The Home Valuation Code of Conduct, or HVCC, became law May 1. In the details of the law, Fannie Mae and Freddie Mac, quasi-government institutions and purchasers of most mortgages, won’t provide funds for mortgage loans unless the appraisal follows a few new guidelines.
One of the main rules prohibits mortgage brokers from ordering appraisals directly from, or having any contact with, a licensed real estate appraiser. This includes approaching them with relevant information. Instead, lenders are required to use third-party “appraisal management” companies that oversee the appraisal and any communication.
One of the largest problems this has created is when a loan officer improperly qualifies the buyer or runs into a new underwriting rule that declines their loan. Previously, the loan could be repackaged and sent to a new source without delay or ordering a new appraisal. Under the new law, appraisals are captive to the lending source, cannot be transferred, therefore a second appraisal fee must be paid by the buyer, or a third, if the loan is especially difficult to place.
Other problems this law has created in the current real estate market are:
• The value of a house is a mystery until the appraisal is received; checking with another appraiser ahead of time has proven to be no guarantee value will be met.
• Valuation may come in low due to out-of-area appraisers being unfamiliar with local market activity. They may not have the expertise or understand how to properly evaluate in Nevada County, creating delay for escrows.
• In some cases, appraisal assignments are given on a “first come, first served” basis, replacing professional expertise with the ability to be first to reply to an appraisal request. This sets the bar of professionalism very low.
• The rebuttal process is cumbersome and inefficient, creating more delay to escrows
and frustration for everyone involved.
Pre-approval for loan
If you are looking for a home, the best insurance you have today is making sure you are properly qualified by your loan officer before you go look for a home. How do you know? Just ask to see your approval. Make sure to discuss this law with them.
If you are a loan officer or lender, the best assurance you can provide to your clients and their Realtor is to make sure they are accurately approved for their purchase well before they start to look for a home. Your insistence that they are properly approved won’t burst their bubble — it will enhance their overall experience.
Jeff Kuns is the owner of Mortgage Advisors Group, a mortgage lender in Nevada City, and co-author of the book, “Borrow Smart, Retire Rich.” He can be reached at 478-1271 or through www.thewealthsteps.com.
