My WeeklyBasis report has been anything but in the past two months. One reason is that yet another voice doesn’t always help when market hysteria levels run high. The other reason is that I’ve been busy. The lending industry continually shifts as the credit crunch moves toward the end of its 21st month, so this week I’ll forego normal market updates (rates holding at all-time record lows…) and highlight a key industry issue on tap: property appraisals.
As of May 1, the Federal Housing Finance Agency has mandated that loan officers can’t select or pay appraisers. The Home Value Code of Conduct (HVCC), as it’s called, is intended to remove conflicts of interest some feel are inherent in the loan officer/appraiser relationship.
HOW APPRAISAL RULES AFFECT TRANSACTIONS
In the coming months, industry-wide HVCC implementation means appraisals and perhaps escrow periods may take longer. Instead of the current practice of a loan officer ordering directly from appraiser, the basic HVCC model is that 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.
Banks will either have internal appraisal divisions or be contracted with appraisal management companies. In either case, loan officer is at the mercy of the process regarding turn-times. Also right now the majority of HVCC-compliant firms don’t have a dispute policy, meaning if a lazy appraisal turns in a low value, there’s nothing the Realtor or the borrower or the loan officer can do.
RPM Mortgage is an exception in this area, with an FHFA-approved appraisal process includes a dispute policy, under which borrowers and Realtors can submit evidence if they disagree with an appraisal’s findings. It will be reviewed by RPM’s appraisal division and if credible, will be forwarded to appraiser for comment.
APPRAISAL PROCESS DIFFERENT BANK TO BANK
For large banks, HVCC implementation is an opportunity to streamline byzantine processes and clear out unqualified appraisers, but this seems unlikely since they had their processes in place for years most have been FHFA approved with no requirements for changes. For small banks such as RPM, it’s been an opportunity to build a process from scratch and handpick appraisers for each local market, but it will likely take some time to optimize the new system. And for brokers, it’s a tough development because it’s just one more part of the loan approval process they’re removed from.
This is going to be an adjustment for the entire industry, so as we move into May, make sure you ask questions about the appraisal process for any transaction you’re involved with.