Saturday, July 4, 2009

Ken Harney on the HVCC

Once again, syndicated columnist, Ken Harney, gives consumers the details about how well-intentioned initiatives have negative consequences. His column in today's Washington Post, (and papers across the nation) illustrates the realities of the poorly crafted Home Valuation Code of Conduct (HVCC).

It's by far the hottest controversy in real estate this summer, and it could directly affect the value of your house -- probably negatively -- by tens of thousands of dollars.

The issue involves lowballed appraisals and the new rules guiding appraisers in both price-depressed and rebounding markets. Consider these snapshots:

In San Diego, Steve Doyle, division president for Brookfield Homes, is trying to close out the final 20 houses of a 120-unit single-family subdivision. Prices range from $340,000 to $350,000. But recently there's been a major hitch: Appraisers assigned by banks are coming in with valuations of $60,000 or more under Doyle's selling prices. The appraisers, who Doyle says are inexperienced, unfamiliar with local market trends or both, are using distressed sales -- foreclosures and short sales of existing houses -- as their "comparables." Some of the distressed properties are in poor condition, and all of them offer fewer amenities, Doyle says.


But when the bank sent in an appraiser with little local knowledge, he chose as comparables two short-sale properties that had both closed in the mid-$140,000 range and one inheritance sale around $155,000. The last property was "in horrible condition," Skeens said. "I'd call it dog meat." The deal-paralyzing appraised value that came in for the slam-dunk refi: $149,000.

Complaints about lowballed appraisals -- from builders, real estate agents, consumers and mortgage companies -- have erupted since May 1, when government-backed Fannie Mae and Freddie Mac put their new appraisal rules into effect nationwide. Critics charge that the new system fosters 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 routinely assigned by appraisal management companies rather than local mortgage companies or loan officers. The management companies pocket as much as 40 percent to 50 percent of the appraisal fee paid by the consumer.

Two congressmen -- Travis W. Childers (D-Miss.) and Gary G. Miller (R-Calif.) -- have introduced legislation calling for an 18-month moratorium on the appraisal code. In identical letters to Cuomo and to James B. Lockhart III, 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 consumer costs, 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."

Well, Mr. Lockhart, "market participants" and warned you about the consequences of the HVCC. For months, "market participants" and Congress have been alerting you to pay attention to the very real problems with the 'agreement". It's time to act on the information.

In addition to the disaster that is the HVCC, there is mounting evidence that the source of pressure on appraisers (what the HVCC was supposed to prevent) has shifted from loan originators to Appraisal Management Companies. Here in the Sunshine State there is also evidence of banks violating appraiser independence standards and pressuring appraisers to lower value estimates.

Stay tuned.


Rachel Dollar said...

Happy Fourth Frank!


Frank Gregoire said...

Thank you, Rachel. Nice to see you here and have you as a reader!