The Home Valuation Code of Conduct (HVCC) is a rule initiated by the Attorney General of New York and implemented by Fannie Mae and Freddie Mac. The rule’s stated intention is curbing fraud with respect to the valuation of residential properties. But, the HVCC has had a number of unintended consequences with perhaps the most important being the increased cost to the consumer.
Much discussion has been generated about the errors made by personnel assigned by the appraisal management companies (AMCs). In the months following the implementation many deals died because of these egregious errors. How would you like to have the sale of your home killed by a stupid, sloppy error?
The problem I have not seen mentioned is how this new system benefits the lenders out there. Every new order placed has to have an assigned lender, the party providing the funds for the loan. Instantly, the borrower is locked into a lender without necessarily locking the terms or even knowing whether the loan will be approved.
Being locked into a lender with the order of an appraisal is very different from the recent past and certainly a benefit to funding lenders. Before HVCC, as an originating broker that appraisal was completed in our licensed name and we could take that appraisal to whichever lender was offering the best rate and terms and the one that would close the loan with the fewest hoops to jump through. Now, with the appraisal being one of the items with the longest lead times and especially not knowing whether there is going to be an issue with errors it typically has to be ordered prior to approval.
This is a direct benefit to funding lenders as they can tell the exact number of appraisals committed to their pipelines. There is no need to be as competitive as they once did.