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Huge FHA News!!! FHA IS ADOPTING HVCC AS OF JANUARY 1ST...GET READY FOR CHANGE!

By Mary Thompson

Real Estate Appraiser with Lanier Appraisal Service CR004373

September 19, 2009 06:07 AM

Yes it is true, just yesterday, September 18th FHA sent out a Mortgagee Letter to all lenders that they are adopting HVCC in most of its current form.

By now most of you know about HVCC, if not please check my previous blogs on the subject. Fannie Mae adopted HVCC (Home Valuation Code of Conduct) on May 1st. as they wanted to insure appraiser independence. In short this means that mortgage brokers can no longer order appraisals from appraisers. It is now being handled by AMC's (Appraisal Management Companies) or the Banks directly. No production staff that is paid commission based upon a loan closing can order appraisals.

Due to this change, what was happening was FHA loans were on the rise BIG time as the brokers still had control over the appraisal process. That will end January 1st. FHA does not want to take on any more risk than they already have and FHA does not want and they are not asking the Federal Goverment to bail them out. They have enough in reserves to deal with any loses they have. So FHA must make sure that appraiser independence is guaranteed to minimize on this lending risk. I am not surprised at all, I really was expecting this from FHA.

What does this mean?

1. Good news for appraisers, the AMC's who normally pay CUT rate fees and who care less about quality appraisal reports and experienced appraisers and more about making money, must pay appraisers based upon normal market rates for completing FHA assignments. However the borrower will wind up paying more for FHA loans as the appraisal fees will be even higher....at least this is my take on the situation as the AMC's will jack up their prices to the banks to pay the appraisers what they should and to make profit for themselves as well.

2. Mortgage Brokers will no longer be ordering appraisal reports. So this repsonsibility will go to the Banks or the AMC's.

3. Appraisal reports will only be good for 4 months rather than 6 months.

4. Good NEWS: FHA will allow appraisal reports to be transferred to another lender rather than having another appraisal report completed.

5. The only way another appraisal report can be completed if someone does not agree with value is the report will have to be flawed in some way and it will have to be proved that flaws exist in the report

6. No one can talk to appraisers about value issues. REALTORS, you can still give Appraisers comparable sales data, that is NOT prohibited, you just cannot talk to them about value. The banks and AMC's can discuss particulars of the assignment, but no one can pressure an appraiser for value PERIOD!

7. As of October 1st only CERTIFIED Appraisers can complete FHA appraisal assignments.

8. FHA will require that the appraiser is knowledgeable in the area that they appraise. So if you find an appraiser coming from way out of the area to do an appraisal, this would be one reason to suspect the accuracy of the report. This has ALWAYS been required of appraisers as part of USPAP ( Competency RULE) but many appraisers would take the job no matter where it was and this is not good, if they have no clue about the area.

9. Banks will be liable for the loans they underwrite, not brokers, so there may be more FHA brokers coming from the picture.

To read more about it click here for the full story:

http://www.mortgagenewsdaily.com/09182009_drastic_fha_guideline_changes.asp

Pass this along, this WILL affect your business as of JANUARY 2010.

Mary Thompson

Your Active Rain Appraiser

www.marytappraisals.com

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Gene perez

Greater Mortgage Solutions & Valley Hills Realty - Santa Maria, CA

I am not sure this is a good thing its taking one thing from extreme of giving loans to everyone to jumping through hoops more and more sigh,,,, more recovery yet to be felt .. and more govt ideas

Sep 20, 2009 04:14 AM

Jeff Wilmoth

Barrett Financial Group, LLC - Senoia, GA

If you need a mortgage, call us! 404-597-5662.

Excellent post Mary! Thank you for sharing and pointing out how Susan N's practices can be duplicated with other agents in the field. Excellent tips from Richard D. too! Folks, stay informed, but focus on what you can control. Seek the opportunities that come with change and avoid the doom & gloom pessimists like the plague. Remember, misery loves company!

Sep 20, 2009 05:06 AM

Jirius Isaac

Isaac Real Estate &TriStar Mortgage - Kenmore, WA

Real Estate & loans in Kenmore, WA

This change does look like it will be a good thing for appraisers, who basically have been getting ripped off by the 3rd party companies. And I am glad they will have to disclose how much they are charging rather then being able to hide it like with the fAnnie Mai appraisals now. Everything sounds good, except that the client will have to pay more!

Sep 20, 2009 05:18 AM

Mary Thompson

Lanier Appraisal Service - Flowery Branch, GA

Lake Lanier Appraiser in North Georgia

Joan: "Interesting... I liked this statement "FHA will require that the appraiser is knowledgeable in the area that they appraise" ... I have heard from lenders I work with that they are looking at their list of appraisers and deleting those that they feel are not "professional" so there is a good likelihood that they will have a good appraiser. I guess I would want the buyer to know if the lender has its own list (which has been screened) or whether they simply use some appraising service that has not veted the appraisers." According to HVCC the lenders cannot just remove an appraiser they do not like so to speak, they must advise them in writing why they are removing them and it has to be for a good reason, like violating USPAP, etc.

I agree AMC's just look for a license and that is about it.

Allison: "This is nothing other than more perfume on a pig. If they wanted real reform of the HVCC as it affects appraisers, they would have mandated that the FHA-rostered appraiser's fee appear separate from the AMC's fee on the HUD-1." Totally agree with this concept.

I agree that this is what we all want, but that standard is called "geographic competency" and was referred to by Mary in her post. USPAP already requires this and it is a major tenet of adherence to the Uniform Standards. It does not appear to have been much of a hindrance to the geographically incompetent appraisers who all you agents have been running into since HVCC took affect. Why should we expect it's going to change now?

Agree again, it is the AMC's that are not being reviewed more closely as to how they select appraisers. If they paid appraisers their normal fee then they would have to chose based upon competency and turn times rather than who has the lowest fee. You get what you pay for in this world!

Jennifer: "Appraisals are not an exact science as any two appraisers can come up with a different evaluation. The only thing I disagree with when it comes to appraisals is that many people say "this is now what your home is worth" when an appraisal comes in. If the market determines value, why do we rely so heavily on appraisers who only give an "opinion" of value? In my opinion, appraisals should be based on a range of value, not on a specific number, as the number given can change by one more comparable closing tomorrow, or a different appraiser with a different opinion."

Agree appraisals not an exact science. Range of values would be nice, but since loans are based on a specific number they need to know the exact dollar value of the home. Also when it comes to sales, they want to make sure the home is worth at least that exact number. AS for opinion, yes it is based upon their analysis an opinion, BUT that opinion is based upon the market data they are analyzing. As for another comp closing in the future, it can go either way, down or up. As part of the process if we feel the market is declining on a monthly basis by a certain percentage, then we make a time adjustment to the comparables from the date they closed to the date we perfomed the appraisal. The effective date of most appraisals is the date we "inspect" the home. The only time we forecast a value into the future is when the client asks us for this value, like a Relocation Appraisal for example. But banks want CURRENT value for most transactions.

Jerri: "Now I am getting a different person every time, and yes, they are even from other states! I cannot believe that a SC Appraiser can know and understand NC markets. This really should not be allowed and has hurt one closing, but only slightly, I have to admit. I would really like to hear your opinion on working in another state. How do you feel about that? Maybe it is more fair than I think.But I don't think I could fairly market a home in another state." I like how you think!! Unless an appraiser actively appraises in another state, maybe they are close to the border of each state for example, then I do not see a problem, but they must have good knowledge and good data of the properties in each state/county, etc.

Elizabeth:"Finally some good news for appraisers! Unless the AMC's can somehow interpret the phrase "customary and reasonable rate" to mean what they've always paid, then we appraisers are in for a nice little raise. I do a lot of FHA appraisals for AMC's now, and to make full fee on them would be a godsend. I've sacrificed a lot to continue doing the job I love for half the pay, but even then I've been wondering how I can make it in the long term." Time will tell how this is interpreted but if I was an appraiser working for the AMC's I would be on the horn to them Monday and saying okay I want to see your revised contract with FEES for FHA....watch them squirm. Then I would contact HUD if they balk at your normal fees and see who can put pressure on them to do as HUD intended!! I hope they are shaken up, they need a reality check and they need to stop screwing appraisers!

RICHARD "Mary - great post! I see opportunity here! What will allow someone to determine if an appraisal value, which is lower than expected, is somehow flawed? " Appraisal Review !"

BINGO! COULD NOT AGREE MORE! I have been offering review services ever since HVCC took effect. I have helped a few borrowers who had really poor appraisals. One person even got our local news channel involved and because of the review letter I wrote for her to rebut the appraisal, they got another appraisal done and they got their loan! Here was the deal, the other appraiser "cloned" another report of a property in the same general area and much of what was on that report was not changed and was used for the person's property that I was revewiing...SAD but TRUE. They even had wrong addresses for the comps. I counted 24 errors in that report and outlined them all for the homeowner. There was NO WAY the bank was not going to get another appraisal done on her home!

JEFF "Excellent post Mary! Thank you for sharing and pointing out how Susan N's practices can be duplicated with other agents in the field. Excellent tips from Richard D. too! Folks, stay informed, but focus on what you can control. Seek the opportunities that come with change and avoid the doom & gloom pessimists like the plague. Remember, misery loves company!"

A BIG AMEN TO THIS COMMENT...THANKS JEFF

JIRIUS: "This change does look like it will be a good thing for appraisers, who basically have been getting ripped off by the 3rd party companies. And I am glad they will have to disclose how much they are charging rather then being able to hide it like with the fAnnie Mai appraisals now" Totally Agree

Thanks again everyone......Take care!

Sep 20, 2009 07:28 AM

Sandy Childs

Keller Williams Realty - Spartanburg, SC

Realtor - Spartanburg, SC

I'm not sure what to think about this change with FHA. We shall soon see what happens.

Sep 20, 2009 08:27 AM

Ginger Moore

Wilkinson & Associates Realty - Gastonia, NC

Hi Mary, Well it just sounds like more complications with all the new rules. I just hope the consumer does not have to pay more, when it trickles down; but I just have a feeling the consumer will have to pay and endure more.

1 more thing: I do think it is good that they are going to get appraiser who is "knowledgable in the area", because I beleive before, it was not like this. They would just send any appraiser , anywhere, and he may not be "knowledgable in the area"

thanks for sharing!

Sep 20, 2009 10:44 AM

Jason Burkholder

Weichert, Realtors - Welcome Home - Lancaster, PA

Associate Broker, Realtor, e-Pro, CMS

Thank youso much for this info, I am re-blogging your post, it would be nice if they would address the issues HVCC creates before adopting it and all of it's problems!!!

Sep 20, 2009 12:09 PM

Chuck Carstensen

RE/MAX Results - Elk River, MN

Minnesota/Wisconsin Real Estate Expert

It does help to have contact with the appraiser if you know the condition is rough and you want to check what needs repairs...but otherwise hopefully things go smooth.

Sep 20, 2009 01:47 PM

Alix Pinzon

Open Mortgage, LLC NMLS # 2975 - Downey, CA

(562)743-6086

There goes the appraisal business. Looks like it's time for me to get a 9 to 5. Thanks for the post.

Sep 20, 2009 03:46 PM

Mark Velasco

West Shores Realty - Whittier, CA

Top Producing Broker Associate

Wow Mary. Does this also mean that they will take much longer to get them done as well?

Sep 20, 2009 05:10 PM

Al Dobbs

ADD Real Estate - North Chicago, IL

Everyone of these new rules made to help the public; always end up harming the people they are trying to help. Delays and paying more--that is just what this market needed.

Sep 20, 2009 05:54 PM

Tina Gleisner

Home Tips for Women - Portsmouth, NH

Home Tips for Women

Love reading a well rounded discussion that happens here every day, and no many others places on the web.

Sep 20, 2009 10:02 PM

Adrian Alvarado

MGR Real Estate Inc. - Ontario, CA

Inland Empire Real Estate

Just another hurdle we have to overcome. Appraisals are killing deals not only conventional but FHA also. Its hard to determine value in this market and if values are still declining or stabalizing. Market value to me is what someone is willing to pay for the property. Banks own the AMC's which makes no sense since the appraisal is suppose to be completly independent of any influences. But the owner of the AMC is the lender go figure. Appraisals are not what got the housing market in trouble it was lenders who created crazy loan programs with no qualifications. They were just giving loans away to anyone with a credit score regardless of anything else. I beleive the HVCC has good intentions but its results are obvious and it is not helping the industry it is only hurting it. The market is already correcting itself not because of the HVCC but because of responsible lending practices. Banks are actually qualifying people and this will result in a stable housing market and people buying and staying in their homes.

Sep 21, 2009 06:42 AM

Dave Hymes

RE/MAX Gold - Placerville, CA

I too don't feel there's much good news here. I do have a better suggestion to your point, "So if you find an appraiser coming from way out of the area to do an appraisal, this would be one reason to suspect the accuracy of the report." My suggestion would be if the appraiser needs the Realtor to access the home for them and you discover that the appraiser is unqualified, DON'T LET THEM IN THE HOME! SEND THEM AWAY!

Sep 21, 2009 12:12 PM

Ed Walter

Ed Walter, Realtor-Appraiser - Safety Harbor, FL

St. Cert. Res. REA #RD1571

I didn't like the news when it came out last Friday at all. I have always liked being an independent appraiser and receiving my work from Realtors, lenders or brokers whom I have built a relationship and trust with and FHA was the last one standing. Now it will go into some mystery rotation handled by a computer instead of a person and if a lender's approved appraiser list is closed than so is your work. Since AMC's are not regulated anyone thinking they are going to get a fee increase is kidding themselves as appraisal fees are under constant pressure to go down and will do so. There is no enforcement of the exsiting rules and regs anymore than there was before HVCC. And now with Fannie & Freddie requiring MISMO XML as of March 1, 2010 the handwriting is on the wall for AMC's to utilize AVM's instead of appraisers for 90% of the loans within 2 years, especailly with most states medium price range now under the $250,000 diminimus threshold. Doing appraisals for lending purposes is a dying industry that will soon consist of staff evaluators on an hourly wage and computers. And based on the current bills being considered by the treasury dept and congress mortgage brokers are right behind us.

Sep 22, 2009 08:02 AM

Craig Chapman

Call Realty / Access Appraisals - Mesa, AZ

The Value Guy

Nice post. A glimmer of hope about the fees. We will have to wait & see what the AMCs interpretation is of a std fee in the area. It seems like its worded a bit vague.

I see some AMCs only wanting county names for areas that an appraiser covers. In my area in AZ some counties are nearly as large as some states back east & it may not be typical to be competent in a whole county. I find some AMCs wanting an appraiser to cover a whole county, even though they may only have good experience in 2 or 3 cities in that county. The work will go to the appraiser who says yes I can do the whole county, even though some locations in the county are an hour or more drive away & they may not be familiar with parts of the county.

I also see some AMCs going to the use of one particular Software. So if you are trying to get enough work by working for several AMCs, you may have to have several different software packages. All at around $500 ea. Fun.

Sep 23, 2009 11:11 AM

Kent Neumann

Waterstone Mortgage- An Integrity based mortgage bank - Bend, OR

Mortgage Banker

Wells Fargo and Bank of America have bought the servicing on 46% of the loans in the last few months. The rules are changing in favor of the Big Banks...you know the ones that are too big to fail. It is not good to have oligopolies or monopoloies. These new laws are only strenghtening the big banks.

Sep 23, 2009 03:13 PM

Lyn Sims

Schaumburg, IL

Real Estate Broker Retired

You make it seem like this is something to smile about? Appraisals costing twice as much, lousy processing time, lousy turn around time. I wish it would all just go away, it's not best for the consumer that's for sure.

Sep 24, 2009 09:54 AM

Kent Neumann

Waterstone Mortgage- An Integrity based mortgage bank - Bend, OR

Mortgage Banker

So let me see if I understand this. HVCC was created by Barney Frank who is/was dating an exec at FNMA. Sen. Frank wanted the to use appraisal management companies (AMCs) because WAMU got caught infleuncing (AMCs) so we now all have to use AMCs. Isn't there enough rules/laws already? We just need to enforce the rules that we have already had. If an appraiser is infleunced, take away the license. If a lender tries to infleunce, fine them and take away their license. If it is fraud, go after them. All these new laws are costing the consumer and hurting the housing market.

Sep 25, 2009 11:51 AM

Mary Thompson

Lanier Appraisal Service - Flowery Branch, GA

Lake Lanier Appraiser in North Georgia

Yes I heard that was the case. So we will see how things shake out then!

Too busy, thank goodness, to post a blog about it.

Mary T.

Jan 04, 2010 08:17 AM