Print This Post
Tuesday, July 28th, 2009California Association of REALTORS® Federal Governmental Affairs Manager Matt Roberts hosted an excellent webinar on the Home Valuation Code of Conduct (HVCC). NAR, C.A.R., and SAR are listening to members, and know that HVCC caused problems in the industry.
HVCC was implemented in March 2008, after the New York Attorney General studied inflated home prices, including some in California. HVCC is not a regulation or a law, but a guideline for private businesses. The original intent was to help enhance integrity in the mortgage industry, and it was to only apply to Fannie and Freddie. C.A.R. learned from members that most loans are now subject to HVCC, because appraisal management companies (AMC’s) decided it is easier to hold all loans to the same criteria.
Difficulties surfaced with HVCC, including delays in ordering appraisals resulting in problems locking in interest rates, short sale dates, and Residential Purchase Agreements. Appraisal costs have gone up since March 2008, this is in part because AMC’s are taking a large percent of fees and appraisers are making less money. Good appraisers are leaving the business, or not working with certain AMC’s. Finally, out of area appraisers are resulting in inaccurate appraisals, making multiple appraisals necessary, and sometimes these properties fall out of escrow.
NAR opposed HVCC since it was implemented in March 2008, and has sent letters, and held meetings with the New York Attorney General, Fannie Mae, Freddie Mac, and members on Congress on the issue. NAR is supporting H.R. 3044, which would put an 18 month moratorium on HVCC. This would give time for cooler heads to prevail, and a better solution to home appraisals developed. C.A.R. is supporting SB 237, which would provide regulation and oversight to AMC’s, which are not currently regulated, and have become increasingly used since HVCC was implemented.
C.A.R. is looking for additional stories on how HVCC has adversely effected transactions. If you have any personal stories, please email them to me, cbrown@sacrealtor.org, or leave a comment below. If you would like to watch the webinar in full, it can be accessed here http://videos.car.org/mediavault.html?menuID=4&flvID=5.
The Federal Housing Finance Agency released a notice on July 22, 2009 clarifying several aspects of the HVCC as follows:
Addressing Misinformation
Misinformation has been circulated about the content of the Code and some have tried to cite the Code as the source of unrelated market dislocations. FHFA believes that the Code is serving the intended purpose and will continue its oversight role both as to the implementation of the Code by the Enterprises and its market impact.
Some key items that the public should know:
Communications with appraisers– Contrary to some suggestions, the Code provides for communications with appraisers about errors, additional needed information and unprofessional conduct. Quality control personnel may communicate with appraisers and other lender personnel, outside of the loan origination function. The real bar is on communications that seek to influence the appraiser to adopt a set valuation, which is prohibited.
Low appraisals— Contrary to some suggestions, the Code does not lead to lower appraisals for property. The Code insulates appraisers from pressures that led to higher or lower appraisals and should now lead to more accurate valuations. This is in everyone’s interest. Declining home prices began long before the deployment of the Code and relate to many other factors. Current efforts at mortgage market stabilization are a central focus at FHFA and the Enterprises, but that needs to be achieved by keeping borrowers in their homes, not urging appraisers to improperly overvalue homes.
Appraisal management company (AMC) role— Contrary to some suggestion, the Code does not favor the use of AMCs over independent or in-house appraisers. Significantly, for the first time, the Code places the same requirements for appraiser independence on AMCs as the limits placed on lenders. Lender use of AMCs was increasing prior to the Code and one of the key goals and results of the Code was to strengthen appraiser protections when engaged by AMCs.
Unqualified or out-of-area appraisers– The Uniform Standards of Professional Appraisal Practice (USPAP) requires that an appraiser be competent and knowledgeable of the local market to perform an appraisal. In addition, in reinforcing USPAP, the Enterprise appraisal guides require appraisers to have knowledge of the local market. The use of unqualified in-state or out-of-state appraisers, unfamiliar with local conditions, should be reported to state appraiser licensing agencies.
Increased costs at closing— Closing costs have risen in some instances, but that has not been a function of the Code. Lenders have tightened underwriting standards, often requiring additional comparables by appraisers and even requiring second appraisals. Market investors have focused on reducing fraud and sought greater assurances about valuations. Appraisers have been working hard to meet these requests.
Turnaround times for appraisals— The Code may initially have slowed appraisal time as it was being implemented. However, there are other reasons for turnaround time changes; these include increased demands by lenders, the efficiency of a particular lender’s underwriting process and the workload of appraisers. The Code’s appraiser independence standards are critical for accurate valuations, a lesson learned in the current market crisis. Assuring a good appraisal is in the borrower’s interest. As the market adjusts to new underwriting standards, including those for appraisals, more efficiency will reduce turnaround times.
Transferring an appraisal – Contrary to some suggestions, appraisals are transferrable between lenders under the Code. Transferring an appraisal may obviate the consumer’s need to pay for a new appraisal should the first lender deny the loan. Whether a lender decides to transfer or
accept an appraisal, however, is up to the lender, and is not related to the Code. Lender discretion in this area predated the Code.
The entire press release can be reviewed here: http://www.fhfa.gov/webfiles/14611/hvcc_NOTICE_7_22_09F.pdf
Increased costs at closing attributable to appraisals are in some cases due to the extra work required of an appraiser (extra comps, the 1004MC form, and second appraisals) but it should be noted that appraisals coming through most AMCs cost more than an appraisal ordered directly from an appraiser. Often, the appraiser, as a subcontractor of the AMC, is paid substantially less than is paid by the lender, and thus, the borrower. The appraiser is also subject to a mandated turn time, which may be much shorter than the time it takes the AMC to deliver the appraisal to the lender.
The rise of the AMC as an appraisal ordering vehicle has led to slower turn times and increased costs to the consumer.
While the HVCC may not have caused the increase of AMC influence, it was certainly written in such a way that many lenders thought that the AMC solution was the only way to continue doing business.