New Appraisal Codes: How They Affect Your Interest Rate and Your Mortgage

Posted by  on Oct 08, 2009

The Home Valuation Code of Conduct (HVCC) requirement, implemented May 2009, limits appraisal ordering authority. Appraisals cannot be ordered by any party who may benefit financially from the sale of the property. The requests must now be routed through Appraisal Management Companies (AMCs).

The Appraised Value Can Affect Your Interest Rate--How the New Code Isn't Helping

The noble intent is eliminating inflated property values by removing undue influence on appraisers. This requirement falls short of closing all loopholes (e.g. some banks have in-house appraisers). It has created more buyer, seller, broker and lender frustration than recent legal or regulatory changes.

This requirement applies to conforming, conventional loans on single-family residences, 1 to 4 units, sold to Fannie Mae or Freddie Mac.

The number of AMCs has exploded since HVCC. Most lenders now employ them to assure arms-length appearance. Appraisal costs have significantly risen as one more profit making company is involved--AMCs take as much as 40% of the appraiser's income off the top, so the price of appraisals has risen accordingly.

Other widespread concerns may be due to implementing new processes, or might be here to stay:

  • Delays in delivering completed appraisals caused by increased number of procedural steps and personnel involved.
  • More than one costly and therefore unnecessary appraisal are required, if your first lender does not permit your paid-for appraisal to be transferred if your loan is moved.
  • Appraisal quality may be declining as AMCs pay appraisers less than their prior rates. Some experienced ones have left the business; leaving AMCs with less-experienced people. In addition, an AMC may use an appraiser from out of the area. This person is less likely to understand neighborhood nuances and may result in faulty valuation.

Compare Mortgage Lenders and Their Appraisal Processes

Compare mortgage rates and other factors before selecting a lender. Now ask questions about the lender's HVCC process before deciding. If you receive prompt, definitive answers, the company and its AMC understand customer relations.

  • Will the appraisal transfer to another lender if you decide to move the loan?
  • Do Good Faith Estimates (GFEs) from the lenders considered show a wide difference in appraisal cost? If so, why?
  • What is the appraisal timeline? When will it be ordered? When will you receive it? Who will help you challenge it if it is incorrect? If challenged, what is the time commitment for responding and resolving?

Federal regulations are frequently well intended and difficult to implement. This one falls in that category, as shown by the rising tide of concerns. Do not expect improvements anytime soon.


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