Lending has become tougher than ever and the Home Valuation Conduct Code, which became effective May 1, 2009 has thrown the real estate and lending industry into chaos.
I recently had clients approach me who were in need of a cash-out refinance to make improvements to their home. Ordinarily this would be an easy transaction. The borrowers had great credit and enough equity in their home, but after the Home Valuation Conduct Code started it was another deal waiting to die without a mortgage broker knowledgeable in navigating the Home Valuation Conduct Code waters.
If you know anything about the fallout from the Home Valuation Conduct Code you’ll see that homeowners and home sellers are desperate to not let the Home Valuation Conduct Code trip their transactions up.
What is HVCC?
Simply stated the Home Valuation Conduct Code prevents mortgage originators from ordering appraisals for loans that will be sold to Fannie Mae or Freddie Mac, in other words, the best priced conforming and conforming jumbo loans. That sounds OK, except that the companies now ordering the appraisals, called Appraisal Management Companies (AMC’s) often pay appraisers one half of their pre- Home Valuation Conduct Code fees and often send appraisers from out of the area to the appraisal, a recipe for bad appraisals and the results are killing real estate deals all over the country.
So, back to my transaction: I did the research and asked prime lenders to give an estimate of value for the subject property. They all came in below market value to the point that my borrowers could not refinance. But the story does have a happy ending. The property is a Victorian home in the city of San Francisco and many of the surrounding homes are not Victorians, so the word “comparable” is important. An automated valuation in the hands of a non-local appraiser would not show the true value of this home. I did not want to risk having my borrowers receive a sub-standard appraisal, so what to do?
I turned my search to a portfolio lender, a lender who holds their own mortgage loans and does not sell to Fannie and Freddie. Going “portfolio” meant I could use my trusted local appraiser, who performed her inspection, included comparable properties, real comps - those that actually matched the subject property or were close to it. After I submitted the loan and appraisal to the lender, the appraisal review process went flawlessly and the loan is closing next week. Result: Happy borrowers who know that I safely navigated their transaction through the Home Valuation Code of Conduct mortgage waters.
If you don’t think there is a problem with the Home Valuation Code of Conduct, go to the Home Valuation Conduct Code Petition and read some of the real life Home Valuation Code of Conduct stories of deals falling out from scores of Realtors and mortgage brokers. And if you need a mortgage in California, make sure your lender knows how to safely guide you through the process. Or call me and I will be glad to help you.