The Effect of HVCC on the Mortgage Process

Appraisal is important in home buying because it tells the buyer the actual fair market value of the property. This is also the basis for loan. The bank wouldn’t just approve the loan outright. They rely on the result of the appraisal before they can make a fix value the amount of money they will release for loaning.

A professional appraiser performs the appraisal. He or she would visit the property to be bough and list its features. The property to be purchased will then be compared with other properties in the market, having the same features and were just recently sold. This is how the fair market value is determined.

A professional appraiser should have proper training for this job, licensed and experienced. They should conform to the ethical standards set by their governing body to ensure integrity while practicing.

Before, requesting for appraisal was done easily. There was no mumbo-jumbo as to the process because every lender had a list of approved appraisers. They have built good relationships with these people. As a result, lenders would just pick from the list and hire them to do the job. In this process, lenders were assured of a quality appraisal.

However, a certain event changed all that. In 2007, Attorney General Cuomo filed a case against EappraiserIT for schemingly inflating the values of the properties for Washington Mutual. This activity is in violation of the Uniform Standard of Professional Appraisal Practice (USPAP), which requires appraisers to perform their job with impartiality, objectivity and independence. The Attorney General even mentioned an email with a message from the president of EappraiserIT. He said that they should make sure appraisal results were of value to retain their position as WaMu’s appraiser. Don’t you think this is a total destruction of their impartiality, objectivity and independence? Totally, it is.

Enter of HVCC

Because of the said event, Fannie Mae and Freddie Mac adopted a new set of guidelines for appraisal. This is called the HCCC or the Home Valuation code of Conduct. It was adapted on May 1, 2009, where both leaders in financing committed themselves not to engage in any transactions with lenders who will not adapt such code. This was done mainly to improve the consistency of the practice (appraisal) to be performed with independence, impartiality and objectivity.

Mortgage Industry Affected

While the goal of HVCC is very admirable, lenders, buyers and appraisers were heavily affected by this ruling. Part of the rule is that lenders can no longer pick appraisers from their approved list. They can use in-house appraisers provided they meet certain requirements mentioned in the code like their compensation should not be dependent of the value of the appraisal. In addition, any broker or parties, who can gain from the transaction, will no longer be part of the appraisal process.

As the result, consumers may end up paying added cost for locking in rates and funding the loan. At any time the lender will be changed, they may have to pay for an additional fee for a new appraisal. Since independence of appraisal needs to be maintained, some lenders may opt to use appraisal management companies. Most Appraisers wouldn’t agree to work with them because their fee is relatively lower compared to their earnings before. This also brings the tendency offenders to end up with inexperienced lenders and may be out-of-towners. In the end, consumers and investors may suffer from a poor appraisal with undervalued properties brought by inexperienced, unfamiliar appraisers who are not even living in the same town.

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