Today marks a major change in the lending landscape and the way loans are sold to Fannie Mae & Freddie Mac…. Specifically, how they are appraised.

If you have not heard of Home Valuation Code Of Conduct (HVCC),just ask your favorite mortgage broker about it and more than likely their response will be something like:

&$#@%^&%$#^%$#@#$%^

(sorry, but can print what they really will blast you with)

In short, this change is designed to fix the evils of the past.

As always, there are good and bad sides to every change. We will explore the good, bad and ugly of this new approach but first, let’s synopsize what it is about.

WHAT IS HVCC (Short Story)

So what does the code say? Basically, it’s that the people responsible for originating mortgages can have nothing to do with the appraisal process.

In addition, the code also:

* Prohibits lenders and third parties from influencing or attempting to influence appraisals.

* Requires lenders to ensure that borrowers get a free copy of appraisal reports at least three business days before closing.

* Allows lenders to have in-house appraisers, so long as they’re completely independent of sales staff and their compensation does not depend on their estimates or on loan closings.

* Requires lenders to test a randomly selected 10 percent (or other statistically significant percentage) of appraisals and report any problems to Fannie Mae or Freddie Mac, which may force lenders to buy loans back from them.

* Requires lenders to report appraisal misconduct to applicable state agencies.

You can download a copy of the HVCC at: https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/appcode/pdf/hvcc.pdf

WHY IS HVCC GOOD?

Let’s face it, the appraisal business has been a bit “rigged” over the last several years.

In short, only appraisers that could “get the deal done” were used on a repeated basis by mortgage brokers, realtors, and or builders. It only makes sense that this is the way the system worked. If you were a realtor, or even if you were a new home buyer, the last thing that you want is for your appraisal to come up short and the deal fall apart.

Since appraisals are somewhat subjective, the appraisers that always got called were those where the subjectivity worked out in favor of the deal.

However, many appraisers felt very pressured to make the deal work….. their future business counted on everybody walking away happy. Of course we are now seeing some of the consequences of that type of approach with our current housing and mortgage crisis.

WHY IS HVCC BAD?

Because now your purchase or sale is a crap shoot.

Why?

Simply because appraisers will be pulled out of a “blind pool”. From my personal experience, only about 20% of appraisers are good at their profession (you know, the ole 80/20 rule).

So you now have an 80% chance of a mediocre appraiser being assigned to your appraisal. Are they really capable of determining the value? I am skeptical.

In addition, most the incentives for the appraisers are now set up to appraise low….. The safe play is to come in BELOW what you may be thinking is actual value.

CONSEQUENCES

HVCC will be implemented May 1, 2009. Many people believe, myself included, that this is going to severely disrupt the home seller market, and investor market, for a period.

Everybody’s major hope is that soon, tweaks will be made into something that is workable for all in the industry.

The majority of real estate investors are professional business men and women who engage in ethical behavior. In today’s foreclosure-rich environment, many scammers have emerged offering to help borrowers stop foreclosure or the promise of obtaining a loan modification or short sale approval.

Deceitful real estate investors circle like vultures, patiently waiting for their prey. They perch at courthouses, hunting for foreclosure and bankruptcy notices. Armed with contact information, these scavengers shape shift into harbingers offering relief to homeowners desperate to get off their financial roller coaster ride.

Others offer the promise of lining your pockets with handfuls of cash. They vow to teach investment strategies which allow you to purchase properties without using a dime of your own money. These smooth-talkers convince you their $2500 course will have you investing in multi-million dollar properties in a matter of days or buying your first investment property with no money down.

This is not to say all real estate investors are con artists and scammers. However, before spending your hard earned cash on investing courses, contact a local library and see if they have the course available. Oftentimes they do; allowing you to save a bundle of money, along with the stress of trying to return the course if it doesn’t meet your expectations.

The most recent real estate scams involve buying and selling distressed properties such as foreclosures and short sale properties. There is money to be made in buying properties that require repairs and renovations. However, multiple pitfalls and risks exist.

Individuals who are facing foreclosure and approached by real estate investors with an offer to buy their house need to engage in due diligence before signing over the deed to their home. Those who wish to invest in fixer-upper real estate can obtain much of the information they need online or by reading investment books offered through the library.

Investors seeking out distressed properties for sale would do well to work with other real estate investors who specialize in this niche. These investors can help locate properties across the country and save you a fortune in the process.

The secret is to locate private investors who purchase real estate owned (REO) bank portfolios. When investors purchase in bulk they obtain wholesale prices and pass along a portion of the savings. It is not uncommon to buy wholesale real estate for pennies on the dollar.

Another real estate scam involves organizations that offer paid foreclosure listings. Investors pay a monthly fee to receive updated lists of foreclosure properties. Most realtors offer local foreclosure listings at no charge. Foreclosure and bankruptcy petitions are a matter of public record and can be found though the County Recorder’s Office.

Reputable organizations that provide paid foreclosure listing services can save investors time. Experts recommend working with list providers who offer a trial version. Subscribe to two or three trials to compare properties. Be certain to cancel subscriptions before the trial period expires if you are not happy with the service. Otherwise, you will be charged a fee.

Bank owned foreclosure homes are generally published on mortgage lender websites. REO homes consist of real estate that did not sell at auction and were returned to the bank. If you are not familiar with local banks, browse the local phone directory to compile a list, than use the Internet to locate their website. Most lenders publish a link to foreclosure homes on their home page.

Falling prey to real estate scams could cost you time and money. Before purchasing investment courses or selling your home to real estate investors, take time to conduct thorough research. Doing so will ensure you are working with a reputable and trustworthy professional.

When people think about their 401k, they consider a lump sum of money that has been put away for retirement. In fact, most people completely forget about their 401k until income tax time. Creative real estate investors, however, have figured out that their 401k’s and real estate investing have a mutually beneficial relationship.

So with that being said, you are probably wondering how a savvy investor can use one for the other.

The easiest way that 401k and real estate investing can work together is through the ability to take out a loan against a 401k. The primary objective with real estate investing is to use little or none of your own personal money to fund the investment. Since you are allowed to borrow against your 401k, you can use this to finance part of your investment. When the deal closes, you will receive the amount you borrowed and then some. You can then easily pay back the loan without affecting your 401k. So, basically, it’s like a short term loan you make against yourself. You have access to the funds needed for investing, it doesn’t technically come directly out of your pocket, and when you finally cash in your profits, you simply pay yourself back.

There are some things to note about this method of investing, however. First, you should know that there is a cap on the amount you can borrow against your 401k. This amount is usually $50,000. However, it can be less, depending on the amount of money you actually have in your 401k. Another thing to note is that the real estate you purchase through this method is not eligible for the mortgage-interest tax deduction. There are no tax benefits when you use 401k to finance a portion of any real estate related transaction.

Another option for is to put the money into an IRA, or individual retirement account. Sometimes this is not allowed, but it if is, you will have more flexibility on what you can do with the money. You might receive a penalty for moving your money from your 401K. However, the penalty is usually worth considering given the benefits you would receive through real estate investing. Just keep in mind, the main objective is to only borrower the money for a certain period of time. As you wrap up each deal, its imperative that you repay yourself, and only hold onto the remainder of the profit.

If you are weary of the risks involved, there is a safer way to invest in real estate by using your 401k. Some plans offer the option to invest in real estate investment trusts. These trusts consist of companies that buy and sell real estate, which is a much less risky way of investing in real estate. It also requires less work on the part of the investor since the trust companies are the ones actually doing the real estate investing.

Most people are unaware of the many possibilities that exist by using their 401k’s to invest in real estate. It is a creative way for investors to make a profit in real estate without actually using their own money. The best part about it is that there are both safe and risky ways of investing with this money to yield a profit. The decision you make is one entirely of personal preference.