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As most real estate professionals know, as of May 1, 2009, the Home Valuation Code of Conduct (HVCC) was implemented.
This was a "brainstorm" by NY State Attorney Cuomo, who offered to drop his lawsuit against Fannie Mae and Freddie Mac in exchange for the implementation of the HVCC.
The premise is that the HVCC will protect the consumer by adding a layer between the Loan Officer and Appraiser. Now lenders either need to create a special "appraisal order" department within their organization or go through an Appraisal Management Company (AMC).
I am going to leave it and not add my personsal position on the situation yet. I am very interested in hearing from the real estate professionals on this forum ....... how is it working for you?
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Of course it's a good idea to try to keep lenders from influencing appraisers. Unfortunately, like too many government interventions, the result of ADDING layers of useless costs gives the actual appraisers less incentive to do the work required to have an accurate and valid value assessment.
There are / were other valid ways that lenders could have been held accountable for unrealistic appraisals, and any lender that put undue pressure on appraisers OR appraisers that could be shown to be too eager to allow lenders to "name a price" should have been disciplined through existing remedies.
I fear that pretty much any government intervention, which increasingly seems to be driven solely by a desire to remain in office by garnering the favor of ignorant voters, will only make matters worse. Sadly should the government just 'throw up its hands' at this situation the short term effect would likely be chaotic. The government abruptly inserted itself into a process that was not overly broken, made it worse, and now is forced to slowly withdraw.
If the shift is away from reliance on government officials that have NO EXPERIENCE in the real world we will all be better off!
To me, the ideal system would be to have a buyer order (and pay for) his own appraisal, the seller to buy (and pay for) his own appraisal, and if there is a conflict in values, have the lender order (and pay for) a review. As appraisers we are prohibited to be advocates. Advocacy should be a revocation offense. But by pushing it back to the marketplace we could have the market decide who is good and who isn't.
But with the system we have now, and with the propensity of adding to rather than reducing governmental oversight, what needs to be done is 1) regulate the AMC, making them liable for both under and over valuing property. 2) Increase the requirements to become appraisers........make a trainee or licensee complete lots and lots more education before they can sign off on an appraisal.
I had a Certified General in a class a while back that was amazed to realize that you really could blend approaches. The course had a case study where a rental in the back yard was capitalized using a GRM while the owner occupied structure on the street used the sales comparison approach. And this was a person with 30 years experience. The lack of broad based training is astounding in the appraisal profession.
I am very familiar w/ HVCC and believe it was instituted with good intentions and poor execution.
Fortunately, I work for a portfolio correspondent lender and our branch selected our six favorite appraisers (for 10 loan officers) and we pay a third party to rotate the 6 for us with our conventional Fannie loans. For portfolio loans, we don't have to go that route. Nor do we have to go that route w/ FHA appraisals. My impact has been minimal. However, I am receiving loans because of the way we handle appraisals....Real estate agents have heard about it throught the grapevine. I am halfway hoping it remains in place.
HVCC has a place in the industry but not the way it is structured.
With purchases the contract is sent to the appraiser and up until now I have had no problems with these- actually had an appraiser on their own upgrade an appraisal on a purchase from an exterior only to a full report because the exterior only did not support the value on the contract, the full appraisal did. It makes sense for purchases to remain under HVCC because it does influence values down the road being that every closed sale becomes a comp for the next sale. I may change my tune if I had issues meeting contract price but I have not until now, but I understand why it should fall under HVCC.
Cash out refinances should remain under HVCC because the client is requesting the lender take on additional risk by liquidating equity from the property.
Rate & term refinances should not be under HVCC as long as the new loan is with the current mortgage holder (note here I did not say servicer like Wells Fargo or Bank of america but mean Fannie, Freddie, Portfolio). They are already on the hook if the loan goes bad so why not help clients get refinanced to a lower rate/payment so it is more likely that the payments get made and forclosure is avoided. This appraisal whether it comes in at $200k or $400k does not influence values because it is not public record and will not be a comp for future financing so why overregulate something that has no bearing on the future transactions.
HVCC has a place in the industry but not the way it is structured.
With purchases the contract is sent to the appraiser and up until now I have had no problems with these- actually had an appraiser on their own upgrade an appraisal on a purchase from an exterior only to a full report because the exterior only did not support the value on the contract, the full appraisal did. It makes sense for purchases to remain under HVCC because it does influence values down the road being that every closed sale becomes a comp for the next sale. I may change my tune if I had issues meeting contract price but I have not until now, but I understand why it should fall under HVCC.
Cash out refinances should remain under HVCC because the client is requesting the lender take on additional risk by liquidating equity from the property.
Rate & term refinances should not be under HVCC as long as the new loan is with the current mortgage holder (note here I did not say servicer like Wells Fargo or Bank of america but mean Fannie, Freddie, Portfolio). They are already on the hook if the loan goes bad so why not help clients get refinanced to a lower rate/payment so it is more likely that the payments get made and forclosure is avoided. This appraisal whether it comes in at $200k or $400k does not influence values because it is not public record and will not be a comp for future financing so why overregulate something that has no bearing on the future transactions.
I think you are on to something. What you suggest makes perfect sense. But wait, this is the government passing a new law and they are not known for making sense.
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