Top 7 Reasons To Overturn or Revise HVCC

On May 1 of this year the Home Valuation Code of Conduct (HVCC) was implemented, presenting yet another obstacle for consumers to overcome when buying or selling their home in this already depressed real estate market. Essentially this administrative change, which was negotiated by the Attorney General of New York Andrew Cuomo with Fannie Mae, Freddie Mac, and several lenders, prevents the traditional method by which mortgage brokers and lenders ordered appraisals for homes. Instead of simply ordering the appraisal from a trusted, reputable appraiser, each lender now must work with an Appraisal Management Company to arrange for a home to be appraised. Even though the intentions of this change may have been good, the results are anything but. Here are the top 7 reasons that the HVCC needs to be overturned or revised.

1. The HVCC Bill May Require Multiple Appraisals.
   
   Imagine paying for a home appraisal on a property you wish to buy or refinance, and submitting it as part of your loan application with your broker or lender, only to find out that the lender won’t approve your loan. Instead of taking that (perfectly good) appraisal to a new lender (as we’ve done for years), under the new HVCC guidelines you will need to have a second appraisal conducted. What a waste of time, money and effort, right? Well, this happens all too often now due to the HVCC.
   
   
2. The HVCC May Result in Reduced Home Valuations
   
   Consider a reputable appraiser who has worked in your market for years. She undoubtedly has a very good understanding of the true market values of homes in your neighborhood, so naturally having her appraise your home makes sense, right? Unfortunately, due to HVCC, an appraiser that has no experience in working in your market may be assigned to appraise your home, resulting in a lower valuation.
   
   
3. The HVCC will result in delays in the sale, purchase, or refinance of your home.
   
   Before this policy went into effect, it was commonplace for your mortgage broker to be able to order an appraisal of your home, prior to, or on the very same day you applied for a loan. This expedited the loan submission process. Now however, because of the new HVCC policy, lenders must arrange the appraisals with Appraisal Management Companies after the loan submission, often making appraisals take several days to several weeks longer. This is already slowing down the purchase, sale, or refinancing of many homes.
   
   
4. The HVCC Offers Less Borrower Choice
   
   Because appraisals now take longer, and mortgage approvals also take longer, your mortgage broker may need to “lock in your rate” for a longer period of time. The problem with this lies in the fact that longer lock periods are more expensive, so it will cost you more to get the same rate. Furthermore, because appraisals are not portable (can’t take one appraisal to multiple lenders), you won’t be able to easily and inexpensively shop between lenders.
   
   
5. HVCC Is Not Regulated
   
   One of the reasons that HVCC was put forth was to prevent unscrupulous appraisers (who were in cahoots with unscrupulous loan originators, lenders and builders) from overinflating the value of homes. However, at least appraisers were regulated in many states. Now, appraisals are ordered by Appraisal Management Companies (AMC’s), which are unregulated. So, in a state like California, we’ve gone from ordering appraisals directly through regulated appraisers to ordering through unregulated AMC’s. Where is the logic in this?
   
   
6. HVCC Was Not Given The Same Consideration As Legislation
   
   HVCC was not implemented after carefully crafted legislation. Rather, it was done through a litigation settlement between NY State and a handful of lenders, instead of going through the legislative process to get a (hopefully) well balanced and well thought out approach to a complex issue. Instead, Fannie Mae, Freddie Mac and a handful of lenders agreed to abide by this poorly thought out settlement in effort to avoid further investigation and litigation by the Attorney General of one state.
   
   
7. HVCC Does Not Prevent Undue Influence from Lenders on Appraisers
   
   The original intent of the HVCC was to keep lenders from exerting undue influence on appraisers. The original complaint by NY Attorney General Andrew Cuomo arose from a lender exerting undue influence over an (unregulated and still unregulated) Appraisal Management Company. In an ironic twist, lenders now have more influence than ever because they are now ordering most all appraisals (including those that used to be ordered by independent mortgage brokers), and because they have been allowed to have ownership in the AMC’s (Appraisal Management Companies). Hard to believe, but true! We’ve put the fox in the hen house.

Ed Craine is CEO of San Francisco based Smith Craine Finance, an award winning mortgage brokerage. He was appointed Vice President of CAMB in 2007. Ed serves as an Executive Director for BNI, and is a contributing author to several NY Times Best Selling Books. Visit http://www.smithcraine.com