Dennis' Mortgage Blog

Weekly Rate & Market Upate 4-7-17
April 7th, 2017 12:44 PM

Question of the week: I am confused on the appraisal process and what an AMC is, can you please explain it?

Answer: One of the first changes in the mortgage industry following the market meltdown was federal policy that prevented lenders from directly ordering appraisals, and to take it a step further preventing us from have any direct contact with an appraisal.

As a result Appraisal Management Companies (AMC) that had been around prior to 2007-8 became the source and conduit for all appraisals and communication. And while we cannot select appraisers directly we can in some instances select the AMC with whom we want to work.

How does an AMC work?

The appraisal process is designed to eliminate undue influence in property valuations, hence the inability of me to directly contact an appraiser, to further this policy appraisers are selected by what is known as “adverse selection.”

You have wisely chosen Stratis Financial for your mortgage to purchase your new home. We complete the application package and are ready to order the appraisal. We go to the AMC website and complete the property information, who to contact for access to the property, payment information etc and an order is created.

At this point the AMC needs to assign an appraisal. Most often this occurs by contacting the next appraiser on the list who is registered to work in the area where the property is located to see if they are available; if the appraiser is unavailable or non-responsive in a short period of time then the next appraiser on the list is contacted and so forth until the order is assigned.

When the appraisal report is completed it is sent to the AMC who completes an audit and quality control of the report—note this is for compliance and completion of report issues and not for valuation. Once the audit is completed and the report is found to be in compliance it is provided to us for your application package.

At this point we go through the appraisal to primarily check the value and then to see if there are any items that must be completed, for example that the property has smoke and carbon monoxide detectors per California state law, that there are no adverse physical conditions that the appraiser feels must be corrected for the value on the report to be valid.

After reviewing the report we provide you with a copy and let the real estate agents know if the value is sufficient for our transaction (meaning at or above sales price), if the value came in below sales price and if there are any corrective issues that need to be completed at the property before we will be able to get final loan approval.

Assuming all is correct with the appraisal we move on with our processing, approving and funding of your mortgage so you can move into your new home.

What if there is an issue with the property in regards to condition? If this is the case we let the agents know the issue, for instance missing smoke/CO detectors or no flooring in a kitchen that has not yet been remodeled* and work to find out when the work will be completed so we can take the next step. The next step is once the work is completed we have to contact the AMC to send the appraiser back out to the property to make sure the work has been completed and provide an updated report. This re-inspection comes with a fee (generally $150).

*Personal example: When Leslie and I sold our first home we had done some work in the kitchen and were getting ready to retile the floor. We left the tile off the floor and when our buyers came in we let them know they could select the tile we would put down, we had several samples that were in our budget. They selected the tile they wanted, we had the tile laid down and then signed off by the appraiser.

What if the appraisal is low? This is a question we have covered several times in the Weekly Rate & Market Update, most recently last month, today we will just cover the process with the AMC. If the appraisal report value is less than sales price, or what we feel value should be if our transaction is a refinance, we need to provide new and better comparable sales to the appraiser. In a purchase we notify the agents to see if they can provide us with better comps than what is in the report. We then write up a report with the comps providing our opinion as to why the comps we are providing are better to use than those used by the appraiser. We then submit the comps to the AMC who then provides them to the appraiser. If our appeal is not accepted by the appraiser we then work with the AMC to see if they agree with our argument in the appeal to see if they can convince the appraiser to take another look. If we feel very strongly that our case is strong we continue our dialogue with the AMC and if their management agrees we may have a new appraiser assigned to our property—this does not always happen but we have been successful many times in the past if we have what are evidently superior comparables to those in the report.

Ideally we would be able to go back to before the mortgage and housing market crisis and use appraisers with whom we had long standing professional relationships, but there is little chance that will be the case in the near or long term. As a result we must use the AMC process and make the best of it. Which we have at Stratis Financial.

At Stratis Financial because we fund approximately 90% of our applicants mortgages ourselves we have a relationship with one specific AMC that handles 90% of our appraisals. This allows us to have a strong relationship with the AMC for efficient appraisals and as or more importantly should there be any issues we need to have resolved.

Have a question? Ask me!

Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.

Numbers, words, action impacting rates this week. Working from least impactful to potentially most, today the employment report for March was released by the Labor Department and March saw an increase of only 98,000 jobs in March, a very low number. One explanation is the bad storms that hit the Northeast in March, another is that perhaps there is a slowing going on with employers. The bright spot on the report, that would have made headlines a year ago but not today, was the drop in the unemployment rate from 4.7% to 4.5%, the lowest level since the economic peak in 2007. The wage aspect of the report shows a lag in wage inflation, due to level of wages of many entering the job market. Overall the report is somewhat mortgage rate friendly.

Words have a big impact depending on who is saying them, and who is listening. This week the minutes of the Federal Open Market Committee were released and the most interesting part was the Fed announcing it would be unwinding its holding of U.S. Treasuries and Mortgage Backed Securities (MBS). To prop up the bond markets (inclusive of mortgages) the Fed purchased trillions of dollars of Treasury and mortgage debt after the financial crisis. Once markets stabilized and rates remained low the Fed continued to purchase bonds as holdings they had matured (i.e $10 million mortgage package paid off at maturity the Fed would reinvest the $10 million and purchase more mortgages). Currently the Fed has $4.5 trillion in bonds and mortgage debt on its balance sheet and the governors have decided the time has come to start to rid itself of the debt obligations. What this means is the primary buyer of bonds and mortgages is leaving the market. The impact on this should be higher interest rates as there will be a drop in demand, which will cause prices to drop (and rates increase) to attract investors. This will be a long term impact on rates, how big an impact depends on the private sector and other governments stepping in to pick up the Fed’s absence in the market.

As for actions, we turn to the Middle East. The Syrian governments use of chemical weapons and response from the United States, corresponding response, if any, from Russia and other nations can have a strong impact on interest rates. In times of unrest and international tensions investors undergo what is known as “flight to quality.” This means investors leave equity markets (stocks) which are uncertain and can fluctuate quickly, for stable and dependable markets and returns, which means bonds and mortgages. The safest investments for returns are U.S. Treasury debt followed closely by Mortgage Backed Securities from Fannie Mae and Freddie Mac which are backed by the U.S. government. While the returns are lower than potential returns in equities the returns are safe and better than sitting in cash. So world unrest, bad actions by international actors lead to lower interest rates in the United States.

Rates for Friday April 7, 2017: We start the 2nd Quarter with rates dipping to their lowest since November. There is plenty of news to suggest rates could/should go higher between economic news the past several weeks and the Fed pulling out of the markets. That said there is enough uncertainty that rates could be chased down depending on global events. Rates have dropped three-eighths of a percent since peaking the second week of March---perhaps it is time to take advantage.


FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:
30 year conforming                                 3.875%                Down 0.125%
30 year high-balance conforming           4.00%                   Down 0.125%
30 year FHA                                            3.25%                   Down 0.25%
30 year FHA high-balance                      4.75%                   Down 0.25%

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages.



An interesting day today, it is my 20,000th day. Yes, 20,000 days ago I entered this life in Tulsa, Oklahoma. We are using the event as an excuse for some friends to come over for some of my favorite things, mainly barbecue, beer and whiskey. It is interesting we celebrate an annual trip around the sun and some milestones along the way (teenager, 18, 21, 30….50…75) but the days are ignored. We should celebrate the five thousand day milestones! My next milestone will be Saturday December 15, 2030 when I wake up to my 25,000th day—no doubt I’ll have some barbecue and a sip or two of something!

I hope you have a great weekend,

Dennis


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Posted by Dennis C. Smith on April 7th, 2017 12:44 PMPost a Comment

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