If you're in the process of buying or selling a home, you may be familiar with the acronyms HVCC, HOEPA, HERA, TIL and MDIA. If you aren't, you should be, because they all could play a role in whether your transaction closes on time -- or, in some cases, closes at all.

Last year, in an effort to curb predatory mortgage lending practices, Congress passed the Home Ownership and Equity Protection Act (HOEPA) and the Housing and Economic Recovery Act (HERA). Subsequently, Fannie Mae and Freddie Mac adopted the Home Valuation Code of Conduct (HVCC) to enhance the overall integrity of the home appraisal process. The code applies to all Fannie Mae- and Freddie Mac-backed home loans that originated after May 1, 2009. (It doesn't affect FHA or jumbo loans.)

To insulate the appraisal process from influence by any party with an interest in the outcome, the HVCC requires lenders to establish a firewall between their loan production and appraisal staffs. Consequently, many lenders are now retaining the services of an appraisal management company (AMC), a third-party company that selects, retains and provides payment to the appraiser so the lender has no direct contact with that appraiser.

The Unfortunate Fallout of HVCC
The HVCC was a noble idea that has had some unfortunate adverse consequences for both buyers and sellers. For example, because lenders are now handling appraisals through AMC's, many appraisals are taking longer to complete. And because the AMC's operate nationally but do not have appraisers everywhere, more appraisals are being done by people who are not familiar with the market of the appraisal that has been ordered. Finally, because of the insertion of another entity, the appraisal cost to the consumer has, in many instances, increased (although the appraiser may be earning up to 50 percent less than previously).

In July, after fielding many complaints and concerns about the HVCC, the National Association of Realtors conducted a survey of approximately 40,000 members. Here are a few of its findings:

    • 76 percent of Realtors surveyed reported that the length of time to obtain a completed appraisal report increased after May 1.
    • More than one-third of Realtors surveyed said they have lost at least one sale because of a delay in the appraisal process.
    • 71 percent of Realtors noted an increase in the use of out-of-area appraisers.
    • The number of NAR appraiser members who obtain more than 50 percent of their assignments from AMCs increased from 14 percent to 39 percent after May 1.
    • 71 percent of NAR appraiser members stated that the time they're allowed to submit an appraisal to the AMC has decreased.
    • 86 percent of NAR appraiser members reported a perceived reduction in appraisal quality.
    • Approximately half of NAR appraiser members reported a reduction in fees they received.
    • 70 percent of NAR appraiser members reported that consumers were paying higher fees.

Because of the many concerns about the HVCC, on June 25th, U.S. Rep. Travis Childers (D-MS) and Rep. Gary Miller (R-CA) introduced HR 3044, legislation that calls for an 18-month moratorium on HVCC so that the negative impact of the new code could be addressed (the bill has been referred to the House Committee on Financial Services).

Then There's the MDIA
Meanwhile, as of July 30, 2009, consumers must now also consider the effects of the federally mandated Mortgage Disclosure Improvement Act (MDIA), which was designed to ensure that consumers receive cost disclosures earlier in the mortgage process,

With the implementation of the MDIA, which amends the Truth in lending Act (TILA), creditors are now required to give good-faith estimates of mortgage loan costs within three business days of receiving an application for a mortgage loan and before any fees are collected from the consumer (other than for a credit history). 

The hitch may occur in the subsequent new requirements:
     1. Creditors must also wait seven business days after they provide the early disclosures before closing the loan; and
     2. Creditors must provide new disclosures when there is a change in the APR of more than .125% on fixed rate loans, and then wait an additional three business days before closing the loan.

 What to Do?
So, what's the best way to minimize the impact of all these new rules (at least while the bugs are being worked out)?
    1. Choose your lender wisely. Discuss all the above-mentioned changes with them and make sure you both understand them clearly.
    2.  Make sure your appraisal is ordered as soon as possible, and have a contingency plan in case it comes in lower than expected.
    3.  Make sure your closing date factors in all the timelines -- and then meet all those deadlines.
    4.  Allow for a 30- to 45-day closing at minimum.
    5.  Buyers: lock in your interest rates and fees as soon as possible.

 About the Author:
Lisa Broadwater is a Central Oregon-based real estate professional who specializes in listing and selling homes, especially in Sisters, Tumalo, Redmond and Bend. If you'd like to learn more about Central Oregon, please visit www.CentralOregonHome4You.com.