HVCC an unnecessary EVIL
By now, you’ve probably heard a lot about the Home Valuation Code of Conduct (HVCC), which sprang out of a March 3rd agreement reached between the Attorney General of New York (Andrew Cuomo), the OFHEO, and Fannie Mae and Freddie Mac.
To read it, click here.
In the settlement agreement, the parties resolved to address issues of appraisal coercion and independence in exchange for the Attorney General’s office terminating its investigation. The agreement stated that the HVCC would be the standard of conduct followed by the parties, and would be complemented and overseen by a newly formed Independent Valuation Protection Institute, or IVPI. The IVPI is funded jointly by Fannie and Freddie for a period of 28 months under the terms of the agreement.
At first glance, the HVCC and the agreement that spawned it seem like a good plan. Both lead off with language regarding the need for sound appraisals produced free of any influence or coercion on the part of the lender or any other party. But, as is always the case with any governmental or even de facto regulation, the devil is in the details. We believe the details create a misleading and dangerous environment for both borrowers and for appraisers.
1) National Association of Mortgage Bankers (NAMB) conservatively estimates that the HVCC is costing consumers over 2.8 BILLION dollars a year in extra fees, created by long delays (extended lock-in fees) and higher appraisal costs. The minimum increase we have seen in direct consumer cost is $150 per appraisal. That, coupled with the drastically increased appraisal turnaround times that impose extended lock periods at an average expense of $561.95 per loan, is now costing consumers an estimated additional $711.95 per transaction x 3,870,552* = $2,755,639,496 or $2.8BILLION in increased fees to consumers! (*2007 HMDA report of residential real estate loans originated)
2) 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.
3) AMCs are driving honest appraisers and mortgage brokers from business, eliminating competition, increasing costs to consumers and reducing state revenue. The HVCC is causing significant delays in real estate transactions, hurting real estate agents, title companies and other third parties reliant on turnaround time. AMCs are assigning appraisers from a different municipality, county, or even state to appraise the target house, therefore unfamiliar with the neighborhood and unable to produce an accurate appraisal.
Because of this, the HVCC is forcing appraisers to be in direct violation of the Uniform Standards of Professional Appraisal Practice (USPAP) for jurisdictional competence.
Because AMCs pay appraisers such low fees, those assigned appraisers willing to do the work are often inexperienced and fail to adequately appraise the home.
4) HVCC does nothing to reduce fraud, as it legitimizes the same failed model, which was the subject of Attorney General Cuomo’s investigation.
5) No Portability! Consumers are “trapped” with a specific lender. Lenders are not allowing borrowers to transfer appraisals, regardless of the reason. If a better deal becomes available with a different lender, the consumer is forced to pay for another appraisal and wait for a new appraiser to be assigned and complete it, increasing the total cost and time needed for obtaining a home. Delays in turnaround times also cause the borrower to miss rate lock deadlines and possibly face penalties charged by the lender.
What can be done? Call NY Attorney General Andrew Cuomo’s Office: (212) 416-8000,
(Internet Complaint)
Federal Housing Finance Agency (FHFA): (866) 796-5595, director@fhfa.gov
Fannie Mae: (202) 752-7000, headquarters@fanniemae.com
Freddie Mac: (703) 903-2000, http://www.freddiemac.com/corporate/about/feedback.html
Senators, Representatives and Governors: Click here for contact information.
Also, please contact your local TV and Newspaper outlets.
