Editor’s Note: In April, MIBOR convened a focus group of Appraisers to discuss the Home Valuation Code of Conduct and its impact on member transactions, specifically in the area of appraisals. Appraiser and REALTOR®, Carl Heckman, SRA, provided the following summary and analysis of the “HVCC”.
Most of us by now have heard about the Home Valuation Code of Conduct (HVCC). Its implementation on May 1, 2009 was the result of a lawsuit by the New York State Attorney General’s Office against First American Corp., and its subsidiary eAppraiseIT, for putting pressure on appraisers to inflate home values. In essence, the goal of the HVCC is to provide appraiser independence by creating a firewall between the loan producers (lenders and mortgage brokers) and appraisers. Many see that firewall being appraisal management companies (AMC’s).
HVCC Key Points
- As of May 1, 2009, Fannie Mae and Freddie Mac will no longer purchase mortgages from sellers that do not adopt the HVCC with respect to single family mortgages.
- Does not apply to FHA or VA loans.
- Does not prohibit brokers and salespersons from talking with appraisers.
- The borrower is to receive a copy of the appraisal no less than three days prior to closing.
- Mortgage brokers are banned from the appraisal ordering process.
- Fannie Mae and Freddie Mac can cancel or alter the HVCC agreement beginning May 1, 2011.
- Compliance does not require the use of third parties.
- Entities who fund loans with their own money can sell loans to Fannie Mae and Freddie Mac and order appraisals.
- Appraisals can be ordered directly by lenders with sound risk management practices in place.
- Appraisals prepared by institutionally-employed appraisers are allowed with proper firewalls.
- Sellers/Servicers must represent and warrant that the appraisal report is obtained in a manner consistent with the HVCC.
- A lender may accept an appraisal ordered by a different lender, provided the lender that ordered the appraisal complied with the HVCC. A transferred appraisal is acceptable when a mortgage broker facilitates the mortgage application, but not in instances when the mortgage broker ordered the appraisal.
Benefits of HVCC
The primary focal point of the HVCC is appraiser independence and a step toward the elimination of mortgage fraud. Without pressure from lenders or mortgage brokers to inflate values, appraisers are free to render an opinion of value without fear of losing future assignments.
Concerns of HVCC
Many have expressed concern that AMC’s will hire appraisers with the lowest bids which will likely lead to poor quality and, in turn, drive good appraisers from the business.
Another complaint is that AMC’s will hire appraisers from out of the area who don’t know the market. There have been reports whereby non-local appraisers are performing appraisals in the Indianapolis market. A potential concern for MIBOR is how the non-local appraiser is getting sale data if not a subscriber to the BLC® listing service.
The appraisal turnaround time is now being cited as a significant concern. Reports of some appraisals taking up to three weeks or more are being heard. Such lengthy turnaround times could be the result of a combination of non-local appraisers, difficulty in placing appraisal orders, or overall appraiser workload. Further, increased turnaround times could lead to longer rate locks or extensions of existing locks which could lead to increased costs to consumers.
An appraiser may have had numerous clients prior to May 1, 2009. Now with HVCC, the number of clients (AMC’s) has been drastically reduced. With a limited client base, the pressure on an appraiser could be even greater. There have already been a number of complaints about AMC’s asking appraisers to reconsider values. The pressure on appraisers is what the HVCC was attempting to address in the first place.
A potential conflict of interest with big banks and AMC’s is also an area of concern. First American Title, the defendant in the initial New York Attorney General lawsuit that prompted the HVCC, currently has joint venture AMC’s with some of the largest banks in the nation, including JP Morgan Chase (Quantrix), Citigroup (Finiti), and Wells Fargo (Rels). Another large bank, Bank of America, owns Landsafe. Including full and partial, direct and indirect ownership, these four banks now have a stake in about 75 percent to 80 percent of the residential appraisal market. The fact that AMC’s are currently unregulated appears to add to the conflict of interest and circumvent the overall intent of the HVCC.
Summary
The HVCC’s overall intent to provide for appraiser independence is welcome. Time will tell if the HVCC is the appropriate vehicle for such independence. As currently structured, however, the HVCC appears to have unintended consequences that could potentially be counterproductive to its intent and ultimately hurt consumers. From a REALTOR® standpoint, one of the more important aspects of the HVCC is that a broker or salesperson is not prohibited from talking with appraisers. Such discussion is a necessary step in providing sound and accurate opinions of value.
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