Dennis' Mortgage Blog

The following is the content of an email I sent to agents in my database on April 29, 2009 regarding the Home Valuation Code of Conduct and the impact it will have on real estate transactions:

Friday is May 1^st.  Friday our industry changes dramatically, because the “Home Value Code of Conduct”, aka The Code, goes into effect for all Fannie Mae and Freddie Mac mortgages.  I have written about the HVCC in some of my weekly newsletters and also on My Blog; essentially what the HVCC does is takes the appraisal process out of the hands of the originating entity, i.e. the loan originator, and puts it into the hands of….well no one.  In this communication I will not go into how we have come to this point with the HVCC but rather will describe the process that will affect all conventional mortgages nationwide and what impact it will have on real estate transactions in California.

First, the HVCC is a requirement for all loans that are being funded by Fannie Mae and Freddie Mac, no exceptions.  Under the rules of the HVCC any person or company that collects a commission as part of the mortgage transaction may not have any contact with the appraiser, including ordering the service. 

Starting with all transactions with applications dated after May 1, 2009 the originating entity, me, must order any appraisals through the funding entity (lender) who must use an “adverse selection” process to select a national appraisal company.  When the appraisal is ordered the fee for the appraisal must be paid in full through credit card transaction; the borrower will need to provide this information for the transaction to move forward.  The national appraisal company upon receiving the order will then contact an appraiser in the area or region of the subject property and place an order for the appraisal.

The appraiser will contact the appropriate person for access to the property and complete the appraisal.  He will then send the appraisal electronically to the national appraisal company who will review the appraisal and send it electronically to the underwriting unit of the lender.  The underwriter will review the appraisal and if acceptable will post it on the company website and notify the borrower.

Attention! It gets interesting here.  Under the HVCC policy the borrower must receive a copy of the appraisal at least three days before “closing”.  I put closing in quotes because in some states closing and loan documents are the same time—this occurs in non-escrow states.  In states such as California where we order loan documents and then close after they are signed an reviewed most lenders are requiring that the borrower receive the appraisal at least 3 days prior to drawing loan documents.  In short, loan documents will not be drawn until 3 days after the borrower has received a copy of the appraisal.  And that copy must come directly from the lender. 

This process will take several weeks to flush out but in California the most obvious problem is the appraisal contingency that is part of all CAR contracts—expect a revision in the near future as the HVCC becomes better understood by the CAR attorneys—since no one intimately involved in the transaction has any contact or control over the process from selecting the national appraisal company to selecting the appraiser, no one involved in the process can say for certain when an appraisal will be delivered so all aspects are known. 

It is my opinion and advice that for all real estate purchase contracts written from May 1, 2009 forward that the agent revise the appraisal contingency to read “due to the Home Valuation Code of Conduct the buyer shall have xx days from receipt of the appraisal from the lender to remove the appraisal contingency” or something to this effect—check with your broker and/or attorney for appropriate language.

There are other impacts of this process on the borrower.  My first thought is the time frame to lock in the rate and terms for the borrowers.  In our early experience with the HVCC process we have had some transactions that have had appraisals completed in a very good ten day time frame, and others that have dragged on for weeks through appeals and re-inspections.  It is a crap shoot as to the quality of the appraiser we will have and his ability to respond to our needs—especially since we may not contact directly.  Do I lock for 30 days at the start of the transaction and hope the HVCC goes smoothly? Or do I lock for longer at a higher price?  Or do I float the borrower’s rate until we have the appraisal and hope rates are the same or better?

Unfortunately the “geniuses” in Congress who passed this legislation have zero understanding of how it will impact home sales and the real estate industry throughout the United States.  Taking a small problem, a very small problem, and trying to fix they have in fact created an onerous process that benefit no one in the transaction from borrower to agent to seller to broker to lender to appraisers---well the national appraisal companies will benefit from increased revenues.

The HVCC is for ALL Fannie Mae and Freddie Mac loans regardless of who is originating them, there is no way around this process.  Because of that we will need to ensure we have patience as each transaction is decided by the spin of a wheel determining which appraisal company will get the order and another spin of the wheel deciding which appraisal will be sent the order. 

I am giving you a heads up so you can prepare your buyers, your sellers and your fellow agents—this is effective will all loans with applications taken after Thursday April 30, 2009 so be ready.

If you have any questions please do not hesitate to contact me.  As always, if anything changes or there are any updates I will let you know.  As always, I want to acknowledge that I am providing you, the real estate professional, with quality information, advice and insight to the mortgage industry that benefits you and your clients.  Please keep this in mind the next time you are referring a client to a lender—refer them to someone knowledgeable and experienced to ensure an efficient and smooth transaction at very competitive rates and fees…me!

Thank you for your referrals,

Dennis C Smith

Broker/Co-Owner

Stratis Financial