What does Nick Vertucci have to say about the HVCC guidelines?

Being that various U.S. Banks have done a great job extracting the money out of our economy and the banks are focused on holding on to it.  It’s no secret in the mortgage business that lenders are doing everything they can NOT to lend. 

 I’m not talking about making risky loans. I’m talking about preventing qualified, responsible people from buying a home.  Even when loan applications meet every Federal lending guideline, the wholesale lenders apply restrictive “credit overlays” to deny mortgage loan applications.  Furthermore, it appears that experienced underwriting specialists have been replaced with less costly processors who have no concept of analyzing risk.  The cost cutting has also left lenders understaffed and inefficient.

 Another tool conspicuously disguised as consumer protection is the new Home Value Code of Conduct.  By prohibiting loan originators from ordering appraisals from qualified and licensed local appraisers the banks have found a way to undervalue properties using Appraisal Management Companies (AMC) in which they share ownership.  Not only do consumers get overcharged for each appraisal, they also get charged for multiple appraisals whenever the application has to be transferred to another lender even when the same AMC does the additional appraisals.  This is the BIGGEST SCAM ever perpetuated on consumer borrowing.
As if that wasn’t enough here is another assault on local mortgage companies and consumers, once again, in the name of consumer protection.  Wholesale lenders have capped fees to originators (makes sense) BUT the maximum fees include all the lenders junk fees and the rules do not apply to lenders who are permitted by law not to disclose what they are earning on a loan.  In other words, if you can conceal your fees from the borrower the maximum fee limits do not apply.

The bottom line is that no one seems to care that at the other end of all these injustices is an American family trying to own a new home.  In the big picture it means jobs for the real estate, construction, insurance, home improvement, and all other related businesses.  None of this happens if the banks do not do what they are responsible for doing which is LENDING.

The Home Valuation Code Of Conduct is a belief system put into place that says real estate appraisers should not be intimidated, coerced, bribed, etc, into coming up with a valuation on a property. Fannie Mae and Freddie Mac have joined in with the Attorney General of New York to propose a bill that did not go to the Senate or House Committees, in that the future of the appraisal business is now regulated by Fannie Mae and Freddie Mac if they will be the one that will sponsor the financing of the mortgage. There are many factors put into place that have made this bill very unpopular with mortgage brokers, real estate agents, appraisers, and most of all, the end consumer.

Personally I do not believe in this bill at all, and will discuss why throughout each explanation of each factor. First and foremost, this bill is terrible because the future of the independent real estate appraiser became obsolete as of May 1st, 2009 when this bill was passed. The bill requires all appraisers to join Appraisal Management Companies, where they are forced to pay 40% or more of their income, ending the existence of their lender relationships they have spent years fostering and preserving.

As real estate investors, we are disabled from choosing the appraiser we want, and are not allowed any contact with the appraiser, not even the lender is allowed to do that. If I wanted to use my appraiser because of his accuracy, research tools, professionalism, and efficiency, I am not able to provide that value added service to my client. So if your lender chooses an appraiser that is inefficient or backed up, you are STUCK. Hopefully you can now see where the “shift of power” is coming into place where small businesses are being trampled on by “Big Brother”. Reminds me of Wal-Mart.

Fannie Mae and Freddie Mac have lost billions of dollars in the last few years, so it is no wonder they are enjoining this bill, since it will only help them manipulate the market, and have more control. If it is a logistics issue, the solution should be available education for brokers, licensing requirements and testing into place, making us more professional as trusted advisors.

What is the bottom line in Layman’s terms?

These guidelines are forcing a nationalized appraisal system which intimidates appraisers into de-valuing the property for fear of losing their license. The Federal Government is over reacting to the loose guidelines that the Federal Government put in place years ago. It is an overzealous “knee-jerk” reaction to fixing fraud and over valuations by appraisers. And now we have the opposite problem.     

Do not depend on comparables (comps) and values when investing as you did just a short time ago. Until this faulty bill resolves itself focus on cash on cash returns and tax incentives (and of course future gains/ appreciation). For investors, this is a serious “thorn in the side” however, we can invest around it. Innovative Holdings Group and its team of professionals are producing sound investments and building SUCCESS. This HVCC guideline(s) is really affecting primary residents and the refinancing values.

Think of it this way: If you buy an investment property and before this guideline was in affect you may have 20-40k of immediate paper equity in our properties available. This feels and looks good but in reality it is paper equity. In a down market as we are in, that equity cannot be touched or used as the banks will no longer allow this at this point. So the point is if the values come in high or low on the appraisal it does not matter because our investments are to be looked at as longer term and on “a cash return basis” accompanied by tax benefits and future gains.

Right now this HVCC debacle actually is keeping the market low which is “A VERY GOOD THING” for our investors and Innovative Holdings Group. We are continuing to take advantage of the best buying time in our Nation’s history. The whole point to even explain the HVCC guideline is to help you understand why the appraised value is estimated so close to the purchase price. We have been so focused on that aspect as investors I wanted it to be clear and not keep you from investing in an incredible market.

If you have further questions contact us at: nick@nvcompanies.com