Las Vegas buyers and sellers need to be aware of the new Home Valuation Code of Conduct (HVCC) that went into effect on May1, 2009.
The HVCC regulations will have a significant impact on all real estate purchase and mortgage refinance transactions that involve a conventional Fannie Mae or Freddie Mac mortgage, and it may also apply to FHA in the near future.
HVCC is a new agreement between the Federal Housing Finance Agency (FHFA) and the New York Attorney General’s office to help enhance the integrity of the home appraisal process in the mortgage finance industry by implementing policies that govern the way appraisals are ordered for all single-family mortgage loans that are sold to Fannie Mae and Freddie Mac.
Even though FHA or VA mortgage loans are not included in this agreement at the moment, many lenders may adopt a blanket policy where they require all appraisals to be ordered through a third party (unregulated) Appraisal Management Company (AMC).
Basically, HVCC is intended to restrict any communication between an appraiser and those who derive their income on the lending side from closed transactions.
As defined by the federal agencies, the “loan production staff” consists of those responsible for generating loan volume or approving loans, as well as their subordinates.
HVCC History / Overview
HVCC is the result of a 2007 lawsuit where Attorney General Andrew Cuomo sued an appraisal division of First American Corp. for alegidly inflating home values on an estimated 260,000 Washington Mutual loans between 2006 and 2007.
While there are many mixed emotions by the mortgage broker community, real estate agents and appraisers, here are a few main bullets for everyone to consider before making your own determination as to whether or not the HVCC will end up costing mortgage consumers more money:
- Appraiser / Loan Officer relationships just became obsolete due to the fact that anyone who has an income based on the loan closing will not be able to speak with the appraiser.
- No more courtesy calls from an appraiser to the loan officer if they feel that the value is off.
- All appraisals will be ordered through a third party AMC that will randomly select an appraiser. This means that buyers and sellers will not have control over the quality or experience of the appraiser.
- Appraisal Management Companies may take a large fee as the middle man, as well as control who they give business to, which will put added pressure on an already underpaid appraiser industry.
- Since communication between loan officers and appraisers will not be permitted, rush files, appraisal updates, and value conflicts will prolong closings and may require extended loan lock costs.
- An increase in the cost of appraisals is a likely result, as well as extra appraisal fees if a file needs to be moved between lenders.
- Lenders have up until 3 days prior to the closing of a transaction to provide a consumer with a copy of the report.
- Instead of using an AMC, some lenders may choose to establish in-house appraisal ordering departments that follow the HVCC guidelines. This may result in a politically self-serving “Approved List” for the banks, which could affect the way values are determined or loans are underwritten and denied.
I have been a Las Vegas Mortgage professional since 2000, and have witnessed the drastic rise and fall of real estate prices in our market.
The only real benefit that I can see from this HVCC is that loan originators will not be pressured by sellers, agents, or homeowners to “bring in value” by finding a liberal appraiser.
Unfortunately, this lender / appraiser collusion has had an impact on the current foreclosure mess that we’re dealing with in Las Vegas.
Even though the HVCC agreement is a direct result of value pushing between a major Bank (WAMU) and their internal appraisal management company, the street level loan officers and real estate agents seem to be taking the brunt of the blame.
Either way, HVCC is here to say, so we all have to learn how to adjust to the new rules and inconveniences.
What do you need to be aware of for future real estate / mortgage transactions?
- Allow plenty of time for closings, due diligence periods for appraisals, and rate locks.
- Update the MLS listng description with as much info that will help support your values.
- Have all of the neighborhood comps readily available to give to the AMC if there is a discrepancy.
- Be patient and confident knowing that we are in this together.
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