday-Saturday not including any Federal holidays.)