The New HVCC Law – Does It Help, or Just Plain Suck?
So there’s this new law affecting the real estate and
mortgage industry, called the HVCC – short for “Home Valuation Code of Conduct”,
which went into effect last month, and is the byproduct of a legal settlement between
NY attorney general Andrew Cuomo and Fannie Mae & Freddie Mac.
Here’s how it was “supposed” to help: to assure appraisers that they would
not be unduly influenced by lenders in the appraisal process.
Here’s where it
proverbially, “sucks”: costs rose, and accuracy in appraisals took a nosedive.
Moreover, appraisers that are unfamiliar
with local markets, inexperienced or both, are using distressed sales -
foreclosures and short sales of existing houses – as their comparables
Kenneth Harney
from the Washington Post (in my opinion, probably the best columnist covering
real estate issues, bar none), wrote a great article recently (full contents
here, but I’ll quote some of the highlights below).
How it can affect everyone:
It could
directly affect the value of your house – probably negatively – by tens of
thousands of dollars
The issue
concerns low valuations and the new rules guiding appraisers in both
price-depressed and rebounding markets. Consider these snapshots of what's
going on:
- In San Diego, Steve Doyle, division president for Brookfield
Homes, is trying to close out the final 20 houses of a 120-unit single-family
subdivision. Prices range from $340,000 to $350,000. But recently there's been
a major hitch: Appraisers assigned by banks are coming in with valuations
$60,000 or more below Doyle's selling prices. The appraisers, who Doyle says
are unfamiliar with local markets, inexperienced or both, are using distressed
sales – foreclosures and short sales of existing houses – as their comparables.
Some of the distressed properties are in poor condition, and all of them offer
fewer amenities, according to Doyle. - In Wilmington, N.C., a loan applicant with a house in excellent
condition, and an unblemished payment record, sought to refinance into a 4 3/4
percent mortgage. She had purchased the property four years ago for $160,000
and made about $20,000 worth of improvements in the interim. Her loan
application, according to Paul Skeens, president of Colonial Mortgage Group of
Waldorf, Md., was "a slam dunk. Nothing to it." The house was worth
$180,000 to $200,000, according to one estimate.
But when an appraiser with little local knowledge was sent in by a
bank to value the house, he chose two short-sale properties that had both
closed in the mid-$140,000 range, and one inheritance sale around $155,000. The
last property was "in horrible condition," said Skeens. "I'd
call it dog meat." The deal-paralyzing appraised value that came in for
the cream-puff refi: $149,000.
Complaints
about lowballed appraisals – from builders, realty agents, consumers and
mortgage companies – have erupted since May 1, when government-sponsored Fannie
Mae and Freddie Mac put their new appraisal rules into effect nationwide.
Critics charge that the new system is fostering the use of appraisers willing
to work for low fees – sometimes 50 percent below previous standards – and who
are willing to conduct home appraisals far outside their typical areas of
activity.
Under the HVCC, appraisers are now routinely assigned by appraisal
management companies rather than being selected by mortgage companies or loan
officers. The management companies pocket as much as 40 to 50 percent of the
appraisal fee.
Frustration with the new system boiled over and made its way to
Capitol Hill late last month. The National Association of Home Builders called
for an immediate change in the rules governing the use of foreclosures, short
sales and other distress transactions as comparables for appraisals on
non-distressed, typical homes, whether new or resale.
Two congressmen – Travis Childers, D-Miss., and Gary Miller,
R-Diamond Bar (Los Angeles County) – have introduced legislation calling for an
18-month moratorium on the appraisal code. In identical letters to James
Lockhart, the top regulator of Fannie Mae and Freddie Mac, and Cuomo, the
National Association of Realtors also requested a moratorium and complained
that the code is raising costs to borrowers, distorting property values and
killing sales.
Asked for comment, Lockhart said through a spokesperson that his
agency is monitoring the situation, and considers "the views of market
participants important."
Bottom line: Be aware of the issue. It affects your equity, even
if you're not buying or selling. And watch to see whether Congress fixes the
problem.
Realtor, Marathon Man, "Man of a Thousand Voices".
We Are seeing the same thing with HVCC issues here in St. Louis MO. We’ve setup a blog with quite a bit of informaion on HVCC http://www.homevaluationcodecrisis.com