HVCC Appraisal Rules – Reality Check
Everyone is STILL talking about HVCC, the new Home Valuation Code of Conduct, and how it affects appraisals. Fannie and Freddie put this into effect earlier this year and the negative repercussions have been striking, especially in extremely depressed markets with lots of foreclosures and short sales.
The issue is low valuations and the new rules guiding appraisers in both price-depressed and rebounding markets. Out-of-town appraisers appointed by an Appraisal Management Company come in for a quick assessment (or don’t even go to the property and handle it online) and then dish out low valuations. Their comparables are often poor-condition short sales, distressed properties or just plain unrelated area or style-wise. A ranch home should not be compared to a vintage Victorian!
Complaints about lowballed appraisals – from builders, real estate brokers, consumers and mortgage companies – have erupted since May 1, when Fannie Mae and Freddie Mac instituted their new laws. Critics charge that the new system is fostering the use of appraisers willing to work for low fees – sometimes 50 percent below previous standards – and who are willing to conduct home appraisals far outside their typical areas of activity.
Under the code, appraisers are now randomly assigned by Appraisal Management Companies rather than being selected by mortgage companies or loan officers. The management companies pocket as much as 40 to 50 percent of the appraisal fee. Just another party in the system adding another layer of complexity to the process.
Frustration with the new system boiled over and made its way to Capitol Hill at the beginning of summer. The National Association of Home Builders called for an immediate change in the rules governing the use of foreclosures, short sales and other distress transactions as comparables for appraisals on non-distressed, typical homes, whether new or resale.
Two congressmen – Travis Childers, D-Miss., and Gary Miller, R-Diamond Bar (Los Angeles County) – have introduced legislation calling for an 18-month moratorium on the appraisal code. In identical letters to James Lockhart, the top regulator of Fannie Mae and Freddie Mac, the National Association of Realtors also requested a moratorium and complained that the code is raising costs to borrowers, distorting property values and killing sales.
Asked for comment, Lockhart said through a spokesperson that his agency is monitoring the situation, and considers “the views of market participants important.”
One positive to all this is that FHA loans allow any appraiser to be selected by the loan officer. This means I can work with my most capable appraisers who know the subject property area and will deliver accurate results.
However, for conventional loans, learn how the HVCC affects you and continue to jump through the hoops. Keep an eye on Congress – some things do change, it just takes time.
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