I will be the first to agree that the mortgage industry was extremely under-regulated for years and feel that lack of oversight, among other things, was largely responsible for the collapse of the housing market and subsequent financial crisis we now find ourselves in. But two of the most significant changes we’ve seen in years, both designed to protect consumers and reign in unscrupulous lenders, have done more to hamper the housing recovery than provide better consumer protections.

The HVCC, or Home Valuation Code of Conduct which went into effect this past spring, sets out clear rules pertaining to the entire appraisal process. No longer can a loan officer select an appraiser for a specific property based on its location, construction or intended use. Rather, a random computer program selects an appraiser from the bank’s approved list of appraisers and that appraiser either accepts it or denies it. This makes it very difficult for the lender to determine the cost of the appraisal and I have appraisal fees that range for $400 to $600 depending on the appraiser that accepts the order. No one in the organization who has a financial incentive if the loan closes (i.e. the loan officer) can speak to the appraiser. In fact, the listing and selling agents as well as the buyer and seller are generally expected to have no contact under the new rules. We are not to ask for a rush. We are not to question their comparables or approach to their value. We’re basically stuck with whatever we get. In the past, I would use various appraisers based on their familiarity with the area or the property type. Now we can end up with a single-family appraiser from northern Walton County assigned to do an appraisal for a Panama City Beach high-rise condo. In my opinion, these well intentioned new rules do little to protect the consumer or hinder appraisal fraud.

Another recent change to the Federal Truth in Lending Laws, and in particular changes to Regulation Z which concerns disclosure of APR, has thrown another wrench in the gears. New tolerances for variances between the initial disclosure at the time of application and that based on the final settlement figures along with new re-disclosure requirements are causing delays in closings, confusion among borrowers and frustration on the part of lenders. While most competent loan officers can provide very realistic and accurate estimates at application, they can only go on what they know at the time. Yes, the contract helps but without a preliminary HUD-1 settlement statement it is very difficult to be exact. The problem is that a preliminary settlement statement may not be available until a week or two after application. Even subtle changes in fees can cause a change in the APR requiring re-disclosure under the new tighter tolerances. The problem is that now, if a new Truth in Lending is required, it must be mailed to the borrower six business days before closing. So if a lender discovers on Monday that the APR is more than 1/8% different, higher or lower, and was supposed to close on Friday, he will have to get actual signatures from the borrowers by the end of the business day or they will not be able to close on Friday. This because even with the borrower’s signatures on the re-disclosed Truth in Lending, you still must wait three business days. The new rules, which went into effect for applications taken on or after July 30th, started creating problems in September and though we work diligently to be as accurate as we can possibly be there is no way to stop these new rules from delaying more closings, causing borrower’s rates to expire, etc. This is another example of a well intended change creating adverse effects for borrowers and the housing market in general.

On a bright note, mortgage rates remain near record lows with the thirty-year, fixed-rate right at 5%. We have seen some increased volatility lately so I am advising any of my customers who are floating to lock their rates in now. There is also more talk of the extending the first-time homebuyer tax credit beyond November 30th. Hopefully, we will know more soon.