Home Valuation Code of Conduct (HVCC)

I’m glad the newspaper industry reported the difficulties the new Home Valuation Code of Conduct has created for home buyers, home owners, real estate professionals and mortgage professionals. 

http://bit.ly/3oE9JL 

The article reconfirms all the speculation I had about the new Appraisal Management Companies and HVCC.  The law was the brain child of NY Attorney General Andrew Cuomo.  It was drafted to make sure lenders didn’t have any undo influence on appraisers, forcing them to inflate home values.  It has absolutely worked.  We currently have absolutely zero contact with the appraisers who do the work, instead we have to contact an appraisal management company who then outsources the work to a “local” appraiser.

The law has had a huge impact on the real estate industry, from purchases to refinances.  Since all real estate is local it is necessary to have an appraiser who is local and has a deep knowledge of the area.  However, because appraisers have had their fees cut significantly, they have to seek out work far and wide and do it quickly to make the money they used to make.  You would think that if the appraisers have had their fees cut that fees for appraisals would be reduced.  Unfortunately, no.  The costs for appraisals has risen at least $50 per appraisal and sometimes more since HVCC was implemented.  The management company pockets a portion of the cost and gives the appraiser a fixed price, which is sometimes negotiated but most of the time a take it or leave price.

The problem lies in the fact that appraisers must now do twice the work in order to make a similar amount of money and many times travel outside of their market.  They are forced to get the appraisals back in quickly, so the quality of research suffers.  We have an investor that used to only accept appraisals from approved appraisers.  The reasoning behind this was that if they found they received shoddy work frequently or the appraiser didn’t have enough experience they couldn’t fully trust the appraisals received, so they established clear cut criteria for approval.  With the AMCs and HVCC, they have to accept the fact that appraisals may come from their list of denied appraisers but they have to accept them anyway.

While this law was well-intentioned, the implementation was rushed and ineffective.  When we first went to this process, rate locks were lost, appraisals came in 40k under value and many times the AMCs were so inundated with calls and complaints that you couldn’t get through to them.  Unfortunately for a lot of borrowers, they lost out on the chance to refinance because while they knew the value of their house decreased, the appraisal management company put the nail in the coffin by sending back an appraisal that was well below any normal depreciation for a market.  Since appraisers needed to go to other markets that they may not have been the most familiar with, they used short sales and foreclosures as comparables that significantly reduced the value of our clients home and never made any adjustments to the distress of those situations.

So far HVCC has cost borrowers more, killed deals for realtors, made it more difficult to take advantage of historically low rates, and reduced the quality of work.  If you are in the real estate industry click on the link at the right side of the page for the HVCC Petition and contact your United States House of Representatives member to implore them to sponsor HR 3044.  If you are homeowner affected by the new appraisal guidelines, sign the petition and contact your representative.