The new Home Valuation Code of Conduct, or HVCC, became law May 1. This new law that forces Fannie Mae and Freddy Mac to follow new guidelines for appraisals has casued more trouble for the already beleaguered housing market, and has dampened the effect that the first-home buyers' tax credit has had on the demand for homes.
Although the principle behind the law is sound (to prevent collusion and fraud between appraisers, lenders and investors), the practical application of it creates the following problems:
- Lenders are prevented from ordering appraisals directly. Instead, they now have to use "appraisal management" companies who handle all communications with the appraisers. If the mortgage broker made a mistake and improperly qualified a buyer, before this law, the broker would re-file the loan with another institution, call the appraiser and ask to transfer the appraisal to the new company. Under the new law, appraisals are "captive" to the lending source. Now that broker will need to order a new appraisal every time they change lenders, delaying the process and costing the buyer more.
- The value of the home is completely unknown until the appraisal is received. Before, appraisers may have called the lender and given them the "heads up" when they believed they may not hit value that the contract is written for. Now everyone has to wait until the full appraisal makes it through the system and is delivered by the appraisal management company.
- Appraisals may come in too low due to the unfamiliarity with an area. Some appraisals are allocated on a "first-come, first-served" basis, instead of local expertise. This created quality control problems for the lenders.
- Any applicant or lender can appeal an appraisal and request a new one. However, the rebuttal process is slow and cumbersome, creating further delays and cost to the process.
If you are a home buyer, make sure that your lender has pre-approved you correctly, and that you have told your loan originator the whole story about your finances (they will find out in underwriting anyway). Insist that your approval be a full-doc approval, and that you meet all the requirements for the loan program they submit your application for... this is your best insurance to prevent appraisal delay problems further down the line...