Wednesday is the deadline for submitting feedback regarding HVCC or the Home Valuation Code of Conduct. The HVCC, in its current form, contains select language that hurts brokers, agents, appraisers, and consumers.
The underlying story is how well this story has flown under the radar. A handful of appraisers, agents, and mortgage brokers I have spoken with were either unaware or vaguely aware of the HVCC and its implications. Unlike legislation moving through the Senate and House, the HVCC has received very limited coverage. While we are acutely aware that with less then 36 hours until the feedback deadline meaning a petition may be a bit late, we are also aware that you miss every shot you don’t take, that is why we ask you to join us in signing the Petition to Reconsider HVCC.
History:
After an investigation by New York Attorney General, Andrew Cuomo into Fannie Mae and Freddie Mac Appraisal practices, the agencies (with the Office of Federal Housing Enterprise Oversight (OFHEO)) agreed adopt new changes to how appraisals are processed in the mortgage industry in exchange for an end to the investigation. The centerpiece of the agreement is the HVCC, which contains many positive and common sense initiatives to help clean up the industry, but also contains significant negative changes to the how brokers and agents are able to work with appraisers and how appraisers are able to operate, hurting consumers, mortgage brokers, agents, and appraisers.
What it means for Brokers:
1. Brokers (or anybody compensated on a commission basis upon the successful completion of a loan) may not choose appraisers to be used for loans they originate and may not engage in any communication with appraisers. Choosing appraisers and all communication with appraisers is delegated to lenders. This means that brokers are not only not allowed to choose appraisers based on quality of work and professionalism, but ultimately lose control of an integral part of the loan origination process, possibly increasing loan funding times and increasing costs to the consumers in the form of longer rate locks and the need to order new appraisals if there is a change of lender.
2. Since appraisals are made in the lender’s name and not the broker’s, if the broker chooses a new lender for the deal, a completely new appraisal will need to be ordered. This increased consumer costs and the time involved in the transaction.
3. All relationships with appraisers are rendered meaningless overnight.
4. Brokers lose control over transactions and are put at disadvantage as power is shifted toward and biased towards large institutions.
What it means to Appraisers:
1. Must use AMC’s (appraisal management companies), meaning independent appraisers are forced to join and AMC and give 40% or more of their income to the AMC. You read that correctly, this will deprive independent appraisers of nearly 50% of their income in most cases (this could likely mean many experienced appraisers will leave the industry altogether). AMC’s are not regulated, by the way.
2. Unfairly targets appraisers, does not affect AVM’s (Automated Valuation Models) and BPO’s (Broker Price Opinions). This not only hurts appraisers as Lenders may prefer unregulated and unrestricted alternatives that are not included in the HVCC and in a manner which is in contrast with the stated purpose of HVCC.
3. Disallows appraisers from engaging in ANY communication with mortgage brokers, loan officers, agents, or others that may receive a commission upon funding of a deal. This means appraisers are not allowed to talk to their clients, a restriction no placed on any other industry to date. This means all the client relationships they have built are rendered meaningless overnight, an unprecedented act against any industry segment to date.
What it means to Consumers:
1. Higher Costs: If there is a need to change lenders or brokers as a new appraisal will be necessary.
2. Increased time to fund loans as brokers lose control of choosing and managing appraisals and may necessitate longer rate locks or extensions of existing locks. In the case that a new lender or broker is chosen, a new appraisal will be necessitated, increasing time to funding.
3. Decrease incentive to change lenders or brokers if they are not getting the service they deserve due to increased costs and time involved.
April 28th, 2008 at 10:04 pm
I haven’t heard much either……this is REALLY bad for appraisers….wonder why they haven’t been more vocal….
April 29th, 2008 at 5:54 pm
As is the trend for the last 20 years, appraisers which are among the most regulated group in the overall loan process are again at the bottom of the food chain. What about licencing and regulation of all entities of the loan process.
Make loan officers, underwrites and the rest spend +/-$500 per year and another +/- $500 for classes on USPAP and ethics every few years. If they have something to loose, like a licence to make a living, then maybe they would be have some incentive to do the right thing instead of “make the deal work to get paid” Hello? Is anybody in there?
April 29th, 2008 at 6:02 pm
I think there are only a couple of states, if that, that don’t require loan officers to obtain licenses…the issue has been in enforcing infractions….. even fraud cases involving high dollar amounts that are brought before the FBI are routinely not investigated or delayed for years…. we’ll see if any of that changes…..in the future…. I can’t say I’m confident it will…..
The bottom line right now is preventing the death of the independent appraiser…..in my eyes…. and preventing consumers from having to purchase a new appraisal just because they would like to work with a different lender or broker… that simply doesn’t make any sense…..and shows the haste with which some parts of the HVCC were written…..
May 7th, 2008 at 6:58 am
I have been a licensed or certified real estate appraiser since 1993 and I have seen the pressure put on appraisers to hit that magic number in order to make the deal work. I refuse to work with mortgage borkers or loan officers that want me to do a comp check or pencil seach to see if a value is necessary. Who do those people think they are, asking us to give up our time for free to see if we can hit that number. I think that the HVCC is a very good thing.
May 7th, 2008 at 9:07 am
@RSW: Fair enough, I assume you are already a member of an AMC? If not, that is a requirement so be prepared to give up 40% or more of your income….that isn’t a problem for you is it?
May 9th, 2008 at 5:26 pm
With the HVCC, other regulations, rising fuel cost and a very slow market after 17 years I an looking for a job.
May 13th, 2008 at 2:44 am
So what was the outcome of the Wednesday deadline?….what are the next steps?
May 15th, 2008 at 9:42 am
Overall, I agree with this article. This HVCC is a disaster in the making. That being said, I have to say; as an appraiser of 11 years, that every item listed in the HVCC I. has been done to me in my 11 years. The appraisal business is one where doing the job right, with ethics and morality does cost you business. As far as the fee situation, the only appraisers who will lose income are the shop owners. Those of us who primarily work for appraisal companies (most appraisers) already currently work for 50% of the fee (typically). What’s the difference between me having 10 - 15 AMC clients who give me my 50% vs working for 1 local company that gives me 50%? Answer: No difference. In many ways it is better because the work you get is based on prior service, turn times, customer service instead of who brings in the biggest box of pastries to the local dewey, cheatham and howe brokerage. I believe that the biggest problem here is that the already weakended economy will take a huge hit due to the impact of this. Of course one possitive note here is that it will likely be blammed on a democrat president and congress.
May 15th, 2008 at 10:17 am
As clarification: The way the rules are now, every appraisal is done for a specific user, usually a Lender, and although, FNMA/FDMC, will accept the appraisal from a Lender, other than the original user, all Lenders I know of, WILL NOT. Meaning, if the Borrower decides to change Lenders, technically, they need to get a NEW appraisal. So, the HVCC doesn’t affect this part of the appraisal process, it is already like you stated in the article above, #1 for Consumers. The appraisal is owned by the Lender/Client, not the Borrower. I believe this was a FIRREA or RESPA regulation.
Anyway, the HVCC does appear to irreparably damage the Appraisal Lender business and render our broker business relationships meaningless. It does seem to put alot of power into the hands of unregulated AMC’s and adds to the increasing pressure and declining quality of this profession (not the appraisers, but the profession, in general).
May 15th, 2008 at 11:27 am
@Todd: You make an important clarification in regards to 50% affecting independent owners vs individual appraisers….
@Brad: Currently if a borrower has an appraisal from another lender, I can use it by getting it rewritten into our name for small fee…. I don’t think “rewrite” is the correct terminology and every time I use this verbage a friendly appraiser points this out to me, but in any case the net effect is the same, the borrower can use their old appraisal or “rewrite” it for a fee that is much smaller then what a new appraisal would cost…
May 15th, 2008 at 1:28 pm
Trace
You are right about the terms “retype.” To an appraiser this is a new assignment. That means new work file and new report. The fact that the prior appraisal might have been done less than a week ago or reasonably recent time frame allows the appraiser to make a business decision: do I need to re-inspect the property, are the terms of the new assignment different and has anything occurred in the subjects market or to the subject that is relevant. This leads me down the path of what to charge and what I will need to do. I know that lenders call this a retype. I don’t correct their verbage as most brokers don’t know what they are actually asking me to do anyway. Sorry, but it’s true.
May 15th, 2008 at 1:30 pm
@Todd: makes perfect sense and I believe most brokers don’t……. some things will never change.