Home Valuation Code of Conduct (HaVoCC)

On June 12, 2009, in Tips And Advice, by Mark Madsen

Written by: Mark Madsen |

Las Vegas, Nevada - 702-432-5626

I was recently interviewed by Brain Wargo, a business reporter from the Las Vegas Sun, about the Home Valuation Code of Conduct for a story he was writing titled “Realtors Complain About ‘Low Ball’ Appraisals”

Realtor.org and several other National publications ran with the story as well, which proves how hot the appraisal / equity topic is.

While I certainly appreciate the time and effort Mr. Wargo spent interviewing me, I understand how challenging it must have been to explain the full impact that HVCC has on the Las Vegas Real Estate Market in a manner of a few quotes.

Either way, I’ll take any opportunity that I can get to raise awareness about how the Home Valuation Code of Conduct (HVCC) is wreaking HAVOC on Las Vegas Real Estate, short sales, and foreclosures.

Let me start by briefly breaking down the history of the HVCC with a few highlights, and then I’ll leave my responses to the Las Vegas Sun Low Ball Appraisal article.

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Home Valuation Code of Conduct (HVCC) Overview

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cuomo The Home Valuation Code of Conduct (HVCC) is an agreement between New York Attorney General Cuomo, Fannie Mae and Freddie Mac, and their new regulator the Federal Housing Finance Agency that was presented as a means to stop mortgage and appraisal fraud.

At first glance, the intent appears to solve issues where appraised values may be influenced by lending institutions or other parties involved in the mortgage and real estate transaction.

However, a deeper look at the details in this agreement reveals language that ultimately hurts the consumer.

An official statement from the National Association of Mortgage Brokers (NAMB) about HVCC -

A revised HVCC released on December 23, 2008, by New York Attorney General Cuomo is a de facto regulatory action, failing to follow necessary regulatory procedure.

The Home Valuation Code of Conduct (HVCC), as written, goes too far. It will impair consumer choice and impede competition, ultimately costing consumers more money and hurting small businesses in a way simpler, more effective, less burdensome solutions would not.

In a response from The Appraisal Press – HVCC: The Cure Is Worse Than The Disease, there are five major aspects which they believe will harm the appraisal industry and the consumer:

Under the HVCC, any lender using a professional appraiser incurs substantial regulatory risks and additional costs, whereas AVMs, BPOs, and other valuation alternatives are expressly and repeatedly exempted from the same regulations and liabilities.

The HVCC unduly restricts the appraiser’s ability to operate a business in the same manner as the other parties already in the transaction.

Lenders must be prohibited from owning or controlling, in whole or in part, any sort of valuation entity or mechanism used in the origination of a loan.

All valuations, regardless of method employed, must be provided to the borrower in the same manner.

Any complaints regarding the valuation process should be reported solely to the IVPI, not to the lender overseeing the origination.

What started with a 2007 lawsuit where Attorney General Andrew Cuomo sued an appraisal division of First American Corp. for allegedly inflating home values on an estimated 260,000 Washington Mutual loans between 2006 and 2007 has now been shifted to blaming street level originators and appraisers.

If revealing truth and transparency were the real motives behind this agreement, more stories would have been exposed where appraisers were pressured by developers and Appraisal Management Companies to bring in value.

The lending community is also sharing their disgust towards HVCC and how it is already hurting consumers and industry professionals.

It is vital for all mortgage and real estate professionals to get behind NAMB’s efforts to fight HVCC, regardless of whether you are a member of NAMB or not.

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Las Vegas Sun – “Low-Ball Appraisals”

Since a few other local agents appraisers were included in this article, I thought I would break down my responses to the major points from the contributors and comments from the readers.

Mark Stark, owner of Prudential Americana, said he thinks appraisers are focusing too much on projecting what values will be instead of what they really are.

“The appraisers are being very conservative,” Stark said. “They are trying to cover themselves.”

Appraisers are absolutely covering themselves. They don’t want to be labeled by the Appraisal Management Company or Lender as the “guy who can bring in values” anymore.

Plus, higher values may require a little more work to support vs just coming in at a safe number. And, who wants to work harder when your pay has been cut by up to 40% from some of these AMCs?

Julie Burkart, an appraiser with Southwest Appraisal Service in Las Vegas, said everyone is surprised by the decline in values and suggested that the drop is not appraisers trying to cover themselves. They are basing their decisions on the data they have, she said.

“They are not worried about covering themselves if they are doing a good job,” Burkart said. “There are a lot of people out there who think their homes are excluded from the price drops, but they are not.”

Agreed – Sellers have to start realizing that their granite counters and upgraded sink fixtures don’t stand a chance against the 19 foreclosures in their neighborhood that are all listed (not selling) for 50% less than they owe.

But Mark Madsen, communications director for Raintree Mortgage Services, suggested some appraisers don’t want to come in too high with the values so that they can keep working.

“I think appraisers are scared to get blacklisted,” Madsen said. “If the appraisals are too high, then banks may no longer accept appraisals from that person,” Madsen said.

To be fully transparent, I personally haven not spoken with an appraiser who was blacklisted from an AMC for bringing in high values.

Nancy Tucker, a Realtor with Coldwell Banker Premier, said some of the fault lies with banks selling foreclosure properties. Lenders are listing initial prices that are well under the market value as a way to generate multiple offers.

The lender accepts the highest offer and other buyers fall by the wayside, Tucker said. But when the appraisal is completed for the home, it is well under the price agreed to by the lender and prospective buyer. That is forcing deals to get redone when there is no other competition left, she said.

Definitely going to be more of an issue with HVCC. To make things worse, if the buyer wants to get a second opinion on that value they’ll have to pay for another full appraisal – $450ish. Oh yeah, those nice courtesy calls from the appraiser warning the loan officer that the values are significantly off are prohibited now.

Stark said the new policies are a concern because there is no guarantee of appraisers’ quality of service because they are selected from a list rather than by the lender.

“You wouldn’t let a doctor operate on you if you didn’t know the quality of service he provides,” Stark said. “You have no say.”

Amen, brother.

Madsen said he expects the new rules to push back closings by two to three weeks.

“With the amount of inventory we have out there, it is not good to slow it down,” Madsen said.

Tucker said the rules have pushed back her closings from about 30 days to 45 days.

Any questions?

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The good news is that FHA or VA loans are not impacted by the HVCC guidelines – yet. We are still able to work with our trusted appraisers to ensure the buyer is getting the most accurate value.

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