In March 2008, Fannie Mae entered into an agreement with The Federal Housing Finance Agency (FHFA). This agreement was set up to adopt certain policies relating to appraisals for mortgages. Starting May 1st, 2009 the Home Valuation Code of Conduct (HVCC) came into effect for Fannie Mae and Freddie Mac purchased loans.
HVCC Means Only Third Party Companies Can Order Appraisals
The code states that all appraisals must be performed by a Certified Appraiser. It also states that no employee, director, officer, or agent of the lender, or any other third party, on behalf of the lender, shall influence or attempt to influence the development, reporting, result, or review of an appraisal through coercion, extortion, collusion, compensation, instruction, inducement, intimidation, and or bribery. Therefore, independent third party companies will order the appraisal and have contact with the appraiser.
Where Did HVCC Come From?
Some of the reasons for the HVCC going into effect are due to appraiser’s being pressured into pushing the value on the property in order to make the deal go through. In the past appraiser’s have reported bribery, threats of job loss and so forth. This was one of the reasons the country is in the financial trouble it is in today. In some cases appraisal values were pushed higher in order to ensure that the appraiser continued to receive job orders from certain lenders.
There are two sides to every story. With the HVCC in effect, getting a mortgages has become a much more difficult process. It’s not unheard of to have three appraisals ordered for one property, and thereby increasing the cost of the loan. The length of the underwriting times has increased from 30-days to sometimes 60-days. These time lines are critical to some buyers’ due to being locked into a certain interest rate. Even a 45-day underwriting time can cause a deal to fall through. Real estate agents and mortgage brokers are blaming the HVCC for holding back the economy.
Appraisers Use Only History…Can’t Predict the Future
There is also concern that the market is turning around and that appraiser’s are keeping the market from turning. Appraiser’s can only report on historical data. They cannot predict the future. With today’s new lending laws, appraiser’s are required to include three closed sales within the previous three months, as well as one pending sale and one active listing, all within the subject’s marketing area. In theory, this is tough for an appraiser when the market is at the bottom and on its way back up. When the market is on its way back up, the appraiser does not have the historical sales to support the values. The only way for those values to be supported is if the buyer paid cash for the property. This results in the HVCC becoming an albatross around the neck of the economy.
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June 30, 2009 at 9:37 am
The HVCC is the worst piece of policy making since Fannie Mae was started. I cannot believe that one man (Andrew Cuomo) can do this much damage to the housing industry. Please keep up the good work and keep the public aware of the harms that the HVCC has created.
July 2, 2009 at 1:28 pm
I can’t believe what I am reading! If a realtor is having to “shop” three different appraisers until they find one who will “make” the value, then this is mortgage fraud! This is exactly what got us in the mess we are in now! Wake up people! The realtors, lenders, and builders are bankrupting this country and now its the appraiser’s fault, because they won’t “make” the values work. If 2 out 3 appraiser’s are telling you that the property isn’t worth what your paying, then you are trying to pay above market price for the property! If your agent insist on trying to find an appraiser who can make the deal work, then your realtor (assuming its your buying agent and not the seller’s agent) is not doing you any favors.
August 21, 2009 at 9:43 pm
As an appraiser, I have to say that the HVCC “as written” is perhaps the worst thing that has happened to the residential appraisal industry…EVER! The regulation may be well intended, but the negative effects it is having on residential appraisers is at a crisis level!
The new regulation essentially forces lenders into ordering appraisals through intermediaries known as Appraisal Management Companies (AMC’s). FHFA claims that lenders aren’t required to use an AMC, but what other choice do they have without placing their transactions in jeopardy of being kicked back?
FHFA is generating statements and FAQ’s attempting to portray there is a lot of “mis-information” going around regarding the HVCC, but the only mis-information is that this regulation “as written” is good for appraisers! You would be hard pressed to find an appraiser that thinks the HVCC has been great for a their business.
The government has effectively stolen clients from local appraisal companies and handed them to their competition, the Appraisal Management Companies. This action violates every concept of the free enterprise system. Seems to me the New York Attorney General should be thrown in jail for committing a major white collar crime!
I am doubtful appraisers are opposed to the concept of an intermediary. As a matter of fact, many of the provisions in the HVCC are very pro-appraiser. The problem appraisers have is the AMC’s are making their living at the expense of the appraisers. It is not uncommon for an AMC to take as much as 50% of the fee directly out of the appraiser’s pocket. This parasitic relationship is having a devastating affect on appraisers and local appraisal businesses.
The fees paid by the AMC’s are simply insufficient to support an adequate middle class lifestyle in many metropolitan areas. As a result, many of the best qualified/most experienced appraisers are leaving the industry. These are the same people and companies that have been the backbone of the appraisal industry for years. It doesn’t take a master’s degree in economics to understand you are not going to attract the best qualified/most competent appraisers if you aren’t willing to pay them a sufficient wage.
I really am concerned for the future of my profession. An appraisal performed by a well trained, experienced appraiser is still the most reliable indicator of value available. Appraisers are the public’s best defense against getting in over their heads. Appraisers are also the public’s defense against bank failures due to over-valuation of collateral. Seems to me the general public should be very concerned about what is going on here!
For more information on what is happening to the appraisal industry as a result of the HVCC, please read my article at: http://sites.google.com/site/testingjustfor/
I truly hope for the future of the appraisal industry, that the poorly crafted portions of this regulation can be corrected.
Gary Denny
President of Woodbridge Appraisal Service
President of the Northern Virginia Chapter of the National Association of Independent Fee Appraisers (NAIFA)
October 21, 2009 at 6:39 pm
Just wait until no new appraisers come into this business and see what kind of backlog will happen and costs will skyrocket out of control. How does a trainee get business? Everyone wants certified appraisers now. As a real estate professional, I see the devasting affect this is having already. From lenders owning their own AMC companies and having their own staff appraisers….what is the difference? They are totally controlling the outcome. How is it possible a bank can own an AMC company? How is this an armslength transaction? This new law has put at least half of all appraisers out of business and wondering how they can pay their mortgage. Why should they work for half fee and then have to negotiate lower fees with the AMC companies. My customers are paying more money and getting less service. Then, the insult of all time is that the lender charges the customer a review appraisal fee for reviewing the “armslength” appraisal ordered? Everyone hates it….the appraisers, the customers, the real estate professionals, and the lenders. This is our government at it finest! Think about your own business. How would you like it if the government walked in and told you from now on you have no customers effective tomorrow…..from that point forward, you will make half of what you were making before, if your lucky…..and could have no contact with your customers? You can try and get approved with the new company in charge with no certainty you ever will get business from them. Sounds far fetched, doesn’t it! Just how many appraisers now will stay in this business with this kind of foul play. While this was probably intended to be a good thing, it has really backfired. The appraisers should have been able to ban together in a network and have it be a true armslength transaction without the heavy fees associated.
This makes me sick!
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