How Will The New Appraisal Rules Affect You?
A guest post by Alan Gross of National City Mortgage. Thanks, Alan, for providing the straight dope!
Effective May 1, 2009 all home mortgages being sold to Fannie Mae and Freddie Mac must follow the new Home Valuation Code of Conduct (HVCC). HVCC sets new guidelines on 
how appraisals must be ordered and who can have contact with the appraisers. This regulation does not apply to FHA or VA loans. Even though it only applies to loans sold to Fannie Mae and Freddie Mac it will affect all conventional home loans.
Why were the HVCC regulations written? The HVCC regulations were written to deal with some felt were shady and unethical practices of pressuring appraisers to “come in at the value needed.” They evolved from a potential lawsuit by the Attorney General of New York (Andrew Coumo) against Fannie Mae and Freddie Mac. On March 3, 2009 the Attorney General, Fannie Mae, Freddie Mac and the OFHEO reached a settlem ent agreement regarding the issues of appraisal coercion and independence in exchange for the Attorney General dropping the investigation.
HVCC forbids parties involved in the origination of mortgage loans including loan originators from communicating directly with home appraisers on loans to be sold to Fannie Mae and Freddie Mac. Instead of selecting the appraiser and contacting them as was done in the past, lenders must now go through an appraisal management company (AMC) to order the appraisal. This means that the lender has no input in selecting the appraiser. One can now only hope that a competent appraiser is selected to complete the appraisal. It’s been reported that some AMC’s have been choosing appraisers based on the fee they will accept over the quality of the service provided. If the loan is being “brokered” to another lender the appraisal is ordered not by your mortgage broker but by the lender approving and funding the loan. This means that you may need to pay for multiple appraisals if the loan is moved from one lender to another.
With another party involved in the transaction expect the cost of an appraisal to rise slightly. The HVCC regulations can also cause some delays in getting appraisals completed. Recently I had a borrower buying a second home in Wintergreen, VA. The appraiser needed a copy of the contract. The appraiser couldn’t call me directly. He had to make the request through the AMC.
It will take time to determine if the new regulation will benefit or hurt the consumers it was designed to protect.
May 18th, 2009 at 10:15 pm
“Instead of selecting the appraiser and contacting them as was done in the past, lenders must now go through an appraisal management company (AMC) to order the appraisal. This means that the lender has no input in selecting the appraiser. One can now only hope that a competent appraiser is selected to complete the appraisal.”
An appraisal management company is but one way that a lender can create a firewall between the HVCC requirement that loan production staff not influence the selection of an appraiser. Another way is to create some in-house audit controls that allow non-production staff to select those appraisers from a list of appraisers known to be experienced and reliable. That’s what we do.
May 18th, 2009 at 10:39 pm
Brian,
Thanks for commenting and visiting the blog. It’s good to know there is more than one way to go about this. I know National City really steps away from the process for ALL loans – not just the Freddie and Fannie ones.
Experienced and reliable appraisers are the key to obtaining realistic valuations that are also objective.
May 19th, 2009 at 7:15 am
I ran into this a couple of weeks ago with Sun Trust who was early in stepping aside from the appraiser. We waited 2 weeks for the appraisal report. The loan officer was mad as a wet hen about it, but there was nothing she could do. And on top of that, the loan was FHA and the appraiser actually checked the polarity of the electrical outlets in the unfinished basement and made that one of the conditions to be fixed! Looks like we may be back to the “old” FHA appraisals.
May 19th, 2009 at 7:25 am
I think the “old” FHA appraisals are back with a vengeance. I experienced one where there was some chipping paint on the exterior deck and the appraiser required scraping and painting. Then it started raining for two weeks. He also lowered the valuation by .0185% on a Freddie Mac foreclosure. He must have thought he was pretty good to be that accurate in his valuation.
I think appraisers see “re-inspects” as a way to shore up their income and fees since they are now competing to get on these lists.
May 20th, 2009 at 11:42 pm
Brian is right here – the clients I work with as an appraiser have an in-house system setup.
Right at this moment writing up an appraisal can take longer. But it’s not because of going through the AMC it’s because we’re busy. Last month I the number of requests I received doubled! Luckily my clients have been very understanding and are equally as busy.
@Teri – FHA appraisals are NOT required to adhere to the HVCC (as Ken pointed out in the 1st paragraph). Testing the polarity of outlets is also not a requirement, FHA or otherwise.
@Ken – Homes built before 1978 are still required to have no chipping and/or peeling paint, due to the possibility of it being lead based. Calling for repairs is not about making up for lost fees (at least for me). It has everything to do with the safety, security and soundness: http://www.hud.gov/offices/hsg/sfh/ref/sfhp1-22.cfm
May 21st, 2009 at 2:04 pm
Thanks for visiting and for joining the discussion, Ben! It seems that not all appraisers are created equal. I know down in this neck of the woods appraisers are requiring all kinds of stuff and taking forever to return forms to the lender.
I hope it gets better as the market starts to pick up.