The Home Valuation Code of Conduct (HVCC)

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Due to the overwhelming amount of foreclosures in the country, the government has issued a new code of conduct that they hope will counteract some of the threats that current markets face today. The biggest issue with mortgages and lending are the unethical practices behind the lending qualification, more importantly the driver for all of this, home valuations.

The Home Valuation Code of Conduct (HVCC) has been created as a system of checks and balances so that home valuations can not only be done correctly, but also have an un-bias opinion. The details of this new code of conduct are as follows, to highlight a few points:

The first thing you should know is that this new code of conduct was created as a result an agreement between Fannie Mae, Freddie Mac and the Federal Housing Agency. To make their point, Fannie Mae and Freddie Mac explained that “they will no longer purchase any mortgage from any seller that does not adopt the new HVCC policy”.
Some of these new rules include:

1. Lenders, Mortgage Brokers, and Financial Institutions can no longer use their own appraiser for their appraisals. They must be chosen from a pool of appraisers by an appraisal management company.

The hope here is that this will eliminate collusion between lenders and appraisers to drive the values of homes higher than they are in order to either qualify for a higher loan amount, or re-finance more than the home is truly worth.

2. Out of area appraisers are not conducting appraisals on properties.

The logic behind this rule is that an out of area appraiser will have no bias towards a certain community, area or city. This is done so that certain areas are not given preference in their valuations of the property which leads to unfair valuations based on the property location.

There are several critics of this new Home Valuation Code of Conduct (HVCC), there are currently two senators in that are lobbying for a moratorium of these new rules so that they may be refined further for them to property work.

Some of the arguments facing this new code are that:

1. Appraisers out of area do not know the true value of the home because they do now know which areas are more or less desirable than others. Also, they will not have been in the area long enough to be able to tell the conditions of the inside of the property.

2. When lenders and banks cannot use their own appraisers, what ends up happening far too often are under-valued appraisals that lead to many transactions falling. This is due to the appraisal price not matching the sales price which leads to denied financing – unless the buyer pays the difference out of pocket.

This is currently a very hot topic in the real estate market, especially since there are so many foreclosure properties in South Florida. Valuations will be done incorrectly, leading to either undervalued properties or overvalued properties both which lead to bad news for the real estate market.

There will be more development coming from Washington, D.C. regarding possible moratoriums in the coming weeks. Stay tunes to our blog every week for the latest news regarding all real estate news and the South Florida Foreclosure market.