Guest Post: What I Think Is Wrong With HVCCby Tim Manni
The following guest post was contributed by Kris Taraz, Managing Director of Inhouse Capital Mortgage Services in Escondido, California. Kris has also lent his experience and opinions to some of our other content, including a blog post on the current state of the housing market and an article regarding the new good faith estimate (GFE).
There are many issues surrounding the home valuation code of conduct (HVCC) which certainly contribute to the elements that are slowing down the housing recovery.
Appraisals are ordered through a so-called management company which assigns an appraiser or an independent firm to conduct the home appraisal. The appraisers are usually not familiar with the area and no sufficient research is done to arrive at the true value of the property. This, in my opinion, cannot be blamed on appraisers, as they work almost for minimum wage (considering the cost of the commute, photos and research). An appraisal in California can cost anywhere from $385 to $450 or even higher depending on the size of the property. Almost 65% to 70% of that cost goes to the management company and the rest to an appraisal company which may have to split the fee with the actual appraiser.
Lenders and brokers have no control over choosing an appraiser, and they’re not even allowed to get an idea if the value of the home is within the customer’s range. Consequently, an actual appraisal has to be done and the borrower must pay the entire fee to obtain an actual appraisal report. In the past, lenders and brokers could easily contact an appraiser and find out if the value of the home is within reach so that the homeowner/ borrower could make a decision about whether to continue with their refinance or purchase transaction.
What is absolutely absurd is that banks do not accept the same appraisal report should the loan be placed with a different bank. For example, I placed a loan with a lender, and after the loan was underwritten I was informed that the property was in a rural area, and since the lender is very conservative, they declined the loan. Consequently, I contacted another bank and they indicated that they have no problem with properties in rural areas, so I placed the loan with them. But we still have to do a new appraisal! Again, this occurred despite the fact that the appraisal was just two weeks old and was already done by an HVCC-approved appraiser.
This in essence increases the cost for the borrower from $400 to $800. In addition, the value on the second appraisal may significantly be different from the first appraisal. In one recent refinance, we faced this issue when the value of a home arrived at $250,000 lower, simply because the appraiser selected comparables from a different town about one to two miles away.
Perhaps the most disturbing part of HVCC is that large commercial banks have ownership interest in these appraisal management companies and this has become an excellent source of revenue for them at the expense of the borrowers.
In the mean time, HVCC is stopping many from refinancing to a lower interest rate, taking cash out or purchasing a property and paying the desired price.
Considering the above regulation and its negative impact, no one should wonder why the housing market is continuing to crumble.
HSH’s update: For those of you out there — like our guest blogger Kris Taraz — who can’t wait to see HVCC disappear, you’re in luck: the president’s signature of the financial reform bill set the HVCC to sunset in just 90 days.
Readers: We encourage everyone to leave a (respectful) comment in reaction to Kris’ guest post!
*This post was originally published on 07/31/2010*