In March 2008, Fannie Mae entered into an agreement with The Federal Housing Finance Agency (FHFA). This agreement was set up to adopt certain policies relating to appraisals for mortgages. Starting May 1st, 2009 the Home Valuation Code of Conduct (HVCC) came into effect for Fannie Mae and Freddie Mac purchased loans.
HVCC Means Only Third Party Companies Can Order Appraisals
The code states that all appraisals must be performed by a Certified Appraiser. It also states that no employee, director, officer, or agent of the lender, or any other third party, on behalf of the lender, shall influence or attempt to influence the development, reporting, result, or review of an appraisal through coercion, extortion, collusion, compensation, instruction, inducement, intimidation, and or bribery. Therefore, independent third party companies will order the appraisal and have contact with the appraiser.
Where Did HVCC Come From?
Some of the reasons for the HVCC going into effect are due to appraiser’s being pressured into pushing the value on the property in order to make the deal go through. In the past appraiser’s have reported bribery, threats of job loss and so forth. This was one of the reasons the country is in the financial trouble it is in today. In some cases appraisal values were pushed higher in order to ensure that the appraiser continued to receive job orders from certain lenders.
There are two sides to every story. With the HVCC in effect, getting a mortgages has become a much more difficult process. It’s not unheard of to have three appraisals ordered for one property, and thereby increasing the cost of the loan. The length of the underwriting times has increased from 30-days to sometimes 60-days. These time lines are critical to some buyers’ due to being locked into a certain interest rate. Even a 45-day underwriting time can cause a deal to fall through. Real estate agents and mortgage brokers are blaming the HVCC for holding back the economy.
Appraisers Use Only History…Can’t Predict the Future
There is also concern that the market is turning around and that appraiser’s are keeping the market from turning. Appraiser’s can only report on historical data. They cannot predict the future. With today’s new lending laws, appraiser’s are required to include three closed sales within the previous three months, as well as one pending sale and one active listing, all within the subject’s marketing area. In theory, this is tough for an appraiser when the market is at the bottom and on its way back up. When the market is on its way back up, the appraiser does not have the historical sales to support the values. The only way for those values to be supported is if the buyer paid cash for the property. This results in the HVCC becoming an albatross around the neck of the economy.Email This Post To a Friend.