HVCC in plain English and how it affects you, the borrower

A lot has been said about HVCC, the Home Valuation Code of Conduct, that radically changed the way the appraisal process of your home happens. But still most homeowners know nothing about it until they go to refinance their home or buy another one and they discover they have to pay for an appraisal up-front and it costs more than it did a year ago. Here’s why.

Andrew Cuomo

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HVCC was the brainchild of New York Attorney General Andrew Cuomo. Cuomo, in an effort to get political brownie points decided he would singlehandedly clean-up the real estate business.  He felt that the problem was fraudulent appraisals and that loan officers brokers, Realtors, borrowers and sellers were strong-arming appraisers into inflated values on appraisals. So he sued Fannie Mae and Freddie Mac.

To settle the lawsuit Fannie and Freddie agreed to a new appraisal process, one where the appraiser would be insulated from anyone having a financial interest in the transaction.  From this Appraisal Management Companies (known as AMC’s) were born.

This one change from New York became a nationwide law that affects us even here in Utah.

Appraisal Management Companies purpose was to insulate the appraiser from any undue influence a loan officer, Realtor or homeowner may try to impose upon them.

The short version of HVCC is that anyone who will financially profit from the sell or refinance of a home can not choose an appraiser, nor can they deal directly with the appraiser. Any appraisal ordered for and paid for directly by the homeowner, loan officer or Realtor can not be used in the process of obtaining financing on the property.  Also, appraisals must be paid for in advance to discourage “value shopping” by the lender, Realtor or homeowner through getting several appraisals then using the highest one for obtaining financing. It’s a one-shot deal now.

Here’s how it all affects you. When you apply for a purchase or refinance mortgage loan, your loan officer will have you sign a credit card authorization form.  The lender will then order the appraisal from an Appraisal Management Company and send them that authorization form to charge your credit or debit card for the appraisal. Although the borrower can’t directly pay for the appraisal, they can pay for it through a third party. The AMC then assigns the appraisal job to one of the appraisers on it’s list and they complete the appraisal and forward it to the lender.

So there in a few paragraphs is how things have changed and how it affects you. When you go to buy a home or to refinance, be sure you have $400 to $500 available on a credit card or in a checking account for the appraisal. Your loan officer should be sure the loan amount is enough to give you back that $500 when the loan funds.

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  1. #1 by Joshua Walitt on September 24, 2010 - 5:15 pm

    And it’s important to remind folks that the use of an Appraisal Management Company (AMC) is NOT required by the HVCC, nor is it anticipated that the Dodd-Frank rules will require it. Lenders CAN STILL order their own appraisals – and many do. Shop around – ask your loan officer if they use a third-party AMC or if there is a local process.

  2. #2 by coryure on September 25, 2010 - 10:28 am

    True. Lenders have set-up their own in-house AMC’s which are within the HVCC guidelines. Of course this has also led to the problem of appraisals not being portable even though HVCC they are supposed to be if the appraiser simply changes the “Prepared for” portion of the appraisal. Although HVCC says appraisals should be portable, lenders are so scared that Fannie Mae and Freddie Mac won’t purchase the the loans that they are choosing to error on the side of caution and requiring appraisals used to originate a loan through them also be ordered through their sources, whether in-house or third party.

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