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New Proposed Appraisal Regulations ............ "Home Valuation Code of Conduct"

By George Souto

Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages NMLS #65149

March 17, 2009 07:51 AM

On May 1, a new code of conduct, the "Home Valuation Code of Conduct" (HVCC) is scheduled to be implemented for loans purchased by Fannie Mae and Freddie Mac. The objective behind this new regulation is to prohibit Loan Officers, Brokers, and any one else that has a vested interest in the approval of a mortgage loan, from being able to order appraisals or influence the choice of Appraiser.

There have been several reports in recent years of Loan Officers, and Brokers, and yes even Realtors, who have teamed up with Appraisers, or have tried to influence Appraisers in the evaluation of a property. Those who have put the HVCC together feel that by eliminating contact between those who are part of the "loan production staff, as well as any person who is compensated on a commission basis upon the successful completion of a loan", that they will be able to stop much of the reported abuse and fraud of the past. The HVCC will also put a stop to Lenders using an "appraisal report completed by an appraiser selected, retained, or compensated in any manner by any other third party (including mortgage brokers and real estate agents)."

All this sounds good, and I am all for getting rid of the sleaze in our industry, but once again those who are honest and above board in the way they conduct their business will be the ones that will really be affected by the HVCC. Those who are dishonest will not abide by this, and will yet again find away around the rules, while those who play by the rules will lose their relationship with a valuable resource.

I have never tried to manipulate an Appraiser into falsifying an appraisal, but I have asked them if they have looked at everything, including FSBO's when they are have a hard time coming up with comp's. I have also contacted Appraisers when I am unsure that a house will appraise high enough for a Borrower to be able to refinance. But I have never tried to influence the out come of an appraisal, I WANT an honest appraisal.

This new regulation is going to present problems for Realtors, because they now will not be able to send over comp's for an Appraiser to consider in their appraisal of a house. It will present problems for Loan Officers/Brokers who will no longer be able to establish relationships with Appraisers. It will cost Borrowers money in situations where they are trying to refinance, and the value of the house is in question. Once the appraisal is done the Appraiser needs to be paid. If the house does not appraise for the necessary amount they are not only not able to refinance, but also out several hundred dollars.

If the "Home Valuation Code of Conduct" (HVCC) was to truly do what it is intended to do, it would be worth giving up what we have today, but I fear that all this will accomplish is putting obstacles in front of those who are NOT the target of this regulation, while those that are the target will just continue to do business as usual.

FHA has not signed on to this new regulation yet, but I would expect that FHA will also adopt this, or come up with on similar to it. But in the mean time it is only Fannie Mae and Freddie Mac that are expected to implement this on May 1, 2009.

For those who are interested you can read the whole "Home Valuation Code of Conduct" at this link.

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Info about the author:

George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

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Sally K. & David L. Hanson

EXP Realty 414-525-0563 - Brookfield, WI

WI Real Estate Agents - Luxury - Divorce

We give appraisers comps...AND a list of what has been done to the property which may not be evident...special kinds of air filters, etc. and you never know what the background/competentcy level is of the appraiser....we leave less to chance and more to the hard facts.

Mar 17, 2009 08:00 AM

Treva Fox-Christy

INTEGRITY REAL ESTATE - Farmington, NM

I believe you are right and so hope that FHA does not follow the same path. We all know having a relationship (honest one I am speaking of) is very valuable and the integrity of our business always seems to come into question when these new measures are passed.

Mar 17, 2009 08:13 AM

George Souto

George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT

Your Connecticut Mortgage Expert

Sally & David, that is valuable information that you provide. With the passage of this new regulation, you will no longer be able to do that on Fannie and Freddie loans.

Treva, the honest are the ones that always pay the price for the dishonest. In stead of just putting those that are dishonest in jail, they impose more reg's on the honest.

Mar 17, 2009 08:23 AM

Jamie Dumaine-Russell

RE/MAX Alliance - Branford, CT

George - I had heard about this and hoped that it wasn't going to happen. While I can sympathize with the reasoning behind this, I think it will do more harm that good. A realtor's inside knowledge of the condition and/or improvements done to a particular home can go a long way in how an appraiser values a property. The fact that some did not abide by the rules is not enough just cause to me for putting another obstacle in our way.

Mar 17, 2009 09:26 AM

Neal Bloom

Brokered by eXp Realty LLC - Weston, FL

Realtor CRS-Weston FL Real Estate

George,

I also try to provide appraisers with up to date info...if its available...in this market it sometimes is hard to justify comps when there isn't much selling...I try to help them since lots of them arent familiar with the area. I will also assist them if they need a floor plan if available. I try not to get in their way because sometimes they get annoyed but generally they are looking to help too.

Mar 17, 2009 10:40 AM

George Souto

George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT

Your Connecticut Mortgage Expert

Donna, the way I understand this, and feel free to follow the link the link that I provided and see if it reads different to you, the Listing Realtor will still have the opportunity to speak with the Appraiser since they are the ones that normally let the Appraiser into the property, and of course can in the process point out some things verbally. But they are not suppose to provide comp's or anything else in an effort to influence the appraisal. Like you I don't like this new regulation at all, I feel that I am being penalized because of those that were dishonest, and who will most likely still get way with fraud.

Neal, to me that is a great approach to take, and I am sure that the Appraiser appreciate that. It will probably be OK for you to provide the Appraiser with info that he/she asks for, but comp's do not fall into what you can give them, the way I read this. They are really after the Loan Officers and Brokers, but also probably want to make sure the the Loan Office and Broker don't use the Realtor as a way around the reg. I am sure that clarification will have to be given once this goes into affect, I know that I have a lot of questions, but in the mean time we will probably be walking on egg shells.

Mar 17, 2009 11:00 AM

Elizabeth Bolton

RE/MAX Destiny Real Estate Cambridge, MA - Cambridge, MA

Cambridge MA Realtor

Hi George, The loan officer in my office brought this up at our meeting last week. I've been banging my head against the wall ever since. My understanding is that the appraiser will be assigned from a pool rather than the appraiser that the loan officer usually used. I think this is going to be disastrous for appraisals in my area since there are so many variables and if you're not familiar with the properties and the area you're operating blind. It seems to be one more rule, imposed because of specific problems in one area, that will now have a terrible impact on other markets that were not the source of the problem. What a disaster.

Mar 17, 2009 11:37 AM

George Souto

George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT

Your Connecticut Mortgage Expert

Elizabeth ......... AMEN TO THAT!!!

I could have not put it any better myself.

Mar 17, 2009 12:22 PM

George Souto

George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT

Your Connecticut Mortgage Expert

Phil I agree.

Mar 17, 2009 02:10 PM

Judy Tuscano

Prudential Verani Realty - Nottingham, NH

NH Real Estate Professional

George - it seems to me that anywhere and everywhere that the government can implement rules and regulations they are in order to tighten their control over an industry. As you say here the intention sounds good but those who don't play by the rules are not going to start and those who do play by the rules will continue to do so.

Mar 18, 2009 03:04 AM

George Souto

George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT

Your Connecticut Mortgage Expert

Judy those of us who play by the rules will not only continue to do so, but will be the ones that feel the impact of this. The others will continue to find a sleaze way around it.

Mar 18, 2009 03:23 AM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

George.... as much as this kind of stuff is boring, thanks for putting this out there. I am glad it hasn't been applied to FHA loans as of yet. But you are right to say that this hurts those that did obey the rules and guidelines. PS... on another note, can you please put this in this group so I can feature this... : All About Mortgages - thanks

Jeff Belonger

Mar 18, 2009 11:16 AM

Ken Kelly

Benchmark Mortgage - Chesterfield, VA

More government intervention, I wish other industries were as requlated as we are. You can almost see what's going to happen with this - some appraisers are going to do an appraisal just to do it so they can get paid for it and not worry about whether or not it screws up their client's contract. Appraisers are licensed in VA and I would think that should be good enough.

Mar 19, 2009 01:15 AM

George Souto

George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT

Your Connecticut Mortgage Expert

Jeff, those that were the reason for bring about this change will still continue to abuse the system, this will do nothing to stop them. Unfortunately the rest of us and our Borrowers pay the price.

Ken, that is one of my fears.

Mar 19, 2009 11:38 AM

Tammie Jungling, NMLSR ID 455110

Clearwater, FL

George,

Great Post!. Last week I had the Managing Broker in the office I sit bring me a blog from an appraiser stating that Mortgage Brokers and Realtors had to follow the rule and banks didn't. This is untrue. We have to use a third party process as well. Makes life a little difficult but I've been dealing with this process since 2005.

Apr 06, 2009 03:11 PM

Anonymous

Barbara

I am a REALTOR in Maryland and am also licensed in DC. Just recently had an appraisal done on one of my listings. The appraiser never gave credit for the superior upgrades to this property. He didn't give credit for completedly new baths (3), granite and high-end stainless in the kitchen, the new energy efficient windows, the refurbished hardwoods, new roof, new HVAC, etc. When I first learned that there is an appraisal issue, I asked for a copy to see which homes the appraiser used to value the property. I was informed that the appraisal was not available to me or my seller. I called the appraisser (early Aprl 2009), and he refused to discuss anything already in the appraisal. His trip to the property was more than 60+ milles so expect that he knew little re property values in the area. Our MD contract also states that the buyer should provide the appraisal document when property under appraises within a certin amount of time...that did not happen. It was a conventional loan.As a result of this fiasco, my seller lost $20,000-30,000. Appraising is not an exact science. So what remedies will sellers have with new law? Our current contract documeents state the opposite... This system starting May 1, will only exaserbate the issues. Barbara

Apr 30, 2009 04:50 PM

#17

Anonymous

Fernanda Goncalves

I am giving my opinion from a home buyer prospective. I am in the process of first time home buying and the new regulation are very painful. I feel that they are creating more regulations for people who want to do things right while the banks who caused this whole mess is walking on taxpayers money. ABout four months ago I had to away from a deal simply because I had to wait five weeks to get an appraisal. The appraiser valued the properety 13k lower and I know that all other comps were selling for higher than what he had appraised.

I just tried to get another appraisal last week and I learned that according to even newer regulations I had to wait five days to order an appraisal, however, how come they are not regulations to make the appraisals more accurate, efficient and faster.

Thank you.

Aug 20, 2009 12:11 AM

#18