What’s The Fuss with the New Home Appraisal Rules?

The HVCC (Home Valuation Code of Conduct) was enacted to stop mortgage fraud as a result of the Sub-Prime debacle. It is an agreement between Fannie Mae, Freddie Mac and the New York Attorney General’s office that was developed because of concerns that appraisers were under too much pressure from lenders, Realtors® and other entities to inflate the value of homes. Although the agreement involves activities in New York, it is being applied nationwide to all mortgages handled by Fannie Mae and Freddie Mac.

Sounds reasonable! The problems for Buyers and Sellers arise because gone are the days when mortgage brokers could choose an appraiser on the basis of experience, professionalism or quality of their work. Appraisals now seem to be awarded to whoever will work for the cheapest and fastest, often through AMCs (Appraisal Management Companies), with new and/or inadequately trained appraisers who may no be familiar with the area and current market values. Also, there are usually additional costs as the AMCs charge more to cover their costs as well as pay the appraiser.

If a Buyer changes the lending institution before closing, perhaps for a better rate, a whole new appraisal may need to be done as one lending institution may not accept the 1st appraisal – additional cost to the Buyer as well as delayed closings.

But the worst aspect to this new code is the low appraisals being turned in. In this market, many distressed properties are the ones that are included in the appraisals. The comparable solds and actives that are included are from the last 3 months only. If the appraisal comes in low, the lender will not fund a mortgage for a higher agreed upon sales price. Buyers will have to come up with the extra money or Sellers will need to reduce the price further to bring the transaction to the closing table.

These rules apply only to lenders selling their mortgages to Fannie Mae or Freddie Mac.

For FAQ’s follow this link: http://www.freddiemac.com/singlefamily/docs/030308_valuationcodeofconduct.pdf