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New home appraisal regulations designed to prevent inflated home appraisals by prohibiting any influence from mortgage brokers to appraisers are having some unintended – and negative – consequences for some consumers trying to buy and sell homes.
The Home Valuation Code of Conduct (HVCC) guidelines, which went into effect May 1, are guidelines between Fannie Mae and Freddie Mac to buy only loans from homes appraised under the HVCC. Together, Fannie and Freddie own about 70 percent of the nation’s residential mortgages
The guidelines were designed with a noble goal: to prevent brokers from working with appraisers to inflate a home’s value – something many say helped contribute to the current subprime mortgage crisis.
But many in the real estate industry are now concerned that the guidelines have allowed unqualified appraisers into the mix. As a result, values are dropping because properties are being inaccurately appraised, but worse, consumers are paying more money for the appraisals.
Under the guidelines, brokers, who previously established relationships with appraisers, can no longer order appraisals directly through the appraiser. Instead, a third-party appraisal management company (AMC) must act as a firewall. That has caused appraisal fees to increase, some by as much as 50 to 70 percent. Also, consumers are being asked to pay appraisal costs upfront, rather than having them worked into closing costs. If the deal falls through, the consumer is out that money.
Angie’s List (www.angieslist.com), the nation’s leading provider of consumer ratings on mortgage brokers and appraisers, contacted highly rated professionals in the real estate industry who say they’ve seen appraisals jump in price to $500 or more. The National Association of Mortgage Brokers estimates the HVCC will cost consumers an estimated $2.8 billion a year in extra fees.
Another concern with the new guidelines is that appraisal management companies are selecting their panel of appraisers based on price and quick delivery guarantees.
Not every loan is impacted by the HVCC, so the old appraisal rules still apply for FHA-backed and other non-Fannie and Freddie loans. Homeowners can also still order their own appraisals to assess their home’s value before testing the market.
While some in Congress are trying to address concerns about the new rules, consumers have to live with the current structure. In the meantime, here are tips to at least manage the appraisal process:
• Check the appraiser’s licensing/certification: The HVCC code requires that all appraisers be licensed and certified in the state of the property they are appraising. Check with your state’s appraiser regulatory agency to learn your appraiser’s licensing/certification status and to view any disciplinary measures. Go to https://www.asc.gov/content/category3/StateSites/displayStateSites.aspx?id=49 to find your state’s regulating agency.
• Ask questions: When the appraiser calls to schedule the appointment, determine how familiar he or she is with your market area. If you are uncomfortable with the appraiser’s level of knowledge, let your lender know immediately and request a different appraiser.
• Be prepared to accept the appraisal: Consumers have very little recourse in disputing the value of an appraisal. The lender has the discretion to challenge any appraisals, not the mortgage broker, but in most cases, lenders are not allowed to obtain a second appraisal to dispute a value.
• Consider other options: If an appraisal comes back lower than you expect, as a buyer you’re primary recourse is to find another lender and pay for another appraisal. Consider information from your first appraisal and make any specific home repairs or improvements that could help increase the value. Also, buyers can still pay whatever they want for a home, but any difference between an appraised value and a higher sale price would have to be made up in cash.
• Get a copy: Your lender is required to provide you with a copy of the appraisal. Be sure to ask for one so you can review so you can make a timely challenge to any errors, if needed.
• Voice your concerns: The Federal Housing Finance Agency has called on the National Association of Mortgage Brokers to collect data from consumers and real estate professionals who have had problems related to the HVCC, including increased costs, appraisal quality, portability and regulatory issues. To learn more, go to: https://www.namb.org/namb/HVCC_Resource_Center.asp