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The Home Valuation Code of Conduct, new federal mortgage reform rules targeting appraisals, is designed to put independence back into home appraisals and give the process more accuracy and transparency, but may be doing just the opposite. And those who stand to lose the most are home buyers and sellers.
by Broderick Perkins
© 2008 DeadlineNews.Com
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Deadline Newsroom - HVCC might as well be an acronym for Hate the Valuation Code of Conduct.
HVCC really stands for Home Valuation Code of Conduct, new federal mortgage reform rules targeting appraisals. Designed to put independence back into home appraisals and give the process more accuracy and transparency, the rules may be doing just the opposite.
And those who stand to lose the most are home buyers and sellers.
HVCC is a "law of unintended consequences," says Ted Faravelli, Jr. executive director of the California Association of Real Estate Appraisers.
"We could talk all day about it."
Since May 1, 2009, when the rules took effect, virtually every segment of the residential real estate market has been retching over rules they say are effectively delaying the housing market's recovery.
And, as goes the housing sector, most agree, so goes the economy.
Appraisers hate HVCC
Appraisers have been up in arms over the mortgage reform component known as the Home Mortgage Valuation Code of Conduct (HVCC), since before it was mandated.
The agreement between New York Attorney General Andrew Cuomo, Fannie Mae and Freddie Mac, and federal regulator, the Federal Housing Finance Agency was supposed to enhance the independence and accuracy of the appraisal process, and provide added protections for homebuyers, mortgage investors and the housing market.
Appraisers say HVCC is bogus because it doesn't focus enough on appraiser competency; it undercuts professional relationships between honest appraisers and reputable mortgage professionals; it increases the influence of bottom-line oriented appraisal management companies; and encourages the use of glossed-over appraisals that don't reflect the true value of a property.
But it's not just appraisers who hate HVCC.
Realtors hate HVCC
Preliminary analysis by the National Association of Realtors (NAR) "indicates that the implementation ... appears to be having adverse impacts on the housing markets."
• Approximately 76 percent of Realtors representing buyers or sellers indicated that the time to obtain a completed appraisal increased after May 1.
• Nearly two in five, 37 percent of Realtors said HVCC caused one or more lost sales.
• Greater use of out-of-area appraisers -- who are not familiar with local market conditions that could affect values -- was reported by 70 percent of Realtors.
• Half of NAR appraisers members reported a reduction in fees received by them, and 70 percent of NAR appraisers reported consumers were paying higher fees.
• Most, 85 percent of NAR appraisers reported a perceived reduction in appraisal quality. More than half, 55 percent of Realtors had the same perception.
Home builders hate HVCC
The National Association of Home Builders (NAHB) Chairman Joe Robinson, a home builder from Tulsa, OK, said likewise, "Home builders are increasingly concerned that inappropriate appraisal practices are needlessly driving down home values. This, in turn, is slowing new home sales, causing more workers to lose their jobs and putting a drag on the economic recovery."
According to an NAHB survey:
• More than one in four, 26 percent of builders have seen signed sales contracts bomb because appraisals are coming in below the contract sales price.
Appraisers say that's not necessarily a bad thing.
"We take offense with the notion that the appraisal is only good if it happens to come in at the sales price," says Bill Garber, the Appraisal Institute's director of government and external affairs.
"That mentality helped cause the mortgage meltdown to begin with. The fact that the appraisal does not match the sales price is not the fault of the appraisal but a fault of the market today."
• New home builders, 60 percent of them, say inadequate appraisals are causing comparables of new single-family homes to be based on foreclosures and distressed sales.
• Of builders reporting appraisal problems, 54 percent said that the appraisal amount was actually less than the cost of building the home.
NAHB has called on housing and federal financial regulators to adopt clear, concise regulatory guidance that will allow appraisers to develop realistic valuations based on sales that are truly comparable.
"You can't compare a well-constructed new home with a foreclosed property that has been vacant for months and was probably neglected for a long time before it was vacated," said Robson.
Mortagage brokers hate HVCC
The National Association of Mortgage Brokers initially sued to block implementation of HVCC back in February, but in a legal maneuver, later withdrew the suit that said HVCC would inhibit competition among mortgage originators and increase the cost of mortgages to consumers.
In a HVCC Call to Action lobbying effort, NAMB reported:
• The HVCC is costing consumers over $2.8 billion a year in extra fees, created by long delays (extended lock-in fees) and higher appraisal costs.
• Appraisal management companies (AMC), are driving honest appraisers and mortgage brokers from business, eliminating competition, increasing costs to consumers and reducing state revenue. HVCC requires that lenders place appraisal orders for certain loans with AMCs in a effort designed to keep appraisals independent, but critics say that hasn't worked.
AMCs' trade group Title/Appraisal Vendor Management Association has fired back, claiming NAMB is running a smear campaign.
The association agrees HVCC is problematic, but not because of AMC work.
"These organizations (AMCs) ensure an arms-length transaction between loan officers and appraisers. They are the best way to assure an arms-length relationship between appraisers and their clients," according to Jeff Schurman, TAVMA executive director.
NAMB also says
• The HVCC is causing significant delays in real estate transactions, hurting real estate agents, title companies and other third parties reliant on turnaround time.
• HVCC traps consumers with a specific lender. If a better deal becomes available
with a different lender, the consumer is forced to pay for another appraisal.
Change may be coming.
Let's hope, because HVCC is obviously a mess.
Appraisers recently applauded updated federal guidelines regarding HVCC and federal legislation is afoot to can HVCC for 18 months until regulators can get a better grip on the issue.
U.S. Representatives Travis Childers (D-MS) and Gary Miller (R-CA) have championed bi-partisan legislation, H.R. 3044, introduced June 25, which would put a moratorium on HVCC for a year and a half to redesign it, hopefully, so it will work as it was intended or dismantle it for a better model.
The bill has been referred to the Housing Financial Services Committee for discussion and further work.
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Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group, including DeadlineNews.Com, a real estate news and consulting service and Web site, and the Deadline Newsroom, DeadlineNews.Com's news back shop.
Perkins is also the first Examiner to cover three beats for the Examiner.com news service:
• National Offbeat News Examiner
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