June 16, 2009 by MSI
As of May 1st , 2009 the Home Valuation Code of Conduct (HVCC) went into effect for all loans that are to be purchased by Fannie Mae or Freddie Mac. The HVCC rule was implemented to protect the independence of appraisers evaluating properties. Mortgage lenders can no longer order appraisals directly, but instead must use third-party "Appraisal Management Companies" (AMCs) to assign the orders to appraisers in their networks. And as an additional stipulation, lenders are also now prohibited from having any contact with the appraisers throughout the appraisal process. Any and all communication between the lender and the appraiser must be funneled through the AMC. How does the HVCC implementation affect relocating borrowers looking to purchase a new home?
First, it’s increasing the turnaround times for appraisals due to the increase in the number of hands touching the appraisal order. Instead of a lender directly contacting an appraiser to order an appraisal, and subsequently following up on that appraisal, the lender now has to work through the AMCs, adding an additional layer of communication, or many, to the process. Within the AMC, there are a variety of individuals who work to process the appraisal order, so instead of a direct communication, you now have different people for assigning, checking on and delivering the final appraisal report. This new process eliminates the lender’s ability to hold appraisers directly accountable for the delivery of the report, which has resulted in a more lax approach in completing the reports in a timely fashion. For individuals engaged in relocation, they need to be cognizant of the extended timeframe and understand that it may impact the timing of the close of their loan. Lenders no longer have the ability to confidently commit to a quick closing and there is an increased likelihood that mortgage commitment dates and potential closing dates may be pushed back from their originally scheduled dates.
Second, it’s driving up appraisal prices. With the Appraisal Management Companies adding built-in fees for their management service (and potentially even more built-in fees to ensure that the appraisal is HVCC compliant) we have witnessed a continued increase in appraisal prices over the past 6 weeks. And, if the AMCs have difficulty finding an appraiser within their network to complete the appraisal, they will not hesitate to charge additional fees to locate an appraiser outside of their network.
Finally, appraisals must now be delivered by the lender to the borrowers at least three (3) days prior to closing. Prior to the HVCC going into effect many lenders did not send a copy of the appraisals to the borrowers unless requested to do so. Now, every lender is required to send a copy of the appraisal to the borrower for their review, unless this right is waived by the borrower.
Even though the HVCC has only been in effect a little over a month, we are already experiencing noticeable differences in the appraisal process including extended appraisal turnaround times, increased appraisal prices and the new requirement of timely appraisal delivery from the lender to the borrower. Stay tuned to see what may come next...
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