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 HVCC is an effort to clean up the mortgage industry. Although there are many good initiatives in this new code, there are many unintended consequences adversely affecting home buyers, home sellers, mortgage brokers, agents and appraisers.
Any person that is compensated on a commission basis when a loan is closed is strictly prohibited from communicating with or selecting an appraiser. All the business relationships that have been developed over the years based on professionalism, quality and timeliness are now meaningless. Instead, appraisers are chosen from a preapproved list or from an independent Appraisal Management Company.
When an appraisal is ordered, the appraiser puts the report in the name of the lender making the request. If the lender is changed, a new appraisal must be requested in the new lender's name which increases the costs to the buyer and the time to close. A buyer may be hesitant to change a lender with whom they are dissatisfied because of the potential increase in costs and time. If the buyer has a rate lock, they may need to extend the lock for longer periods of time.
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.
CNBC interviewed several agents across the country regarding the low ball appraisals. Agents and brokers believe that 1 in 4 transactions are being adversely affected by the Home Valuation Code of Conduct. Therefore, NAR (National Association of Realtors) has requested that HVCC rules be suspended for 18 months to cut down on these negative results
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!
The HVCC is an effort to clean up the mortgage industry. Although there are many good initiatives in this new code, there are many unintended consequences adversely affecting home buyers, home sellers, mortgage brokers, agents and appraisers.
Any person that is compensated on a commission basis when a loan is closed is strictly prohibited from communicating with or selecting an appraiser. All the business relationships that have been developed over the years based on professionalism, quality and timeliness are now meaningless. Instead, appraisers are chosen from a preapproved list or from an independent Appraisal Management Company.
When an appraisal is ordered, the appraiser puts the report in the name of the lender making the request. If the lender is changed, a new appraisal must be requested in the new lender's name which increases the costs to the buyer and the time to close. A buyer may be hesitant to change a lender with whom they are dissatisfied because of the potential increase in costs and time. If the buyer has a rate lock, they may need to extend the lock for longer periods of time.
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.
CNBC interviewed several agents across the country regarding the low ball appraisals. Agents and brokers believe that 1 in 4 transactions are being adversely affected by the Home Valuation Code of Conduct. Therefore, NAR (National Association of Realtors) has requested that HVCC rules be suspended for 18 months to cut down on these negative results
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!
About the Author:
Tracy Anderson is a native of Atlanta and an experienced real estate agent. Its vital to locate an Atlanta real estate agent who is knowledgeable about the various Atlanta neighborhoods, but it is even more important to find one who will strive to meet your needs and be an advocate for you. Visit her site and check out the homes for sale in Atlanta, get great tips, and let Tracy go to work for you!
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