New Appraisal Rules Not Without Flaws
There’s a new sheriff in appraisal town and the name is HVCC. Not to be confused with HVAC (that’s your heating, ventilation and air conditioning system), HVCC stands for Home Valuation Code of Conduct.
The HVCC, which was implemented May 1 by Fannie Mae and Freddie Mac, was meant to make appraisals less susceptible to undue influence by loan officers, real estate agents and others, and thus more accurate and reliable. Whether the HVCC will, on balance, be a benefit to homebuyers remains to be seen.
Ironically, the genesis of the code of conduct was not HUD or Fannie Mae and Freddie Mac, but New York State Attorney General Andrew Cuomo. Cuomo settled a lawsuit against the two mortgage giants for faulty appraisals with their agreement to adopt the code.
However, all of the U.S., not just New York State will feel the effects of the settlement.
That the appraisal system will be different is certain and, in some respects, not in a good way. For one thing, it is making appraisals substantially more costly for consumers.
As with any big change, there are winners and losers. The clear winners are appraisal management companies (AMCs), because they are the easiest way for lenders to comply with HVCC rules requiring separation between loan production workers and risk management.
While the code allows lenders (but not mortgage brokers) to engage individual appraisal companies, many lenders are just farming out appraisals to the large national AMCs.
The certain losers, are independent appraisers, who can no longer count on the patronage of satisfied local lenders. Most will be forced to dance to the tune of the AMCs or starve. And they are being asked to work for less, even as the AMCs are charging borrowers more.
How about the consumer-borrowers the code was meant to protect? How do they fare? In one respect, cost, they are clear losers.
The AMCs are charging more per appraisal and adding extra charges. Plus, appraisals previously could be paid at settlement; now they must be paid up front on a credit or debit card. And should you change lenders before closing, you may have to pay for a new appraisal at additional cost.
FHA has not adopted the HVCC, so it is not requiring lenders to use the AMCs. Nevertheless, many FHA lenders are using AMCs anyway and charging even more for the privilege than for Fannie and Freddie loans!
Still, if the result ultimately is a more accurate appraisal, then the extra cost burden may make the change worthwhile for consumer-borrowers.
The problem is, independent appraisers argue, undue influence can be just as easily exerted by the AMCs as by any other group. And there is no guarantee that the appraisers willing to work for the AMCs lower rates will be as knowledgeable or skilled in the local market. We’ll just hope it works out.