Changes in the mortgage loan process

May 21, 2009 the new Home Valuation Code of Conduct (HVCC) came into effect.  This piece of legislation was the brainchild of New York Attorney General Andrew Cuomo who decided for political points he was going so singlehandedly clean-up the mortgage industry.  The general idea of HVCC is to “help assure that borrowers, home buyers and secondary mortgage market investors receive fair and independent property valuations.”

This is done by adding a middleman in the appraisal process which runs interference between the loan officer and the appraiser in an effort to prevent the loan officer from “influencing” the appraiser’s opinion of a property’s value.  Since the loan officer can not communicate directly with the appraiser the appraiser can’t be given a “target number” for the value of the home.  Of course, in reality it doesn’t do this since in the case of a purchase a copy of the Real Estate Purchase Contract (REPC) has to be given to the appraiser because the appraiser has to be aware of any concessions being given by the seller.  So exactly what HVCC was meant to accomplish, it does not.

As you can see, this is legislation that was enacted by people with no knowledge of the real estate industry other than they once bought a house themselves.  People like Andres Cuomo have no idea how we get from Point A to Point B and he’s able to move in to his new home.  All HVCC has done is add a middleman, what is called an Appraisal Management Company or AMC, into the appraisal process.  Appraisal Management Companies manage appraisers, so if an appraiser wants business he has to be signed-up with an AMC who then assigns appraisal orders as they come-in to the appraiser who is next on the list.  The AMC then forwards the completed appraisal to your loan officer.

Starting May 1, 2000 all appraisals for Conforming Loans (those under the Fannie Mae/Freddie Mac umbrella) have to be ordered through an AMC.  FHA and VA are not included in this legislation and appraisals for FHA and VA loans are still ordered by your loan officer.  Because of the AMC being in the middle of the appraisal process for Conforming Loans the cost of an appraisal has risen from $350 to $425 here locally.  Also, appraisals with now be C.O.D.  Before an AMC will assign an appraisal order to an appraiser the appraisal must be paid for.  No longer can the appraisal be done then paid for through the closing of the loan.  So be prepared to front the $425 in cash or on a credit card when refinancing or buying a home.

Another change is that no longer can your loan officer call an appraiser and ask him to pull comparatives so that an idea of where an appraisal will come in at can be determined before actually ordering the appraisal.  This service used to be provided for free by appraisers.  Under the new legislation a Restricted Use Appraisal (RUA) can be ordered for $50, which is actually a documented comp search.  The RUA can not be used as an actual appraisal.  Again, the cost of this will have to be paid up-front by the borrower.

The good thing is that your loan officer can arrange your loan so that you get back this money at the close of your refinance, or it will simply be less money you have to bring-in to close the loan for your new home purchase.  In the long run you break even, but be prepared with that money available to refinance your current mortgage or to get an appraisal on a home your are buying if you are using a Conforming loan rather than an FHA or VA.

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