Side Effects of the HVCC: What You Can Do
With the challenges and changes to our housing market in full swing, most of us in the homebuilding/home selling industries were not prepared for the consequences of the HVCC implementation with a side order of credit crackdown.
Effective May 1, 2009 “Freddie Mac will not purchase mortgages from Sellers not adopting the Code with respect to single family mortgages delivered to Freddie Mac”. Sellers and “servicers” must represent and warrant that these appraisal reports are obtained “in a manner consistent with the Code”. Add to this the impact of tight credit criteria placing home values under the microscope with PMI companies, investors, and lenders adding 3 month limits for sales on top of the HVCC requirements. Foreclosures began to freckle the market precariously and appraisers were walking a tight rope with more paper work, more limiting parameters, a volatile market and watchful, punishing eyes of multiple governing entities.
To clarify the Home Valuation Code of Conduct terms, (among other requirements) “lenders and third parties are not allowed to have any influence on the development, result or review of appraisals. Lenders must have provided the appraisal to the buyer at least 3 business days before closing” (unless waived by buyer) with no additional fees attached to the appraisal cost. It requires “absolute independence between the appraisal function and the loan production”, significantly limiting communication and most specifically not allowing the selection of the appraiser by anyone on the loan production staff. “Lenders must have written policies and procedures implementing the Code with mechanisms to report and discipline violators”. www.Freddiemac.com
Obviously, there was a problem not the least of which was a built in bias in some lender transactions. Some felt that appraisers were under pressure to “make deals work” or lose future business. Transparency in the appraisal process was compromised. The perfect storm of conditions occurred with consumer indignation, an economic downturn, credit crisis and a new Code on the books.
In the current appraisal climate with lenders bound to the obligations of the Code, appraisers may now be selected from pools or appraisal management companies which service clients from many counties, municipalities and cities. Furthermore, this model encourages the hiring of appraisers based on (low) fee or (fast) turnaround time, rather than their competency or qualifications. Lacking market familiarity and without the convenience of timely access to the properties, these often lower paid appraisers hope for volume and (in the interest of separation between lender and appraiser) may be compromising the integrity of the property values with their inexperience.
The consumer is seeing higher appraisal costs and loan lock extension fees because of long delays in this new process.( Cost increases have been reported from $150-over $700/transaction source, NAMB.) There is the loss of trusted relationships where important market knowledge was gathered and shared. The actual sources of the true data such as access to recent HUD statements, physical visits to the community/property, information from other builder sales and reliable market knowledge from past experience are all restricted with the implementation of the code and the often late request for the appraisal in the closing process.
There are steps that can be taken to provide clarifying information and help in the proper selection of true comparable properties.
•As builders, those homes that are contracted before or during construction that were not originally put in the MLS, should be put in as an Active and then quickly pended with the appropriate information. Upgrades can be reflected in the original list price (if known at the time of listing) or will show in the final sales price (once closed), helping to establish real values. These constructed homes are often the more expensive properties because the client personalizes them and yet, they are not often reflected in the MLS data at all.
•Make sure that all the information in the MLS is completed. As of July there will be a place for many new construction features that will convey value to an educated appraiser. Make sure that your property is described in great detail.
•It helps the appraiser with values if the completed option sheet is added as a PDF to the MLS. (Your costs can be added as well if it will assist with justification of your value to the visiting appraiser.)
•Closed properties should have the agent remarks changed to reflect information that might explain details, features, upgrades and market irregularities to an appraiser who is searching and may be unfamiliar with area, lot or property.
•Appraisal packets from the Realtor or sales associate (not the lender) that contain important property, community, sale and pended information can be provided prior to the appraisal date and might best be presented when assisting the appraiser with access to the property. Neither the sales person nor the information presented can interfere with the appraiser’s fair assessment of the property or inappropriately influence the outcome,
•Since an appraiser determines market value by evaluating the real estate without adjustments, contributions, points and bonuses (added on top of market price to encourage a sale), builders and Realtors should look closely at all of the negotiated items and offerings that may be stripped from the actual market value of the property itself when being appraised. (In other words, buyer contributions, bonuses etc. should not have caused the asking price to go up. Although they may help get the sale, they do not add any actual value to the real estate property itself.) Sales Price sometimes contains “fluff” and the Market Value will be recorded without the “fluff”. Never before has market pricing been more critical.
There is only one thing that we absolutely should not do in light of the current appraisal conditions and that is to do nothing. As Builder and Realtor Associations, the greatest power we have is our combined voices.
Contact FHFA (866-796-5595 or director@fhfa.gov), Fannie Mae (202-752-7000 or headquarters@fanniemae.com), Freddie Mac (703-903-2000), the NY Attorney General Andrew Cuomo’s Office (212-416-8000), Senators, Reps and Governors with your concerns about HVCC and the appraisal plight as well as your local TV and Newspaper outlets.
Written By:
Pattie Huey
Prudential Gary Greene Realtors
Builder Marketing Division
HAR Board of Directors
GHBA Education Committee
PS. Home Valuation Code of Conduct FAQ
