We in the “biz” have been wrestling for most of 2009 with the product of the Home Valuation Code of Conduct (HVCC), Andrew Cuomo’s settlement with Fannie Mae and Freddie Mac.  That settlement produced a new middle-man in the home appraisal process–the Appraisal Management Companies (AMCs)–that resemble nothing so much as the ‘managed care’ companies that were inserted into the health insurance system two decades or so ago.

And just like that mess, the AMCs have failed to improve things for the consumer.  In fact, it can be convincingly argued that they have made things far worse.  The new protocol has consistently produced poor quality appraisals performed often by the least qualified and frequently out-of-the area appraisers, at dramatically increased costs to the consumer.  But in terms of creating new profits for banks who have now created their own internal AMCs, it’s been a resounding success.

Until now, this new process impacted only conventional loans.  Since most of the market activity has required FHA financing, this hasn’t been as debilitating as it might have otherwise been.  However as of January 1, 2010, it applies to FHA loans as well.  What does this mean for you?

It means that on FHA loans, your lender will now have:

• no control over scheduling of the appraisal
• no ability to communicate directly with the appraiser
• no ability to receive notification from the appraiser when there is a value or repair issue
• severely constrained ability to dispute bad appraisals
• higher appraisal costs
• slower appraisal turn around times
• longer escrows

The best thing you can do in the short-term is to plan for longer escrow periods.  I recognize that short-sale banks are not very cooperative on this issue.  But if you don’t attempt to educate them and plan in advance, you’ll be begging for extensions on the other end.  In the long-run, let your voice be heard and contact your congressperson and let them know what you think.

For awhile, circumstances have existed where the application of the First Time Buyer Tax Credit is unclear.  For example, what about when a couple buy a home and one is a first time buyer and the other is not?   Or, what about when a parent co-borrowers with a child and the parent already owns a home?   Does the person who is buying for the first time qualify?  Do they qualify for the whole credit or only their half?

There is finally some clarification:

IRS Sets New Rules for Tax Credit
The IRS has spelled out guidelines for eligibility for the home buyer credit when co-borrowers purchase a property.

When a home-owning parent of an adult child co-signs for a mortgage and both names appear on the note, the IRS says that under some circumstances, the first-time home buyer can qualify for the whole amount.

The IRS says the parent doesn’t qualify for any portion of the credit, but if the child hasn’t owned a home during the three years preceding the current purchase and can qualify based on income, he or she can be allocated the entire $8,000 credit.

When unmarried individuals co-purchase a home and only one of them is eligible for the credit, then the full $8,000 can be allocated to the eligible buyer.

Source: Washington Post Writers Group, Kenneth R. Harney (12/04/2009)