NEW APPRAISAL RULES LIKELY TO COST - AND COMPLICATE THE HOME APPRAISAL PROCESS!
HOME VALUATION CODE OF CONDUCT, EFFECTIVE MAY 1ST, AIMS AT MAKING HOME APPRAISALS MORE OBJECTIVE! WILL IT WORK?
Many a finger has been pointed to Mortgage Loan Originators, and their past practice of choosing the appraisers who put a value on properties for which the lenders are writing a loan on.
Some blame this lender-appraiser relationship for much of the housing crisis, as appraisers felt routinely pressured to value homes high to please the lenders who referred or hired them. They whole home valuation process, and the basis for collateralizing the home mortgage loan, could be easily overstated by this process, leading to many home buyers purchasing artificially-inflated homes.
A number of these recently over-appraised home owners are now underwater - they owe more on their loan than their house is worth in today's Real Estate Market.
As reported in a story by Chicago Tribune Reporter Mary Ellen Podmolik in last Friday's Tribune, the system of appraisal is now considerably more stringent, and less likely to be potentially "tainted."
Effective May 1st, a new Home Valuation Code of Conduct took effect. It requires that all home loans sold to U.S. Loan Investors and Guarantors Fannie Mae and Freddie Mac - the vast majority of conventional home loans - be subject to tighter tenets of the code.
Some of the new requirements -
- The HVCC prohibits lenders who originate the loan, or their direct staff members, from directly contacting an appraiser. Instead, lenders have to order appraisals from newly-founded intermediaries - "Appraisal Management Companies" - to assure an impartial separation.
- Under the HVCC, lenders can no longer conduct a pre-appraisal check on whether or not a property will "appraise out, " before the actual appraiser is hired.
- Neither Mortgage Lenders or Real Estate Brokers can order or pay for an appraisal.
- The HVCC provides that all borrowers can receive a copy of their appraisal no later than three days before the scheduled closing, in case they wanted to dispute the appraised value.
The new rules only apply to those loans Fannie or Freddie invest in. They do not apply to loans the lender will hold in house ("portfolio loans"), or the increasingly-popular Federal Housing Authority or Veterans Administration Backed Loans, requiring a lower down payment from the purchaser.
This added layer of appraisal accountability might provide some impartiality, but many in the industry feel its disadvantages may outweigh any possible advantages.
Because many appraisers now have to affiliate themselves with Management Companies, the fees individual property appraisers earn will be diluted or reduced. Reduced fees might ultimately drive some of the more experienced appraisal professionals from the business.
Also, the added layer will likely increase the appraisal cost for the borrower - perhaps as high as an additional $100 - due to the middleman companies taking their piece of the total fee.
Appraisals are also likely to take longer to complete under the system. Some borrowers will have to pay an additional fee to lock their loan rate for a longer period of time.
Another possible issue - appraisers assigned by the Appraisal Management Companies might be selected based on their availability, rather than their geographic proximity to the subject property. Out-of-area appraisers may not know enough about the neighborhood to properly appraise a specific property, and this will lead to valuation inconsistencies, and delayed or denied mortgage loans, very close to closing.
See Podmolik's story for more details on the new HVCC.
DEAN MOSS & DEAN'S TEAM CHICAGO
