Home Valuation Code of Conduct (HVCC) rules go into effect on May 1, 2009

Freelance reporter Marcie Geffner for Bankrate.com had a story picked up by the Seattle Times’ titled “New appraisal rules may hurt home buyers” with respect to the Home Valuation Code of Conduct (HVCC) which goes into effect on May 1, 2009. The rule which takes effect on all Freddie Mac and Fannie Mae loans is highly controversial in the real estate industry.

The appraisal industry could see an increase in the number of national Appraisal Management Companies at the expense of the independent appraisal company. The concern that many in the real estate industry have towards the HVCC is the potential ramification that a national appraisal management company will not understand a local real estate market. The lack of local appraisers in a particular real estate market could further depress home prices because the fear is that a national appraisal management company would create a home valuation process that is determined by Freddie Mac or Fannie Mae not by what the true value of the immovable property actually is.

As to how this relates to the Real Estate Settlement Procedures Act (RESPA), many appraisal management companies are owned by lenders or other settlement service providers. Lenders & title insurance underwriters can own appraisal management companies so long they disclose their ownership relationship within twenty four (24 hours) of the referral and their use is not required. Many are under the impression that lenders or other settlement service providers are forbidden from owning their own appraisal management company but that is inaccurate as this practice is completely legal under RESPA.

The full impact of the HVCC remains to be seen but the entire issue could be moot once the Federal Deposit Insurance Corporation’s “Interagency Appraisal Evaluation Guidelines” go into effect. The IAEG might trump the HVCC.

Consumers and state & federal regulators need to watch very carefully to see what impact the new HVCC rules will have on the real estate home buying and refinancing process. If the national appraisal management companies misinterpret home values then this will not only have a serious impact on the home buying process but it also could seriously jeopardize taxing bodies who rely on property values to run government.

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