- General

The Affect of HVCC on the Mortgage Application Process

Before going much further, it is necessary to have a clear understanding of what a HVCC is all about. It is short for Home Valuation Code of Conduct and just took effect last May 1, 2009. Its main purpose is to eliminate any fraudulent valuations that have been done in the past. It aims for honesty and integrity to appraisers. This has affected all parties involved in real estate transactions.

While its goal is very admirable, buyers, lenders and appraisers are heavily affected by this ruling. Part of its rule is that lenders can no longer choose appraisers in their list, but they can use in-house appraisers as long as they meet the requirements specified in the code such as their compensation not dependent of the appraisal value. Moreover, any parties or broker who can gain from the transaction would no longer be part of the appraisal process.

Sellers are getting impatient with this new law. This is due to the longer process of the mortgage application. In addition, because it takes considerable time, most sellers prefer cash basis arrangement. However, this does not favor buyers also since most buyers rely on mortgage to buy a home and now they are finding it hard to get a loan because of the added requirements. The process is also stricter, making it difficult to qualify.

Here are some effects of an HVCC to the mortgage application process:

1. Appraisers may be from a different area and this could mean that there is a chance that the appraiser could do an appraisal to an area he or she is not familiar. There might be a chance of undervaluing when appraising properties.

2. Because appraisers are selected in random, this could also mean that lenders may end up hiring inexperienced appraiser.

3. There is a possibility of an increase in the borrower’s cost since brokers are no longer considered as part of the loan origination.

4. A possible undervaluing of properties could cause both buyers and sellers problems in negotiating in the event of a future sale.

5. This could result to consumers ending up paying additional cost for locking in rates and the fund the loan. In the event that the lender will be changed, buyers may have to pay additional fee for a new appraisal. In this case, many appraisers might not want to work with buyers since their fee would be relatively low in comparison to their fee before.

Despite its goal, many are not enthusiastic about it. There are several problems brought by the HVCC law. This is probably due to the changes it has created to the traditional ways of the various process involved. Most new appraiser’s valuation is incorrect and this has been costly for most real estate agents. It will be some time before everyone can work with the new rule implemented. However, once everybody will get used to the new process and learn to appreciate its good intentions, everything will be in synchronization again. Nevertheless, for now, adjustments have to be made.