Implemented last spring by Fannie Mae and Freddie Mac, The Home Valuation Code of Conduct (HVCC) banned lenders from selecting appraisers to valuate homes in the deals which they are brokering. The purpose was to prevent inflated and fraudulent appraisals which played a part in the bubble leading to the mortgage crisis. While The HVCC does not require lenders to use appraisal management companies, many choose them to ensure compliance with the code.  Builders, Realtors and   independent appraisers have reported dissatisfaction with the work produced by them. Fannie’s new guidelines will address issues that have arisen, including the widespread use of inexperienced appraisers unfamiliar with local market conditions. Effective immediately Lenders must use appraisers who “have the requisite knowledge required to perform a professional quality appraisal for the specific geographic location and particular property type, as well as access to “necessary and appropriate data sources for the area in which the appraisal assignment is located.”. If an appraiser believes a foreclosure sale or a short sale is an appropriate comp, the appraiser is required to consider any differences from the subject property, such as the condition of the home and whether any stigma has been associated with it. If comparable sales data is not available when appraising new construction, appraisers may verify recent sales of new homes by viewing a copy of the HUD-1 from the builder. Fannie Mae will continue to require at least three comparable sales and comps from the property’s neighborhood are preferred. Comps located in competing neighborhoods are allowed, but appraisers must indicate the comparables are from a different neighborhood, and address any differences that exist.

This Week’s Real Estate Insight:

As is often the case, the HVCC “cure” seems to be worse than the desease it was created to treat. Hopefully the new guidlines will address the delays and frustrations it has added to so many transactions.

     Freddy and Fannie are taking steps to avoid potential future meltdowns by tightening up standards for ARMS and Interest only loans.  They were not the only parties responsible for the mortgage crisis; personal responsibility also played a big part, many homeowners failed to understand the consequences of these exotic loans and many unscrupulous lenders and Rea estate professionals took advantage of that ignorance. Would so many people have bought homes they couldn’t afford if they had a better grasp of the consequences of resetting interest rates and negative amortization?  I make it a point of referring clients within my network of reputable lenders, and try to give as much information personally to my clients and here on Real Estate Insight, so that they can make informed financial decisions.

One recent Real Estate Insight guest has taken informed decision making to an even higher level.  Robert Bailey, author of The Billionaires Little Black Book, The Ultimate Secret Behind Sustainable Wealth spoke with Rich and Steve about the theory behind his new book.  Pointing out that you have a better chance of becoming a billionaire than you do winning the lottery, Rob has taken the knowledge he has garnered from years in financial management and came up with a seven point strategy  for managing personal and professional business decisions, investment decisions, and life choices. Stressing the importance of a team approach to your finances, Bailey devotes a chapter to how a trusted Real Estate advisor fits into this plan. It is a quick read, but filled with great information. The Billionaires Little Black Book is available through Amazon or directly through his website, TrustedAdvisory.com

This Week’s Real Estate Insight:

While the pundits sift through the financial crisis to assign blame, tightening lending standards, a little personal accountability and some sound financial literacy will go a long way  to preventing the next big meltdown.