FHA implementing HVCC for San Jose loans as of January 1, 2010

FHA is implementing HVCC for San Jose & rest of the Bay Area loans. Yes, it’s finally happening. When I received the mortgagee letter yesterday from HUD, I must say I was stunned. Only few weeks back FHA commissioner had mentioned that he had no intention of implementing HVCC for FHA insured mortgages. But of all the changes that were announced to tighten the credit standards I personally think that this change is most critical and far-reaching.

Here are the highlights:

1. Mortgage brokers and commission based lender staff are prohibited from ordering appraisals. FHA does not require the use of Appraisal Management Companies or other third party providers, but does require that lenders take responsibility to assure appraiser independence. Irrespective of whether they call it HVCC or not in letter, in spirit it’s exactly that.
2. FHA appraisers are to be compensated at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.  AMC’s can add management fees to appraiser’s compensation. If I understand this correctly, this is good news for Appraisers since they will be not be compensated less. However, the borrowers will end up paying higher since they will also have to cover for AMC’s management fees on top of appraiser’s fees.
3. FHA will require that the appraiser is qualified and knowledgeable in the area that they are appraising.
4. Validity - FHA’s appraisal validity period will be reduced to four months for all properties including existing, proposed and new construction. Previous validity periods were six months for existing properties and up to twelve months for proposed and under construction properties.
5. Appraisals will be portable – In cases where a borrower has switched lenders, the first lender must, at the borrower’s request, transfer the case to the second lender.  FHA does not require that the client name on the appraisal be changed when it is transferred to another lender.
6. A second appraisal may be only ordered by the second lender when the first appraisal contains material deficiencies as determined by the underwriter for the second lender.