HVCC or Home Valuation Code of Conduct is a set of guidelines bound to maintain integrity and independence in appraisal practices. It was part of the agreement made by Freddie Mac and Fannie Mae with Fair Housing Financing Agency and the Attorney General last March 3, 2008.
This code is applicable on all single-family loans made on or after May 1, 2009. Freddie Mac and Fannie Mae declared they would no longer obtain mortgage from lenders that do adapt the code. Any seller transacted with these two companies should guarantee that such appraisals obtained are consisted with the established codes.
What are the rulings as to Appraisal?
Here are some of the highlights of HVCC:
1. Any lender or parties involved should not, in any way, influence the outcome of the appraisal report.
2. A copy of the appraisal must be delivered to the borrower within three business days prior to closing. Moreover, it should be done before any charges can be collected to the borrower.
3. There should be no communication between the lender and their staff with the appraiser during the appraisal.
4. The order of appraisal will not be done by any parties whose compensation will depend mainly on the outcome of the appraisal.
5. In-house appraisal may be done provided they will not be paid based on the outcome of the appraisal.
Importance of HVCC
HVCC ensures that property appraisal is done. This means no one can over inflate the value of properties so that those who have direct interest can unlawfully gain from the outcome of the appraisal. It prevents any manipulation of the system at the expense of the consumer. As you can see, over inflating properties may sound good for the borrower as this could mean more money to be borrowed. However, the effect can be crumbling for future selling and buying transactions. The total equity of the owner is lower compared to what they know. In addition, an expected loss will happen since the property's value is much lower than what was projected.
Impact to Mortgage Industry
HVCC is a good way to prevent any forms of mortgage frauds and unlawful gains. However, it has also downsides to the mortgage industry. Since most lenders cannot handpick their appraisers, they opt to use AMC or Appraisal Management Companies to get an independent appraiser. As a result, lenders will not be guaranteed of an experienced and quality appraiser. Sometimes, AMC may contract appraisals from another town. These ways of picking an appraiser may lead to undervalued properties due to lack of familiarity with the local real estate conditions. This process has also affected the business of the experienced appraisers within the area. Some of them may have to shut down operations (which by the way, refers to the business of the more credible appraisers).
The purpose of this code was to protect the borrowers. However, it has compromised their interest in another way. There might be a possibility that they could be ripped-off because of this ruling. Remember, brokers cannot communicate with the appraiser directly, only to the lender. This could mean longer time to lock-in rates and possible added cost in the event of switching lenders.
Learn more about real estate by checking out
AZ Real Estate Blogger and
North Texas Home Blog. You can also find more properties in
San Diego Community Guide.
