- LOAN OFFICERS
Home Valuation Code of Conduct HVCC is a new guideline imposed May 1st, 2009 that requires all appraisals on loans sold to either Fannie Mae or Freddie Mac to be completed through an Appraisal Management Company.
There are many nuances to Home Valuation Code of Conduct HVCC and certain aspects that are still being explored. I am going to give you a quick overview on how I see this HVCC and how it is affecting consumers.
In days past, loan originators would develop relationships with local appraisers who knew their market and conducted the appraisals required for consumers to obtain loans at various lending institutions. We would tend to try several appraisers and find out who do a better job at the most competitive price. Personally I would look for appraisers that had good people skills, were professional, friendly, on time , diligent and knew their local market. I would also expect the work to be done in a timely fashion and would also look for someone who understood that sometimes certain jobs needed to be rushed when the situation called for it.
HVCC came about because people in and around the mortgage industry felt that loan officers were strong arming appraisers into creating false values or inflated values to get loans done. The idea went like this, the loan officers would threaten the appraisers that if they didn’t “stretch” the value they would no longer get business from that source. Believe me, many times this was true and if the appraiser complied, he was in violation of many existing rules and laws. Appraisers are licensed professionals who must at all times adhere to a code of ethics. For those that didn’t , well this is the reaction.
The problem now with HVCC is that there is no competition in the appraisal business. The AMC’s ( Appraisal Management Companies ) have pretty much price fixed the market so that no one company can go out and earn your business with better and more competitive products. Lenders are requiring that all appraisals be ordered through one or two designated companies that are often owned by the lending institutions. For more info check out Relsvaluation and Landsafe and see who owns them!
The thought is that now the loan officer and appraiser have no contact, so that no pressure can be placed on the appraiser to inflate values. This may be true, however if a licensed appraiser was submitting false values for the sake of more business he or she was already committing a crime that we have laws in place for. This HVCC rule only helps the lenders and owners of the AMC’s. Now the pressure is going the other way! Lenders are pressuring AMC’s ( very discreetly ) to be conservative when appraising homes in a declining markets and leaning towards appraising homes at the lower end of the spectrum. Believe me, appraised values on residential homes is more art than science. The old saying was that an appraised value was just one man’s opinion. Send 3 different appraisers and you will probably get 3 different values.
So enough background, here is the problem for consumers. Lower values equal higher interest rates and we know who benefits here. Secondly, the appraisal is no longer portable. If you have an appraisal done for one company and decide to go to another, you need a new appraisal. In years past, the lenders would accept an appraisal from any licensed appraiser. But now, if you want to shop around after the initial appraisal, you will need to pay for an appraisal at every lender you want to apply with. This makes the process of shopping a mortgage very pricey and deters you from doing so.
As well, the AMC’s which collect the fee for the appraisal and farm it out to anyone who will do it on the cheap are taking a hefty portion of the fee for arranging the order. Example, the appraisal fee is $400 to the consumer, the AMC takes $200 off the top and strong arm’s an appraiser into doing it for $200. Sounds familiar right?
They promise these typically novice and inexperienced appraisers a large volume of orders if they can do it on the cheap. So the seasoned appraisers who would collect and retain the fee for the cost of the appraisal, have to split their fee with the AMC for the sake of HVCC. Most veteran appraisers have decided to find another field of work because they can’t make a living working for half price. As well, all the relationships they have developed over 20 years of being honest and hardworking are out the window, because business can not be sent to them directly.
This HVCC rule has many other components to it and in theory sounds like a good idea. However, this is un- American and against our capitalist nature. If lenders were losing money because corrupt appraisers were submitted false reports, they should have had the licenses revoked and moved on. Rules to cover rules are usually designed to protect the corporate interests in this country and not the consumers. We need to enforce our current laws to the fullist before creating new ones. I feel bad for the veteran, quality appraisers who are now out of business and the consumers who were forced to pay for 3 appraisals just to try a get a good mortgage loan.
The only people who benefit from this rule are the AMC’s, the large banks that own them and the bureaucrats who got paid for months working on this rule to justify their job.
” If we settle for nothing now, then we’ll settle for nothing later”
Our politicians need to re-visit Adam Smith’s book on capitalism and understand that the laissez-faire model will always work itself out. It seems these new rules are designed to pacify investors and at the same time make the rich richer, but I am a rebel and always will be. If you believe what you read and hear without question you are doing yourself a disservice. Get the facts!