Creative Debt Management 2011


Home lending professionals are more challenged today than ever before in helping develop strategic financial recovery systems for individuals to resolve financial problems. Those with extensive experience have learned to help clients implement different strategies to meet the new challenge brought forth due to lowball appraisals. In many cases, we now need to help our clients gain positive financial repositioning in three stages. Only two years ago, this was a one step process.

The first step in this strategy is to get the current home loan refinance closed and funded. While the available cash out is not adequate to do everything necessary, due to the low appraisal, this step must be taken to allow for the debt to be repositioned to maximize the FICO scores.

The next step is to engage a very thoughtful adjustment of remaining revolving credit balances in order to proportion them so as to optimize the FICO scores over the next couple of credit cycles while the creditors report to the credit reporting agencies. This allows the scores to rise to more optimal levels which opens more viable avenues to get interest rate reductions.

In the third step, we note the FICO scores are much improved, and this opens additional (minimal cost) home loan opportunities which will be utilized to retire much of the remaining higher cost revolving debt. At the same time, the current HVCC appraisal will pass into history and we’ll share it with no one.

 The Problem

Why, one asks, must we go through these machinations and contortions on reality? What a great question this is! The primary reason for this new complexity and added cost is the Home Valuation Code of Conduct which was forced onto the American real estate landscape by Andrew Como. The unintended consequence of this ill conceived regulation is that in fact HVCC discourages appraisers from working in the clients’ best interest. Here is the math: Cost of appraisal increases for consumers + HVCC management firm manages compliance with HVCC = Appraiser now works for half price or less. As a result, the appraiser has no incentive to do the best possible job.

Stopgap Defense

Prior to ordering an appraisal in this climate, I suggest the borrower obtain a highly qualified Comparable Market Analysis from a well seasoned Realtor.  Provide this research tool to the appraiser when the appraiser tours your property in the course of the appraisal process. This helps the appraiser do the research and properly value your property. As always keep in mind that you get what you pay for. Another way of saying this is TANSTAAFL.

The Solution

Appraisers need to be paid fairly to do a fair job for you! Write and call your Congressperson. HVCC must become appraiser friendly or the equity of American homes will continue to evaporate before our eyes. What can you do about this outrage? It is much easier to act than many think. Go to Project Vote Smart enter your zip code in the Find Your Candidates field. This will give you all of their contact information. The time to act is now. HVCC  is clearly a proven failed experiment.

To summarize the problem, as stated by one appraiser about joining an HVCC, “I think it’s a lot like joining the Mafia. There is a short bloodletting ritual, papers are burned, you take an oath of loyalty you do what you are told, and give the boss a cut of everything you earn”.

Art Credit: Google Images

Financially SpeakingJames Spray CCMB, CNE, FICO Pro | CO LMO 100008715 / NMLS 257365 | May 8, 2011
Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.

4 comments on “Creative Debt Management 2011

  1. Al says:

    Enough is enough! HVCC has been experimented for a while and it is not working for the best interest of consumers. Now let it be removed from our life. In some ways I don’t blame the Appraisers on the other hand they need to put their act together and stop working for HVCC. I think that Realtors/Mortgage Loan Originators will support them in that. They are not getting paid what they worth so the rest is history….lol


    • James Spray says:

      Some sort of an Appraisers’ boycott of HVCC’s? This would work if they were united and strong. Sadly, they are neither. This will take political action in a time when such is not welcome. The unfortunate result of HVCC is the continued erosion of home values and homeowners equity.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s