Mention the Home Valuation Code of Conduct to almost anyone in the real estate business, and you run the risk of unleashing a tirade.
HVCC, which took effect May 1, is a set of guidelines implemented by Fannie Mae and Freddie Mac as part of a nationwide settlement with New York Attorney General Andrew Cuomo to prevent litigation concerning overinflated appraisals. HVCC aims to stop fraud by forbidding mortgage brokers, loan originators or Realtors to contract work to appraisers directly on conventional home loans.
In order to meet the criteria, lenders and mortgage companies contract with appraisal management companies that keep a pool of appraisers who rotate out as work comes in.
So what’s the problem? Those pools consist of appraisers that might or might not be from the buyer or seller’s service area. That means an appraiser coming in from out of town not only takes work away from locals, but they also are unfamiliar with the market.
“It’s been a disaster,” says Mike Anderson, president of Essential Mortgage and past president of the Louisiana Mortgage Bankers Association. “We’ve had appraisers come to Baton Rouge from Bogalusa, Mandeville and even Gulfport. They don’t know the area.”
Residential property value is determined by a host of factors, including interior and exterior condition of the home, the property on which it sits and the corresponding values of surrounding homes. If an appraiser is from outside the Baton Rouge market, they run the risk of submitting a low assessment, which halts the deal. Worse, if the deal does go through, one low appraisal could significantly lower property values for the entire neighborhood.
“Suppose there’s a $1 million home for sale, and an appraiser from out of town comes in and values it at $900,000,” appraiser Winston Landry says. “That means that it’s now a comparable sale, so houses that are in a $1 million dollar market will be valued less in that particular sales area. They lose value.”
The local market has held its own so far, but HVCC creates more problems for Realtors who have qualified buyers ready to move into a house, says Sandy Daly, president of the Greater Baton Rouge Association of Realtors.
“Real estate is local, and it’s difficult to get the true picture of a market if you’re unfamiliar with the area,” she says. “It could result in, over time, our values going down because you can only lend and buy based on appraised value. It ends up with the seller selling for less or not selling at all.”
Landry has conducted appraisals exclusively in East and West Baton Rouge, Ascension and Livingston parishes for 27 years. He says he has not been hit hard by HVCC because he has a diverse client mix, but not all of the more than 200 licensed appraisers in the Capital Region have not been so lucky.
Appraiser Johnny Dunaway, who has been in business since 1979, says many of the mortgage brokers he worked with have stopped calling since HVCC was implemented. His business is down between 20% and 30%.
“It’s taken business away,” he says. “Some of my main clients, I rarely if ever get them any more. More and more of my work is for individuals and not mortgage companies.”
Appraisers are required to comply with the Uniform Standards of Professional Appraisal Practice. They must note on the form that they are not from the local area and indicate what research they have undertaken in order to make a qualified assessment. Dunaway says an appraiser from outside Baton Rouge would have no access to the Baton Rouge MLS system or other information about a neighborhood or subdivision.
“HVCC did not stop bad appraisals or appraisers,” Dunaway says. “If you’re on an [AMC] panel, they go to whoever is next in line to do an appraisal, in town or out of town, qualified or unqualified, whoever is next on the list. That’s a bad situation.”
HVCC not only fails in its objective, it penalizes mortgage brokers, appraisers and Realtors, Anderson says.
“It’s an unnecessary regulatory burden by Fannie and Freddie because of the deal they made with Cuomo to get out of being sued,” he says. “If Cuomo had a problem in New York, you make the deal with New York. You don’t throw the entire country under the bus.”
For Landry and Dunaway, accepting work from an AMC is out of the question because of the pay grade and the ethical question of accepting an appraisal outside of their market area. Some AMCs charge as much as $450 per job, but only pay the appraiser around $175, Landry says. For someone who has made a career out of appraisal work, AMC fees are not enough to meet the bottom line for the time it takes to do a thorough assessment.
Anderson says higher fees also hurt the borrower and the mortgage broker. Borrowers are required to give their information up front to a broker, who must submit it through an elaborate procedure in order to contract an appraiser. Long wait times and high prices are enough to make both sides of the negotiating table throw up their hands in frustration.
Anderson, who also serves as legislative chair and vice chairman of government affairs for the National Association of Mortgage Brokers, is heading efforts to rally support for Bill 3044, which would put a moratorium on HVCC for 18 months. Congressman Bill Cassidy has co-sponsored the bill—which was introduced in June and has been referred to the House Committee on Financial Services—along with 57 other representatives.
Abolishing HVCC is a start, but Landry fears the damage has already been done to an industry that is slowly shifting from full-time, on-the-ground appraisers to part-time number-crunchers.
“I can’t name one other profession before or since HVCC that this could have happened to,” Landry says. “Imagine being in business for 27 years, and then one day being told that everyone that you’ve done business with can’t use you because your name isn’t on a list. That’s what’s happened to us.”
ALL ABOUT HVCC
What IS HVCC?
The Home Valuation Code of Conduct [HVCC] establishes standards for solicitation, selection, compensation, conflicts of interest and appraiser independence. It is effective May 1 for any mortgage sold to Fannie Mae or Freddie Mac.
What does IT MEAN?
Realtors and mortgage brokers are prohibited from selected appraisers. Lenders could use “in-house” staff appraisers to conduct appraisals. But the loan production staff is prohibited from selecting, retaining, recommending or influencing the selection of an appraiser and conducting any substantive conversation with an appraiser or appraisal management company regarding the assignment.
For buyers and sellers, the process remains largely intact. Buyers and sellers might find the process takes longer than in the past and might be more costly than it has in the past.
SOURCE: National Association of Realtors
