The Home Valuation Code of Conduct (HVCC) which regulates appraisals was the result of an agreement reached in March, 2009 between the Attorney General of New York (Andrew Cuomo) and Fannie Mae and Freddie Mac in exchange for the Attorney General’s office terminating its investigation into issues of appraisal coercion.

It seemed like a great idea.  HVCC addressed the need for sound appraisals produced free of any influence or coercion on the part of the lender or any other party involved with the purchase or refinance of a property.  Another great idea from the government!

Oops!

As usual, the devil’s in the details.  And the details have created havoc for everybody in mortgage lending.

A year ago you might have approached me for a refinance of your $200,000 mortgage loan on your property that you thought was worth $300,000.  The first thing I would have done is contact an honest and experienced appraiser and ask him or her to do a comparable search.  If the appraiser called me back and said the local market would only support a value of $200,000, I would contact you and tell you that a refinance would not work.  You would not be charged an appraisal fee.

In the same scenario today, I could not contact an appraiser.  In fact I cannot even order an appraisal from the honest and experienced appraisers I know.  I must order the appraisal through a third party AMC (Appraisal Management Company).  And you have to pay for the appraisal upfront, regardless of whether or not the refinance is possible.

The HVCC has hurt appraisers by reducing their fees since 40% or more of their fees are handed over to the AMCs.  It has also barred them from the business relationships and client relationships they developed over the years spent in their profession.  Many experienced appraisers have already left the business and others are just hanging on for dear life.

It has hurt consumers by increasing the cost of purchasing or refinancing a home and by being forced to pay for an appraisal when a refinance was a lost cause to begin with.

The only entities who benefited from this whole fiasco are the AMCs and the people who own them.

So, thanks Attorney General Cuomo.  You really thought this out.  Incidentally, I hear that the Attorney General is up for re-election.  I also heard that his opponent is looking for campaign donations.  

Posted by Terry Brunner.  Terry is a Senior Loan Officer with Horizon Financial.  Terry can be reached toll free @ (877) 627-9211 x150 or email TBrunner@HorizonFinancial.org.  Visit Horizon’s website at www.horizonfinancial.org

NAR chief economist Larry Yun said “faulty valuations are causing contracts to fall thru because buyers can’t get loans”.    Yun also stated “lenders are using appraisers who are not familiar with a neighborhood and compare traditional homes with distressed or discounted sales”.    

Another complaint of HVCC is the added cost to borrowers.     Fees are higher, processing times are extended due to slow turnaround time, and the appraisals are not portable to different lenders.    The lack of portability means a borrower cannot shop for the best deal because they would have to pay for multiple appraisals for each lender.     Let’s hope that HR 3044 passes quickly so that the ailing housing market can find traction and consumers can take advantage of historically low rates.

Posted by Mike Owens.  Mike is a Partner with Horizon Financial and can be reached at 864 907 2678 or at mowens@horizonfinancial.org