Thursday, October 8, 2009

HVCC - Will be Mentioned in Congressional Hearing

Today the House Committee on Financial Services, Subcommittee on Housing and Community Opportunity will start a hearing in the early afternoon. Although the subject of the Subcommittee Hearing is "The Future of the Federal Housing Administration’s Capital Reserves: Assumptions, Predictions and Implications for Homebuyers", at least one of the several witnesses will discuss the Home Valuation Code of Conduct (HVCC).

The prepared testimony John Councilman, Federal Housing Committee Chair, National Association of Mortgage Brokers, includes these comments:

All the emphasis is mine.

The HVCC is a highly controversial shift in appraisal policy that is the result of a joint agreement reached between the GSEs, the Federal Housing Finance Agency (“FHFA”), and New York Attorney General, Andrew Cuomo. The HVCC purports to enhance the independence and accuracy of the appraisal process. However, what the HVCC truly accomplishes is an increase in consumer costs, a decline in appraisal quality, the extension of closing deadlines, and the virtual extinction of independent appraisers.


The impetus behind these new appraisal policies – the HVCC and the new FHA guidelines – is the perception that appraisers were being pressured or improperly influenced by mortgage originators. However, the HVCC is failing to provide any greater protection for appraisers. Appraisers are still subjected to significant pressure and undue influence, but instead of coming from mortgage originators it is now coming from the Appraisal Management Companies (“AMCs”) that were granted a virtual monopoly over the appraisal process by the HVCC.

In fact, a growing number of appraisers are reporting that the pressure and attempts to improperly influence their professional judgment is far worse under the AMC dominated regime prescribed by the HVCC than it ever was when appraisers were permitted to work directly with originators. Specifically, appraisers are reporting that AMCs are requiring them to prepare appraisals in violation of the Uniform Standards of Professional Appraisal Practice (“USPAP”) and generally accepted appraisal guidelines.

Today, unlike when an appraiser had multiple mortgage broker and/or loan officer clients, the HVCC has restricted their work to be on behalf of only one or possibly two AMCs. Under this construct, if an appraiser fails to comply with any AMC "request,” they will no longer receive appraisal assignments from possibly their only client. With many knowledgeable and skilled appraisers unwilling to work under such conditions and consequently leaving the profession, the appraisers that remain willing to work for the AMCs are generally far less qualified and experienced. This has resulted in a rapid decline in appraisal quality since the implementation of the HVCC, which directly contradicts the widely purported view of HVCC proponents that turning over virtually exclusive authority for appraisal ordering to thirdparty AMCs would produce more accurate appraisals.

The prepared testimony of each witness is available on the House Committee on Financial Services website. The hearing will be web cast as well.

It would be nice if the NAR testimony made some of the same points. Unfortunately, it's pretty vanilla and much less forceful.

By the way, H.R. 3044 is stuck at 110 cosponsors. Follow the links and encourage your member of Congress to support the bill.

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