HVCC Wreaking Havoc On Home Loan Process
INDUSTRY NEWS, TIPS FOR BUYERS
June 12th, 2009
The Home Valuation Code of Conduct (HVCC) created by agreement between the Federal Housing Finance Authority and Fannie Mae, Freddie Mac and the New York State Attorney General, was designed to cut off communication between the home appraiser and anyone with a vested interest in the approval of a home loan. The New York State Attorney General
rules are not the law of the land, but since most lenders wish to sell their loans to the secondary market, these rules stipulated by Fannie Mae and Freddie Mac insure most lenders will abide by them.
This “firewall” between home loan processors and the appraiser were designed to prevent loan staff from picking an appraiser and from having any communication with the appraiser regarding the homes valuation. For decades, lenders routinely assign appraisal tasks to their favorite appraisal firms and discussed value and property condition issues that might affect whether or not the borrower’s loan was approved.
The rules also prohibit “value checks“-where the lender asks an appraiser to pull comps to determine if a certain value can be ascertained before the actual appraisal is ordered. Lenders routinely call however many appraisers necessary until one agrees to deliver an appraisal with the requested value.
Another rule prohibits the loan officer or real estate agents from paying for an appraisal on behalf of a client. Again, the concern is a hand selected appraiser may over value a property to make the deal work for the lender and/or agent.
Lenders will be required to provide, free of charge, a copy of the appraisal at least three days prior to closing the loan. Currently, borrowers may receive a copy after making a written request of the lender.
This Code Of Conduct essentially breaks down the relationship-driven process prevalent in the real estate industry where a buyer knows a real estate agent who knows a lender who knows an appraiser. These new rules make these relationships taboo.
Industry insiders acknowledged there was a problem that needed to be fixed. Existing laws failed to protect homeowners and buyers from fraudulent, inflated home values. Appraisers were also put under pressure by loan officers to attain a certain value conclusion.
Since the rules kicked in on May 1, appraisers receive some of their appraisal assignments through appraisal management companies, some of which are subsidiaries of large lending institutions. These management companies charge a fee for the referral meaning either appraisers are paid less than requested or the cost of the appraisal is increased and the added cost is passed on to the borrower. Some appraisers are saying these rules have increased the cost of appraisals to borrowers by $100.
The rules also slow the loan process down which could cost the borrower additional money. Many buyers elect to lock-in their interest rate at the time of applying for the loan. Fees for loan locks are priced according to how long the lock period will be. The longer the period the higher the fee.
Another potential problemis having an appraiser assigned an appraisal in an area they are unfamiliar with. It is not unusual for an appraiser to drive more than 100 miles to visit a property they have been assigned to appraise. The appraiser may not know that certain neighborhoods command higher values- leading to a valuation that is too low.
Time will tell how these new rules will impact the real estate industry. One thing seems clear at this point-borrowers can expect to pay more to obtain a home loan!
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL ESTATE PROFESSIONALS GMAC
CORNER OF COURT AND PLACER IN REDDING
QUARTER CENTURY LOCAL REAL ESTATE EXPERIENCE
Great article. Was wondering about this for ages. Many thanks.