I try not to beat a dead horse when I write this column, but some things should be aired.
I have a client who refinanced with me back in 2009. On my recommendation, she chose a 30-year fixed-rate loan at 4.875 percent and paid no points or closing costs. Her loan balance was $310,000, and her appraisal came in at $420,000. It was a very simple deal.
Then, interest rates proceeded to take a plunge. My client called again this past summer, asking about another refi. I quoted a rate of 3.75 percent with no closing costs. She jumped at it, and I locked the rate.
Four weeks later, we were shocked to receive the new appraisal report with an opinion of value of just $320,000, effectively killing the refinance opportunity. The borrowers contacted the appraiser with reasonable questions. My clients told me this appraiser basically stonewalled them, refused to address their questions and basically raised his arm, stuck out his palm and told my client to "talk to the hand."
We followed up with a formal appeal that included other comparables and corrected factual information about the house. The appraiser refused to budge on his opinion of value.
My client took a vacation and then called me in September. She wanted to start from scratch and pay for another appraisal report in hopes the value would come in high enough to make the refi work.
Sure enough, the new report, completed by a different appraiser, came in at $430,000 -- more than enough to get the refi done.
The Home Value Code of Conduct (HVCC), while not required by law -- as was pointed out to me by several appraisers the last time I ranted about the subject -- is implemented by most, if not all, mortgage investors selling to mega-giants Fannie Mae and Freddie Mac. The HVCC effectively eliminates any communication between the appraiser and the loan originator in order to ensure that the originator isn't unduly influencing the appraiser to "hit" a particular number.
The problem I have seen is that the HVCC has -- let's use some fun expressions -- "thrown the baby out with the bath water" or has "cured dandruff by decapitation." Appraisers are independently assigned by so-called management companies, and it's no secret that those management companies, for a hefty fee, choose the appraiser based not on competence, but on price and delivery times.
Meanwhile, the homeowner, who is merely trying to take advantage of Fed Chairman Ben S. Bernanke's low mortgage rates, can get randomly stonewalled by a paranoid appraiser.
I've always thought the HVCC was a disservice to the consumer. While some undue influence may have occurred in the days before the implementation of the HVCC, the appraiser, with or without "influence," still must prepare his report in accordance with strict standards in order to keep his license, and the report must pass the through the goalposts of the salaried underwriter, who's in charge of approving the application.
I once ordered an appraisal through the mandated management company for a purchase in Falls Church. Somehow, the management company thought an appropriate appraiser would be from a company called Appalachian Realty based in Cumberland, Md. Now, if you know the geographical distance between Falls Church and Cumberland, you likely would nod in agreement with the homebuyer who questioned why this appraiser was selected instead of someone more local. Go figure.
Henry Savage is president of PMC Mortgage in Alexandria. Send email to firstname.lastname@example.org.