By Scott Gormley,
New Appraisal Law Expected to Further Reduce Home Values Across America…Beginning May 1st!
Make no mistake about it, this change is not set to protect Mr. and Mrs. Homeowner, rather it’s set to protect the banks. A major change is set to affect Homeowners across the United States, beginning May 1st. All appraisals will be ordered directly through lenders, to “enhance the integrity of and confidence in the national housing system”. Fannie Mae and Freddie Mac have agreed to adopt the appraisal policies contained in the Home Valuation Code of Conduct (HVCC), which can be found here:
http://www.freddiemac.com/singlefamily/home_valuation.html
For all conventional 1-4 family mortgage loan applications dated on or after May 1, 2009, Fannie and Freddie will require lenders to represent and warrant that appraisals for single family homes conform to the HVCC’s Code. Government loans such as FHA and VA are excluded.
The Code specifically prohibits banks from relying on an appraisal where the borrower, broker or loan production staff selected, retained or compensated the appraiser.
The main reason for the change comes from finger pointing that mortgage brokers like myself “swayed the opinion of values” with “pocket appraisers” by bloating home values to simply “get the deal done”. This is another classic example of how a few bad apples can spoil the bunch. I for one never pushed appraisers to make a falsified opinion of value on a home. By letting the appraiser do her/his job independently, I could feel confident that the appraiser chosen would be able to support the opinion of value placed on the home with good/independent information, had the lender ever questioned the value placed on the subject property.
I have received several emails and phone calls with lenders stating that the following changes will take place on Friday, May 1st and will apply to all loans with an application date of May 1, 2009 or later.
- All appraisals will be ordered by the Lender via their approved Appraisal Management Companies (AMC’s) and will be prepared in the name of the Lender.
- Borrowers are required to provide credit card information during the application process and appraisal fee will be charged to the Borrower.
- Brokers and Loan Officers are NOT permitted to pay for the appraisal.
- Brokers and Loan Officers are NOT permitted to have any contact with the appraisers (all communications are facilitated through the Lender or AMC).
Many key real estate professionals, including myself, are predicting that property values will continue to go down further and customer service will worsen with these new changes for the following reasons:
1.) As highly experienced, quality appraisers are asked to work twice as hard for half of what they were initially making on an appraisal, few will “suck it up” and stay in the same line of work. This will inadvertently lead to inexperienced, new appraisers providing weaker appraisals and solid information.
2.) Having a good understanding of the local real estate market is very important with creating an opinion of value. What happens if a lender orders an appraisal through a national company and sends an appraiser from Sacramento to appraise your home in Chico because that is the closest appraiser within their network? Or, they will do the job for less or a local appraiser? How familiar is that appraiser with the local market and how will it affect the opinion of value on your home?
3.) Some major lenders…like Wells Fargo (Rels Valuation) , OWN THEIR OWN AMC! How fair is that? Just as a few bad apples were spoiling the bunch for brokers with skewing the opinions of value…lenders can now essentially do the same thing and influence the opinion of value in their favor! In a declining market, lenders can essentially say, “Sorry Mr. Johnson, but we believe your home is only worth $200,000″ to gain a better equity position on the property, when in reality an outside educated appraiser would give a fair opinion of value of $250,000 to the property.
4.) HVCC specifically prohibits banks from relying on an appraisal where the borrower, broker or loan production staff selected, retained or compensated the appraiser. This is what is known as “STOVE PIPING”, whereby, one entity cannot have any communication with another entity involved in the transaction. In my opinion, where transparency ceases to exist, corruption can breed.
5.) Even though the borrower paid for the appraisal with their own credit card and is entitled to a copy of the appraisal, the appraisal is still the property of the lender. If a borrower/broker chooses to take the loan elsewhere for better terms or a discrepancy in the opinion of value, do you really think the lender/AMC will “release the appraisal” to a different lender? Each lender will have their own internal policies on the issue. Personally, I think it isn’t fair for a borrower to have to fork over an additional $300-400 for a new appraisal if needed. Isn’t this an unfair business practice?
One thing is for certain, it should be interesting to see how it all plays out. I’m keeping my fingers crossed for Home Values across America!
By:
Scott Gormley
Broker/Owner
Oak Valley Mortgage
Direct: 530-361-6202
Cell: 530-592-8362
Email: Scott@OakValleyMortgage.com
Website: www.OakValleyMortgage.com
“California Mortgage Solutions”
