The new regulations:
The Home Valuation Code of Conduct (HVCC) guidelines, which went into effect May 1, are
guidelines between Fannie Mae and Freddie Mac - who combined own approximately 70 percent of the
nation's residential mortgages - to buy only loans from homes appraised under the HVCC.
The goal of the new regulations:
The goal is to prevent brokers from choosing appraisers who they believe can inflate a home's
value - something many say helped contribute to the current subprime mortgage crisis. Still, many
in the real estate industry are now concerned that unqualified appraisers are assessing the values
of homes; values are dropping as a result of inaccurate appraisals and consumers are now paying
more money for appraisals.
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How it will affect you:
Brokers, who previously established relationships with appraisers, can no longer order
appraisals directly through the appraiser. Instead, a third-party appraisal management company
(AMC) must act as a firewall. As a result, appraisal fees are on the rise, some by as much as 50 to
70 percent.
Angie's List contacted highly rated professionals in the real estate industry who say they've
seen appraisals jump in price to $500 or more. The National Association of Mortgage Brokers
estimates the HVCC will cost consumers an estimated $2.8 billion a year in extra fees.
What these new regulations mean for consumers is:
- In addition to paying more, they also are being asked to pay for the cost of the appraisal up front instead of the fee being worked into the closing costs of the loan.
- If the deal falls through - or a better deal becomes available - they'll be required to pay for another appraisal, as lenders are not allowing borrowers to transfer appraisals. This leads to higher fees and increased time in closing a loan.
- Another concern with the new guidelines is that appraisal management companies are selecting their panel of appraisers based on price and quick delivery guarantees. If this is happening in your area, the person conducting your appraisal may be new to the field, willing to work for the AMC at a discount, and may not be as familiar with local market conditions as an appraiser with more experience. Quality appraisals often take time and rely on accurate market comparisons. For consumers buying, selling or refinancing on a home loan, it's important they have an accurate appraisal.
Not every loan is impacted by the HVCC, so the old appraisal rules still apply for FHA-backed and other non-Fannie and Freddie loans. Homeowners can also still order their own appraisals to assess their home's value before testing the market.
Angie's List went to the mortgage industry experts for tips on managing the appraisal process:
- Check the appraiser's licensing/certification: The HVCC code requires that all appraisers be licensed and certified in the state of the property they are appraising. Check with your state's appraiser regulatory agency to learn your appraiser's licensing/certification status and to view any disciplinary measures. Go to https://www.asc.gov/content/category3/StateSites/displayStateSites.aspx?id=49 to find your state's regulating agency.
- Be prepared to accept the appraisal: Consumers have very little recourse in disputing the value of an appraisal. The lender has the discretion to challenge any appraisals, not the mortgage broker, but in most cases, lenders are not allowed to obtain a second appraisal to dispute a value.
- Consider other options: If an appraisal comes back lower than you expect, as a buyer you're primary recourse is to find another lender and pay for another appraisal. Consider information from your first appraisal and make any specific home repairs or improvements that could help increase the value. Also, buyers can still pay whatever they want for a home, but any difference between an appraised value and a higher sale price would have to be made up in cash.
- Get a copy: Your lender is required to provide you with a copy of the appraisal. Be sure to ask for one so you can review so you can make a timely challenge to any errors, if needed.
- Voice your concerns: The Federal Housing Finance Agency has called on the National Association of Mortgage Brokers to collect data from consumers and real estate professionals who have had problems related to the HVCC, including increased costs, appraisal quality, portability and regulatory issues. To learn more, go to: https://www.namb.org/namb/HVCC_Resource_Center.asp
Angie's List is a consumer organization that helps homeowner's nationwide find reliable help in more than 425 categories of service including real estate appraisers. For more information, visit http://www.angieslist.com.
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