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.
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