By: Dennis Norman
After May1st Fannie Mae and Freddie Mac will no longer accept loans that do not comply with The new Home Valuation Code of Conduct (HVCC).
Since between Fannie Mae and Freddie Mac they control about 90% of the secondary mortgage market in America this will most likely affect real estate investors one way or another.
The new HVCC states “No employee, director, officer, or agent of the lender, or any other third party acting as joint venture partner, independent contractor, appraisal management company, or partner on behalf of the lender, shall influence or attempt to influence the development, reporting, result, or review of an appraisal through coercion, extortion, collusion,compensation, instruction, inducement, intimidation, bribery, or in any other manner…”. It then goes on to list 10 specific practices or acts that are not allowed as well as additional regulations. Basically it means “hands off” to lenders when it comes to appraisers. For the complete code click on the HVCC link above.
It is apparent that, in an effort to obtain accurate, unbiased appraisals, Fannie Mae and Freddie Mac do not want lenders to have any influence on the appraiser with regard to their opinion of value. No doubt this is the result, at least in part, of the many over-inflated appraisals on homes financed with sub-prime mortgages.
A real estate investor is probably going to view this as yet another hurdle when it comes to financing, whether for your acquisitions or your sales, but it may not prove to be so bad. The reason I say this is the banks are so paranoid right now about real estate values and lending on real estate that I think in many cases they are putting pressure on appraisers to come in with lower values. Just yesterday I was talking with one of my attorney’s about her recent experience, and frustration, with refinancing her home. She told me that after the bank received the appraisal from the appraiser they then provided their “comps” to him and encouraged him to lower the value, which he did. HVCC would also put an end to this practice.
Just in case the HVCC guidelines are not followed, a hot line number has been established for appraisers to call and report a possible violation. This should get interesting in the months ahead.
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This is very important to know. Thank you for bringing it to our attention and for you insight on the topic of HVCC.
Appraiser pressure will not be diminished by these rules, it will become worse. If you research the origination of this madness, it came about because eAppraiseit (a management company) was suspected of collusion to apply pressure to appraisers to increase values for Washington Mutual. The solution has been to force the vast majority of appraisals through management companies which is beyond ironic. Collusion on a massive scale is now virtually guaranteed as management companies have more leverage than ever before. Whereas before there were a few independant small scale value pushing appraisers, there will now be Nationwide networks of them. As an appraiser and realtor, I think these rules will create far more problems than it solves.
I have been appraising commercial and residential property for more than 20 years. If I hear one more “real estate” person state that appraisers are conservative or are being pressured by banks to come in low on a value I will puke.
Bankers pressuring appraisers to hit inflated numbers, especially on refinance appraisals, is why the government is enacting laws!!
No appraiser is ever asked by a bank to come in lower. Your statement is a complete and utter lie. It has never happened and will never happen.
The only people that complain about appraised values are people whose income is directly linked to the value; typically in the form of a realtor’s or banker’s commission. It is amazing that you are still this greedy after the real estate market as we know has just imploded.
Any time you want to try and challenge my knowledge in real estate and the realities of the market contact me at any time; I look forward to it
Mark Smith
I do not normally comment on peoples websites however I had to say thankyou for such a great read.
Thank you Asha, I appreciate it..
Dennis