Tuesday, May 12, 2009

New Appraisal Rules

Confused about the new appraisal rules? Here's what you need to know:

Beginning May 1, 2009, all conventional (non-government) loans that are going to be sold to Fannie Mae or Freddie Mac require compliance with the Home Valuation Code of Conduct (HVCC). The HVCC prohibits mortgage brokers and bankers from having any direct contact with an appraiser. All conventional appraisals must now be ordered through an Appraisal Management Company (AMC). The lender no longer gets to choose the appraiser.

Lenders are forbidden from having any contact with the appraiser, even if the underwriter needs something changed, such as another comp, correcting a typo, etc. Here is the new process:

-- The lender orders the appraisal from an Appraisal Management Company (AMC).
-- The AMC orders the appraisal from one of the appraisers on its list of approved appraisers.
-- AMC waits to hear back from the appraiser to see if they want to do the appraisal. This could be hours or days, depending on the contract the AMC has with its appraisers.
-- If the appraiser is busy or not able to do it, he notifies the AMC.
-- The AMC orders the appraisal from another appraiser on their list.
-- This is repeated until one of the appraisers accepts the job.
-- The appraiser does the inspection and prepares the appraisal report.
-- Appraiser sends the report to the AMC.
-- The AMC sends the report to the lender.
-- The lender sends the appraisal to the underwriter.
-- If the underwriter has any questions, he contacts the lender and tells the lender what needs to be corrected.
-- The lender calls the AMC and tells them what needs to be corrected.
-- The AMC calls the appraiser and tells him what needs to be corrected.
-- The appraiser makes the correction and sends the updated appraisal to the AMC.
-- The AMC sends the updated appraisal to the lender.
-- The lender sends the updated appraisal to the underwriter.

This all needs to be done online, also. No more picking up the phone and getting things done in 5 minutes. Remember that lenders cannot contact appraisers any longer.

The purpose of the law is to prevent lenders from ordering appraisals from appraisers who will give a property whatever value is needed to make the deal work. We all know inflated values cause foreclosures eventually (like now), so in one respect this is a good law. However, it will slow things down and in most cases will raise the cost of an appraisal because the AMC wants to get paid for their work. In that respect, this is a horribly executed law. VA already has an online system in place to prevent appraisal fraud, but I guess no one thought about using the system that was already in place.

The bottom line is that this is going to slow down your deals. It's probably not going to go away, no matter how much anyone complains because it does help to prevent appraisal fraud, so everyone needs to get used to the new rules.

The main thing to remember at the moment is that conventional appraisals MUST be ordered this way or the deal will not close.

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