Since May 1st the Home Valuation Code of Conduct (HVCC) has caused chaos with real estate transactions. Talk to any Realtor or mortgage broker and you’ll hear stories about unqualified out-of-area appraisers killing deals with low values. On the other hand, appraisers will talk about cut-rate fees and impossibly fast turn-around times from appraisal management companies (AMCs), forcing many to leave the business.
While these issues are rather disturbing, they’ve only been isolated to loans being sold to Fannie Mae or Freddie Mac. One lender who decided to take a stand is the Department of Housing and Urban Development (HUD), who administers FHA loans. They adopted more of a wait-and-see attitude towards the HVCC and are now defending their position. FHA Commissioner David Stevens recently said that they have no plans to implement the HVCC, adding that he is well aware of the problems originators have with the code.
The FHA Push
With small down payments, lenient income standards for borrowers and the continued ability to bypass the HVCC, some are calling FHA loans the new subprime.
In Tucson, First Magnus Financial specialized in risky “Alt-A” mortgages, which didn’t require borrowers to verify their income. State and federal regulators cited the company for misleading borrowers, using unlicensed brokers, and other infractions. It shut down last summer and laid off its 5,500 employees. But in May, the FHA issued a group of former First Magnus executives a new license to make taxpayer-insured home loans. They have opened a company called StoneWater Mortgage in the same office building that First Magnus had occupied.
What’s more frightening – dealing with the HVCC or these originators taking advantage of borrowers the same way they did just a couple years ago?