There is an increasing amount of opposition to the new home appraisal rules as many mortgage brokers and real estate agents are serving up criticism that the Home Valuation Code of Conduct (HVCC) guidelines adopted in 2009 are resulting in inaccurate and low-ball appraisals.
The main argument amongst critics is that the new rules have undesirable affects where appraisers are now being overextended, underpaid and forced to churn out appraisals in a hurried fashion. Conversely, many mortgage lenders, including J.P. Morgan and CitiGroup, have vested interests in the appraisal management companies that now play the role of divvying up appraisal assignments, so they naturally are against revamping the current appraisal guidelines.
Implemented last spring by Fannie Mae and Freddie Mac, the Code of Conduct bans mortgage brokers and loan officers from selecting appraisers to valuate homes in the deals which they are brokering. The purpose is to prevent the inflated and sometimes fraudulent appraisals which were partly responsible for an artificial surge in home prices during the past decade.
According to a recent article by Jessica Holzer in the Wall Street Journal , realtors and mortgage brokers have succeeded in inserting language into a House-passed financial-regulation bill that would end the new protocols. The measure would direct federal regulators to come up with an improved set of rules.
Under the new system, appraisal management companies now solicit out appraisal assignments for a fraction of the cost of what the work used to pay - in some cases less than half of the industry’s former compensation rate. As a result, many appraisals end up in the hands of the lowest bidder, and the work is being done by appraisers who have limited industry experience or are lacking of knowledge as it pertains to a specific real estate market and neighborhoods.
“More and more people are leaving the appraisal business than ever before because appraisals are now going out to the lowest bidders, commanding lower pay and fees,” says Bill Schettler, Vice President of Sales at Total Mortage Services, LLC.
Mr. Schettler, who worked six years as an appraiser himself, added, “Unfortunately, because of what the appraisal management companies are paying, many people are no longer able to make a living in the industry and there are more inexperienced people now doing the job. What is happening now is that appraisers have to travel further and further to cover more territory, so they can’t be as familiar with the homes as they were before”
National Association of Mortgage Brokers CEO Roy DeLoach told the Journal that out-of-town appraisers hired by vendors are diminishing homeowner equity through home valuations that aren’t credible: “It’s basically hollowing out the equity in communities whether you intend to sell or not.”
Do you think the current appraisal process should be changed? Have the new HVCC guidelines hurt the industry?
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Lisa
June 19, 2010 @ 8:38 am
I work with a builder in the Austin area. One of his purchasers used their own mortgage company as it was a relo deal. The mortgage company is Wells Fargo. They apparently farm out appraisals through a national firm. The guy doing this one is in Minnesota! He will only use MLS reported comps. Most builders in our area don’t report every sale to MLS – but can provide the contract details and a HUD settlement statement to prove when it closed. As a result we will get a low ball appraisal because the only homes builders typically list in the MLS are the ones that are discounted due to age…
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Owl Tree
June 20, 2010 @ 9:07 pm
Yes, the new rules have hurt independent appraisers the worst. Appraisers are now completely dependent upon Appraisal Management Companies, whereas in the past, they could obtain business from dozens of banks, lenders, mortgage brokers and loan officers.
Aside from appraiser’s now becoming serfs to the Appraisal Management companies, the biggest problem is lack of appraisal portability. Even though the customer pays for the product (the appraisal), the bank owns it.
If loan originators are unable to order appraisals, then neither should banks be permitted to own what the borrower has paid for. I say let the borrower order and pay for the appraisal directly, and allow the banks to reserve the right to accept or reject the appraisal based upon the quality and accuracy of the report. If loan officers can’t control order, neither should anyone else but the consumer, especially since they are the ones that are paying the cost for the report.
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cathy
July 20, 2010 @ 10:28 pm
As a consumer, I am currently dealing with this issue, having switched lenders. I, of course, prepaid for the appraisal and now the original lender denies my existence, stonewalling my efforts to get the appraisal released and/or transferred with the HVCC compliance letter. The lender is basically holding my appraisal because I did not go through with their loan. It seems I, as the consumer, have been overlooked in the whole regulation process. Lender 2 says they will accept the appraisal but need the release and compliance letter. What a racket!
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Craig Reply:
August 7th, 2010 at 12:15 am
I’ve been dealing with Pulte Homes in California for the last 6 months, watching my new home being built. It is finished. But the appraisal process is really concerning me. After a problem with title (wrong lot #), the appraisal was finally given to Pulte this week. But they do not want me to see it until after underwriting has approved it and my loan paperwork. Home price was agreed to at 348K, but home prices have dropped in the last 6 months in my city, and a local appraiser and my realtor both agree with me that I have a case to ask for a reduction in the price. Comps from my realtor and the appraiser I called suggest prices should be 290-320. How can I get Pulte to release to me the appraisal to me so I can figure this all out? Do I have to send them a copy of a HVCC compliance letter? How can I learn more about my rights to see the appraisal asap? Is this the normal practice these days for a new home builder to hold the appraisal from the buyer? How are new home builders dealing with appraisals that are coming in lower than the agreed price?
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New Home Builders
September 16, 2010 @ 3:24 pm
I certainly hope not, as these rules are here to help things for the greater good.
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Kevin
October 25, 2010 @ 9:20 am
The new HVCC rules are terrrible. I refinanced in Jan 2010 and my appraisal came back at in high 190′s. We bought in Jan 2005 for $300. I questioned the appraiser’s comps as they were in the wrong sub, used foreclosures and exclded builder comps. The excluded builder comps were noted as “didn’t reflect the market”. Hugh? I purchased a new appraisal and go a price of $225. HVCC should set rules on what comps to use. I agree foreclosures / short sales could be used; however, should only be weighted at 5% of entire valuation.
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