New Regulation Will Cut Communication Between Lender and Appraiser
HOME LOANS, INDUSTRY NEWS, REAL ESTATE PRACTICE, TIPS FOR BUYERS, TIPS FOR SELLERS
April 13th, 2009
Fannie Mae and Freddie Mac, the government sponsored agencies that purchase mortgage loans from lenders across the country, have placed stipulations referred to as the Home Valuation Code of Conduct (HVCC) on future loans they buy . These regulations will be implemented May 1, 2009. The rules prohibit loan officers, brokers, real estate agents and anyone else with a vested interest in the approval of a mortgage loan from ordering an appraisal or influencing the selection of the appraiser.
It has been common practice for loan officers to directly communicate with appraisers to discuss the value needed to get the loan approved and discuss property condition issues that might cause a problem for the borrower. In fact, during the market boom lenders routinely called appraisers regarding loan refinance appraisals asking if the appraiser could justify a specified home value. If the appraiser could not justify the desired value, the lender would simply call another appraiser and repeat the process until they found an appraiser that would agree to work up an appraisal at the requested value.
These rogue appraisers pushed the value beyond reasonable fair market value in order to make the deal work for the buyer and lender. Unfortunately, the investor that ended up with the loan falsely believed the loan was secured by sufficient collateral which, in many cases, just was not there.
The downside to the regulation is real estate agents will not be able to assist appraisers by providing comparable sales data for properties the appraiser has overlooked. Borrowers wishing to refinance may pay several hundred dollars for an appraisal, only to find out later the value was not high enough to allow a refinance. They lose the appraisal fee and are unable to refinance.
Some banks have already adopted the regulations and order appraisals through a management company that retains a pool of licensed appraisers. The listing agent can make arrangements for the appraiser to access the property but can not provide any comps to assist the appraiser.
The management companies will retain a portion of the appraisal fee and ask appraisers to reduce their standard appraisal fee. If the appraiser refuses the lower fee, the appraisal management company will assign the appraisal to another appraiser. The end result is the borrower may not get an experienced appraiser but one that is hungry for a paycheck.
Mortgage brokers will find the new regulations difficult to implement because the appraisal will not be transferable from one lender to the next. This will put mortgage brokers that shop loans to a number of lenders at a disadvantage with institutional lenders and mortgage bankers who loan their own money.
Like so many laws, these regulations punish honest loan officers and appraisers in an effort to root out the few bad apples that tarnished the real estate profession. Most would prefer existing laws that regulate the real estate industry be enforced rather than creating a new layer of rules. Ultimately, borrowers may have fewer choices when selecting a mortgage lender and pay higher fees for appraisals.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL ESTATE PROFESSIONALS GMAC
QUARTER CENTURY LOCAL REAL ESTATE EXPERIENCE
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I am wanting to have another lender look at my deal. Can the other lender use the same appraisal, or am I going to have to pay for another appraisal all over again?
Fascinating article, well thought of and well written with some very good advice in!
This was a great help to me so thanks for the advice!