The lending industry has suffered dozens of small and large regulatory changes over the last twelve months. The new rules were intended to save consumers money by creating a more transparent process or by closely mandating the way lenders handle certain parts of the process.
Of course these changes were mandated by our friends in WA D.C., none of whom (as far as I can tell) have any actual knowledge of how the lending industry works. Although two of them, Senators Christopher Dodd and Kent Conrad know enough to get sweetheart loans via Countrywide’s now infamous “V.I.P” program. The program waived “normal” fees, points, and lending rules for friends of Countrywide.
Two of the largest changes this year were the Home Value Code of Conduct (HVCC) and the Mortgage Disclosure Improvement Act of 2008 (MDIA). Both were concocted to “protect” consumers but I can tell you from experience that both are actually costing consumers more money and jeopardizing their entire transaction. I'm a strong supporter of consumer education throughout the process but the execution needs to be done in a lest costly manner.
Following is my very non-technical and non-legal review of both.
HVCC was implemented by lenders “voluntarily” to settle a pending lawsuit. The suit claimed that lenders were forcing appraisers to overvalue your home so we could make more loans. Supposedly we threatened to withhold future business from our appraisers if they didn’t cooperate. The only specific case of wrong doing prior to the settlement was a lawsuit by New York Attorney General Andrew Cuomo against an appraisal subsidiary of First American Corporation. Cuomo maintained that Washington Mutual threatened to take future business away from First American’s appraisal company if they didn’t raise the value on already prepared appraisals. Why didn’t Cuomo sue WAMU at the same time as First American? WAMU couldn’t be named in the suit because Federally Chartered banks are exempt from oversight by state Attorneys General. Boy, there’s topic for another day! The rules now require that lenders order your appraisal from a blind pool called an Appraisal Management Company.
What does an AMC do? They farm out the report to whatever local appraisal will do the report for the lowest cost – and the AMC takes a huge chunk of that. Because it’s a blind pool I can no longer communicate with the appraiser ahead of time and make sure we’re not wasting your money on an appraisal that won’t work. In addition, I can no longer expedite your report by utilizing whichever of my professional appraisers is available tomorrow. You are at the mercy of whomever the AMC assigns to your report.
The Mortgage Disclosure Improvement Act of 2008 is well intended but can easily delay your transaction if your lender is not very careful. The rule details when a specific disclosure form – the Truth In Lending (TIL) form – must be delivered to you. The Act further defines what “delivered” means and has been interpreted to mean 3 days after said form has been mailed to you. Lenders are not allowed to spend your money ordering an appraisal until you’ve received the initial TIL form – hence your transaction is now delayed right at the beginning of the transaction. Rebecca and I have adapted our business to handle these new regulations without a problem for the customer, as have other professional lenders. However, we have heard horror stories of consumers losing their rate locks or not moving into their new home on time as a result of these new regulations.