A new type of affordable 15-year mortgage aimed at moderate-income and flawed credit borrowers is getting a tryout by Bank of America and Citigroup.
New Rules to Control Inflated Home Appraisals
For years, appraisers have complained that they're routinely pressured by mortgage brokers to tweak home values and influence housing prices up or down. But now, fresh regulations are going into effect that are intended to put a stop to this kind of unfair tampering and tinkering.
To settle a lawsuit filed by the New York Attorney General, new rules will soon go into effect to ensure that mortgage brokers and lenders don't exert influence over appraisals that ultimately determine home values and house prices. The problem of influence peddling is widespread, and a 2007 survey found that 90 percent of appraisers felt pressured to fudge figures.
Appraisals without conflict of interest
During Congressional investigations into the mortgage crisis, many veteran appraisers testified that there needs to be a more distinct separation of lending and selling interests when it comes to appraisal issues. Many lenders own, or financially control, in-house appraisal management departments, for instance, and consumer advocacy groups and professional appraisers have long complained that this creates a serious conflict of interest.
Because mortgage companies hire appraisers to determine home values, these professional appraisers depend upon those same lenders for their livelihood. If they don't cooperate when asked to raise or lower their valuation numbers, they may run the risk of losing future business.Â As a result, appraisers often find themselves in an uncomfortable situation when they try to juggle their ethical responsibilities with the practical dynamics of the workplace, where mortgage lenders often wield the power and the paychecks.
Analyzing housing prices
Currently, thanks to arrangements made in the wake of a lawsuit filed against mortgage giants Fannie Mae and Freddie Mac, appraisals will be governed by a new set of rules that are meant to put distance between mortgage companies and appraisal firms. Starting in May, the Federal Housing Finance Agency (FHFA), the government agency that took over faltering Fannie and Freddie, will abide by the Home Valuation Code of Conduct. These guidelines prohibit lenders from coercing, extorting, colluding with, intimidating, or bribing appraisers into making inaccurate appraisals. The new rules are much more stringent regarding this delicate relationship, and are hailed as a powerful step in the right direction.
Experts caution, however, that enforcement of the laws is the most important step. Without adequate policing, rules have been frequently bent or ignored.Â Along with the new rules comes a call for more vigilant enforcement-a cry raised by many taxpayers these days. The economy is suffering from the adverse effects of an unregulated financial industry, so the implementation of appraisal rules was already expected.Â Critics point out, however, that it may have happened a decade too late.
If the new approach works, it will support the ailing real estate sector in important ways. When home values based on appraisals are trustworthy, it makes it easier to fairly and objectively arrive at housing prices. That can attract investors back into the market while giving lenders the confidence to offer mortgage loans backed by good collateral.
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