As I understand it, the Home Valuation Code of Conduct (HVCC) was passed to erect a barrier between Loan originators having undue influence on appraisers.  Basically the Government is saying that Mortgage Brokers are twisting appraisers arm to inflate values so they enacted this law.  As I sit and try to understand this new law here are my initial thoughts:

  1. Lenders have whats called in house "Appraisal Review".  These departments basically analyze comparable sales to verify that appraisers aren't doing things like excluding better comparables.
  2. Why are some of the biggest lenders in the country allowed to run their own appraisal management companies?
  3. Why is there no oversight of Appraisal Management companies, no licensing required.
  4. There is a normal amount of cooperation & communication neccessary to be able to effectively do ones job in any industry.  Are we barring Wall Street from talking to, or even worse, paying the Ratings Agencies?  After Enron/Arthur Anderson did we make it impossible for Auditors to communicate or receive fees from their corporate clients? 


What this will mean for borrowers:

  • Added layer of bureacracy, will slow down the process
  • Major opportunities for monkey business to occur.  This law says that the lender picks their own appraiser and in certain cases they can own and control the company that picks the appraisals.  This is an invitation for unscrupulous lenders to collude with a crooked appraisal management company and commit fraud on levels that may still find a way to surprise us. 
  • Is it still going to be legal for builders to own their own lending companies? which in turn could potentially own their own appraisal management companies?  Basically legalizing builders to say "I'll sell you this house and listen here buddy, for my own convenience....I mean...your own protection, I'll tell you how much it is worth too"
  • Elimination of fair market competion.  No choosing appraisers based on price, work ethic or professionalism.  You know what though, I guess this isn't that big of a deal.  Fair market capitalism is only one of the most important principals in our country's economic history.  We are still a relatively new country so I guess this theory really hasn't proven itself yet...
  • Anybody who has closed a reasonable amount of deals in this industry knows that it is often necessary for borrowers, realtors & loan officers to get involved to streamline communication.  We need to be allowed to do our jobs.  With appraisers getting paid less for the same amount of work they will likely be less motivated to review additional data even if it is relavent to their final opinion of value.
  • Timing will suffer with more layers of bureacracy, time sensitive situations will be harder to accomodate.  You need your loan to close tomorrow for a legitimately important reason?  Sorry get in line behind all other Appraisal Management orders in the queue.
  • There is an unneccessary middleman marking up the fees consumers pay for appraisals
  • Many Lenders are not allowing appraisals even if they come from another Appraisal Management Company (AMC).  This means that consumers will have to pay for a new appraisal if there loan gets rejected at one lender and they want to re-submit to a new lender.

If the values in the April 2009 U.S. housing market are artificially inflated by illegal coercion of appraisers by Mortgage Brokers, what is going to happen now that values go back to their true "Government Mandated" level?  I guess we should all brace ourselves for another 20-40% in value evaporation.

Fannie Mae FAQ on HVCC


Update 5/18/09:

I love this, HVCC was created to eliminate the corrupting influence of evil mortgage brokers.  Eiminating the person directly working with the borrower from the process doesn't make sense.  As a broker this e-mail from Provident Funding is really irritating.  They want to eliminate brokers from the process, charge the borrower more for an appraisal, triple the turntime, and then ask the broker to assist in coordinating the appraisal (without being allowed to speak to the appraiser).  If something breaks down in the communication between the appraiser and the homeowner, it isn't the appraisal management company, who is getting a fee specifically to be a liason between appraiser and borrower, who should get dinged its the mortgage broker, who by law isn't allowed to be involved in the process ?!?!?


Update 6/29/09:

Industry is pushing for 18 month moratorium on this wonderful piece of legislation

More HVCC Discussion



Posted by Ben Nicolas on
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