Franklin Financial Group Blog

On May 1st, 2009 the Home Valuation Code of Conduct (HVCC) went into effect. The main focus of the HVCC is that the appraisal done for a loan must now be ordered by the lender, not the originator. The belief is taking the originator out of the process will make the appraisal process more accurate and overall better for everyone. Prior to this date, many industry professionals voiced their opinion about it, good or bad. Personally, in its present form I did not, and still do not, think it is a sound solution to the appraisal process within a loan origination. I thought it would end up costing the consumers more money in the long run (see my blog from February 20th, 2009) and voiced this opinion with my local Congresswoman's office. Now, after a week with it being in place, I realize my initial thoughts were absolutely correct!

First, I am working on a few loans which I had ordered the appraisal on prior to May 1st. During the loan process I found I had to switch lenders. The problem is most of the lenders I looked to switch to would not accept the original appraisal I had (which my borrower already paid $250.00 to obtain) and required that they (the Lender) order their own appraisal. This would mean the borrower would have to fork out another $250-$400 depending on the lender who would order the report. There should have been some sort of "grandfather clause" that stated that lenders could not refuse to review an appraisal ordered prior to May 1st (not that they would have to accept it). This would potentially save my borrower, and I'm sure thousands of people in similar situations, a lot of money. Think about 1,000 loans requiring a second appraisal just because of the "timing" multiplied by $250 (conservative) and you get $250,000 that CONSUMERS now have to pay for additionally.

Next, my fear was that when the HVCC required lenders to order the appraisal, often through Appraisal Management Companies (AMCs) that the cost per appraisal would go up. I have also found this to be true as many appraisals I used to order ended up costing the borrower $250-$300. Now that number has gone as high as I've seen at $400. This includes the cost of the actual appraisal to the appraiser who performs the work, money for the AMC to order and manage the appraisal process, and service charges for using a credit card to pay for the appraisal.

One thing I failed to initially consider was the potential risk for identity theft and fraud to consumers when they provide their credit card information to pay for the appraisal in advance. I have yet to see an alternative to providing credit card information to prepay for the report, but that doesn't mean they aren't available. The main thing with credit cards is who knows how secure the lender is, and how secure the AMC is with this information. Identity theft is quite prevalent, and this is another risk factor to be added to the mix. I hope the Government is requiring AMCs to abide by the Red Flag Rule that Lenders and other financial institutions are made to.

So the problems that I have now seen surface are increased charges to consumers due to appraisals from prior to May 1st, increased costs to consumers per appraisal done after May 1st, and increased risk to consumers for having much more exposure to theft and fraud from providing credit card information. Let's not fail to mention that the credit card companies charge very often exorbitant rates, so the cost of the appraisal if put on a credit card will very often cost consumers much more due to the interest on the credit card, if the amount is not paid off immediately.

If you are consumer looking to get a mortgage to purchase or refinance property, you should be aware that most likely you are now going to pay more for your appraisal. I suggest you contact your local political figures and voice your opposition to the HVCC in its present form, unless you don't mind paying more for your loan!