Appraisal Scoop

N.Y. Times on Ordering Appraisals - " . . Lenders Now Control the Entire Process"

The New York Times story "In Appraisal Shift, Lenders Gain Powers and Critics", by David Streitfeld, the author does an excellent job of taking its readers through the HVCC time-line and illuminating the current issues with appraisal ordering and pressure.

Below are a few quotes from the Times story:

“We’ve been begging for years for enforcement of existing state and federal laws regulating appraising,” said Mr. Kennedy, a leader in the appraisal community. “We thought we were finally going to get that. But the code is doing nothing except putting ethical appraisers out of business.”

“The code [Home Valuation Code of Conduct] is a formula for continued problems with fraud,” said David Callahan, a senior fellow with the public policy group Demos who has studied appraisals. “Appraisers have been asking for a long time for a reliable firewall between themselves and lenders, and are further from it than ever.”

"The final version of the code gives much greater leeway to lenders. For instance, lenders can hire their own appraisers if they “recognize” that complaints will be forwarded to regulators."

"The appraisal world was stunned. Dave Biggers, the chief executive of A La Mode, a maker of software for appraisers, said, “It’s like telling me I can steal as long as I ‘recognize’ that complaints will be directed to the police.”

"Under the code, the role of deciding what is pressure is assigned to a new entity called the Independent Valuation Protection Institute [IVPI]. If appraiser complaints are deemed valid, the institute is supposed to forward them to regulators."

"Seventeen months after it was announced, the institute has no staff and no appraiser complaint hotline. All that exists is a single Web page."

Click here for the complete  N.Y. Times Article

Related Story: Let's Put the Praise Back In Appraiser

Video - Fox 5 News - Washington, D.C. - HVCC "Appraisal Rules" Impact Housing Market

From the video below . .

Now, instead of lenders pressuring appraisers it's the AMC's. Garber says members complain the AMCs are forcing up to 60 percent reductions in their fees, and that can lead to problems.

"If you're seeking out a low cost service provider, you may not be able to find that in many of these markets. You may have to go out of market to find somebody that's willing to accept that assignment," he says.

"An appraiser not from this area may not know what communities compare to this property," says McKee as she shows us around the three-bedroom, brick end unit.

Webinar: HVCC . . .and survival as an apppraiser afterwards

Frank Gregoire's wonderfully thorough "Home Valuation Code of Conduct . . .and survival as an appraiser afterwards" webinar presentation addressed not only what the HVCC is and its effects on business, but also what your opportunities are in overcoming any business obstacles.  For more information about Frank Gregoire click here! 

Here is the recording of the session for your future reference: click here!

As Frank mentioned during his presentation, NAR offers some additional resources for you to access.

Below is a list of those resources:

National Association of REALTORS® HVCC Page – realtor.org/hvcc

National Association of REALTORS® HVCC FAQs - click here!

National Association of REALTORS® HVCC Myths and Facts - click here!

Home Valuation Code of Conduct - click here!

Fannie Mae HVCC FAQs - click here!

Freddie Mac HVCC FAQs - click here!

Freddie Mac Guide Bulletin 2009-18 click here! (see page 5)

H.R. 3044 – Bill to impose 18 month moratorium on HVCC – click here!

NAR Survey Shows HVCC Impacting Housing Markets

"An analysis by the National Association of REALTORS® (NAR) indicates that the implementation of the Home Valuation Code of Conduct (HVCC) appears to be having adverse impacts on the housing markets. Recently, NAR Research sent a survey on this topic to a random sample of approximately 40,000 NAR members which generated 3,600 responses. An analysis of REALTOR® responses follows."

• Approximately 76% of REALTORS® representing buyers or sellers indicated that the time to obtain a completed appraisal increased after May 1.
• The number of Appraiser members reporting they obtain over 50% of assignments from Appraisal Management Companies (AMCs) increased from 13% to 40% after May 1st.
• Similarly, 71% of REALTORS® noted an increase in the use of out of area appraisers.
• Approximately half of NAR Appraiser members reported a reduction in fees received by them.
• More than 70% of NAR Appraiser members reported that consumers were paying higher fees.

An Outsider’s Appraisal of the New HVCC Rules

“What’s HVCC?” I believe those were the exact words I used in response to being asked by the editor of this magazine to write a July cover story on the Home Valuation Code of Conduct.

“But I don’t know anything about appraisals, much less the appraisal industry.” Those were my next words. “All I know about appraisals is that my mortgage broker orders them, and someone has to wait at home for the appraiser to arrive, a job that has historically fallen to my wife.” We’ve purchased three homes and the truth is that I’m not even sure I’ve ever actually met an appraiser".

 “Perfect,” was my editor’s response, “That’s exactly why we want you to write it. You’re going to be outraged, and readers love it when you’re outraged.”

That's the way CUOMO’S CROSSING: An Outsider’s Appraisal of the New HVCC Rulesby Martin Andelman begins.

I had to weigh the entertainment value of his article against some of the errors in his research and his conclusions.  Those familiar with the HVCC will spot them pretty quickly.  Those that aren't will at least be entertained while getting up-to-speed on how the HVCC got started.

Tip O' The Hat: http://www.ICAPWeb.com members T.J. McCarthy and Maureen Sweeney for the link to this article.

Appraisal management companies blamed for undervaluation

Inman News author Jack Guttentag wrote in today's story Appraisal rules backfire in down market:

"Because AMCs operate nationally but do not have appraisers everywhere, more appraisals are being done by appraisers who are not familiar with the local market. Appraisers working for AMCs are also paid less per appraisal than independents, which may induce them to invest less time.

Less knowledge by appraisers means more scope for bias, and in a declining-price market, the prevailing bias is toward lower values. ..."

Click here to read the full Inman News article

Home Valuation Code of Conduct - NIMBY?! No one is immune to the impact of the HVCC

Yesterday, my local newspaper published an Associated Press story New home appraisal rules stir backlash with a follow up piece by local Pantagraph reporter, Bob Holiday - McLean County not feeling sting of new appraisal rules.   It seems that two local appraisers and the local home builders association feel that the HVCC has not impacted their business.  

"Controversy over new appraisal rules that some contend are undermining the housing market hasn't made its way to McLean County."

I've tried to post a comment there but only come up with an error message.  I sent a personal email to the reporter, but so far he's "Unavailable for comment".   So, not to waste my thoughts . . .I'm posting them here:

 

The Bloomington-Normal market is NOT  immune to the effects of the Home Valuation Code of Conduct (HVCC).

Appraisal Ordering:  The HVCC, in its effort to diminish pressure on real estate appraisers, attempts to place a “firewall” between loan production and the appraiser. When it became apparent that the HVCC would go into effect, most lenders either adopted a “blind” rotation system of assigning orders or began using an Appraisal Management Company (AMC) to handle the appraisal assignment process. Unregulated Appraisal Management Companies (AMCs), who have been the subject of several misconduct investigations, are the centerpiece of the HVCC. The original Cuomo investigation involved a federally chartered bank and an AMC.

Appraisal Pressure:  The HVCC does nothing to reduce fraud, as it legitimizes the same failed model, which was the subject of Attorney General Cuomo’s investigation. As a result of the HVCC, at least 50% of appraisals nationwide are now processed through AMCs. AMCs are unregulated and can easily blacklist an appraiser when they do not meet value goals. Remember, AMCs are a business and they don’t want to lose a large lender client by assigning appraisals that are coming in “short”. That’s exactly what triggered the HVCC in the first place. Delays in processing:

The HVCC can cause significant delays in real estate transactions, hurting real estate agents, title companies and other third parties reliant on turnaround time. I’ve personally been called by a local real estate agent that was desperately trying just find out “Who has been assigned the appraisal?”. The ordering AMC would not even give him the name of the appraiser!? The agent was not trying to influence the deal. He was only trying to hold his “time sensitive” contract together. Many in the real estate chain have overreacted to the HVCC provision that blocks access to the appraiser by loan production staff. Fannie Mae and Freddie Mac have recently (July 2009) updated their “HVCC Frequently Asked Questions" document to clarify this issue.

Good-Fast-Cheap (Pick Two):  Virtually all Appraisal Management Companies (AMCs) either mark-up the appraisal fee (costing the consumer more) or they skim off up to 50% of the appraisal fee (appraiser receives less). Currently this is not disclosed to the borrower. Many experienced, local, appraisers have been forced to either work for less or not at all. When they choose not to work for an AMC, this leaves a void for less experienced and out-of-town appraisers to enter the market.

Geographic Competency:  With “blind rotation” systems, or “cheap-fast” AMC models, many lenders have little to no control over who is being selected to appraise the real estate that will be the security for their loan. When a appraiser accepts an assignment, in an unfamiliar market, the chances are just as good that he/she will be high as low? Either way . . .the client is getting an inaccurate appraisal. In the case of an appraisal prepared for a sales transaction, all the involved parties love it when the appraisal comes in high! That is until the borrower loses their job, tries to refinance, or the economy softens further. Then the effects of that “high” appraisal become evident.

Repeal of the HVCC:  The HVCC is due to expire in 2010 (18 month life). By the time all the efforts to block the HVCC can be enacted . . . it could die all on its own. The problem? The impact of the HVCC has ALREADY become part of Fannie Mae’s and Freddie Mac’s Selling Guide and lenders and brokers have already changed their business models. The appraisal profession has been adversely impacted for years to come.

To read more about the HVCC one can go to http://www.AppraisalScoop.com’sHVCC category - http://tinyurl.com/dmzgbm  

Author: Brian J. Davis, RAA - Brian Davis & Associates - Brian has over 25 years of appraisal experience in Central, IL and hosts the Appraisal Scoop blog, WinTOTAL Users Group, and Appraiser's Water Cooler network.

NAR UPDATE: FHFA and GSEs Act on HVCC Concerns

To: All REALTORS®

From: Charles McMillan, 2009 NAR President

Re: UPDATE: FHFA and GSEs Act on HVCC Concerns

Dear Fellow REALTOR®,

I am writing to you with an important update on NAR’s efforts to address ongoing problems with recent changes to appraisal rules. As a direct result of my recent meetings with the New York Attorney General’s office, the Federal Housing Finance Agency, and Fannie Mae, both Freddie Mac and Fannie Mae this week issued new guidance to all lenders on the Home Valuation Code of Conduct.

The alert clarifies two very important points that we raised in our meetings with officials. First, it states that lenders should use appraisers who have clear experience in the geographic area. Second, it clarifies that appraisers are not prohibited from talking to real estate agents.

 http://www.fhfa.gov/webfiles/14611/hvcc_NOTICE_7_22_09F.pdf

In addition to this guidance, both Fannie Mae and Freddie Mac recently posted extensive Qs and As on their respective web sites, based on information that NAR provided when the code was first adopted in May.

https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/appcode/pdf/hvccfaqs.pdf  http://www.freddiemac.com/singlefamily/hvcc_faq.html

We have posted links to all of this information at: www.Realtor.org/HVCC .

Although this is certainly a step in the right direction, more still needs to be done to address problems with the HVCC. NAR will continue to push for a moratorium on the Code, and I will continue to meet with industry partners and officials to convey our concerns.

Thanks to all REALTORS® who have shared experiences and concerns with us. Once again, you have proven that we are the “Voice for Real Estate,” and I am proud to serve as your 2009 President. Sincerely,

Charles McMillan, CIPS, GRI
2009 NAR President

Fannie Mae Updates HVCC Frequently Asked Questions - July 2009

Fannie Mae has released another update to their HVCC Frequently Asked Questions. This document was previously released in March 2009. Questions that are new or substantively updated in this (July 2009) version are indicated by NEW or UPDATED highlighted tags.

https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/appcode/pdf/hvccfaqs.pdf  

https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/appcode/pdf/hvccfaqs.pdf  

Federal officials defend the Home Valuation Code of Conduct (HVCC)

The Federal Housing Finance Agency, which oversees Fannie and Freddie, put out a report Wednesday saying it "believes that the code is serving the intended purpose."

"Market participants should appreciate the difficulty facing appraisers when valuing properties in a declining market, especially when sharply dropping home prices and foreclosures are prevalent," the report said. "The challenges of appraising properties exist with or without the code. Market participant concerns in the current circumstances would create appraisal controversies even without the code. Indeed, the code should help mitigate these controversies by providing clearer protection for appraisers."

The agency also noted that Fannie and Freddie recently issued alerts advocating the use of qualified, experienced appraisers and are finalizing a complaint form for code violations.

Seeking to counter "misinformation" about the code, the report said:

• The code does allow communication with appraisers about errors, additional needed information and unprofessional conduct."The real bar is on communications that seek to influence the appraiser to adopt a set valuation, which is prohibited."
• The code "does not favor the use of (appraisal management companies) over independent or in-house appraisers. Significantly, for the first time, the code places the same requirements for appraiser independence on AMCs as the limits placed on lenders. Lender use of AMCs was increasing prior to the code and one of the key goals and results of the code was to strengthen appraiser protections when engaged by AMCs."
• Appraiser standards and Fannie and Freddie guidelines already require that an appraiser be competent and knowledgeable of the local market to perform an appraisal. "The use of unqualified in-state or out-of-state appraisers, unfamiliar with local conditions, should be reported to state appraiser licensing agencies."
• While the code may initially have slowed appraisal time as it was being implemented, there are other reasons loans are taking longer to process.
• The code does allow transfer of appraisals between lenders.

Click here to read -  http://www.fhfa.gov/webfiles/14611/hvcc_NOTICE_7_22_09F.pdf