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HVCC – Why Government Intervention in the Appraisal Process Has Failed

By
Real Estate Agent with Future Home Realty

All Realtors and Appraisers are aware of HVCC, aka the Home Valuation Code of Conduct which of course is governments attempt at regulating the appraisal process. The purpose of course was to keep lenders and others from having undue influence over the appraisal process.

In the high times of Real Estate sales it seemed that some lenders were putting undue pressure on Appraisers to come in with a high appraisal value. Of course government is very shortsighted as undue pressure to increase values was coming first and foremost from the government. Congressmen actually were yelling that the value is what people are willing to pay and urging Appraisers and lenders to keep up, and of course there was pressure from Realtors, buyers, sellers and more. Of course when an Appraisal came in lower than the buyer was willing to pay, they would come up with the extra cash to buy the home. It was a crazy time.

Some of us believe there is now undue pressure to influence Appraisers to come in with excessively low appraisals. The pressure may not be as blatant, but it seems to be there all the same. One Appraiser even told me he gives the lowest possible value. Upon questioning he said that he is never going to get blamed for giving too high of a value again.

My question to him was if you are giving the lowest possible value, will the government, lenders and more be blaming you if the values go too low and suddenly it causes sellers, lenders and the taxpayers to lose hundreds of millions of dollars or even billions of dollars. After all if prices are pushed artificially low, how many foreclosures will result due to that?

Although most Appraisers and appraisals are fine, since HVCC we are seeing many of the experienced Appraisers leaving the field. They just cannot afford to work for half the price as is occurring now and therefore we are often seeing inexperienced or out of area Appraisers being used. And due to the low fees they are receiving we are seeing appraisals that are not fully researched, and ultimately are filled with errors driving values even lower.

Apparently, there has now been one Appraiser who threatened the life of Andrew Cuomo who is the Attorney General of New York. He of course is the one that dreamed up and pushed HVCC. Although there is not much detail apparently this owner of an appraisal company felt that HVCC is hurting his business and he is being held on $500 million bail for his threats. Obviously no one should be threatening the life of anyone.

With that said when the government tries to regulate a field that they know nothing about it can ruin people's lives and unfortunately with HVCC many people's lives are being ruined. Many Appraisers who were making a good living are now unemployed or underemployed due to HVCC and it may be causing sellers to go into foreclosure, lenders to lose money, and keeping buyers from buying a great home.

We must remember that government was the major cause of the housing bubble as they created the policies and environment that allowed or incentivized bad practices. Even the bond rating agencies gave their highest rating to sub-prime loans causing investors to readily purchase mortgages that should have never been given.

My view on HVCC is that it took one problem which is undue influence on Appraisers, and trying to solve it, created a whole new set of problems which are even worse than the one they supposedly fixed. There are those that love HVCC. For example, the Appraisal Management Companies get a large fee for choosing and managing the appraisal then bid out to the Appraiser who will work for the lowest fee, driving out the experienced Appraisers. Therefore the inexperienced Appraisers tend to like HVCC also in that they are now getting the work that the experienced Appraisers once got. Of course others say they also like feeling like they have the power to say no.

In my opinion however, as licensed professionals Appraisers are responsible for what they do. If they gave in to pressure to raise the appraisal value above what they could honestly show then they should lose their license.

When I hear an Appraiser say they succumbed to pressure and gave an inaccurate appraisal value, or a Realtor, Title Company, Home Inspectors and others that did anything unethical or illegal they should be punished or prosecuted. Most Appraisers, Realtors, Title Companies, Home Inspectors and others did not succumb to the pressure to do anything unethical or illegal. Those that did should pay the price.

I say give me the old system, though I believe it can be improved by enforcing licensing and other laws. Lenders used Appraisers based on their area of expertise. We would see the same Appraisers for all the appraisals in Apollo Beach, another group of Appraisers in New Tampa and so on. They knew the market values and neighborhoods inside out. Today we often see Appraisers who have never done an appraisal in the area and unfortunately many times due to the small fee they are getting they do not even do the required research with is shown by the blatant errors we are now seeing.

Government regulation will never prevent illegal or unethical behavior. Instead take legal action when an Appraiser, Realtor, Title Company, Home Inspector, Lender, Buyer, Seller or anyone who does something illegal and if something unethical is done then take away their license.

Comments (4)

Rosemary Brooks
BMC Real Estate - 209-910-3706 - Stockton, CA
The Mother & Daughter Realty Team

Jeff this is some information.  Although I am not sure our pointing out these problems are falling on deaf ears.

Dec 18, 2009 12:06 AM
Jeff Launiere
Future Home Realty - Tampa, FL
Jeff Launiere

I believe that actually all the complaints from Appraisers, Realtors and others are being heard.

H.R. 3044 is presently making its way through Congress and last I heard has 54 sponsors. It would impose an 18 month moratorium on HVCC. Barney Frank has stepped in the way of this bill and unfortunately he stands in the way of what is right so often. It will be interesting to see what happens, but many in Congress agree that HVCC is a real problem.

I think that possibly if they see that it could cost the US economy much harm then some may wake up to the fact that HVCC should be put out of its misery.

Dec 18, 2009 12:33 AM
Anonymous
David

H.R. 3044 died while on the operating table.

The best way to get rid of HVCC is probably just wait until FNMA & Freddie Mac are dismantled in the coming months.  Once that happens HVCC will be a greasy little footnote in a book named "Biggest Banking Scams Of 2009".

Jan 22, 2010 09:13 AM
#3
Anonymous
Appraiser Inactive

You hit the name on the head with this article.  HVCC is nothing short of legalized extorsion.  Marking up the cost of appraisals by 50% and guaranteeing borrowers an appraisal of the poorest quality.  Three things can help solve the HVCC fiasco:

1)  Disasseble FNMA & Freddie Mac so that HVCC becomes a nonissue.

2)  Abolishing HVCC through a Congressional act

3) A national appraisers strike against AMC work.

Until 1 of these 3 items take place borrowers, appraisers, Realtors, & mortgage brokers will continue to get screwed by the "HVCC solution". 

Feb 03, 2010 01:57 AM
#4