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Increase in Appraisers Among VA Changes

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Increase in Appraisers Among VA Changes

Keith Pedigo talks about planned changes during MBA conference

November 24, 2003

By MortgageDaily.com staff

The U.S. Department of Veterans Affairs (VA) said it intends to implement home loan program changes to better its services.

Since VA gets the lowest marks in the appraisal process area on its yearly lender satisfaction survey, two major changes will be made to improve customer service within it, said home loan program director Keith Pedigo at the Mortgage Bankers Association of America’s annual convention in October.

Pedigo pointed out that, by law, VA is required to appoint VA-approved appraisers — to determine the reasonable value of a property — on a rotational basis. VA cannot switch to a process where the lender selects an appraiser of their choice, which could possibly quicken the loan approval process, he indicated. Instead, VA has opted to increase its roster of appraisers by 40%, which means 2,000 more appraisers will be added to its total of 5,000. The move will provide more timely service. Additionally, appraisers that lenders are not happy with, will come up less often on the rotation.

Secondly, to make appraisals more accurate, lenders will be given the option to provide a point in contact to the appraiser when the appraisal is assigned, said Pedigo. If the appraiser sees the value is going to be below the contract price, the point in contact will be notified to give that person an opportunity to provide additional market information. The appraiser will then be required to consider the information and if the value does not increase, an explanation must ensue.

Other changes that might occur relate to two bills pending in Congress, the director said. One of the provisions in both bills is to make the Reserve and National Guard eligibility permanent in VAs home loan program. Another provision is to equalize the funding fees veterans and reservists pay to 2%, which is the current funding fee for veterans, but not for reservists and National Guard who pay 2.75%.

According to Pedigo, Congress has to come up with options to offset the costs that equalizing funding fees would cause. In one bill, Congress is proposing to increase the funding fee for second and subsequent users of VAs program by 3%, “which is already extremely high with 3.3 percent.” In the other bill, Congress is proposing to increase the fee from 3% to 3.5%. Another “strange” quirk is that Congress intends to increase the first-time veteran funding fee from 2% to 2.15%.

“The proposal for that offset is not something that I like,” said Pedigo, adding that there is a possibility the bills can go through in this form.

As of Oct. 1, VA started guaranteeing hybrid adjustable rate mortgages (ARMs) and has the authority to do so through fiscal year 2005. The initial rate on these ARMs must be fixed for three years and can have yearly adjustments afterward — a maximum of 1% per year and 5% over the loan life. The index on the loans is the weekly average yield of U.S. Treasury securities adjusted to a constant maturity of one year, and the underwriting will be done at the note rate, the director said.

He added that VA is also doing a business process reengineering review of its loan production function — the part of the home loan program that handles the underwriting and issuance of the guaranty to include all the closing costs permissible and the post audits of closed loans. The review will focus on four areas: credit standings, fees and charges, how VA conducts oversight, and industry relations, said the director.

A report with the intended function changes will be released in January. The Mortgage Bankers Association of America and its members will have the opportunity to comment on the changes before VA makes them final, Pedigo said.

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