How HVCC Will Change the Real Estate Industry
In March 2008, Fannie Mae, following an investigation by New York Attorney General Andrew Cuomo and the Federal Housing Finance Agency (FHFA), developed the Home Valuation Code of Conduct. The code, which went into effect on May 1, 2009, requires the use of an independent appraiser to determine real market value of a home before a mortgage is written on it. It is currently being used by beleaguered mortgage giants Fannie Mae and Freddie Mac and the details of how that will affect others are still a little unclear. Let me try to dispel some of the rumors and give you some of the facts.
As of the May 1st effective date brokers will no longer be allowed to use independent appraisers or even choose their own appraisers. This decision will be left up to the lender now and they may only use AMC’s (Appraisal Management Companies) and not independent appraisers. The rationale behind this is that anyone who will be rewarded with a commission when a deal closes needs to be eliminated from the appraisal process. The reasoning is sound, eliminating potential for abuse, but the side effects on the industry as a result of this ruling could be catastrophic.
The first area of impact will be on the consumer. Requiring the lender to initiate the appraisal increases the waiting period for the consumer when they are attempting to close on a new home. It also means that if you change lenders you will require a whole new appraisal, something that will consume more time and cost money for the buyer. The broker is also affected by the requirements because they no longer have any control in the appraisal process. They’ve been placed at the mercy of the lender.
Another area of concern is for the appraiser. Many feel that the HVCC will put many independent appraisers out of business. They are required to join an AMC and that will cost them 40% of their income. They have no choice but to raise their fees or go under. The increased costs to them will be absorbed by the consumer and certainly not covered by the mortgage lender. Under the new guidelines, appraisers are also not allowed to have any communications with mortgage brokers, loan officers, agents or any others who are in a position to earn a commission from the close of a deal. This renders meaningless any client relationships that appraisers have built over the years.
My take on this is the same as it has been for most of the other crazy pieces of news and legislation I have seen come out of the mortgage industry. How does this make sense and why was it put in place with little or no opposition? It hurts so many people across the board that it can’t possibly last. The good news is that right now the HVCC is only being used by Fannie Mae and Freddie Mac, but the bad news is that many brokers have adopted its guidelines for FHA loans as well, assuming that the change will eventually be universal. Honestly, I think we need to take another look at it before it gets out of hand and make sure reasoning like this doesn’t become widespread in the real estate industry.
