Posts Tagged Home Valuation Code of Conduct

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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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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Appraisals hurting home sales

A huge stumbling block I’ve come across in the past month or so is getting an appraisal that is acceptable to a lender.  Lenders are being very skittish conservative about lending their money even though they receive billions of it from the Federal Government over the last few months.  One way they seem to have found a way to hold onto this stimulus money to fluff their bottom line is by introducing stricter acceptable appraisal guidelines.  Guidelines such as:

Comparable sales used to determine value can’t be older than 90 days

Comparable sales used to determine value can’t be farther than 0.50 miles in urban areas, 1.0 miles in suburban areas and 5.0 miles in rural areas.

And they are holding fast to these policies.  Just a few months ago comparables up to 6 months old were acceptable.  The distance from the subject property hasn’t changed much, if at all.  What has changed though is that lenders will not allow exceptions even when noted by the appraiser in the “Analysis” and “Additional Comments” sections of the appraisal.  Many times an appraiser has to go back more than 90 days or farther out than 1 mile from the subject property to find a like-property comparable.  For instance, if you have a fairly new home in a neighborhood surrounded by older homes.  Or your home is in a new neighborhood that hasn’t had many resales yet with which to determine value by.

What’s happening is that appraisers have had their hands tied on being able to accurately and honestly valuate your home.  The banks are now dictating what your home is worth, not the free market.

If the new Home Valuation Code of Conduct (I love that name, like the government is looking after you) goes into effect on May 1, 2009 this situation will just get worse and worse.

Remember, the banks are in it for themselves.  Independent brokers are in it for your benefit.  We are small businessmen and depend on your business – and the business of your friends and family – to stay in business.  Like any small business, if we don’t do right by you we don’t stay in business long – as seen with the huge exodus of loan officers and real estate agents from the industry over the past year.  Those that were in it for the quick buck haven’t survived.  Those that do this to help home buyers and home owners, and in turn help themselves and their family’s welfare, are still here.

So support your local independent broker.  And keep your rights as a homeowner in the forefront by contacting your elected officials and weighing-in on issues that harm you as a homeowner like the new HVCC.

For Salt Lake City, UT today’s average mortgage rates are as follows:

30-year fixed: 5.125%

15-year fixed: 4.75%

Conforming Jumbo 30-year fixed: 5.75%

FHA 30-year fixed: 5.50%

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