We have posted a number of times about the Home Valuation Code of Conduct (HVCC). With the May 1, 2009 implementation date getting ever closer, this drastic change is starting to get some attention.
From the Contra Costa Times:
Appraisers brace for industry change
By David Morrill Staff Writer
Posted: 03/06/2009 04:19:54 PM PST
An accurate appraisal equals piece of mind. At least that's what it should be in a perfect world. Simply stated, the appraiser should be the sole objective party in a real estate transaction.But sometimes ideals and reality aren't one in the same.
Pete Rosselli of Martinez and his family have been a part of the appraisal industry for almost 20 years, and he says that an appraiser who says they've never felt outside pressures "to hit values" are not being honest. "If you've been in it as long as I have, we've all seen it and all experienced it," Rosselli said.
On May 1, a new code of conduct, the HVCC (Home Valuation Code of Conduct) is scheduled to be implemented with the intent that it will isolate the appraisal process of loans purchased by Fannie Mae and Freddie Mac from bias. Loan production personnel, including mortgage brokers, will no longer be able to order the appraisal or influence the choice of appraiser.
Although the spin of the article is largely positive, there will be a major negative effects to small business real estate appraisers, small business real estate brokers and consumers. Many, if not most appraisal assignments will be channelled through Appraisal Management Companies (AMC), ostensibly to isolate the appraiser from pressure. Considering the fact that the investigation prompting the agreement that resulted in the HVCC was initiated by an AMC caught trying to influence appraisers to "hit the correct number", isn't it amazing one of the consequences of the "solution" to be implemented will be direct that more appraisals will be assigned through these unregulated AMCs?
For instance, take a look at the Complaint filed by New York Attorney General Andrew Cuomo against First American.
Page 9, Paragraph 24. "Despite their claims of independence from their lender clients, First American and eAppraiseIT violate federal and state independence requirements with regard to appraisals performed for WaMu, and in doing so deceive borrowers and investors who rely on their proclaimed independence.
Page 11, Paragraph 29. "Almost immediately after WaMu retained eAppraiseIT to provide appraisals in early Summer 2006, WaMu’s loan production staff began complaining that the appraisal values provided by eAppraiseIT’s appraisers were too low. It was clear, and eAppraiseIT well understood, that WaMu’s dissatisfaction was largely due to the fact that eAppraiseIT’s staff and fee appraisers were not "hitting value,” that is, were appraising homes at a value too low to permit loans to close.
Page 13, Paragraph 37. "In February 2007, WaMu directed eAppraiseIT to stop using its usual panels of staff and fee appraisers to perform WaMu appraisals. Instead, WaMu’s loan origination staff demanded that eAppraiseIT use a Proven Panel of appraisers selected by the loan origination staff, who were chosen because they provided high values.
Page 14, Paragraph 41. "In February 2007, eAppraiseIT simply capitulated to WaMu’s demands. In an email on February 22, 2007, eAppraiseIT’s President told senior executives at First American “we have agreed to roll over and just do it.” He explained that “we were willing to live with the change if they would back us up with the appraisers and tell them that simply because they are rated as Gold Preferred does not mean that they can grab all the fees. They agreed.” In other words, for the right price in fees, eAppraiseIT was wwilling to go along with the Proven Panel.
These are just a few choice bits from the complaint. Please take a minute to read all of the alleged wrondoings by the AMC and WAMU. You should start to develop an opinion about the wisdom of channelling appraisal assignments through AMCs.
Because AMCs broker appraisal assignments, lenders will see higher costs for their appraisals. Of course, that higher cost will be passed on to consumers. It's unlikely these borrowers will see any benefit of the increased expense. Data shows that AMCs have a record of assigning appraisals using criteria other than the competency of the appraiser as a priority.
Many Americans, appraisers and other real estate professionals included, are interested in change. However, is this the change we want or need?Use this LINK to read some prior posts about the HVCC.