New Appraisal Rules for Fannie Mae & Freddie Mac

This post was written by jd on May 3, 2009
Posted Under: Real Estate


There is a new “Home Value Code of Conduct” that went into effect on May 1, 2009.  All Fannie Mae and Freddie Mac mortgages have major changes in ordering and processing home appraisals.

Under the new rules, mortgage brokers will no longer be able to order appraisals directly for loans sold to Freddie and Fannie. This will force mortgage brokers to be “hands off” in choosing appraisers and potentially influencing the outcome of the appraisal.

Fans of the new code say appraisals will be more accurate, and there will be less fraud and lower costs. But others say the new rules will result in less reliable appraisals by some who may not be thoroughly familiar with an area, delays in getting loans processed and steeper costs.

In his latest blog post, Mortgage Broker Dennis Smith of Stratis Financial Services in Huntington Beach writes about how he sees the new code affecting home buying.

Smith writes about the process:

“First, the HVCC is a requirement for all loans that are being funded by Fannie Mae and Freddie Mac, no exceptions.  Under the rules of the HVCC any person or company that collects a commission as part of the mortgage transaction may not have any contact with the appraiser, including ordering the service. 
“Starting with all transactions with applications dated [on or] after May 1, 2009 the originating entity, me, must order any appraisals through the funding entity (lender) who must use an “adverse selection” process to select a national appraisal company. 

“When the appraisal is ordered the fee for the appraisal must be paid in full through credit card transaction; the borrower will need to provide this information for the transaction to move forward.  The national appraisal company upon receiving the order will then contact an appraiser in the area or region of the subject property and place an order for the appraisal.
“The appraiser will contact the appropriate person for access to the property and complete the appraisal.  He will then send the appraisal electronically to the national appraisal company who will review the appraisal and send it electronically to the underwriting unit of the lender.  The underwriter will review the appraisal and if acceptable will post it on the company website and notify the borrower.
“Attention! It gets interesting here.  Under the HVCC policy the borrower must receive a copy of the appraisal at least three days before ‘closing’.  I put closing in quotes because in some states closing and loan documents are the same time-this occurs in non-escrow states.  In states such as California where we order loan documents and then close after they are signed an reviewed most lenders are requiring that the borrower receive the appraisal at least 3 days prior to drawing loan documents.  In short, loan documents will not be drawn until 3 days after the borrower has received a copy of the appraisal.  And that copy must come directly from the lender. 
“This process will take several weeks to flush out but in California the most obvious problem is the appraisal contingency that is part of all CAR contracts — expect a revision in the near future as the HVCC becomes better understood by the CAR attorneys — since no one intimately involved in the transaction has any contact or control over the process from selecting the national appraisal company to selecting the appraiser, no one involved in the process can say for certain when an appraisal will be delivered so all aspects are known.” 

I left out the rest of his comments, since as a mortgage broker; he does not like the new rules. Mortgage brokers like to work with appraisers who they are familiar with and who know the area that they are working in. My own personal opinion is the more hands off the process is, the better it is for all of us.

What do you think?


Reader Comments

Your post was well written and thoughtful, but as a consumer I must disagree.

First, the restriction on substantive conversations between broker and appraiser can lead to wasted appraisal fees. Prior to HVCC, my broker would have been able to call the appraiser beforehand to see if the required valuation was a possibility. No more.

Second, despite living in a major urban center, I was provided with an appraiser from over 30 miles away. Given a choice, my broker would have selected someone with more experience in the city. Of course, we were not given a choice thanks to HVCC.

Third, I hired my broker because she has relationships and expertise that I lack. HVCC subverts this. My appraiser got my square footage wrong and even included a still-active MLS listing in her recent-sale comps. These problems would not have occurred with my broker’s trusted appraiser.

Where else is a consumer subjected to random selection when paying for a $400 service? I invest in public companies that choose their independent auditors. These investments are recommended by a brokerage house that chooses its research analysts. I select my doctor, but my insurer pays the bills. The list goes on. Conflicts of interest can and do arise, but government-mandated random selection is not the answer. This hurts both businesses AND consumers!

I tend to spend money carefully, so wasting $400 is a rare disappointment for me. I will be following the lead of the broker you quoted and writing my representatives to protest HVCC.

Written By Susan on May 13th, 2009 @ 8:55 PM

You sound like an informed consumer that knows more about the workings of mortgage companies then most people do.

For example, how did you know that the appaiser used an active listing? Do you have access to the MLS?

Second, how did you know the square footage was off? I recently was invovled in a sale where the county records were wrong, the homeowner was wrong and the appraiser was correct.

Why wasn’t HVCC made aware that the appraiser had made a mistake and asked for another appraiser, or correct the one you got.

Yes, you can pick your doctor, lawyer,whatever, but there is a conflict with a mortgage broker cherry picking an appraiser who will make the numbers come out. Lack of government control is the biggest problem we have on Wall Street. Another large problem has been appraisers who “made the numbers work” and people paid more for a home then they should have.

I would think that you as a consumer would feel good about having a “hands off”, non baised appraiser who might know if the figures don’t come in, he might not be used again.

One bad appraiser does not make all appraisers bad. You can also pick a bad doctor you know.

Written By jd on May 14th, 2009 @ 10:49 AM

It’s not hard to measure square footage. A sixth grader can dit easily. Second, when AMC’s take over the appraisal assignment, they also typically take half of the appraiser’s fee. I myself try to kill deals because of this. It’s gotten too hard to make a living as an appraiser and I’ve been at it for 25 years. Looking for ideas!

Written By michael brown on May 27th, 2009 @ 4:08 AM