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The Home Valuation Code of Conduct and Appraisals

Real Estate Agent with Dickens Mitchener

The Home Valuation Code of Conduct and AppraisalsAs of May 1, 2009, Fannie Mae and Freddie Mac mortgages have been held to a specific standard for solicitation, compensation, selection, conflicts of interest and appraiser independence by the Home Valuation Code of Conduct (HVCC).  This means that REALTORS® and mortgage brokers are not allowed to select their own appraisers to help avoid any appearance of "stacking the deck" in favor of their client.

Lenders cannot use any of the loan production staff itself to select, retain, recommend or influence the appraiser selection process in any way.  They also may not be allowed to talk at any length with either an individual appraiser or an appraisal management company in regards to a specific job before or during the appraisal.  The HVCC is meant to keep a property's appraisal as honest and level as possible.  However, both REALTORS® and lenders can request clarification, address errors or give additional data to appraisers.

The new HVCC rules only apply to Fannie Mae and Freddie Mac loans, not to FHA loans.  Lenders can still request a second appraisal if they feel it necessary.  However, they are not allowed to order a second one if they are only trying to influence the results of the first appraisal.

What does this mean for borrowers?  They won't see much of a change in their part of the appraisal process.  However, they may see that the appraisal process now takes a bit longer and may be a bit costlier than it used to be.  Since the implementation of the HVCC, 69% of REALTORS® have reported that it has taken an additional week or more to close.

Here's what happened to my buyer clients...a little background first.  Their home was a short sale, not in foreclosure...yet.  The appraisal was completed about a week before the closing (lender issues prevented it being completed earlier).  The appraiser did not issue an "as-is" appraisal, which was required by the lender in order to close.  Two items noted which prevented the "as-is": (1) a water stain on the garage ceiling and (2) wood rot beneath a bay window.  The appraisal came in approximately $40,000 above our contract price.  I had a contractor out to the house.  He found that (1) it was not an active leak but a past issue and (2) it needed repair at an estimated cost of $200.  This was shared with the appraiser, who could not change the appraisal to "as-is" because it was to be considered a structural issue.

My contractor did not agree that this was a structural issue, but the bank would only accept an "as-is" appraisal.  Eesh!  We had $40,000 of value there!  And of course, the bank would not allow the seller to make any repairs.  The house would foreclose the following week if it did not close.  So...I decided to do the right thing and get the contractor out to the house for the repair.  I guaranteed to my contractor that he would be paid, either by me or my clients.  The repair was done, the appraiser came out the next day (I did have to beg for that!) and the house closed that day.  Everyone was happy!  But I think this case is an example of how things may have shifted too far the wrong way.  Fortunately, it worked out.  But can you imagine if the house had foreclosed because of $200 of wood rot?  Everyone would have lost in that instance.

Robin Husney, your Charlotte real estate specialist

Chris Williams

Nice posting! You've offered a nice summary and a practical example that we can all relate to!

As we're experiencing more of an "arms-length" relationship between lending representatives and appraisal representatives, documentation becomes even more critical. We see a growing trend for well crafted engagement letters within the residential space, whereas historically, much of the assignment communications occurred by phone between the lender rep and the appraiser. Today, with the enforcement of the various appraisal independence standards (HVCC, FHA, FFIEC, USPAP, etc), clearly documented assignment conditions are key to efficient appraisal operations.

The lender must provide any assignment conditions to the appraiser. And the appraiser must complete the assignment conditions in order to complete the assignment. If both occur, then the result will be an optimized appraisal operation and an on-schedule closing timeline.

Thanks for the posting.

Chris Williams




Jun 02, 2010 04:23 AM
Robin Husney
Dickens Mitchener - Waxhaw, NC

Thanks so much Chris!  Though that one did give me more gray hair that week than my kids did!

Jun 02, 2010 04:42 AM