It's HVCC Day

Today is the day that the Home Valuation Code of Conduct goes into effect.  This is the set of rules designed to keep fraudulent lenders and appraisers from conspiring to inflate appraisals.  The actual effect is more likely going to be to harm the real estate market and consumers.

The main change is that loan officers can no longer order appraisals or communicate with appraisers.  For mortgage brokers this means that the wholesale lender will order the appraisals through an Appraisal Management Company, or AMC.  These AMCs have been around for some time and can be useful for lenders who do business out of their local area.  You can simply contact one of these AMCs and let them find the appraiser.

Unfortunately, the result is often an inferior appraisal with an inflated fee.  The reason is that these AMCs are taking a cut out of the appraisal fee, so it costs the consumer more than it would if ordered directly and the appraiser is paid less than they otherwise would.  Up until now appraisers would only accept AMC work if they weren't busy with local lenders.  Why do the same work for less money?  So basically if the lenders who know you don't want to hire you, you take work for less money from people who don't know you.  Not exactly a recipe for selecting the best appraisers. 

Even now with the HVCC in place, a small bank exception will still allow good appraisers to do work for local lenders for higher fees than the AMCs pay.  So who's left doing these appraisals ordered anonymously through AMCs?  Are they any good?  Will they be done on time?  In my experience, the answer is too often "no."

Another problem is that these appraisals will be ordered by the lenders, not the brokers.  This is fine if everything goes smoothly, but sometimes for one reason or another a loan needs to be moved.  There is a procedure for this, but it remains to be seen how cooperative lenders will be and how much extra this will cost the borrower.

By far the biggest issue with the HVCC is that it simply won't work.  Large lenders like Countrywide and Wells Fargo are simply using AMCs that they own and control.  These AMCs in turn have increased influence over appraisers because of the market share they control.  The HVCC was clearly written by people too far removed from the real world of real estate to understand what they were doing. 

People determined to commit fraud will always find a way no matter how many new rules pop up.  Things like the HVCC only make it more difficult for the honest people.  The only way to fix the problems that exist in the real estate/mortgage market is to aggressively pursue and weed out the bad actors one at a time.