Financing distressed real estate - Chapter Two

Another critical hurdle to financing a home these days is the HVCC, or Home Valuation Code of Conduct. This agreement between NY's Attorney General Mario Cuomo and FNMA (Federal National Mortgage Association), is wreaking havoc on an already devastated housing market, and just in time to lengthen recovery time.
The legislation, which went into effect May 1, requires a different procedure for ordering property appraisals on behalf of mortgage applicants, in an attempt to avoid fraudulent values.
While I could write a book about the issues involved with HVCC, the highlights that affect BUYERS are as follows:

1. More costly to borrowers in terms of both time and money. Appraisals now take longer since there are more people involved, including an appraisal management company. This can mean purchase contract closing date extensions, interest rate lock extensions and changing moving dates and reservations, etc, etc..

2. Another way the HVCC increases costs for borrowers is the increased likelihood that the lender will require additional reviews of the appraisal once it has been received, again at the expense of the borrower, not the lender.

3. Some appraisers are timid, or maybe just are not familiar with the geographical area and local market trends. If mistakes are made on the appraisal, this may force the borrower to go to another lender and start over. It is VERY difficult to make corrections, no matter how logical and simple it may seem, once an appraisal report has been received by the lender.

Thomas Pierce, of www.examiner.com, sums it up best in his July 29 article titled "New appraisal regulations harm consumers", when he stated,

"This is still yet another example of a political figure with just enough knowledge of the mortgage industry to be dangerous unleashing a series of unintended consequences which ultimately harm the consumer".

www.examiner.com/x-18018-Boston-Mortgage-Industry-Examiner

Several trade groups, such as NAR (National Association of Realtors, www.nar.org ) and NAMB (National Association of Mortgage Brokers www.namb.org ) are currently objecting to HVCC and trying to open a review and dialog about how this practice is affecting the entire housing industry. Until the problems associated with HVCC are addressed and resolved, expect continued red tape when trying to get your next mortgage.

So, how does this pertain to buying distressed property? The HVCC applies to all mortgage transactions completed by lenders who sell or service loans for both FNMA and FHLMC (Federal Home Loan Mortgage Corporation), which is the overwhelming majority with the closing of hundreds of other mortggae loan channels.
However, in addition to this hurdle, some lenders simply will not finance a foreclosure property, or a short sale property. And they are within their rights to set this policy, as unfair as it seems to a well-qualified buyer looking for mortgage money.

Basically, it comes down to the #1 rule in mortgage lending: The Golden Rule, meaning whoever has the gold makes the rules!

Have a great week!

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