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Alex's View of the World


I don't know about you, but I am amused at the complaints I am hearing and reading over the new federal home appraisal rule.

The rule started May 1 of this year.  It is aimed at preventing fraud in the home mortgage and home sales industries.

The rule, whose formal name hardly anyone can remember, is the Home Valuation Code of Conduct.  Or HVCC, if you are into acronyms.  Which I am not.

So far, only Freddie Mae and Freddie Mac have agreed to adopt the code.

The new rule applies to single-family mortgage loans (except government-insured loans) that are originated on or after May 1, 2009, and delivered to Fannie Mae and Freddie Mac.

I think it's a good rule.  But certain mortgage brokers, appraisers, homeowners and yes, even some lenders, think it is a lousy rule.

Lousy, they argue, because it is causing higher appraisal costs, confusion among home buyers and delays in closing sale and refinancing transactions.

Some Washington legislators are even considering trying to repeal the rule, or at least, push it off to a more distant effective date.

That's all bullsmith. 

The main reason the rule was written was to curb cowboy appraisers and their companies from teaming with unscrupulous lenders and mortgage brokers to close deals in rapid-fire fashion.  In doing so, they could pocket their fees more quickly and ride on to another camp.

Independent appraisers used to earn $300 to $500 per transaction. Now, some say, they are lucky to get $200 per deal.

Independent appraisers and mortgage brokers are also upset because the new rule bars brokers from hiring their own appraisers. It requires intermediaries, called Appraisal Management Companies, or AMCs,  to choose the appraiser for each transaction.

The problem here, as I see it, is that some AMCs are independent.  Others are owned in whole or in part by lenders or title insurers.  Critics of this lineup argue the AMCs schedule the appraisals and in many instances keep half of the fee for their services.

Still, the new rule forces lenders to make absolutely certain the new appraisal is in line with the closing price.   If it isn't, and the borrower later defaults on the loan, a lower appraisal could mean the lender won't be able to recoup the loan amount when the property is re-sold.

Because of that pressure from lenders, some independent appraisers say they are submitting low-ball estimates just to make sure they don't over-value the property, as they might have done in past years.

Savvy lenders, familiar with a community's home price cycles, won't buy that argument, either.

So how do prospective home buyers protect themselves in advance from unrealistic high or low appraisals that might kill a deal at the closing table?

The best advice, I am told, is to talk with a respected loan officer, mortgage broker and Realtor BEFORE applying for a loan.  These experts, separately, will provide a good assessment on what size loan you may expect to receive.

I like that advice.

And that's the way I see it - for now.



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