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.
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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.
May 18th, 2008 at 5:32 am
I agree that this is a wise choice. I am a National Real Estate Franchise owner in a small market. There are appraisers in our area that have personal issues with either agents or myself, we all feel that their opinions should be un-bias, it is ovious they are not. My other “beef” is the appraiser receiving a copy of the sales contract prior to his professional opinion. For what reason is this neccessary? If they need legal descriptions it is readly avaliable via internet GIS.
May 18th, 2008 at 10:57 am
Jamie
Real estate appraisers are REQUIRED to review the sales contract. We are supposed to receive a copy from the lender when the order is initiated. Fannie mae, Freddie mac and the government loans all require the appraiser to review the contract for any terms and conditions that might have an impact on the value. In fact, the URAR (Uniform Residential Appraisal Report)form (designed by Fannie mae) has a specific section for this review. For example: A house sells for $150,000. A week before the closing the borrower switches to an FHA program and the seller now has to pay $5,000 in closing costs. Typically, most real estate agents and sellers will increase the sales price to $155,000 to cover the new cost to the seller. Of course, that is not an issue when all parties agree. The appraiser IS required to disclose this information and account for it. Basically, if the home was worth $155,000, the closing cost would be a mute point. However if the comps indicated that the home was worth only $150,000. Then you would have an issue, since the $5,000 extra from the original agreement is just fluff. By the way, the HVCC will make your problem worse. It will be like a giant VA appraiser roster. You will have absolutely no say whatsoever on what happens. There wont be any “new” appraisals that “make value” or appraiser shopping permitted. Be careful what you wish for!
May 20th, 2008 at 12:57 pm
I HAVE BEEN SRA MEMBER OF THE APPRAISAL INSTITUTE SINCE 1992. THE HVCC WILL PUT ME OUT OF BUSINESS. I AM DISGUSTED WITH THIS PROPOSAL. I HAVE BUILT CLIENT RELATIONSHIPS SINCE 1992 & CAN KISS THEM ALL GOODBYE WITH THE HVCC. I AM HONEST APPRAISER & ADHERE TO NOT ONLY NJ STATE REGULATIONS BUT THE APPRAISAL INSTITUTE’S STRICT CODE OF ETHICS. IMAGINE THIS THE PROFESSION YOU CHOSE & DID GOOD, HONEST JOB & THEN OVERNIGHT IT IS GONE. I AM SCRAMBLING FOR NEW PROFESSION WHICH AT THIS POINT IN LIFE REALLY STINKS.
May 26th, 2008 at 9:23 pm
I just started reading this post and the one by Todd Hurst just sent me through the roof. No difference for him because he chouses not to develop relationships, and the service that has kept my clients loyal for 20 years. A few appraisers work for me, not because they are not good appraisers but because their is a difference between an appraiser and a appraisal company.
The company is just that, a business, who in this instance completes appraisals. Just because Todd Hurst dose not have the entrepreneurial sprit and would rather work for a AMC and thinks their is no difference for those of us who put in way more hours then just completing reports.
I have been working for a full fee for 20 years, and believe me, 50% of it is well earned. Todd, you right now today have the opportunity to earn a little better then you have been. Next year if they do not make some change’s you won’t. Opportunity will be prevented from knocking, If your young, don’t be like Todd and waste 11 years of your life working for others without the choice of true independence. Find a new profession. It’s been said many times, you will never get rich working for someone else.
May 28th, 2008 at 11:46 am
Hi, great article and a great point of view from the people believed to be lesser affected by the HVCC, the appraiser. Please contact jrectenwald@besstitle.com and please signup with us as a vendor management firm. In truth, we are now marking up fees and not paying appraisers less. Most of the time, our appraisers are paid at the door by the borrowers, and it ranges from $275-$325.00 for a basic FNMA 1004.
Thanks so much!!!
Jason C. Sheppard
President and CEO
TruClose Financial Services, LLC
300 Mt. Lebanon Blvd. Suite 2215
Pittsburgh, PA 15234
TF: 888.510.9665 x 66
FX: 888.510.9665
EM: jsheppard@besstitle.com
http://www.besstitle.com
http://www.tcfstitle.com
May 28th, 2008 at 11:47 am
Shoot, that was supposed to say “NOT marking up fees” now “NOW”. Sorry! Thanks!
May 28th, 2008 at 1:49 pm
@ M. R. K.,
Sorry that you FEEL so bad about this. Maybe you should look into becoming an AMC, or maybe you didn’t think of that. As far as my spirit is concerned, it’s quite well thanks.
Todd Hurst
June 24th, 2008 at 9:40 pm
This is a travestry and another control that is unnesessary & unwarranteed, what’s new!!!!!
June 25th, 2008 at 12:01 pm
All of the above comments are very relevant. However, as is always the case in our nonDemocracy, congress won’t consider any of the complaints by the less powerful. Predictions that I will make here that will be overlooked– Many of the AMC’s are owned by the companies that generate the loans. They were created to form a profitable income stream, most notably, Wells Fargo with its RELS division. HVCC needs to force that conflict of interest to END. Secondly, USPAP does REQUIRE that the fee paid to the appraiser be published on the appraisal. AMC’s have contracts that demand the appraiser not foreclose that amount, directly in violation of USPAP. This would anger the borrower and allow the lenders to know how badly they’re being gouged. Thirdly, many good appraisers including myself have been punished financially in the past by being shut out of lender’s lists. The big banks virtually control who gets the work. This would fall into the hands of the AMC’s who would just transfer the current list from their client into their database. The good old boy network would still be in place. I believe that the new appraisers who have entered the market during the past 4 years will take over the market and do $180 appraisals gladly, to avoid going back to the $12 an hour service jobs they were desperate to leave. Lastly, the real estate market has gotten really sick since 2002, with Realtors and lenders raving how great it was that typical prices went to $500,000. NO, it wasn’t good for the country, it’s inflationary and it destroys the economy and the standard of living. This is insidious. Average mortage payments in expensive markets went to $4,000, $5,000, and even $6,000. I don’t know many families that can survive on even a $2,500 payment. The financial system was used as a speculation tool, and now it’s become a disaster of scary proportions. Bad on us. Admit it, HVCC would have prevented it, a lot of deals would have failed 2002-2006, and prices of homes would have stayed in line with value in use (rents). No one will discuss these issues when making the decisions, the 900 pound gorilla (FNMA) will win again. I out of business next year most likely. (17 yrs experience).
June 30th, 2008 at 2:37 pm
APPRAISERS WILL BE FORCED BY MANAGEMENT COMPANIES TO WORK FOR PENNIES ON THE DOLLAR, THERE IS MUCH WRONG WITH HVCC, AND WE NEED TO FIGHT AGAINST IT
July 9th, 2008 at 7:21 am
Senators want hud statements to reflect what the appraiser is paid & what the AMC steals from Appraisers. If you realy want to have independant appraisers then you can’t have AMC taking 50% of their fees. If AMC after being paid by lenders can rotate appraisal orders to the next appraiser based on experiance, turnaround time, quality of work (that is judge by an independent professional appraisal reviewer) and not by fees charged. Then AMC could protect appraisers independance from realtor, mortgage broker and lender pressures to come up with any particular value that is not supported in the market.
When congress passes the HVCC or Home Valuation Code of Conduct, the industry will after all the appraiser training of the past years go a long way to protect consumers from lenders real estate fraud and misrepresentations. You have to protect appraisers from being placed by lenders on “silent blacklists” or do not use lists without any due process of law to defend themselves from mad lenders and mortgage brokers false and sometimes fraudulent allegations. Remember Appraisers only report market conditions, they do not kill their deals.
July 30th, 2008 at 7:41 pm
HI, JEN!
August 19th, 2008 at 2:48 pm
If the OCC believes that AMCs are necessary to assist in appraiser independence from lender pressure, financially biased parties, etc. then fine. But I’ll never understand why these AMCs are able to charge such excessive fees and more importantly, why these fees are being paid by the appraiser, whose fees are already lower than reasonable, based upon the rising costs and continually increasing requirements. These AMCs have put such emphasis on low appraisal fees in order to inflate their profit margin that cheap appraisals, rather than well researched and documented appraisals, have become the goal. These “cheap” appraisals have contributed greatly to the current condition of the real estate and mortgage industry. At present, it is my strong opinion that AMCs have done much more harm than good. Consequently, the HVCC, as currently written, will be detrimental as it gives complete control to these AMCs over the entire residential appraisal industry.
September 2nd, 2008 at 5:53 pm
If HVCC passes in it’s current format it will put the majority of appraisers out of business. Do the math; AMC fees will help you to cover your overhead & gas (if you work out of your home). There’s no money left in the fee to compensate you for your time and training.
Who among you are brave enough to join in a class action lawsuit if HVCC puts your out of business?
September 2nd, 2008 at 6:07 pm
From what I have heard through many state mortgage broker and banker associations, this ruling will not pass. As far as appraisers getting paid their asking price and what they deserve, please check out our site at http://www.besstitle.com. We do not mark up our appraisal fees, all we do is manage and place a quality appraiser with our lending clients’ borrowers. We pay $275.00-$325.00 per appraisal to the appraisers completing our reports.
We would love to work with you all!
Thanks!
Jason C. Sheppard
President and CEO
TruClose Financial Services, LLC
TF: 888.510.9665 x 66
EM: jsheppard@besstitle.com
September 3rd, 2008 at 2:31 am
Hi David,
I like your idea. I was wondering when someone would mention a class action lawsuit. To systematically take an entire group of professionals, and cut their earnings by 40% and/or put them out of business, deserves some type of action!
September 11th, 2008 at 9:47 am
I am all over this Class Action Lawsuit!!! Sign me up.
September 11th, 2008 at 9:47 am
I’m all over this class action!
September 24th, 2008 at 1:46 pm
Re: Below comment by Todd Hurst
“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”.
Todd; your remark noted above is a clear illustration what we have trying to tell Congressmen and women since March of this year. HVCC will destroy the appraisal profession for this very reason. No appraisal shops can survive and anyone with over two years experience will change professions because it simply won’t be worth their time to keep appraising. Newby’s (those with two years or less experience) will continue to appraise for the $75 to $150 fees that AMCs are willing to pay because that’s what they are accustomed to earning. Once they figure out EVERY EXPENSE in addtion to fuel comes out of their $75 to $150 fee they will see that it’s not even worth their time. Trust me…by the time you deduct the expenses from half price fees you’ll see that you can earn more at Walmart or McDonalds.
Best of luck to those of you who remain in the business.
September 24th, 2008 at 1:54 pm
AMCs were fine as on the side “filler work”…but the simple fact is apprasing is a high overhead business (even if you work out of your home). The money that they take off the top…is not only the profit…but most of the money you should be paid for your time.
Chumps work for AMCs…intelligent appraisers have already found an alternate income source and are looking forward to a better life. January 1, 2009 will change your life if you haven’t modified your business plan. I can assure you that the worst of times (for appraisers) lies in the not so distant future…not within the past 13 months.
October 10th, 2008 at 12:51 pm
Yes, the HVCC is completely flawed and will significantly impact the appraisal industry. Yes, something does need to be done to address the objectivity problem which got us into this disaster in the first place. The answer is not to mandate an additional layer in between the lender and the appraiser which does not add any value to the product, and actually diminishes the quality and credibility of the entire appraisal profession.
David is correct. If all appraisals are required to be ordered through a low-balling AMC who skims off 40% or more of the market price appraisal fee up front, the only appraisers left in business will be uneducated rookies who do not have the means or skills to go out and make a better living. You will be left with the bottom of the barrel appraisers.
The entire real estate industry needs to have our standards significantly raised. Appraisers of any level should be required to have a bachelors degree to become licensed. Due to the cumulative value of the assets we value within a given year, this does not seem unreasonable. A crappy appraiser (skippy) can do quite a bit of damage in one year. Entry level supervisors or managers in “regular jobs” who deal with much smaller budgets and/or assets are usually required to have a bachelors degree.
There needs to be significant barriers to entry on the loan origination/loan officer/brokering side of the equation. These are the guys who get away with murder and have no consequences. Maybe the broker whose license is on the wall can be punished, but the semi-literate high school dropout “loan officer” who prospected the borrower and falsified their loan application and pressured the appraiser has nothing to lose. Many brokers will turn a blind eye on unscrupulous loan officers working under them, as long as they are closing deals. The broker can claim plausible deniability and blame it on the unlicensed loan officer when caught. Any independent individual involved in any way in brokering a loan (not processors of course) should be required to have a bachelors degree in order to obtain a brokers license. Only licensed individuals should be allowed to be involved in these transactions, and they should be liable for any material errors or omissions, fraud, deceit, etc, just like appraisers. Make fraud very painful for these people. Get rid of unlicensed “loan officers”. These are nothing but sleazy used car salesmen. The industry does not need a whole bunch of brokers/loan officers. This segment needs to be whittled down to just educated, ethical professionals. Thankfully, many of the idiots in this segment have already been eliminated due to market forces. However, I still get calls from brokers/loan officers who “shop around” for appraisers willing to do their dirty work. Its amazing.
I have mixed feelings about brokers being able to order appraisals. Overall, I would have to say that my dealings with independent brokers have been negative. Even some of my better broker clients have asked me to do questionable things at times. I have many horror stories, and have turned in several brokers to the DRE. However, I dont believe that it should be illegal for a broker to hire an appraiser. There is still a need for this in some cases. However, my best experiences by far in this business is when the bank or the end user is the one who requests my services. Unfortunately, banks only seem to engage appraisers directly on commercial assignments, not residential. This should change. Banks should do this for residential as well. Its their money being lent, they should be the one selecting the appraiser. Banks seem to manage appraiser panels on the commercial side just fine. They should be able to translate this to residential as well. Banks dont need AMCs. Im sure it is more efficient for them, but they should realize that as AMCs become the norm for residential work, the quality and credibility of the appraisals will decrease. This could be much more costly to the bank than developing their own independent fee panels and paying qualified appraisers the entire appraisal fee (which the bank is paying anyway, but the appraiser only sees a portion of it.)
I am a professional appraiser, not a skippy. I have a bachelors and MBA degree. I didnt spend 7 years in college to get paid $185 to drive 50 miles each way, then spend an additional 3-6 hours writing a quality, credible appraisal. This is barely high school graduate level wages (after expenses are taken out), not professional level wages. Get a clue. If an AMC is willing to pay me what I’m worth, I will certainly work for them. If not, go get skippy and wreck the industry entirely. In the meantime I will be doing private work, commercial work, traditional broker work (for legitimate brokers), etc. Once the industry is completely wrecked, I will probably go back into corporate life again.