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?