Appraisals & The Home Valuation Code of Concuct (HVCC)

On May 1, 2009 Fannie Mae and Freddie Mac implemented the HVCC (Home Valuation Code of Conduct) as a result of government pressures to reform valuation methods related to residential mortgage loans.

The impact of the HVCC has been chaotic. A myriad of inherent flaws with valuations methods has created more downward pressure on housing prices which in turn has contributed to a lagging housing recovery. Not the least among the unintended consequences of the HVCC has been the use of foreclosed and other distressed properties as comparables. Other inappropriate practices indicate that appraisers work in areas where they don't know the market. In many instances the value of comparables is determined by an exterior inspection only because the appraiser is unable to or unwilling to inspect the interior .

The following is an overview of the HVCC.

- Appraiser Selection

All members of the lender’s loan production staff are forbidden from selecting, retaining, recommending or influencing the selection of an appraiser.
Loan production staff consists of:

Individuals who are involved in origination, underwriting, presenting credit offerings for approval and credit decisions Any person who reports to a loan production staff member or is compensated on a commission basis upon the successful completion of a loan.

- Quality Control on Appraisals

Lenders agree to perform quality control tests on at least 10% of appraisals by use of retroactive or additional appraisal reports or other appropriate method.The quality control testing must be performed on randomly selected appraisals The lender must report the findings of the quality checks to the Independent Valuation Protection Institute (IVPI)

- Hotline Notification

Lenders must notify appraisers and borrowers of the IVPI’s telephone and email hotline for complaints concerning any improper or attempted improper influence on appraisers or the appraiser process.Lenders must notify every appraiser of the hotline in a separate letter. Each borrower must be notified of the hotline in a cover letter accompanying the appraisal.

- Effective September 1 2009:

Fannie Mae requires all lenders to obtain a signed and processed Form 4506 from all borrowers at application and again at closing. Form 4506 is an IRS document that allows a lender to verify a borrowers tax returns through the IRS.

According to a report by FAR (Florida Association of Realtors) housing industry groups such as the NAR (National Association of Realtors) and the NAHB (National Association of Home Builders) are calling on federal regulators to address the problematic HCVV and to develop "clear and concise guidance" for the use of foreclosed or distressed properties in appraisals in order to develop more realistic valuations in appraisals based on truly comparable properties.

For more information and updates on the HVCC please feel free to call me, George Sinacori, GES Real Estate, LLC directly at 561 306-6736 or email me at rebuygeorge@yahoo.com

Appraisals: Crippling the Housing Recovery

Lower appraisals are one of the biggest problems sellers, buyers and Realtors are faced with today. Because mortgage amounts are based on an appraiser's estimates of value, appraisals are a crucial cog in the machinery of the housing market. That cog may have ground to a halt recently.

Newly enacted federal government guidelines compounded by lenders putting pressure on appraisers to be very cautious of plummeting home values have crippled the already slow housing recovery. When a home is placed on the market, normally the fair market value is considered to be comparable to other homes sold at "arms length transaction" prices. In today's market these transactions are few and appraisers will use distressed, foreclosed or short sale prices as com parables.

An inappropriate approach by an appraiser using sales of distressed properties drives down prices on everything. A person not under water but needing to sell may be subject to the perceived value of an unjust appraisal because of the foreclosure down the street. I and many other Realtors have listed homes that would have closed at list price only to be appraised lower due to a foreclosed or short sale closing occurring during our marketing activity or while we were in contract waiting to close.

I may tweak a few appraisers with this post but I have to say it. Much of the housing bubble run up was directly related to over valued appraisals. Appraisers today are being more cautious. The bubble or run up in values and the low ball appraisal are results of pressure on appraisers from lenders. At some point the dog needs to wag it's own tail and begin to take control of itself.

For more on selling your home, home values, mortgage rates and available properties call me directly at 561-306-6736, email me directly , visit me on Twitter , or go to ges-realty.com