Appraisers concerned over new HVCC

Imagine if all real estate transactions had to be referred to you by a company that pays less than half of your typical commission and requires the house to be sold in 48 hours. You may like the steady work or you may not like your paycheck being cut in half.

Appraisers are concerned this is what will happen to them upon the implementation of the Home Valuation Code of Conduct that becomes effective on May 1, 2009.

The HVCC is a result of an agreement between NY Attorney General Andrew Cuomo and Fannie/Freddie and applies to all loans being sold to these government-sponsored enterprises (GSEs). The Attorney General was conducting an investigation to determine how much lenders and the GSEs knew about the pressure on appraisers to meet targeted values on appraisals. This agreement attempts to remedy the issue of appraisers being engaged by parties with a financial interest in the transaction. This is not a law, but instead a mandatory agreement that must be followed by any lender who plans to sell the loan on the secondary market to these GSEs, which is a majority of all loans made.     

The goals of the HVCC include safeguarding appraiser independence and changing how an appraiser is engaged for work. Interested parties can’t hire the appraiser (read: mortgage brokers and REALTORS). No “minimum values needed” relayed to the appraiser. No influencing the appraiser to “play ball” by overlooking repairs, or stretch the home’s value to what is needed for the loan. 

We’ve all seen it. Lenders say they won’t use a certain appraiser because repairs were required to the home. This code is attempting to provide an avenue for appraisers to be 100 percent truthful and eliminate influence. No longer will the appraiser be threatened with his livelihood for providing an honest opinion. 

It isn’t all rosy. Appraisers say this mandate will funnel appraisal assignments to management companies. These are private corporations that order appraisals on behalf of lenders. This puts a “buffer” between the lender and appraiser. Some appraisers are concerned about this because management companies are known for tight timeliness and very low fees. Many appraisers say they will simply get out of the business before working for a management company.

Will it bring about good changes or will it be negative? The appraisal industry is the only profession that I know where if the appraiser completes an honest and competent job, they are threatened with their livelihood. Some changes must be made or the housing industry will never stabilize. But government-mandated changes normally don’t fix problems. They only create new ones.

Read PAR’s response (PDF).

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Tags: appraisers, code, conduct, home, valuation

This entry was posted on Wednesday, January 14th, 2009 at 3:51 pm and is filed under Economics, Government Affairs. You can follow any responses to this entry through the RSS 2.0 feed.