There has been a lot of confusion about HVCC and what it means to our industry. I would like to present a "basics" blog to explain the repercussions of these well intentioned guidelines.
First: a glossary of terms
HVCC - Housing Value Code of Conduct
AMC - Appraisal Management Company
Andrew Cuomo - New York Attorney General
Who:
In an attempt to ensure lenders could not put undue pressure on appraisers to value a home higher than appropriate, Andrew Cuomo took it upon himself to create a new set of guidelines referred to as HVCC. He also informed Fannie Mae and Freddie Mac that if they didn't adopt his new guidelines, he would sue them. They adopted HVCC.
What:
The HVCC demands that an AMC is created. The AMC would hire the appraisers necessary to perform appraisals as requested by Fannie Mae and Freddie Mac for all conventional loans.
Where:
These new guidelines are being implemented nationally.
How:
1. A buyer and seller negotiate what both feel to be a fair market value for the property.
2. The buyer's lender gets a copy of the fully executed contract.
3. The lender then contacts an AMC to have the property appraised.
4. The AMC then retains the services of the next appraiser on their list of appraisers for that area.
5. The appraiser then goes to the property to get the information necessary to do an accurate appraisal.
6. The lender then receives the appraisal from the AMC.
General Guidelines:
1. Realtors and lenders cannot have any direct contact with the appraiser unless contacted by the appraiser. Even then, they are not to have any conversation with the appraiser that might influence the final appraised value.
Exceptions:
FHA and cash buyers are exempt from using the new guidelines.
Loopholes:
1. Large direct lenders have set up their own AMC's and have hired only the appraisers that they feel they want in their pool of appraisers.
Unintended Results:
1. Appraisers no longer have to prove their knowledge in order to be hired. They simply have to be hired by the larger AMC's and rotate to the top of the list. Since they are being paid approximately half of their normal fee, many of the better appraisers have chosen to not be put on the list and are appraising cash deals or other types of appraisals. That leaves the "list" sorely lacking. The appraisers could be from as far away as a hundred miles and not know the area at all.
2. Mortgage brokers do not have the luxury the banks have, and must deal with the less accurate AMC's set up by the government. As a result, Realtors are going directly to banks using their own AMC for their loans rather than the unpredictable appraisals that the mortgage brokers must deal with from the government AMC's.
3. Poorly performed appraisals are extremely difficult to get corrected since no communication is allowed.
4. Banks are reaping the benefits of the implementation of HVCC.
5. It is becoming increasingly difficult to see the market turn, since:
a. It is to the advantage of the lender to have the appraisal come in low, since their loan will have less risk.
b. It is to the advantage of the less than ethical appraiser to come in low, since the lenders will be more likely to keep him/her on the payroll. (I read of an appraiser who was removed from the list because the value came in over the contract price twice.)
6. It is giving good appraisers a bad reputation.
Well, that's about it...HVCC 101. I know there are many out there with horror stories or opinions of their own, and I welcome the comments. My worry? We will lose our great appraisers and mortgage brokers to poorly enacted "guidelines", our buyers can't buy the homes of their choice because they are not appraising and sellers can't sell their homes for the same reason. I believe my facts are correct here, but if any of it is incorrect, I welcome the corrections as well.
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Paula...
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