Changes Coming to HVCC

Tuesday, July 28th, 2009 | Uncategorized

If you read blogs and keep abreast of what’s going on in the real estate industry, then no doubt you’ve seen the consternation caused by the Home Valuation Code of Conduct (HVCC or the Code) that was enacted this past May by Fannie and Freddie.

They put a code in force made sense, at least to me.  After all, if anyone thinks that the last ten years were a hallmark of honest and accurate appraisals untainted by the demands of lenders, borrowers, and brokers, please give me a call: I have a wonderful dream house in a crack neighborhood in East Cleveland for sale.

The Code stipulates that Realtors and mortgage brokers are prohibited from selecting appraisers. Lenders may use “in-house” staff appraisers to conduct appraisals; however, loan production staff are prohibited from selecting, recommending, or influencing the selection of an appraiser.  Moreover, they are prohibited from having a substantive conversation with and appraiser or appraisal management company (AMC) regarding the appraisal assignment.

AMCs seem to be a good fit because they act as a third party.

For the consumer, the appraisal process is basically the same, although there has been criticism from the National Association of Realtors (NAR) that the appraisal process takes longer and is more expensive.

The NAR has made big push for an 18 month moratorium on the Code, to address their concerns.  While some concerns expressed by the NAR have merit, from their perspective it seems as if everything wrong with the housing market is the fault of the HVCC.  Appraisals are coming in low; lenders are taking too long to do deals, costs increased –– it’s as if these issues only started once the Code was enacted in May!

People who had gotten fat and happy in the good ole’ days when telling an appraiser where “the house needed to come in at” were upset.  Good.

But the NAR has brought to issue two flaws: 1) the tendency of appraisals to be completed by appraisers unfamiliar with the area; and 2) the inability of agents to talk to appraisers.

This week, Fannie and Freddie issued new guidance to all lenders concerning the HVCC to address these issues:

1)  Lenders should use appraisers who have clear experience in the geographical area of the subject property.

2)  Clarifies that appraisers are not prohibited from talking to real estate agents

And then there is a third issue, one that needs to be addressed by the States.  Apparently there is a lack of regulation over AMCs and the quality of the services they provide. The NAR is pushing hard on this, and they may have a point. It’s just strange to see an organization that values, no relies, on the free market suddenly become advocates for more regulation for an industry they don’t like.

If the goal of the HVCC is to strengthen appraiser independence while improving the evaluation process then Freddie & Fannie seem to be on track.

Form more information, see:

http://www.fhfa.gov/webfiles/14611/hvcc_NOTICE_7_22_09F.pdf

http://www.freddiemac.com/singlefamily/hvcc_faq.html

3 Comments to Changes Coming to HVCC

Cristiano Leidget Libros

I realize a lot of what I’m reading lately has to do with the current financial crisis, but your post is another story thank you for sharing this!

Ben Walls

Josh, lol, I’m interested in taking a look at your dream crack house in East Cleveland. I’d like to see the house; what works best for you: Tuesday morning or Thursday afternoon?
Seriously, great article, on point as usual and thanks for the info.

Brandon

The good ol’ days were fine until banks started using creative loans and giving everybody and their brother that walked through the doors $$$. Pair that with fly by night brokers and you create what we have today. The majority, and I say majority, of appraisers and realtors were not the problem. Unqualified buyers in “too much” house with out-of-whack rates is the real reason. Any good appraiser knows that realtors arent appraisers and work off of commission, which is why they constantly try to explain to you why x countertops are sooooo much nicer than y countertops, and that the golden toilets flush twice as fast. Until a realtor can pass the new standardized appraisal exam, dont even bother explaining why your apple is so much better than every other apple in the neighborhood. And with so many appraiser leaving, retiring etc., and the lengthy schooling, requirements, to become an appraiser. Expect appraisal cost to be nearly double when this HVCC vanishes. Any appraiser who has taken the new standardized test, with a national pass rate of 25% understands that NOBODY will work for free anymore and that the appraisal is an absolutely essential piece of the puzzle. I have people say that national pass rate is so low b/c appraisers were so poorly educated. As a graduate of an ive-league school this is untrue, the test is legit and those fortunate enough to pass it and carry the liability of an appraiser will expect to be financially rewarded.

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