What does an investigation by the New York Attorney General have to do with my home appraisal in Atlanta? Well basically Andrew Cuomo was investigating the appraisal practices of the Government Sponsored Entities (GSEs), aka Fannie Mae and Freddie Mac. To get the Attorney General to stop the investigation, the Office of Federal Housing Oversight and Fannie Mae and Freddie Mac agreed to what is now called the Home Valuation Code of Conduct.

The HVCC is an effort to clean up the mortgage industry. Although there are many good initiatives in this new code, there are many unintended consequences adversely affecting home buyers, home sellers, mortgage brokers, agents and appraisers.

No more independent appraisers! Now, they must join an Appraisal Management Company or find a way to get on a preapproved list. The HVCC was designed to regulate the appraisal process by creating rules that effect anyone who is paid by commission once a loan is closed (realtors, mortgage brokers, loan officers, etc.). Anyone on commission is unable to communicate with the appraiser. All of these professionals have spent years creating business relationships with well qualified, knowledgeable appraisers and now these relationships don’t matter anymore. In other words, loan officers and agents are not allowed to choose appraisers based on their familiarity with a certain market.

Home buyers are adversely affected because of the increased cost of appraisals. They may have longer rate locks or extend existing rate locks. If a home buyer is not satisfied with the service of a particular lender, there may be a hesitancy to change lenders because of added time and costs involved with a new appraisal. Appraisals are completed for the specific lender; therefore, if the lender is changed, a new appraisal must be ordered which increases time and costs.

The National Association of Realtors, The National Association of Home Builders and the National Federation of Mortgage Professionals are faulting the HVCC for new and existing home sales falling short of expectations in May. Unfortunately, low ball appraisals are forcing home sellers to either appeal the appraisal or reduce the agreed upon sales price for their home to the appraisal amount. Most sellers are not in a position to reduce the sales price and the contract falls apart.

Finally, appraisers are the ones that have been most adversely affected. Appraisers are forbidden from ANY communication with mortgage brokers, loan officers, agents or any others paid on commission once a transaction is completed. Basically, appraisers are prohibited from communicating with their clients. No other industry has this kind of restriction. In addition, many independent appraisers will need to join Appraisal Management Companies to insure they are chosen to work. AMCs typically take approximately 40% of the cost of the appraisal thereby reducing an appraiser’s income. The most important thing to know about AMCs is that they are NOT regulated.

CNBC interviewed several agents across the country regarding the low ball appraisals. Agents and brokers believe that 1 in 4 transactions are being adversely affected by the Home Valuation Code of Conduct. Therefore, NAR (National Association of Realtors) has requested that HVCC rules be suspended for 18 months to cut down on these negative results

All these unintended consequences have me and others longing for days past. Back when there was no downward pressure from lenders and regulators on a hurting market. You know back when a house was worth what someone was willing to pay for it! Buyers and sellers want to get about the business of buying and selling, and agents are in their “amen” corner. Let the buying and selling begin.