Real estate appraisers who survived the 2006-07 subprime lending frenzy are preparing to enter a new era.
As of May 1, lender pressure for a property’s valuation to come in high enough to support a 125 percent mortgage loan, for example, will be gone.
But in the wake of the new law, which was passed last year, many people in the industry are asking: “How will the Home Valuation Code of Conduct affect how appraisers work with lender clients – and how will the new law affect loan qualification?”
For homebuyers and commercial property investors, an accurate home appraisal has always been pivotal. A building’s value determines how much will be paid – or loaned.
The problem started with the housing boom of 2005-07. Many appraisers were asked by their clients – mortgage lenders and brokers – to bolster a home’s value to justify an inflated price and loan amount. Some reluctantly gave in to pressure, while others, fearing for their professional reputations, chose to walk away from lucrative assignments.
But under the new HVCC regulations, pressure from mortgage lenders to “nudge” home values upward to meet a lender’s or buyer’s expectations is illegal.
The measure, which is part of the Real Estate Procedures Settlement Act, will not only prevent lenders from influencing appraisers, but it prohibits employees involved with loan production from having direct discussions about home values with an appraiser.