The stock market crash of 2008-09 had a devastating effect on the housing market. High unemployment and foreclosures saw home prices collapse by 30% in a matter of months. Since then, a slow, painful recovery is underway. However, home prices have regained only about 10% to 12% of their lost values. When crash occurred, Fannie Mae and Freddie Mac held approximately 80% of all home mortgages. Both agencies had to be bailed out by the federal government. The other large insurer of home loans was FHA that is under the umbrella of HUD.
Banks have tightened their lending requirements and have become extremely cautious about loan approvals. Now for conventional mortgages, a minimum of 20% down is required. One area where this is most noticeable is in home appraisals. Bank appraisals are the backbone of the lending process. A low bank appraisal may cause a lender to lower the amount of the loan, sometimes creating a hardship on the borrower who may not be able to come up with additional monies for the down payment. It is telling the borrower that the property is overvalued. In some cases the transaction is canceled entirely. With market conditions in disarray, a new set of Bank appraisal guidelines was adopted. It is called the Home Valuation Code of Conduct (HVCC). The objective is to stop the collusion between lending institutions and appraisers. It was aimed at protecting Fannie Mae and Freddie Mac.
These new Bank appraisal guidelines set forth specific conditions for selecting home appraisers and how they must conduct their appraisals. These include:
* To obtain approval for Fannie and Freddie Mac, appraisers must be chosen from a management company. Appraisers are chosen from a pool of approved appraisers. Lenders can no longer hand pick their appraisers.
* For FHA approval, appraisers are chosen from an approved list from HUD.
* For VA approvals, appraisers are selected from an approved list of the Veterans Administration.
* Appraisers must state licensed.
* The appraiser must be objective and impartial.
* The appraisal report must include valuations of three similar properties. For new construction, the appraiser must estimate replacement costs in the report. It must state any harmful or flawed parts of the property. It must state whether the property is in a development or a stand- alone property. It must include the average time to sell the property.
The appraisal must include photos. The entire appraisal must be an original, not a facsimile. Another important change in Bank appraisal guidelines is that the borrower must pay for the appraisal upfront. The appraisal report must be made available at least three days prior to closing.