Home Appraisal Industry Turned Upside Down by HVCC
With the enactment of the HVCC (Home Valuation Code of Conduct), the appraisal industry has been turned upside down. Appraisers who have built a client base of mortgage brokers over many years are now told that those clients cannot order appraisal from them anymore. The plan was enacted in part to “protect” the appraisers from undue pressure from mortgage brokers. I think it obvious this is not the kind of “protection” professional appraisers want or need. Real estate appraisers and licensed loan brokers have always been under strict ethics and legal restrictions so the appraisal remains unbiased. The HVCC is a slap in the face (and the pocketbook) of the professional unbiased appraiser who has spent years developing his client base by hard work and ethical behavior. The ethical real estate appraiser takes it on the chin for the few bad appraisers in the appraisal industry. Seems like stepped up enforcement of our current laws would have been the first step, instead of gutting a business model that the majority of appraisers use.
Appraisal management companies have flourished in the wake of the this new upside down appraisal world.
Representatives from the Federal Housing Finance Agency (FHFA), Fannie Mae, Freddie Mac and others, tell us that they will not go back to business as it was prior to HVCC , no matter if the Code is allowed to sunset in November of this year or before then. However, passage by the House of Representatives late last year of the Financial and Mortgage Industry Reform Bill (HR 4173) could change things. If signed into law, the bill would establish a Consumer Financial Protection Agency and require lenders to pay appraisers their full fees, rather than splitting them with AMCs. There are also rules to assure appraisal independence. The bill gives the director of the new agency 60 days from the date of enactment of this legislation to establish such appraisal rules and calls for the HVCC to cease at the time the new rules go into effect. The bill was referred to the Senate Committee on Banking, Housing and Urban Affairs earlier this week.
Regarding appraisal management, the bill includes the following:
- Shall not prohibit lenders, the Federal National Mortgage Association, or the Federal Home Loan Mortgage Corporation from accepting any home appraisals completed by an appraiser selected, retained, or compensated in any manner by a mortgage loan originator—(A) licensed or registered in accordance with section 1501 et seq. of the SAFE Mortgage Licensing Act of 2008; and
- Subject to State or Federal laws that make it unlawful for a loan originator to make any payment, threat, or promise, directly or indirectly, to any appraiser of a property, for the purposes of influencing the independent judgment of the appraiser with respect to the value of the property, except that nothing in this section shall prohibit a person with an interest in a real estate transaction from asking an appraiser to—
(i) Consider additional, appropriate property information;
(ii) Provide further detail, substantiation, or explanation for the appraiser’s value conclusion; or
(iii) Correct errors in the appraisal report; and
- Shall include a requirement that lenders and their agents compensate appraisers at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.
- SUNSET.—As of the date the appraisal independence requirements are promulgated pursuant to subsection (a), the Home Valuation Code of Conduct announced by the Federal Housing Finance Agency on December 23, 2008, shall have no force or effect.
I am hoping that the new bill will allow appraisal services industry to get turned right side up.
Chas Leeper, SRA has been a real estate broker for over 31 years; Designated member of the Appraisal Institute; an author, surfer and grandparent. He is currently the Chief Appraiser of Southern California Real Estate and Appraisal Inc. More information about Chas Leeper, SRAcan be found at : www.leeperappraisal.com/principalappraiser.htm or Ventura County Appraisers call 949-574-5534.
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