As of May 1, a new regulation prohibits loan officers from talking to home appraisers. Previously, this was one of the first steps in a loan agent’s client advisory process. The new regulation is called the Home Valuation Code of Conduct (HVCC) and was mandated by Fannie Mae and Freddie Mac, which both are regulated by the Federal Housing Finance Agency (FHFA). Now a bank has a stable of appraisers, a loan officer submits an appraisal order, and any appraiser in the stable will be randomly assigned to the order. Banks can choose their own appraisers and set standards for things like experience level and turn-times, but FHFA (using Fannie & Freddie) has to approve each bank’s entire appraisal process.
How Banks Have Implemented HVCC
The result is that banks either have created internal appraisal divisions or contract with outside appraisal management companies. In either case, loan officer is at the mercy of the process regarding how fast an appraisal will be returned and whether the valuation report is credible and accurate. As of now, the majority of HVCC-compliant banks (including most of the major firms) don’t have a dispute policy, meaning if an appraisal misses relevant data and shows inadequate value, there’s nothing a Realtor or borrower or loan officer can do, and the transaction (whether purchase loan or refinance loan) is declined on the basis of inadequate value or unacceptable property characteristics.
There are some exceptions in this area, like California mortgage bank RPM Mortgage, which has an FHFA-approved appraisal process that includes a dispute policy, under which borrowers and Realtors can submit evidence if they disagree with an appraisal’s findings. Evidence is reviewed by RPM’s appraisal division and if credible, will be forwarded to appraiser for comment.
How HVCC Has Worked In First 2 Months
The first two months of this new regulation have been bumpy. There’s furious debate on Capitol Hill and in the mortgage loan trenches.
On The Hill, there are currently two proposals in the House for 18-month suspensions of HVCC in an effort to protect jobs of independent appraisers. Our position is that suspension or repeal seems unlikely, and even if the current suspension proposal went through, banks would stay the course given massive investments made into implementing HVCC.
In the trenches, borrowers, Realtors and loan officers are seeing increasing cases of complacent appraisers—or far flung appraisers being assigned to an area where they have no local knowledge—missing relevant data and causing delays or cancellations of purchase and refinance transactions.
What You Should Do
When you’re shopping around for a home loan, it’s absolutely critical to ask specific questions about the bank’s appraisal process. If the bank doesn’t have a dispute process, your transaction could be at risk. Your budget can also be at risk because appraisals must be paid in advance with the overwhelming majority of banks.
Since property valuation is art and science—with countless location and property characteristics that affect value analysis—it seems inevitable that more banks will have to sharpen their HVCC processes and allow for smarter communication with appraisers. But until then, a regulation sold as consumer protection leaves the consumer to protect themselves—so work with a loan advisor and bank you trust.