Ask Your Appraiser

Government regulation has always been a sour topic in every industry. As time goes on, the government is beginning to regulate industries that previously were self-monitored at best. This past year, the state of crisis that the real estate industry is in has put it under a large microscope and has opened up it up for much scrutiny. Although some regulation is encouraged in times like these, some fear that once the floodgates open, they will be hard to close. Such is the case with The Mortgage Reform and Anti-Predatory Lending Act of 2007 (this will link to a pdf of the actual bill), a bill currently being considered by The U.S. House Committee on Financial Services.

Proponents of the bill believe that if passed, it will be the demise and eventual extinction of all mortgage brokers. On the other hand, advocates believe that this bill will only ensure that buyers will have all information disclosed to them regarding their transaction in order to be an educated buyer and brokers will have to be more thorough in processing transactions. To understand the bill better, one must first break down the sections of the bill into the most important, more manageable sections (see below for a brief breakdown of a few sections).

Usually bills are never 100% agreed on by anyone. There are often many amendments made to a bill before it is acceptable. This bill is no exception. Most will agree that requiring brokers to become licensed and registered is beneficial to both the buyer and others who work with brokers. Holding people to a high set of ethical standards, helps bring more ethical practices to any industry. However, industry professionals are split on whether this bill will cause brokers to loose money by making them disclose YSPs or requiring YSPs too be the same amount regardless of the loan type will or if will cause higher mortgage closing costs, larger required down payments or fewer available mortgage source.

The one thing agreed on by all is that no bill should be rushed. As industry professionals, we should thoroughly read the bills that will dramatically affect our industry and then make an educated decision when we decide which side of the line to be on.

Section 103

• Originators cannot receive, and a bank cannot pay a greater YSP for certain loan products (i.e. a 30 year loan with no prepay yielding 1% vs a PayOption with no Prepay yielding 3%)
• All YSP and Points not associated with true discount points must be disclosed as an origination fee

Section 104

• All originators must be licensed and registered with the state(s) they lend in, and also the federal government

Section 105

• If laws are not followed appropriately, there is a fee charged to the originator of no more than 3x’s the originator fees plus the client’s costs with attorney fees

Section 106

• This will take effect and be enforced no later than 18 months after the enactment of the bill

Section 201

• The underwriting process must be consistent and a logical decision must be made that the borrower can legitimately repay the loan based on verified and documented information
• The fully indexed rate will be used for qualifying

Section 204

• Originators are responsible for fixing their client’s loan issues
• Meaning, if you violated these laws, you are accountable unless you can provide a cure for them, or you have legal safeguard against this

Section 205

• A third party can sell or assign a loan to an originator and investor/bank to find a cure for the problem

Section 206

• Prepayment penalties are not allowed on subprime loans
• Renters who are living in a foreclosed property will take over the property from the landlord as long as the property was under lease prior to the foreclosure notice
• If the contract was signed after the foreclosure notice, the renters have 90 days to leave the property

(Summary of Sections provided by Andy Scherer, Countrywide)

USPAP also has new rules regarding familiarity with the market in the geographical area that you are appraising. Contracting with a local appraiser, when you are not familiar with the market, is a dangerous step. With the feds and the states digging deep into mortgage fraud, it is highly possible if not probable, that this practice will put all appraisers in the country in peril. It never ceases to amaze me that the actions of a few can ruin something for everyone.