Financial Reform laws to protect the American consumer have had the opposite effect. Since 2009, average closing costs on a mortgage have risen by 38%, according to a survey by Bankrate.com. A portion of that has to do with passing of The Home Valuation Code of Conduct (HVCC). It establishes standards for solicitation, selection, compensation, conflicts of interest and appraiser independence.
It went into effect May 1, 2009, for any mortgage that would be sold to Fannie Mae or Freddie Mac. Basically it eliminated consumers and mortgage brokers from ordering their own appraisals and requiring them to order from an independent appraisal management company (AMC) to prevent the appraiser from being influenced or pressured to hit a value. In theory, it was a great idea. Eliminating the banks and mortgage brokers from the valuation process would surely eliminate any collusion.
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It turned out to be a bad deal for the consumer. The cost of an appraisal went from an average of $300 to almost $500. Independent appraisers were now at the mercy of the AMC's. In the spirit of making a buck, the AMC's graciously offered experienced appraiser's $100 to $150 for each appraisal they were assigned. Less then half of what they were previously making. To make matters worse, a new government appraisal form that took several more hours to complete was instituted. The newly formed AMC's were now making around $350 per deal, just for assigning appraisal orders, not actually appraising anything.
Experienced appraisers left the business because they couldn't make a living with the small amount of money offered to them by companies that basically did nothing but receive and assign orders. Remember, the AMC's have nothing to do with preparing the appraisal. Now that the experienced appraisers are all gone, that leaves only the most inexperienced to fill the void. Did I mention that the largest of the AMC's are owned by Banks? Landsafe is owned by Bank of America, RELS is owned by Wells Fargo. Thank goodness the new regulations are going to stop the lenders from influencing independent appraisers.
A quick recap of the Mortgage Broker business:
A mortgage broker is basically a middle man in the mortgage industry. Large investors (Banks) pay the mortgage broker a commission for selling their products. A mortgage broker does not create guidelines or programs. They do not underwrite or approve loans. They submit an application through the wholesale department of a bank and wait for an approval. The approval will contain conditions that must be met for the loan to be funded. These conditions are received from the client and sent to the underwriter, who verifies the information. Contrary to what has been widely reported, Mortgage Brokers did not come up with Subprime Loans, Negative Amortization Loans, Stated Income, Prepayment Penalties or No Income, No Asset Loans.
They only sold the product provided to them from their investors. Investors like, Wells Fargo, Bank of America, Chase, Washington Mutual, etc. These investors paid the mortgage broker a commission based on terms of the loan. It is no secret that these large investors (banks) wanted to fund as many of these loans as possible to feed Wall Streets unquenchable appetite, even though everyone knew they were going to blow up. Mortgage Brokers were mere pawns at the lowest level of the greatest Ponzi scheme of all time.
Financial Reform is just not quite what it seems. In the past year, Mortgage Brokers have a host of new government imposed regulations thrust upon them. The creation of The SAFE Act requires states to license mortgage brokers. Besides about $1000 in fees, it requires loan officers to be fingerprinted for a background check, pass two tests, and requires that they submit their credit report to the states they are licensed in. The last few years in this industry has been tough for most. Can you think of any other profession that the government can basically refuse a license to someone because they have late payments on their Visa account? Doctors? Lawyers? Politicians?
Licensing is a great idea. Education requirements are a great idea. Consistent regulations are needed in the financial industry and I think most will agree. The regulations unfortunately are not required by all. Large investors (banks) are exempt. Loan officers at the big banks are not required to be licensed, not required to meet education levels, not required to submit their credit reports, and not required to go through a background check. Wells Fargo, Chase, and Bank of America have all been under or are currently under investigation for various charges of mortgage fraud. No government regulation for them.
On April 1st, 2011, new government regulations are going to impose a set amount of compensation a mortgage broker can make on a mortgage. The way the law is written, it forces the mortgage broker to pay loan officers either hourly or salary. The government is going to limit the profit that can be made by the broker, increasing the amount that the bank makes. This unprecedented regulation is going to absolutely eliminate any competition in the mortgage industry. Everyone will pay the same. As a consumer, this will add tens of thousands of dollars to the cost of your mortgage.
There are approximately 250,000 to 300.000 jobs at risk by this law that is suppose to protect us. People whose careers that have spanned ten or twenty years are going to be out on the street or added to the unemployment rolls. Regulation Z is not designed to encourage competition resulting in lower costs and protection for consumers, it is designed to eliminate competition for the large banks. Your industry could be next.
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