One of the most important steps in the mortgage process is the valuation of the home you intend to purchase or refinance. As part of the process an impartial third party is called in to make an objective opinion of the value of the property. This is where a licensed appraiser is called in.
As of May 1, 2009 there was a dramatic change that took place with regard to the way we do business. Thanks to the Home Valuation Code of Conduct HVCC, the rules have changed with respect to who orders the appraisal.
One and a half years later, mortgage brokers and borrowers are feeling the negative impact of these changes. Please see below recent comments published by Mortgage News Daily:
"There's been a pendulum swing in appraisals comparable to the one we've seen in mortgage credit, from foolishly lax to overly restrictive," said Walt Molony of the National Association of Realtors.
- He reported that as recently as October, one in 10 member agents said they'd had a contract canceled as a result of a low appraisal,
- 13 percent said they'd had a contract delayed, and
- 16 percent said they'd had a contract negotiated to a lower sales price as a result of a low appraisal.
"We haven't seen anything like what we are facing today," said Mark Linne of Appraisal World, a company that provides automated valuation software and services to appraisal companies and lenders.
New and proposed federal rules governing appraisals, changes in the way appraisals are conducted, and a still uncertain housing market have hit the appraisal part of the process in a way that is adding to housing market instability.
Borrowers are watching their "locked in" low rates expire -- while they pay for one appraisal after another. Lenders are afraid to trust the appraisals they get, and are ordering more and more of them. The appraisers themselves say they're being paid less to work faster in a more confusing market than they've ever faced.
"A lot of inappropriate demands are being made," says Patrick Gavin, the mortgage broker who was trying to find a loan for the Stiners. "Underwriters want more comparables. They want more narrative and more photos. Meanwhile the clock is tick tick ticking on your loan."
LENDERS DEFEND APPROACH
The lenders say they are just playing defense. "We believe the property in question was appropriately valued," said James Olecki, a spokesman for GMAC Mortgage, the Stiner's initial lender. GMAC uses an in-house staff of appraisers to review the independent appraisals they receive.
Wells Fargo, the lender that had been approached by the Stiner's would-be buyer, regularly asks for three appraisals and requires a "loan to value reduction" for properties located in declining markets, said Vickee Adams, a Wells Fargo spokeswoman. "Wells Fargo must ensure that the value of the collateral supports the loan amount."
The biggest issue for appraisers, lenders and ultimately, borrowers, is how to evaluate properties in neighborhoods with foreclosures, short sales, and not enough solid sales to provide comparable data. "They are appraising a market that is so volatile and different from anything they've ever seen," said Linne. "If you are an appraiser and one-third of the neighborhood is foreclosures, and another third is short sales, and another third is regular, how do you even determine what is fair market value?"
Brokers like Gavin contend that appraisers should mark up the value of homes when comparing them to foreclosures and short sales, because many of those distressed properties are in disrepair or are so complicated to buy that they command unrealistically low prices.
Further complicating the process, appraisers who for years mainly faced pressure to preserve deals, now are facing pressure in the other direction from lenders who want to make sure they have enough equity to cover them even if home prices fall further. Mortgage rates have been near record-low levels, and lenders don't want to commit to bargain rate deals unless they are a sure thing.
"We are requesting more comparables than we have in the past," said A. W. Pickel, an Overland Park, Kansas, mortgage banker and past president of the National Association of Mortgage Brokers. "We used to take three, but now we're seeing four or five. Underwriters are looking carefully at how close those comparables are to the homes in question."
Pickel said lenders are typically asking for second appraisals when the mortgage amount involved is large or when the appraiser has significantly adjusted the comparable values upward to come up with a home's value. "And then we're generally going to go with the one that is lower," he said. Consumers who need the higher valuations to get their loans are just out of luck.
If you are doing a conventional loan through Fannie Mae or Freddie Mac the Lender is the entity that orders the appraisal. Lenders have lists of approved appraisers that are ordered through appraisal management companies.
If you are doing an FHA loan, in most cases you still have the right to pick the FHA approved appraiser you feel will do the best job. I have been doing business in Broward and Palm Beach County Florida for 15 years now so I think I know a good appraiser when I see one.
Home values have dropped. Here are some of the hardest hit areas:
In Palm Beach County I rely on :
Financial Appraisal (561) 373-1943 Lake Worth, Florida
FHA License # FLRD633
He has over 24 years appraising experience. Paige can help you with:
- Residential appraisals
- FHA appraisals
- Lender appraisals
- Appraisals needed for divorce trials
- An opinion of Value
- Estate Appraisals
- Review Appraisals
His area of influence includes all of Palm Beach County but he specializes in
- Lake Worth, Florida
- Boynton Beach, Florida
- Wellington, Florida
- West Palm Beach, Florida
- Delray Beach, Florida
- the Western Communities and the Acreage area
Please see more information regarding his long list of credentials:
In Broward County I call Ed Ronan over at Paragon Appraisal
1489 W Palmetto Park Rd # 492 Boca Raton, FL 33486
The Home Valuation Code of Conduct One Year Later
I wrote about this legislation when it came out and at the time I said it was a mistake. One year later I still feel that it was a mistake. The reason for this is that the need for service or quality when it comes to performing an appraisal has been completely removed from the equation. If you providing a service in any kind of business the market mandates the survival of the fittest. The person with the best product or service at the lowest price wins.
Competition is always good. This country was founded on the free market system and competition. With the Home Valuation Code of Conduct (HVCC) the appraiser is randomly appointed by an appraisal management company appointed by the lender. There is no service level that has to be met by the assigned appraiser and most likely he will never see this customer or mortgage broker again. Just as long as value is squashed as much as possible in favor of the lender, that appraiser will get another job again.
In the passed year I have seen some of the most atrocious appraisals ever. I have seen values come in 30-40% lower than an appraisal done one month prior. I have seen turn times go from two or three days to a week or more. I have seen comparables that make no sense, using completely different types of construction and neighborhoods. I have seen perfectly good maintained homes compared with distressed properties that were foreclosures.
The HVCC hasn’t really brought any more objectivity to the appraisal process. It has cut the margin of doing business for the appraiser who has spent his whole life building up a book of business. If the standard fee for an appraisal was $375 before the HVCC, and the same fee applies today, the management company is grabbing $120 for simply assigning the job. Does it make sense that the appraiser is going to do a better job? Of course not.
The HVCC is the by-product of someone in government trying to lay blame for the fallout of our real estate market meltdown. It hasn’t helped the mortgage process, it has made it worse. Many folks very well have been turned down for their loan because they don’t have a quality appraiser guy doing the appraisal. Every purchase counts in our economic revival. It is always better to have a professional doing the job rather than a scab.
The Home Valuation Code of Conduct
This legislation passed in an effort to cut down "collusion" between mortgage and real estate professionals and appraisers. It has effectively shifted the ordering process to the lenders away from the mortgage broker or realtor. The problem is that it has forgot about many appraisers who have spent there whole lives doing a good job and providing customer service. Please see my attached article published on Huliq.com
The Home Valuation Code of Conduct is Legislation that Should Be Repealed
Three advantages I have as a mortgage broker over a large bank are speed, pricing and service. If you really think about it, those are the three components that separate any service business from another. The recently implemented Home Value Code of Conduct (HVCC) legislation has succeeded in worsening speed, pricing and service received for any individual obtaining mortgage financing. The HVCC will also succeed in putting many small business owners, (real estate appraisers) out of business. This change in the way banks do business stems from guidelines set by New York State attorney general Andrew Cuomo. HVCC guidelines do not apply to FHA financing where a borrower typically borrows 96.5% but only applies to Fannie Mae and Freddie Mac financing where the borrower typically borrows 80% financing. (You would think it would be the other way around)
The Home Valuation Code of Conduct (HVCC) is legislation that passed in March 2008 and became effective on May 1st, 2009. From that moment forward all real estate appraisals for Fannie Mae and Freddie Mac mortgage loans are now ordered through the bank’s appraisal management company rather than by the mortgage originator. The intent of this legislation is to prevent “persuasion” coming from the mortgage originator on the value of the property. Prior to this, a financial institution would call up their favorite appraiser and place the order. What’s the big deal you ask? Here are examples of how this legislation, raises price for the consumer and lowers service levels and will help to effectively put many small business owners out of business.
Appraisers, like mortgage people or realtors have been struggling for the last several years due to the difficult market. This legislation effectively takes away 40% of the appraisers business. I have known appraisers who have done a fine job for 25 years. They focus on service and doing the job in a timely manner and being as accurate as possible. Now their base of repeat customers can no longer call them up and use them on a Fannie Mae or Freddie Mac transaction. How would you like it if you were an AC technician and you had 200 customers, then one day the state tells you that you no longer can visit those people unless the compressor company sets the appointment for you. Twenty-five years of hard work and customer service has just been thrown out the window.
The Home Valuation Code of Conduct raises costs to the customer and reduces the appraisers pay and creates inefficiencies. Where $350 used to be the going rate for an appraisal now the cost is $400. The appraisal management company skims $100 of the top just for picking a random appraiser. If the bank tries to honor the old price, this means the appraiser who once made $350 per job is now making $250 per job. Now we are more likely to have a less experienced appraiser, who doesn’t care about service because there is no link between doing a fine job and his next order. He is less likely to put as much time into the job because he is getting paid less. Turn around times which used to be five days are now two weeks. This may force the mortgage broker to extend the lock which costs the consumer even more money and frustration. Just last week, I had a purchase where the sloppy appraiser misread the contract price. I had no way of telling him he made a mistake. The bank never fixed the mistake and it cost my client an additional $800 out of pocket. Under the HVCC, if a customer chooses to switch lenders, they have to start all over and pay for a brand new appraisal from a different random guy. It used to be we could transfer an appraisal from one bank to another if we found a better interest rate for the customer.
There is a petition going around that is a protest to this HVCC legislation. Please sign it on line. I have placed it on my web site and I am also placing it at the bottom of this article. This is just another example of how government intervention doesn’t necessarily always help the big picture. Another example of how mortgage brokers are being portrayed as the villains in this whole mortgage meltdown. Another example of how the large lending institutions, with their lobbyists, are pushing out the small business owner.
You can add your name to the petition at http://www.hvccpetition.com/
Written by Preston Ware
Email is firstname.lastname@example.org.