For this issue’s Ask a Lender Column, Brian Weis, vice president of mortgage lending for Guaranteed Rate, answers a number of questions posed by Chicagoland Realtors in a variety of locations.
Q: What is HVCC and how will it impact home buyers and sellers?
A: Home Valuation Code of Conduct (HVCC) — effective with all signed mortgage applications on or after May 1, 2009 — is designed to eliminate the lender, or any person acting on behalf of the lender, to influence or attempt to influence the valuation of an appraisal report. In addition, the lender can not request that an appraiser provide estimated, predetermined or desired valuation in an appraisal report prior to the completion of the report.
To comply, lenders must utilize an Appraisal Management Company (AMC) or have established an internal department/division to order appraisals on a rotational basis, ensuring that the lender adheres to HVCC by selecting the most reliable appraisal firm based on proximity and availability, rather than a company that will provide the highest value.
There are a few unintended negative consequences of the HVCC. Since the loan officer is not able to speak directly with the appraiser, there is a potential for errors due to miscommunication. Also, appraisals may take longer if an appraiser is having difficulty getting in touch with an agent or homeowner. The appraiser will need to go through the AMC/internal appraisal department to receive assistance rather than contacting the loan officer directly.
Q: What will agents need to do differently to be prepared?
A: In the case of a home sale, the listing agent will be meeting with the appraiser, who will be provided with a copy of the sales contract from the lender’s AMC/internal appraisal department. The agent should provide a list of comparables that he/she feels will support the value and a short written explanation. These comparables should be closed transactions within 90 days. If you must go outside 90 days, the agent will want to provide information that supports the comparable is valid. The comparables should “bracket” the subject property, meaning some comps that are higher in price and some that are lower in price. The appraiser will also need competing listings — pending, active, etc. Most appraisers will appreciate this feedback, as most agents will know the area.
For the homeowner who is refinancing, he/she can obtain this information from the agent that sold them their home, which is a great way for agents to reconnect with their clients. This data should meet the same criteria listed above.
As always, rules like the HVCC are created for the “few bad apples” that abused the system. This is a rule that will not correct itself in the near term, but I believe the negatives will one day come to light and a better solution will be developed. In the meantime, if we do our homework and provide the appraisers accurate and reasonable data, the well-priced property will sell, as always.
Brian Weis is vice president of mortgage lending at Guaranteed Rate. To contact Weis, call 773.290.0591 or e-mail brian.weis@guaranteedrate.com.