Due to a lawsuit brought about in New York, a settlement was reached between the state of New York and the GSE’s (aka Fannie Mae and Freddie Mac) whereby the GSE’s would implement the Home Valuation Code of Conduct (HVCC) and in turn, the state of New York would drop their case against them.

What Will Change?
Appraisals have generally been handled at the point of sale - either by the mortgage originator or the realtor in any purchase or refinance transaction.  This proposal seeks to completely remove both the loan originator and the real estate agent from the transaction.  In fact, they are explicitly forbidden from having any contact with the appraiser who delivers the report.

It is my opinion that the proposed solution is well-intentioned and very easy to implement, but it is not well thought out.  There are other, far superior solutions which exist, but the GSE’s appear to be taking the easy road.  There are many alternative ideas out there - including appraiser peer review, lender reviews of appraisers, and regulatory audits and reviews.  Those solutions, while more cumbersome to implement, will provide a superior solution to the problem at hand and avoid driving many small businesses out of the real estate industry.

 How Will This Impact Consumers?

• Consumers will no longer be able to easily shop their loan through a mortgage broker.  Since the ultimate lender that they will use must order the appraisal from an appraisal management company of their choosing, that appraisal will no longer be usable at any other lender.  Therefore consumers will be locked in very early in the process to a particular lender and will not be allowed to shop their loan unless they are willing to come up with another $300 to $500 for a new appraisal when they change lenders.
• Service levels will likely decline for a number of reasons.  Many of the best appraisers out there have built their business on service and under the new system, service will simply be less important in the overall picture.  The appraisers who remain will be held to a lower standard simply because the people who are directly impacted by their work (home buyer, mortgage originator, and realtor) are completely removed from the process.
• Mortgage rates will likely increase because of reduced competition.  If passed, this ruling will likely force many or all mortgage brokers out of business.  Brokers have been a significant competitor to the large banks for the past 20 years and without that competition in place, rates will almost certainly increase in the long term.

 How will this impact real estate agents?

• Agents are banned from any form of communication with the appraiser.  No more discussing additional comps that may have been overlooked.
• Agents’ role as primary coordinator of the transaction is severely diminished
• Power is shifted away from agents and toward the large lenders who will be the sole point of contact for the buyer on many key pieces of the transaction

What can be done?
There is a brief window where you can register your opinion with the GSE’s:

Comments may be sent to Fannie Mae by clicking here, and Freddie Mac by clicking here.

Richard Ryan

www.primacymortgage.com