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What All Homeowners Need to Know About The Home Valuation Code of Conduct and It’s Adverse Effects
What does an investigation by the New York Attorney General have to do with my home appraisal in Atlanta? Well basically Andrew Cuomo was investigating the appraisal practices of the Government Sponsored Entities (GSEs), aka Fannie Mae and Freddie Mac. To get the Attorney General to stop the investigation, the Office of Federal Housing Oversight and Fannie Mae and Freddie Mac agreed to what is now called the Home Valuation Code of Conduct.
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.
Home buyers are adversely affected because of the increased cost of appraisals. Since appraisals are in the lender’s name, if a home buyer changes lenders, a new appraisal must be requested. This increase in time and cost to the mortgage process may trap some home buyers with lenders who are not currently meeting their needs. In addition, buyers may have longer rate locks or need to extend existing rate locks.
Home sellers who have agreed on a price to sell their home are now negatively impacted by low ball appraisals. If an appraisal comes back below the agreed-to price, the sellers can appeal the appraisal or lower their sales price. The latter may not be an option, so the sale may fall apart. In fact, the National Association of Realtors, The National Association of Home Builders and the National Federation of Mortgage Professionals have pointed to issues in the new appraisal process as a reason for new and existing home sales in May falling short of expectations.
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.
The National Association of Realtors has requested regulators suspend HVCC rules for 18 months because of unintended consequences. Stories of low ball appraisals and their impact on the real estate industry are increasing all across the country. Buyers are not able to get loans because of these appraisals.
Basically, appraisers are caught in the middle. Lenders and regulators want appraisers to use distressed and foreclosed properties in the Home Valuation Process so they have an idea of the market and they want appraisers to be conservative in their valuations. Buyers, sellers and agents just want to do the business of buying and selling homes and they want accurate appraisals. Not too long ago, the market value of a home was what someone was willing and able to pay for that home. Now, there seems to be a manipulation of the prices and process because of all the unintended consequences of the regulations.
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