CJNR

Posts Tagged ‘homes’

The Home Valuation Code of Conduct or HVCC went into effect on May 1, 2009. This new standard for how appraisals are to be processed for any Fannie Mae or Feddie Mac loan was designed to curtail mortgage fraud. It was agreed to by Fannie and Freddie and the Office of Federal Housing Oversight in exchange for the cessation of Andrew Cuomo’s (Attorney General of New York) investigation into the appraisal practices of Fannie Mae and Freddie Mac (GSEs or Government Sponsored Entities).

The intention of the HVCC was to clean up the mortgage industry. However, mortgage brokers, home buyers, sellers, agents and appraisers have been negatively impacted in just the first four weeks of the code’s effective date.

No more independent appraisers! Now, they must join an Appraisal Management Company or find a way to get on a preapproved list. The HVCC was designed to regulate the appraisal process by creating rules that effect anyone who is paid by commission once a loan is closed (realtors, mortgage brokers, loan officers, etc.). Anyone on commission is unable to communicate with the appraiser. All of these professionals have spent years creating business relationships with well qualified, knowledgeable appraisers and now these relationships don’t matter anymore. In other words, loan officers and agents are not allowed to choose appraisers based on their familiarity with a certain market.

Home buyers are adversely affected because of the increased cost of appraisals. They may have longer rate locks or extend existing rate locks. If a home buyer is not satisfied with the service of a particular lender, there may be a hesitancy to change lenders because of added time and costs involved with a new appraisal. Appraisals are completed for the specific lender; therefore, if the lender is changed, a new appraisal must be ordered which increases time and costs.

Most sellers are not in a position to reduce the sales price of their home to accommodate a low ball appraisal, so the contract falls apart. Consequently, a seller’s only option is to appeal the low appraisal. May’s statistics for new and existing home sales were up, but still fell short of market expectations. The National Federation of Mortgage Professionals, The National Association of Realtors and The National Association of Home Builders are pointing to issues with the Home Valuation Code of Conduct for this shortfall.

Appraisers are now the only industry with restrictions prohibiting communication with their customers. Remember, appraisers may not communicate with agents, loan officers, mortgage brokers or real estate brokers because they are paid on commission. Just as real estate agents pay a portion of their commission to their brokers, appraisers are required to pay approximately 40% of their income to the Appraisal Management Company with whom they work. These restrictions on communication and compensation could drive many experience appraisers out of the market and a time when we can least afford it.

The National Association of Realtors has requested regulators suspend HVCC rules for 18 months because of unintended consequences. Stories of low ball appraisals and their impact on the real estate industry are increasing all across the country. Buyers are not able to get loans because of these appraisals.

The truth is that appraisers are caught between lenders and regulators who want conservative appraisals and buyers, sellers and agents who just want to conduct business. Lenders and regulators want foreclosures and other distressed properties to be used in the appraisals. Buyers and sellers just want to buy their dream home or sell their existing home and move on. Prior to all this free money in the mortgage industry, a home was worth what someone was able and willing to pay for it. Oh, how I long for the good old days!