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Is MBA telling the full story?

3446342960_7a0ca81f33_oAccording to a recent press release from the Mortgage Bankers Association, government insured loan applications (FHA & VA) dramatically increased to 35.9% for the month of June. That’s more than a 10 percent increase from last month. Since the survey’s inception nearly 20 years ago, the lowest recorded share of FHA & VA applications was 5.8 percent in August 2005.

“A primary reason government-insured loans have retained a high share of the purchase market is that these loans typically require lower down payments than conventional loans,” said Orawin Velz, MBA’s Associate Vice President of Economic Forecasting. “In addition, lending standards tend to be tighter for conventional loans, especially for loans that require private mortgage insurance.”

“While the government-insured share of purchase applications has remained elevated, the government-insured share of refinance applications has been volatile. The share hit a record high of 38.4 percent in October 2008. As mortgage rates fell sharply between mid-November through early May, refinance activity surged for conventional loans. This surge in conventional refinance applications dominated the market, causing the share of FHA refinance applications to fall below 20 percent for most of this year. Recent increases in mortgage rates have caused conventional refinance activity to drop much more sharply than government-insured refinance activity due to a combination of credit and LTV requirements. As a result, the government-insured share of refinance applications climbed to 33.6 percent in June,” Velz said.

While this may all be true, I suspect the MBA is omitting another reason these applications have increased.

The Home Valuation Code of Conduct

As I’m sure most of you have already heard, the HVCC has greatly impacted the way lenders and appraisers work together. However, the code does not apply to FHA or VA loans.

Obviously these loans have their pros and cons and not everybody (or every property) qualifies. At the end of the day I hope the LO’s are doing what’s best for their clients and not pushing these programs because they have more control of the appraisal process.

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As the son of two music teachers, Ben spent his first 21 years trying to make a living with his slightly above average trumpet playing. After no return calls from Dizzy Gillespie and then a failed attempt at becoming a fly girl on "In Living Color," he switched gears and finally found his nichè in real estate. He's a Minnesota appraiser and also a Realtor with his better half, Stacia. Labeled “one to watch” from an anonymous source (thanks mom), Ben is smart, good looking, athletic and a rock star inside his own head. He also never passes up a chance to write his own bio. Find him online at twitter or selling Stillwater Real Estate.

9 Comments

9 Comments

  1. Louise Scoggins

    July 16, 2009 at 12:13 pm

    Ben, your post is an interesting read. I never thought of the angle of LO’s pushing FHA’s so they have more control over the appraisal process but I suppose it is a possibility. With appraisals botching more and more deals these days, having a bit more control is certainly to (everyone’s) advantage.

    I find that FHA is a popular choice amongst homebuyers because of the lower DP requirement, low MI, and more lenient qualification standards. Most of my first time homebuyers utilize the program b/c of these things, and even some of my second homebuyers have hopped on the FHA train as well. The problem I run into with FHA, though, is the over-supply of foreclosures. Many of these foreclosurs won’t qualify for FHA and that’s an issue I have dealt with frequently in the past few months. These situations are where being able to qualify for conventional would really come in handy.

    I am lucky to know that my preferred lender gives my buyers the available options and lets them choose which program works best for them. Hopefully many agents can say the same thing!!

  2. Thomas Johnson

    July 17, 2009 at 10:58 am

    I hope the LO’s are doing what’s best for their clients

    Avoiding the HVCC debacle is best for the client assuming that after investing time and effort finding a house, paying application fees and inspection fees they actually want to get a loan and close. Our experience with the HVCC appraisers has cost clients money, time and heartache which would have been avoided by a LO “pushing” a loan that could actually close on time without costly appeals on deaf ears. An HVCC “appraiser” showed up and missed 800 sqft in his measurements. Turns out this “appraiser” was not licensed and was a different person than the “appraiser” that signed the report. Signing appraiser never set foot in the house. Cost to seller: $40,000 in value and 60 days of extra carry costs. How is this adding integrity to the process? At lest with govt loans, the appraiser who shows up is the one who signs off, and if there are issues, they can be discussed.

  3. Matt Carter

    July 17, 2009 at 4:50 pm

    HVCC doesn’t directly apply to FHA appraisals but is nevertheless creating similar issues on those loans (more work to AMCs, who supposedly hire less experienced, more distant appraisers).

    At least according to trade group representing appraisers:

    https://cache.inman.com/files/stories/Appraisers_Donovan_July_1_2009.pdf

    You might also be interested to know that HUD is now requiring that FHA appraisers use Fannie and Freddie’s reporting standards in declining markets, which require that two of three recent sales comps be within the last 90 days.

    https://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-09ml.doc

    https://www.efanniemae.com/sf/formsdocs/forms/pdf/sellingtrans/appraisalfaqs.pdf

    Yer hedline is a little puzzling in the way it implies that MBA is intentionally hiding something.

    They’ve testified about some of the “implementation challenges” HVCC has had posed — for FHA lenders, too.

    https://www.house.gov/apps/list/hearing/financialsvcs_dem/kittle.pdf

    As the MBA testified in June, another factor in the recent growth in FHA market share is the increase in their loan limits to as much as $729,750 in high cost markets — an issue not raised in the MBA press release you cite.

    I don’t know if we should ever expect a press release to tell us the “full story,” but it seems like you took a needless swipe at the MBA without adding to our understanding of the issue at hand.

  4. Banu Allan

    July 19, 2009 at 3:01 pm

    Look at this! Always finding those little nuggets that bring value to my business! Thanks again Lani!

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