HVCC One Year Later

Mortgage and Lending with Regions Mortgage

It is hard to believe but the sweeping regulation governing real estate appraisals known as the Home Valuation Code of Conduct or HVCC is already one year old. The controversial rule negotiated by New York state Attorney General Andrew Cuomo, Fannie Mae and Freddie Mac along with their regulator the Federal Housing Finance Agency was designed to place a barrier between mortgage brokers, Realtors and appraisers with the assumption that those with an interest in seeing values manipulated would now be excluded from choosing the appraiser, ordering the appraisal or challenging the value determination thus eliminating inflated values and the subsequent fraud seen over the past decade. This all sounded very good on paper but was quickly met with concerns once implemented.

The biggest problem most cited by mortgage lenders and Realtors alike is the inability to choose the appraiser. Not in the sense of being able to use one’s appraiser buddy who has all his eggs in your basket and thereby may feel compelled to get to the needed value for fear of losing future orders. Rather, I refer to the inability under HVCC of simply being able to pick an appraiser familiar with the market and type of property. Because of the so-called ‘firewall’ between mortgage production staff and appraisers it became necessary under HVCC to utilize the services of Appraisal Management Company’s or AMCs. This is because the selection of the appraiser must be random and handled by a disinterested third party. Because the AMCs have no way of knowing whether it is a condo in southern Bay County or a farm or in northern Walton, they have no way of selecting an appraiser familiar with the area or with particular knowledge of the property type. The AMCs also have no way of selecting an appraiser based on experience or expertise. They most often base their criteria on who is the cheapest and who can get it done the fastest. This has lead to many of the most seasoned and experienced appraisers opting out of the AMC model or worse - leaving the industry all together. 

The inherit problems with the HVCC model are obvious. What we are often left with, unfortunately, is appraisals not making value and contracts falling apart. And while I respect the value opinions of 95% of the appraisals I see, the limited inability to challenge a value or even order another appraisal in some necessary instances is made nearly impossible under HVCC. My brother, who is also an appraiser in Alabama, and I often laugh when together that we are not even aloud to talk under HVCC guidelines - obviously a jest but indicative of how we both feel about our inability to discuss the value of a property under the rule. Again, I feel that the HVCC was well intentioned and I have certainly seen cases where top producing loan officers had appraisers in their pockets and had predetermined the appraised value before the placing the order. I know there have been abuses and I firmly believe they contributed, along with many other factors, to the housing bubble bursting. I do wish, however, that more thought had been put into the practical application of the HVCC. As with so many good intentions, the outcome is often quite different from the original vision set forth. If lenders, borrowers, Realtors and, indeed, appraisers are to be best served, a review of HVCC on its one year birthday is in order.


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