How the new Appraisal Code (HVCC) Affects you and Your Business
The new appraisal process and what it means to you.
From Tom Balk – tom@afirealestate.com
What, exactly, is the Home Valuation Code of Conduct (HVCC)? This is a new regulation (as of May 1, 2009) that establishes a code of conduct around the expediting of appraisals in the lending industry. Specifically, it states that loan originators, REALTORS® and other interested 3rd parties cannot have any part in selecting the appraiser or paying for the report. The code further states that loan originators cannot have direct contact with the appraiser until such time as the report is complete.
The objective behind this new regulation is that it will regiment the lending industry to ensure there is no undue influence on appraisers by loan originators. The intent is to have more quality appraisals without prejudice by those involved in the transaction directly – they will be required to use an Appraisal Management Company (AMC) or similar system to order appraisals and communicate with the appraisers.
While most loan originators have begun using an outside AMC, Mortgage California has instituted its own appraisal ordering system to ensure our transactions have the quality appraisals we have become accustomed to.
Who does this affect? This affects ALL loan originators – banks, brokers and mortgage bankers, as well as REALTORS® and other interested 3rd parties in the transaction. While not required on FHA loans yet, many lenders are already requiring the new appraisal process be used on these loans as well. There is no change on VA loans.
What should REALTORS® do? Be prepared! Be aware that delays and higher costs may occur when dealing with banks and brokers utilizing the AMC system – consider longer periods of financing contingencies, as well as longer escrows. This outside party adds another layer (and cost) to the transaction. Bear in mind that ALL communication with the appraiser must go through the AMC – absolutely no direct contact is allowed between the loan originator and the appraiser until the appraisal is complete. Additionally, the quality of appraisals will likely suffer, as the AMC companies are taking up to half of the appraisal fee to facilitate the ordering and follow up system – leaving appraisers no choice but to substantially increase their work load to earn the same income.
What else should REALTORS® do? Forewarn your clients that , according to the new code, they can no longer bill the appraisal to escrow. Home buyers will need to pay for the appraisal by credit card when it is ordered. Appraisers will not release the appraisal for underwriting until payment is received so timely payment of the bill is critical to meeting contingency dates.
Anything else? Be organized! Have as much information as possible when you meet the appraiser at the property. Your ability to help provide information to support the sales price – and ensuring that the sales price CAN be supported will become a crucial part of the appraisal process. Keep in mind that our process has a series of requirements built in to ensure that our service requirements are met and to manage the relationships we have established with the appraisers we have approved.
Be informed! Make sure you get the latest up-to-date information from your loan officer on the status of HVCC and our internal appraisal process. Keep your buyers and sellers in the loop – educating your clients makes the process a lot easier for everyone if everyone understands what’s going on from the beginning.
What Mortgage California is doing to minimize the potential problems. We have established an internal appraisal ordering department that was set up specifically so that we can better control who is doing our appraisals. We will only order appraisals from appraisers who meet our strict guidelines for costs and turn times. We will only order an appraisal from an appraiser who services your market, not from some other geographic location. We know what it takes to provide a smooth transaction and we will not outsource the important process of selecting and ordering appraisals. Other lenders are risking your transaction when they do that. Our process ensures that an appraiser from San Jose will not be sent out to appraise a property in Alamo.
In summary, it is becoming extremely important to work with a lender that uses local experienced appraisers who are familiar with the local markets. Most Banks and Mortgage Brokers are using Regional AMC’s and are not able to control the quality of the appraisers who are selected to work on YOUR Transaction.
Using Tom Balk, and Mortgage California, has become more important than ever.
As always, email tom@afirealestate.com to continue the discussion. We look forward to hearing from you.