Good News For Home Buyers Using FHA Financing!

Good news for  home buyers using FHA financing! The Federal Housing Administration (FHA) has no plans to implement the Home Valuation Code of Conduct (HVCC), which has been the cause of a wide array of problems for home buyers, sellers and lenders.

The FHA is looking at alternatives to the HVCC it feels would insulate appraisers from pressure from lenders while not hurting consumers and lenders.

I’m all for keeping lenders from pressuring appraisers to “hit the number”, but the HVCC is not the way to do it. Glad the FHA realizes this too and that it’s taking steps other than adopting the HVCC to accomplish this.

If you are thinking about buying a home and using FHA financing, there are several great FHA lenders in the area you can speak with. Email or call me and I’ll send you a list (click here to contact me).

NAR Survey Shows Negative Impact of New HVCC Appraisal Guidelines

The National Association of REALTORS® just did a survey of members and appraisers regarding the new Home Valuation Code of Conduct (HVCC) appraisal guidelines. The results confirmed what I and others have been saying since May – the HVCC has made the appraisal and entire real estate transaction process longer, less accurate and more costly to consumers, agents and lenders alike.

Here’s a copy of the survey’s results (click here if you don’t see the embedded document below)…

NAR HVCC appraisal survey results –

In a nutshell, the new HVCC appraisal guidlines have,

• increased the length of time it takes to close a transaction
• increased the cost of the appraisal to consumers
• decreased the quality of appraisals (which has also lead to deals falling through)
• decreased the amount of money appraisers are making per appraisal

Many agents and brokers including myself are sharing our clients’ as well as our own frustrations with the powers-that-be in an effort to get the guidelines revoked or changed immediately. If you’ve had a bad experience thanks to the new HVCC appraisal issues guidelines since May 1, please leave a comment or drop me a line so I can forward it up the food chain (anonymously if you’d like).

Clarification, Some Change Coming to New HVCC Appraisal Rules

As some of you know, the new Home Valuation Code of Conduct (HVCC) was supposed to be a good thing for consumers and the mortgage and real estate industries. But it had quite the opposite and negative effect.

But that may be (slowly) changing. The National Association of REALTORS® along with several other groups voiced their opinion to the New York Attorney General’s office, the Federal Housing Finance Agency and Fannie Mae.

The result? New HVCC/appraisal “guidance” for lenders.

The two main issues have been addressed (in theory – we’ll have to see what happens in real life)…

1. Inexperienced appraisers conducting appraisals in areas they don’t know much, if anything at all about.
2. Inaccurate appraisals (mainly due to issue number 1 above) with no way to formally object and a total lack of willingness by the appraiser to correct the appraisal.

Make sure you check out the post over at VAR Buzz that goes into more detail about the new “guidance” and clarifies things in greater detail (there’s also a link to Fannie and Freddie’s updated FAQ sections at the bottom of the VAR buzz post).

We’re far from seeing the issues completely resolved, but it’s a start…

Buyers Lose Offers, Pay More Thanks to New HVCC Appraisal Rules

The new Home Valuation Code of Conduct (HVCC) rules that went into effect May 1, 2009 were supposed to protect consumers purchasing and refinancing homes by eliminating fraud and inflated appraisals. But the new appraisal rules are having a completely different and negative effect. They have made buying real estate harder and more expensive for home buyers. And it’s not only buyers getting hurt – it’s sellers, appraisers, real estate agents and lenders.

I’m not going to go into detail as to how the new process works here on this post. For a great explanation of that, check out Chris Griffith’s post entitled, “The HVCC Wal-Mart Effect”.

What I am going to discuss is how buying and selling real estate has changed since the new rules went into effect. Let’s take a look at real life examples involving either my or fellow agent’s clients…

Real life example #1: Appraisals are coming in low. And sometimes ridiculously low. Buyers who don’t have a hidden stash of thousands of dollars to make up the difference between the appraised value and purchase price are left to try and convince the seller to lower their purchase price. Any seller and their listing agent who knows the local real estate market and values will know that the appraisal is not accurate and tell the buyer to take a hike (in this market, there’s another ready, willing and able buyer nearby).

This just cost the buyer the chance to buy a home they love and they have to start back at square one. The seller has to go back on market in order to avoid losing thousands of dollars thanks to an inaccurate appraisal.

Real life example #2: Many Listing Agents and sellers no longer want to see FHA or VA financing on an offer. They’re either taking lower offers that are doing conventional financing or flat out saying, “No FHA or VA financing.”

Buyers with FHA or VHA financing are getting their offers rejected or can’t even submit an offer on many properties.

Real life example #3: Based on the average time from contract to settlement date (30 to 45 days), buyers are locking in their interest rates, setting up movers, contractors, turning in notices to their landlords, terminating leases, etc. As little as only 1 week before settlement date, the appraisal is nowhere to be found. Sometimes, not even the appraiser is anywhere to be found. Either the appraiser has to be hunted down or another appraisal has to be ordered. Either way, settlement is delayed.

To the buyer, this could lead to their rate lock expiring and their interest rate becomes higher than at the time of contract. It could also mean that they now have to pay a penalty for rescheduling movers, contractors, the lease termination date, etc. And even worse, it could mean that the buyer is in default of the contract – this could lead to a $100 per day penalty and/or loss of earnest money deposit.

Real life example #4: Appraisal fees were an average of $300 to $350. Now they’re an average of $400 to $500.

Who pays the appraisal fee? The buyer.

Real life example #5: A mortgage broker goes with lender “A” for the buyer’s financing only to find out that lender “B” has a lower interest rate and lower closing costs. Rather than lender “B” being able to use the completed appraisal from lender “A,” lender “B” has to order a new appraisal costing the buyer another appraisal fee.

The buyer has to pay another $400 to $450 for the second appraisal.

These are just some of the real life examples of what’s going on out there. As long as the HVCC stays in effect, home buyers will continue to pay more money for crappier service and, in many cases, their chances of getting their offer accepted will continue to be diminished. Not only is the HVCC screwing the transaction up for buyers and sellers, the new HVCC rules could be the single largest hurdle to US home price recovery.

The HVCC needs to be rescinded or changed – ASAP!

How New Appraisal Guidelines Will Affect You

The way appraisals are done and handled is changing dramatically thanks to the new Home Valuation Code of Conduct (HVCC). Rhonda Porter wrote a good post explaining the changes over at Rain City Guide. Here’s an excerpt:

In a nutshell, mortgage originators (if paid commission) will no longer have contact with appraisers for conventional mortgages.  Appraisals will be ordered via an appraisal management company–oddly similar to what Washington Mutual used before New York  Attorney General Cuomo investigated.   Although this is effective for loans delivered to Fannie/Freddie on May 1, 2009 or later, lenders will adopt the Code well in advance in order to be able to deliver compliant loans.

The good and the bad of the new appraisal guidelines…

Good

• Appraisers and lenders have distance put between them creating less opportunities for lenders to push appraisers to “hit the number” (aka inflate the appraisal price to meet overvalued sales prices).***
• This will create decreased risk for lenders which will help keep interest rates lower (in theory)

***Fannie Mae amended their guidelines in January of this year allowing appraisal management companies to be owned by lenders. (?!)

Bad

• There’s a lot of them – just read Kenneth Harvey’s article in the Washington Post, “New Appraisal Rules Comes With Costs”
• Though many of the changes will directly and immediately affect appraisers and lenders,  things will trickle down and may start negatively affecting consumers as well.