Posted on: 01st Nov, 2009 12:47 pm
A bipartisan amendment approved on October 22 by the House Financial Services Committee could result in the elimination of the new and quite controversial appraisal system that was imposed by FNMA and FHLMC last spring.
The existing system came out of an agreement between New York State Attorney General Andrew Cuomo, Fannie Mae, Freddie Mac and the latter two's regulator, the Federal Housing Finance Agency. This new amendment would required the agency's director to replace the code with an improved set of rules developed through the regular administrative procedures and public comment periods used by all federal agencies.
What we've seen with this new system (HVCC - Home Valuation Code of Conduct) is a morass of difficulty. The code encourages lenders to use appraisal management companies, and some of these companies are owned by or affiliated with the lenders themselves.
This has resulted, in many cases, in payments to appraisers being much less than their standard fees, while borrowers are being charged an even higher fee. For example, a mangement firm might pay the appraiser $300 for a single family appraisal report, but charge $445 to the borrower. Guess where the $145 goes?
Supposedly, according to the management companies, the value they bring to this process is worth the expense. But realtors, home builders and appraisers, too, in some cases, say that the system is causing more harm than good. Because of drastic reductions in the fees paid to appraisers, what's happening is that the only appraisers willing to work for the new fee structure are less experienced, and often far removed from the location of the property being appraised.
We have a small group of appraisers who represent on MortgageFit. It would be nice to find out their feelings of the current system and the proposed changes, and it would be a delight if we could hear from more appraisers in general.
The existing system came out of an agreement between New York State Attorney General Andrew Cuomo, Fannie Mae, Freddie Mac and the latter two's regulator, the Federal Housing Finance Agency. This new amendment would required the agency's director to replace the code with an improved set of rules developed through the regular administrative procedures and public comment periods used by all federal agencies.
What we've seen with this new system (HVCC - Home Valuation Code of Conduct) is a morass of difficulty. The code encourages lenders to use appraisal management companies, and some of these companies are owned by or affiliated with the lenders themselves.
This has resulted, in many cases, in payments to appraisers being much less than their standard fees, while borrowers are being charged an even higher fee. For example, a mangement firm might pay the appraiser $300 for a single family appraisal report, but charge $445 to the borrower. Guess where the $145 goes?
Supposedly, according to the management companies, the value they bring to this process is worth the expense. But realtors, home builders and appraisers, too, in some cases, say that the system is causing more harm than good. Because of drastic reductions in the fees paid to appraisers, what's happening is that the only appraisers willing to work for the new fee structure are less experienced, and often far removed from the location of the property being appraised.
We have a small group of appraisers who represent on MortgageFit. It would be nice to find out their feelings of the current system and the proposed changes, and it would be a delight if we could hear from more appraisers in general.
Even I have heard that the Home Valuation Code of Conduct would be soon revamped. Experts believe that the Home Valuation Code of Conduct (HVCC) held back the housing recovery. It has resulted in low property appraisals and stopped a number of home sale transactions. As a result, the HVCC may be on its way out the door.
In a survey conducted by the National Association of Realtors and the National Association of Homebuilders, it was noticed that the appraised value of the property was below the agreed-upon price in sales contracts. This caused delays and disputes among sellers and buyers. Also, it was noticed that the appraisers from the management company used inappropriate foreclosed and distressed-sale transactions as "comparables" in order to appraise homes which were in non-distressed situations.
The mortgage brokers also had complains against the HVCC. They are of the opinion that due to HVCC, they were unable to choose qualified local appraisers and thus had to ask the borrowers to pay for multiple appraisals.
If HVCC is revamped, I guess, it would help both the lenders and the borrowers and would try to revive the real estate market to some extent.
In a survey conducted by the National Association of Realtors and the National Association of Homebuilders, it was noticed that the appraised value of the property was below the agreed-upon price in sales contracts. This caused delays and disputes among sellers and buyers. Also, it was noticed that the appraisers from the management company used inappropriate foreclosed and distressed-sale transactions as "comparables" in order to appraise homes which were in non-distressed situations.
The mortgage brokers also had complains against the HVCC. They are of the opinion that due to HVCC, they were unable to choose qualified local appraisers and thus had to ask the borrowers to pay for multiple appraisals.
If HVCC is revamped, I guess, it would help both the lenders and the borrowers and would try to revive the real estate market to some extent.
Yes it's true that the House Financial services Committee is likely to terminate the HVCC rules as these have caused chaos amongst appraisers and lenders. The HVCC is said to have extended the period of underwriting and lowered property values while at the same time it has led to increase in the costs for both the buyer and seller.
The HVCC rules allow an appraiser to go back 3 months earlier while comparing the values of similar properties. But recent home sales have mostly been short sales or foreclosures. Thus, appraisers haven't been able to determine the actual values of such properties. Hence, appraised values of properties have turned out quite low. But when the HVCC wasn't effective, an appraiser could compare properties sold off within the past 1 year. So, the industry needs better rules and regulations for proper evaluation of property values.
Regards,
Jessica
The HVCC rules allow an appraiser to go back 3 months earlier while comparing the values of similar properties. But recent home sales have mostly been short sales or foreclosures. Thus, appraisers haven't been able to determine the actual values of such properties. Hence, appraised values of properties have turned out quite low. But when the HVCC wasn't effective, an appraiser could compare properties sold off within the past 1 year. So, the industry needs better rules and regulations for proper evaluation of property values.
Regards,
Jessica
Jessica,
You bring up an outstanding issue which I would like to comment on.
The use of BPOs (Broker Price Opinion) has increased exponentially and is used almost exclusively by Freddie to determine Sales Prices in the REO markets, which as we know, now comprises much of the United States, esp in high density metro areas where the most activity usually occurs. Appraisers, licensed to perform valuations are NOT being contracted to value these properties. Realtors, with limited, in some cases absolutely no training are being hired to set the market pricing via the cheaper BPO product. Is this fair to sellers or consumers.
However, for some strange reason, NAR does not see this as a conflict of interest? Realtors are competing for listings which they must surely hope to conclude as a closed sale = commission. Can they be relied upon to accurately value properties or could this activity be a contributory factor towards the overall slip in pricing. Would any price conscious buyer first consider the higher or lower priced REO? Increased volume/REO lower sales commissions would certainly compensate $$ earned in stable markets.
It is a catch 22 wherein Appraisers are then called in at contract phase to reconcile the values given by unlicensed/unqualified agents. in other words clean up the mess being created by the BPO price wars while also taking the blame for coming in at lower values.
In many areas of the country, the REO market, IS the market. Markets traditionally speak for themselves. Appraisers REPORT based upon historical data, they do not create the markets. Listing agents/Realtors involved in creating these sales cannot eschew their responsibility, their participation in creating the market.
The premises, some of the principles of the HVCC might change. When will the above referenced industry practices change is my question.
You bring up an outstanding issue which I would like to comment on.
The use of BPOs (Broker Price Opinion) has increased exponentially and is used almost exclusively by Freddie to determine Sales Prices in the REO markets, which as we know, now comprises much of the United States, esp in high density metro areas where the most activity usually occurs. Appraisers, licensed to perform valuations are NOT being contracted to value these properties. Realtors, with limited, in some cases absolutely no training are being hired to set the market pricing via the cheaper BPO product. Is this fair to sellers or consumers.
However, for some strange reason, NAR does not see this as a conflict of interest? Realtors are competing for listings which they must surely hope to conclude as a closed sale = commission. Can they be relied upon to accurately value properties or could this activity be a contributory factor towards the overall slip in pricing. Would any price conscious buyer first consider the higher or lower priced REO? Increased volume/REO lower sales commissions would certainly compensate $$ earned in stable markets.
It is a catch 22 wherein Appraisers are then called in at contract phase to reconcile the values given by unlicensed/unqualified agents. in other words clean up the mess being created by the BPO price wars while also taking the blame for coming in at lower values.
In many areas of the country, the REO market, IS the market. Markets traditionally speak for themselves. Appraisers REPORT based upon historical data, they do not create the markets. Listing agents/Realtors involved in creating these sales cannot eschew their responsibility, their participation in creating the market.
The premises, some of the principles of the HVCC might change. When will the above referenced industry practices change is my question.
The problem is that the system is broken either way. I will agree that the HVCC has had its impact on the market and in many cases, negative. On the other hand, I have personally seen a huge decline in brokers, lenders, agents, etc, trying to place pressure on higher values. I recall just a few years ago, it was quite common for brokers or loan officers to contact appraisers, specifically asking for a target number, or my personal favorite, the broadcast emails saying that the appraiser that can get the highest value gets the order. They would also call after the appraisal was finished and try to argue for more value, many times threatening to withhold payment or future business if the appraiser was not willing to comply. And heaven forbid any appraiser to state something in the appraisal that was detrimental to the loan closing, like a leaking roof.
So yes, I do believe the HVCC has succeeded in its intent to insulate appraisers from those trying to place pressure on appraisers. But that mean we still have problems and these problems seem to come at a great expense to the consumer. The biggest problem is a lack of accountability throughout the industry.
I have been saying for years that we need new legislation, no new rules, or the HVCC. We need an enforcement body to police the activities of the parties and the rules that are currently in place. Right now if there is a real problem with an appraisal, you can make a complaint to the board, and then wait. A year later or more, there might be an investigation and a slap on the wrist for the appraiser, maybe a small fine. So what should an appraiser do? Here is a loan officer asking for $20,000 more on an appraisal or he will take his business somewhere else and there is nothing but a set of arbitrary and unenforced rules saying no. Think about it, who drives about 5-10 mph over the speed limit just because they know that police will not stop them in that range? But the law says you should drive below the speed limit! Well now say you learn that the police only care about your speed if you get into an accident. So you can speed all you want until something bad happens. Well this is exactly what was happening with appraisers. We had no oversight until people started foreclosing and the lenders were losing money. Now they care?! Even the HVCC itself was supposed to have an enforcement body called the IVPI which still has not even been established!
As for the , I do work with a couple of them that pay a decent fee and hassle me too much. But my preferred clients are the large lenders that still order appraisals in house or on a rotation. They are often easier to work with, especially when some form of communication is required. A simple question could be a two day process through an AMC. And just to let you know George, in some metro areas, you can reverse your numbers. The AMC charges $445, pays the appraiser $145, and pockets the $300 for themselves. Not kidding! These are the I refuse to work with, along with many appraisers I know.
The good news is that a mortgagee letter was released from HUD which changes the requirements for how the appraisal fee is shown on the HUD1 settlement statement. So now the appraisal fee on the HUD1 can only include the actual fee paid to the appraiser and any fees paid to the AMC for their services must be separated. This will force the to compete based on their own price and not how much they can take from the split. This goes into effect January 1, 2010. On the other hand, as part of the same mortgagee letter, FHA has decided to adopt a set of rules similar to the HVCC as well, for those that are not in the know. So everyone that was relying on FHA to avoid the HVCC will no longer have that luxury.
I think the HVCC is here to stay at least in some form. Perhaps this bill will go through but I am sure that a different set of regulations will be established to replace it. Now I will admit, I have not actually read the bill yet, but I am curious to see how it is worded, especially since the HVCC is not a law and nothing more than a set of guidelines/business practices put in place by Fannie Mae and Freddie Mac. The law could essentially pass but Fannie and Freddie could also still refuse to purchase any loan that does not comply with it. This has been my biggest beef all along. For all the groups trying to take action against the HVCC, you might be barking up the wrong tree by looking to congress.
So yes, I do believe the HVCC has succeeded in its intent to insulate appraisers from those trying to place pressure on appraisers. But that mean we still have problems and these problems seem to come at a great expense to the consumer. The biggest problem is a lack of accountability throughout the industry.
I have been saying for years that we need new legislation, no new rules, or the HVCC. We need an enforcement body to police the activities of the parties and the rules that are currently in place. Right now if there is a real problem with an appraisal, you can make a complaint to the board, and then wait. A year later or more, there might be an investigation and a slap on the wrist for the appraiser, maybe a small fine. So what should an appraiser do? Here is a loan officer asking for $20,000 more on an appraisal or he will take his business somewhere else and there is nothing but a set of arbitrary and unenforced rules saying no. Think about it, who drives about 5-10 mph over the speed limit just because they know that police will not stop them in that range? But the law says you should drive below the speed limit! Well now say you learn that the police only care about your speed if you get into an accident. So you can speed all you want until something bad happens. Well this is exactly what was happening with appraisers. We had no oversight until people started foreclosing and the lenders were losing money. Now they care?! Even the HVCC itself was supposed to have an enforcement body called the IVPI which still has not even been established!
As for the , I do work with a couple of them that pay a decent fee and hassle me too much. But my preferred clients are the large lenders that still order appraisals in house or on a rotation. They are often easier to work with, especially when some form of communication is required. A simple question could be a two day process through an AMC. And just to let you know George, in some metro areas, you can reverse your numbers. The AMC charges $445, pays the appraiser $145, and pockets the $300 for themselves. Not kidding! These are the I refuse to work with, along with many appraisers I know.
The good news is that a mortgagee letter was released from HUD which changes the requirements for how the appraisal fee is shown on the HUD1 settlement statement. So now the appraisal fee on the HUD1 can only include the actual fee paid to the appraiser and any fees paid to the AMC for their services must be separated. This will force the to compete based on their own price and not how much they can take from the split. This goes into effect January 1, 2010. On the other hand, as part of the same mortgagee letter, FHA has decided to adopt a set of rules similar to the HVCC as well, for those that are not in the know. So everyone that was relying on FHA to avoid the HVCC will no longer have that luxury.
I think the HVCC is here to stay at least in some form. Perhaps this bill will go through but I am sure that a different set of regulations will be established to replace it. Now I will admit, I have not actually read the bill yet, but I am curious to see how it is worded, especially since the HVCC is not a law and nothing more than a set of guidelines/business practices put in place by Fannie Mae and Freddie Mac. The law could essentially pass but Fannie and Freddie could also still refuse to purchase any loan that does not comply with it. This has been my biggest beef all along. For all the groups trying to take action against the HVCC, you might be barking up the wrong tree by looking to congress.
Sorry, the above post was mine, I guess I took too long and it logged me out.
i am so glad i brought up this topic - this response from all of you was chock-full of good information and valid speculation about what we may end up seeing, as well. thank you all for the responses.
i think it's obvious that what we all really want is realistic values, realistic prices and fees for the appraisal work and a reasonable timeframe with which to work in order to get our business taken care of.
i think it's obvious that what we all really want is realistic values, realistic prices and fees for the appraisal work and a reasonable timeframe with which to work in order to get our business taken care of.
Yes indeed it was an interesting topic George! It's a pleasure to see you coming up with such an exciting topic and Carol and the others following up with some great inputs on how the industry works and what are the problems one comes across. :)
Go find the USPAP Uniform Standards of Professional Practice over on Linked In dot com and you will find a couple of hundred AQB Certified USPAP Instructors to help you through the myriad.
At the end of the day, anything that gives more control and confidence to the public and banking industry in the appraisal industry has my support. Accurate information is woefully hard to come by and it's all a little easy to just slap together an appraisal.
people make life changing decisions based on these things so they really should have a quality control.
people make life changing decisions based on these things so they really should have a quality control.
Well congratulations. The AMCs are sucking the life out of the appraisers and now you have newbies that are pressured to do an 8 hour appraisal in 2 hours for half fees. Deals are killed daily by these inexperienced appraisers skipping steps to do an accurate appraisal and just filling forms. This is so typical of Government - don't fix the problem, just put a band-aid on it. Instead of punishing the bad appraisers, they're left untouched and the good appraisers are being punished. Way to destroy a profession.