Posts Tagged HVCC
Let’s face it, the Housing Valuation Code of Conduct (HVCC) has been heralded as the greatest disaster in real estate legislation… Ever. It’s created a middle man – Appraisal Management Company (AMC) – who a lender has to order an appraisal through so that the loan officer has no contact with the appraiser. The idea was that this would prevent the loan officer from influencing the appraiser’s opinion of value. Fair enough, sounds reasonable. Except…
In reality it created a middle man, the AMC that upped the price of appraisals by $100 or more, while bidding-out the appraisal work to a pool of appraisers, the lowest bid usually got the job and the AMC kept the difference. I heard stories from appraisers of being offered $75 from the AMC while the AMC was charging the borrower $450. In the days before HVCC the appraiser would charge $350 and that was his compensation (minus and split he may have if he worked for an appraisal company or was an apprentice). All appraisers saw their income cut by 40% or more overnight for doing the same work – and I didn’t know any rich appraisers to start with, either.
HVCC also dictated that the appraisal be paid for in advance by someone with no financial interest in the transaction (such as the loan officer or real estate agent) BEFORE the appraisal could be done. The days oft rolling-up the cost of the appraisal in the loan, or having it paid by the seller through seller concessions was gone.
So the borrower or buyer now had to pay for the appraisal by cash or credit card before the loan transaction could be done. I presently have several clients who’ve paid for appraisals that came back with a value too low to refinance their home or purchase the property they were looking at. They are all out $400 – $550 and don’t have a refinance or a new home to show for it.
Before HVCC I could call my favorite appraiser and say “Adam, my client is thinking about refinancing his house, can you look at some comps and tell me if you think an appraisal will come-in high enough to do the loan?”
If he said “Nope, there aren’t any comps to support that loan amount” I could go back to my borrower and say “I don’t think this deal is going to work, maybe we should look at it again in 6 months or so”.
Now days a home owner has to pay for an appraisal to find-out if a refinance is even possible. If it isn’t, he’s out $400-plus for nothing.
Tell me how that benefits the consumer the law was intended to protect?
Well, HVCC sunsets in November, and the Financial Reform Bill signed into law by President Obama this week makes some sweeping changes to the appraisal process that should be more borrower-friendly. If Congress doesn’t re-up HVCC in November we’ll really have something. Below is a link to a good blog that outlines the changes to the appraisal process contained in the Financial Reform Bill. Hopefully it will help many appraisers get back to work and be able to feed their families again in a field they trained for two years or more in before they could become licensed.
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- Appraisal Institute Applauds Financial Reform Bill, Calls on Congress to Pass Final Version (rismedia.com)
- New guidelines for choosing appraisers, comps (seattletimes.nwsource.com)
Although H.R. 3044 which would put an 18-month moretorium on HVCC seems to have gotten stalled, but some members of the House Financial Services Committee were able to tack a repeal of HVCC onto H.R. 3126, the Consumer Financial Protection Act (CFPA) as an amendment. H.R. 3126 passed committee 39 t0 29 with most Committee Republicans voting against it.
H.R. 3126 has been fought furiously by banks and credit card companies because is severely limits how they can put the screws to you and I when getting or servicing loan or credit card.
If passed by the House of Representatives it will go on to the Senate. President Obama has requested that CFPA be on his desk for signing into law before the new year.
As a brief review, HVCC is the Housing Valuation Code of Conduct, which was the brainchild of New York State Attorney Andrew Cuomo. He was wrongfully assuming that A) appraisers are all pansies, and B) because they are pansies they could be easily bullied by mortgage loan officers and real estate agents into artificially inflating the value of a home.
Well, for the most part appraisers are a pretty honest bunch and housing bubble was much more than just inflated appraisals due to some unscrupulous loan officers, real estate agents and appraisers. All HVCC did was add an additional layer of cost and time to the process: Appraisal Management Companies, or AMC’s.
AMC’s are the go-between for loan officers, Realtors and the appraiser. A buffer if you will. The AMC’s run interference and isolate the appraiser from talking to the loan officer or Realtor, the idea being that if a loan officer or Realtor can’t talk to the appraiser they can’t pressure them into “hitting a target value” to make the deal work.
Well, the market decides the value, all the appraiser does is compare the subject property to comparable properties that sold within a given period and a given distance from the subject property. In short: it is what it is.
There are a number of problems with AMC’s though:
- AMC’s increased the price the consumer pays for an appraisal because it added a middleman into the process.
- Appraisals have to be paid by the borrower before the appraisal is done, it can no longer be rolled-up into the loan like before.
- AMC’s take up to 60% of the amount collected from the borrower as “administrative costs” and appraisers are making only 40% of what they did just last April.
- Because of this the good appraisers have exited the business, leaving green appraisers who will work for pennies on the dollar, and thus;
- We are getting shoddy appraisals using comparatives that are not comparable properties. And, because we can’t talk with the appraiser we can’t go to bat for our borrower by questioning why the appraiser used a short-sale or a bank foreclosure as a comparable as compared to a genuine sales transaction, which represents the true market value of a home.
All HVCC has done is add another layer of bureaucracy, increased costs to the borrower, and hindered refinances that can help a borrower by reducing their interest rate and putting more cash in their pocket each month, thus reducing the chance of defaulting on their mortgage.
You’d think this would be a good thing, huh?
So let’s hope H.R. 3126 passes the House and the Senate and we can start moving forward with real economic recovery and your home will start increasing in value again as real, honest and competent appraisers get back to work doing what they love to do.
Finally a litte ray of sunshine the Home Valuation Code of Conduct (HVCC) initiated by New York Attorney General Andrew Cuomo that has done nothing but decrease the appraiser’s income up to 40% while lining the pockets of these new Appraisal Management Companies (AMC). AMC’s are charging $75 to $100 more for an appraisal while only paying the appraiser doing the appraisal $200 or less for their work they used to make $350 for. I had an appraiser friend recently tell me he received a call from an AMC he is signed-up recently trying to negotiate him doing an appraisal for only $75 if he wanted the work.
In my experience most AMC’s are simply larger appraisal firms that re-designated themselves “Management Companies” and are not giving work to appraisers outside their own employees.
Because of HVCC is it is taking on the average of two weeks to get an appraisal done that used to be done in three business days. At least that is my experiences with AMC’s in the past two months. Another huge disadvantage of HVCC and AMC’s is that it’s not only increased the cost to the borrower of an appraisal, it now has to be paid for before the appraisal is done. In the past the appraiser would bill the loan officer Net 30 and he’d be paid from the proceeds of the closed loan, thus the borrower didn’t have to pay in cash or credit card the cost of the appraisal. That is no longer the case, which for some on fixed incomes makes refinancing almost an impossibility unless they have the extra cash lying around.
Hopefully our elected officials will see that HVCC has no tangible benefit to the borrower, and in fact harms the borrower. What sounded good in theory is not good in practice.