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June 26th, 2009 (Modified on January 12th, 2010)

Update1 Lawmakers Call to End HVCC



UPDATE1: Earlier this week we reported that the National Association of Realtors was receiving serious complaints from agents saying Fannie and Freddie’s new home appraisal system was hurting home sales. Other industry groups have begun adding to the criticism.

Responding to claims that the Home Valuation Code of Conduct (HVCC) is only further damaging the housing market, two lawmakers have introduced a bill that would suspend the HVCC.

From National Mortgage News:

The National Association of Mortgage Brokers claims the HVCC is delaying closings and costing it business. Brokers also have complained about being forced to pay high fees to appraisal management companies. “This ill-thought out code is basically damaging the economy. It will rob consumers of the low rates that are available now,” said NAMB executive director Roy DeLoach. However, it’s unclear where the bill goes from here. The legislation was introduced on Thursday night by Rep. Travis W. Childers, D., Miss., and Rep. Gary G. Miller, R., Calif.

While we wait to learn more, we think Julie Messina’s conclusion works well: “I don’t know if there will be a HVCC moratorium or not. But we owe it to our communities to tweak the Code so it is fair for everyone.  Only then can we restore  health in the  housing finance industry.”

(Original story published on 6/23/09): Since its implementation back on May 1, the Home Valuation Code of Conduct (HVCC) — a new set of standards for the solicitation, selection, and compensation of home appraisals for any mortgage owned or guaranteed by Fannie Mae or Freddie Mac — has received near constant criticism from realtors, appraisers, and mortgage professionals.

According to National Mortgage News, the HVCC “encourages the use of appraisal management firms that do not always use local appraisers. Real [estate] agents are complaining that appraisals are being conducted by non-local appraisers who are using non-comparable properties and relying on computer models, [the National Association of Realtors (NAR) Chief Economist Lawrence Yun] said. Mortgage brokers also are complaining that appraisals are taking longer and causing some transactions to fall through.” Yun told reporters that “We are getting bombarded by members across the country who say that sales are falling apart.”

In separate, but related, news, existing-home sales — “the premier measurement of the residential real estate market” — rose for the third straight month, according to the NAR. Yun said the increase was expected for several reasons. Not only do the spring and summer seasons bring the highest volume of home sales, but the combination of historically-low mortgage rates, cheap home prices, and the $8,000 tax credit have all drawn potential buyers off the sidelines.

Whether your interpretation of May’s existing-home sales numbers are positive (like Real Time Economics) or more skeptical like the NAR’s, critics of the HVCC say that, bottom line, home sales would be even better without it.

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10 Responses to “Update1 Lawmakers Call to End HVCC”

  1. Lucia Says: June 23rd, 2009 at 6:35 pm

    Shoddy appraisals are one spoke in the hub, the other is tight underwriting standards that require a picture of perfect marketability for the property, supported by very recent, almost identical sales within the same neighborhood. Properties within neighborhoods that experience 3 arms-length sales per year won’t qualify for the best financing terms, especially if they are not similar to the property being valued or are not within the same neighborhood. But for many neighborhoods, this is the present picture of the market.

    Agents deal with future sales, but appraisers have to have historical proof and look backwards to the past. For markets that are stabilizing somewhat, the appraiser has to prove that declines are no longer happening and the underwriter wants to check the math. Underwriters now demand that the data and the math is reasonable and accurate to determine the risk to future marketability. This is no easy task for markets that have more foreclosures and short sales than arms length sales. The underwriter wants to know if these bank owned properties are driving the market and if they are pressuring values, then they have to be included as comparable sales.

    I commend the professionals that are screaming about the HVCC. Many good appraisers have lost income and clients to low fee shops and the loss of quality hurts everyone. Appraisers have been yelling about this for over a year, but it seems their voices are too small. Please keep yelling. Maybe that’s what it will take to turn this around.

  2. Tim Manni Says: June 24th, 2009 at 9:40 am

    Hey Lucia,

    Thanks for commenting. I’ve really just begun to wrap my hands around this topic — I have a lot more to learn about it. I feel appraisers, as you alluded to, are a muted voice in terms of housing, and the roles they play. Appraising seems like an extremely tedious and lengthy process, but an extremely important one at that.

    We’ll be most certainly following this topic more as it plays into the recovery of the housing market.


  3. Lucia Says: June 24th, 2009 at 1:09 pm

    Tim, it should be noted that there are 2 seperate issues here that are affecting appraisals. One is the HVCC which is to blame for shoddy appraisal work by cut-fee shops, and the other is the market data analysis form required by Fannie Mae for risk analysis, called the 1004MC (Market Conditions Summary Form). The form requires median prices of similar proximate properties that sold within 3 mos, 4-6 mos, and 7-12 mos, as well as listings, market times, list price to sale price ratios, etc, which tracks the increase or decline of values within the neighborhood. The fewer comparable sales there are in the neighborhood, the higher the risk of the property not having typical marketability. The underwriter is responsible for determining the risk of lending on a property with low sales or old sales or high foreclosures within the neighborhood, and may reject the property as collateral, or raise the mortgage rate, or increase fees, or whatever else (not my department).

    Also, don’t confuse some realtors complaints with appraisers using computer models for valuations as if that’s proof of shoddy work. The market data has to be researched, compiled and analyzed and some appraisers use software tools to do this. Personally, I have to hand search the assessor’s database for every property, and usually there’s too few sales to fill out the 1004MC form with more than N/A.

    Another point about computer models for valuations is that some lenders, especially those dealing with foreclosures or short sales, do not use appraisals, but computer generated valuations or broker price opinions. The lenders claim these products are not appraisals, but the definition of an appraisals is an opinion of market value. All I know is that I seldom get REO assignments anymore.

  4. Tim Manni Says: June 25th, 2009 at 11:40 am


    I’m a tad confused…So what’s the better option in your opinion, the computer software?

    Has the industry hit a 180 since May when the new rules were announced? Did you notice a lot has changed since the government took control of Fannie and Freddie?

  5. Advance! Advance! « LanCo RE Weblog Says: July 1st, 2009 at 5:14 pm

    [...] Realtors: New Appraisals Hurting Housing Market (hsh.com) [...]

  6. Pending Home Sales Rise Again : Karen Uehara Uplifted Says: July 2nd, 2009 at 5:45 am

    [...] Realtors: New Appraisals Hurting Housing Market (hsh.com) [...]

  7. Tiffany Taylor (President, Platinum Funding) Says: July 4th, 2009 at 4:11 am

    The HVCC code of conduct is the result of a “legal settlement” with the attorney general of New York. (No, it’s not a law) It is applied nationwide. And it should be considered a case study in the value of the legislative process: If the HVCC had been a bill introduced into Congress, it would have never passed without having undergone drastic changes. But it wasn’t a bill and it isn’t a law; it’s a legal settlement by one state’s attorney general, imposed on all 50 states.
    Every public policy has unintended consequences. But that doesn’t mean that the consequences are unforeseen. Plenty of people foresaw the unintended consequences arising from the HVCC. Because it didn’t go through a legislative committee system, because it wasn’t passed by two houses, and because it wasn’t signed by a governor or president, those foreseeable but unintended consequences could be — and were — ignored. As a matter of fact Cuomo was a paid board member of AMCO, an appraisal management company. His buddy is Ed Davidson (a major campaign contributor of Cuomo) and was the CEO of AMCO, which was sold to SIRVA and renamed Valuation Services, LLC. It is reported that Davison has rights to future income from Valuation Services, LLC. (and I wouldn’t be surprised if Cuomo does get a couple of bucks from it either, but that’s pure conjecture on my part.)
    HVCC was supposed to include Independent Valuation Protection Institute, which is a place to report fraud and coercion. That was never funded so AMCs are unregulated. It was rumored that Ed Davidson was to head the IVPI. As it stands, HVCC is nothing but a profit center for the big banks who own them.

    After 18 years in the mortgage industry, I can’t believe that such poorly written legislation is being enforced and the only loser is the consumer. All wholesale lenders have an appraisal review process, there is no way to pay off or entice an appraiser to bring in a value that isn’t supported by comps. If you do the appraisal will be cut and the appraiser will be placed on the black list. AMC’s can just as easily enticed, so how does this solve the so called problem? The bottom line is that consumers will pay 3.8 billion dollars more in appraisal fees this year… What a Gong Show!

  8. Tim Manni Says: July 6th, 2009 at 10:46 am


    Thanks for commenting and helping to set the record straight. We appreciate your comments and insight into the problems behind HVCC. It must have been a powerful settlement if it was implemented nationwide. Thanks for stressing who is hurt by this the most: the consumer. Great comment, we hope to hear from you again.


  9. New Home Valuation Code of Conduct (HVCC) is a Quagmire « LanCo RE Weblog Says: July 12th, 2009 at 8:22 am

    [...] Realtors: New Appraisals Hurting Housing Market (hsh.com) [...]

  10. Bob Jones Says: August 18th, 2010 at 5:18 pm

    The “law makers” that came up with HVCC should be removed from office. This system has given all the power to the appriasers and they no longer have any accountablity. The same group that the “law makers” were trying to reign in now report to no one. In addtion to this the “law makers” have created a system that is sytematically robbing American homeowners of their largest investment. You do the math. Take the value of residential real estate in the United States and lower the value of it 3% per year over a 10 year period. No one will have any home equity when all is said and done. Since the appriasers are not accountable to anyone they will take the easy way out on appraisals and always error to the low side. This seems reasonable, but when you multiply this effect out over a number of years across the entire country the results will be disasterous. Under the HVCC system appreciation is impossible because the appriasers will always select the lowest possible comparable. I am not an alarmist, but I am alarmed.

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