Living with HVCC: The industry weighs in on the effects of the Home Valuation Code of Conduct
At this stage of the game, all should know the specifics and background of the Home Valuation Code of Conduct (HVCC). The text of the six-page document has quickly become legendary, the beginning of the end for many independent appraisal operations, and the starting point of positive and negative tirades on the topic that could, and have, lasted hours.
As stated on the Freddie Mac Web site, the HVCC is the result of a joint agreement between Freddie Mac, the Federal Housing Finance Agency (FHFA), and the New York State Attorney General [Andrew Cuomo] to enhance the independence and accuracy of the appraisal process, and provide added protections for homebuyers, mortgage investors and the housing market.
The National Association of Mortgage Brokers (NAMB) issued a Call to Action in early June where the association urged its membership to bombard the office of New York State Attorney General Andrew Cuomo and the offices of Fannie Mae and Freddie Mac with calls and inquiries, and letters and e-mails on the HVCC issue. NAMB has also set up a special HVCC Resource Center on their Web site for brokers, lenders and consumers to learn more about HVCC and set up a special e-mail address, firstname.lastname@example.org, where stories on the effects of the HVCC could be shared. You will find a sampling of some of those stories below.
In addition to educating its membership on the intricacies of the HVCC, NAMB Immediate Past President Marc Savitt has been fielding mainstream media inquiries and has been lining up media appearances to discuss the matter. On June 18, Savitt testified before the House Financial Services Subcommittee on Oversight and Investigations at a hearing titled, “Strengthening Oversight and Preventing Fraud in FHA and Other HUD Programs.” Savitt, along with representatives from HUD, the Mortgage Bankers Association, and other industry-related fields, shared his membership’s concerns with the HVCC and how it has negatively impacted brokers nationwide since its enactment.
“Our fragile housing market is once again on the verge of collapse,” said Savitt. “We are looking for appraisal independence and we don’t have that with HVCC.”
National Mortgage Professional Magazine had the opportunity to sample its readers, the ones directly impacted by the HVCC, to provide an overview of how mortgage operations across the nation are dealing with this new regulatory hurdle. Take a look at the perspectives below, and we urge you to share your thoughts and feeling with other readers online at www.nationalmortgageprofessional.com.
From the mortgage broker’s perspective …
ACA Mortgage Company LLC, Mechanicsburg, Pa.
The consumer loses … period.
Appraisals are more expensive. It takes longer to get the appraisals back, which means the rate lock either needs to be longer (which is more expensive) or they [consumers] have to pay to extend their rate lock or both. Then, if the borrower wishes to change lenders, they may have to pay for another appraisal depending the losing lender's policies on releasing the appraisal and/or they (the consumer) may experience costly delays in getting the appraisal transferred. These are real world realities.
It will seem like standard operating procedure in a year, but we will know, even if the consumer does not, that there was a better way and the consumer is paying thousands more in interest on their mortgage for no real benefit.
Good appraisers are talking about getting out of the business. The lender does not pay for extensions, the consumer does (as I mentioned above). There is little motivation to expedite this process.
A simple real example … my customer gave me a check on the 19th of May which we sent that day to the lender (who does not accept credit card payments). Before HVCC, I would have had the appraisal in my hands by a quality, licensed, local appraiser by the 22nd. I am told by the lender that they might hear back on the appraisal (which by the way might be the very same appraiser doing the same work for less money) by June 2.
Two weeks versus three days? Real world. Even those who do take credit cards have similar turnaround times.
Thousands in interest? For what value? So, that the third-party originators (TPOs) cannot influence the appraisal?
The HVCC, as I understand, it was born from an investigation of a lender inappropriately influencing appraised values, not TPOs. The HVCC, as it turned out, does not impact the lenders, and therefore, has no effect on the very organization the investigation found at fault.
Real world … operating costs are higher, turnaround times are slower, rates cost more to hold and the consumer does not end up with a better quality product. Fannie and Freddie will still be relying on the appraisal review process for quality control. We can only hope that a repeal is in the wings and that they study how negatively this impacts the consumer with little, if any, upside for the government-sponsored enterprises (GSEs).
HomeStart Capital LLC, Bellaire, Texas
I am proud member of the National Association of Mortgage Brokers and I am already having several problems by using the lender’s “preferred “ appraisers. We have a great reputation in the Houston area, and our company is based on integrity, honesty and unmatched service to all of our clients. We do 100 percent of our business from referrals from previous clients and outstanding real estate agents.
We can no longer provide the service and low costs that we are known for because of the following reasons:
The last two appraisals I had performed by an appraisal management company (AMC), in my opinion and even both of my buyer’s opinions, were overvalued. Both of my clients had almost 800 credit scores, putting 20 percent down on their purchases.
Both of them were really surprised of how much more the properties were appraised for, since they both know the areas where they were buying extremely well.
Some lenders have guidelines that clearly state that if the home appraises for 120 percent more than the “Predominant Value” of the area, it automatically triggers an “Appraisal Review,” also performed by the AMC (in this case, it happened to be the same company that performs the actual appraisals).
With both of my clients, we had to pay $360 for the appraisal, plus $50 to rush it because they can take more than five days to do the appraisal (which I could have done at no additional charge in one day with my previous appraiser). Since May 1, they have increased their cost to $405 for a 1004 Appraisal.
Plus, since both of them were overvalued, we had to order a review for $270 plus a $50 rush fee to get it back in three days. Both of my clients spent more than $700 on appraisals on what we could have done faster and more efficiently for just $275.
I called the “Director of Appraisers” to argue the value of both appraisals and I was told that the value was correct … even the sellers of the properties where shocked to learn of these “appraisal values.”
Stonebrook Mortgage, Boise, Idaho
Lenders and appraisal management companies (AMCs) will not accept assignments of appraisals ordered through other AMCs as they cannot guarantee the appraisal was HVCC-compliant and do not want to have an unsellable loan in their portfolio. The true issue resides with the consumer who decides to change lenders once the process has been initiated. In these cases, the consumer will be responsible for a minimum of two appraisals resulting in unnecessary expense and wasted time.
Glenda F. Sweitzer
Towne & Country Mortgage, Hamilton, Mont.
We are already experiencing higher costs to the customer in the form of desk reviews and second appraisals. This is due to the fact that lenders are taking it upon themselves to dictate values by relying on unreliable sources, such as real estate agents, to determine values in an area. They are also relying on county assessments to dictate values which are nowhere close to actual values.
I do believe that a rotation system should be put in place, but we now have new companies cropping up all over the place adding their own fees to the mix, along with trying to dictate fees paid to the appraisers. There is a threat there, in that if appraisers do not agree to these new lower fees, then they will not get the business. This is happening all over the state of Montana.
The other problem we see is by the ordering of an appraisal by a lender, and that appraisal being completed in the lender's name, (the broker/borrower is charged for that appraisal, by the way) we are not able to transfer that same appraisal to another lender in such cases where the original lender may decline the file. This is causing the re-ordering of appraisals on the same property, through another lender, causing double fees to the borrower/broker and increasing time and effort and costs for the appraiser, which is subsequently causing higher appraisal fees.
From the wholesaler’s perspective …
NetMore America, Walla Walla, Wash.
NetMore America is accepting transfers, but we are seeing inconsistency in the language that is being used. If we are to continue with this process, more dialogue around standardization would be helpful to all. We are doing our very best to comply, while providing service to our clients, but it is difficult at best with no benefit to anyone (especially the consumer), except maybe the AMC [appraisal management company].
To give you a better feel for what we are seeing, NetMore has employed three people to manage the HVCC process. In addition to these hires, we still have to utilize underwriters to evaluate the appraisal we receive and deploy QC [quality control] technology which includes an AVM [automated valuation model] on all files. Based on those review mechanisms, we are seeing poor quality in comps used, improper paperwork provided and poor response times when corrections are needed. All of this with no benefit/relief to using an AMC on the investor side (as we are still subject to yet more QC valuations), longer times and higher costs.
Amazingly to me, we are also seeing very little push back on values once we have jumped through all these hurdles, which proves to me that the process was not broken, but possibly abused by a small group which led to the lawmakers’ overreaction. It always astonishes me that lawmakers continue to lack the understanding of our business and end up only hurting the consumer to whom they are trying to protect.
First Source Capital Mortgage Inc., Van Alstyne, Texas
The recent mandate for a new and improved HVCC, however well-intentioned, seems to be a great example of the Law of Unintended Consequences. From one man’s view, most of the problems today are the direct result of relaxed credit and income underwriting standards for residential real estate transactions. The current situation has less to do with appraisal data, and more to do with how these loan products were actually conceived and born, and placed into the public arena for consumption.
So, let’s review … clever Wall Street folks and cheap money policies and the political desires of congressional members all combined to fund a variety of so-called “housing needs” to create an incredible and insatiable appetite for very large amounts of closed loans to securitized and sell as quickly as possible. Investors such as large commercial banks, investments banks, and the likes of AIG are now in shambles as a direct result of the rainbow stew served up by Wall Street.
Enter the mortgage originators … now the stage is set, the lights are up and the cameras ready. The money is “on ice,” ready to be offered to the public without closing costs, regardless of job history, credit ratings or what the heck … even a real job! Don’t even mention a downpayment! If you can fog a mirror, you get loan! What a great deal!
Whoops … what went wrong … nobody is making a payment! Who can we find to blame for this mess anyway? Well for sure not certain members of Congress, or the Fed, or those on Wall Street, or the poor unsuspecting investors who were duped into purchasing the high-yield investments. We cannot place any blame on the poor unsuspecting borrower, who was obviously strong-armed into signing the loan documents.
Folks, it is time for all of us who want the economy to recover, to take a stand on the ill-conceived HVCC mandate. Appraisers, real estate agents, brokers and bankers all already have their own professional codes of conduct! The solution is not to institute a new standard for conduct, which is presently disrupting the flow of mortgage money from those who want to lend, to those who can qualify to actually pay back the loan! Mortgage industry professionals must speak out about this ill-conceived mandate to reinvent the way appraisals are ordered and executed. As it now stands the present situation has created the unintended consequence of making access to credit by the many deserving and credit worthy borrowers much more difficult, not to mention the elimination of tens of thousands of jobs in the real estate industry, including real estate agents, brokers, bankers, appraisers, surveyors, title and property insurance companies, inspection service vendors, and all the many hundreds of thousands of related support industry jobs.
So, sound off boys and girls! It is time to get out of your comfort zone, start writing letters, making calls, and sending money to those who have the ability to reverse this mandate, and who see this debacle the same way many of us see it!
From the appraisal management company’s (AMC) perspective …
Tommy A. Duncan
Quality Mortgage Services LLC, Franklin, Tenn.
The consensus from National Mortgage Appraisers is the brokers despise, with a passion, the HVCC, as well as some credit unions and community banks. They feel they lose customer intimacy by bringing in a third party appraisal management company. The loan officers or processors do not like having to provide their client with a credit card authorization form so the appraisal can be paid in advance. As the mortgage professional knows their appraiser, they will learn to know their AMC. It is the AMC’s responsibility to strive for the highest customer relationships with the mortgage professional and the AMC who has the ability to master the customer services to the mortgage professional will do well.
I see it as business as usual. The mortgage professionals are ordering appraisals just like they were. The difference is there is one centralized order point, rather than having to keep up with multiple appraisers. The mortgage professional will spend less time tracking the appraisal because the AMC is acting as a liaison between the borrower and the appraiser, giving the mortgage professionals more time to make money.
Most mortgage professionals want AMCs to use their approved list. This is fine, but the appraisers that are not used to working with AMCs are the most difficult to work with as per pricing, scheduling and turn times. Some mortgage professionals do not want to deviate from their list because they are afraid they may not get the evaluation they want. The relationship between the mortgage professional and the appraiser is already established, and when the appraisal order is made, the appraiser knows what the mortgage professional usually requires. This is a double-edged sword and can cut both ways. I am not an advocate of using an existing appraiser list, but I have accepted appraiser lists in order to bring a level of continuity when starting new relationships.
The next problem for AMCs is when the rotation of appraisers is made, the AMC uses an appraiser that is not liked by a lender or a mortgage professional and the lender or mortgage professional wants to blacklist an appraiser for an appraisal that was performed years ago. We ask for the letter of sanctions or disbarment and therefore, we question the legitimacy of the blacklist. We take the position that the lender has not properly documented the disciplinary actions against the appraiser without any opportunity for the appraiser to redeem his/herself. I believe that it is wrong for a lender to hold continuous sanctions against an appraiser, unless the appraiser has conducted some type of appraisal fraud.
Here is an example, a nationally-known lender disciplined an appraiser five years ago and issued a letter to the appraiser which the appraiser acknowledges. Since that time, the appraiser has submitted appraisals through brokers/AMCs and the loans were underwritten and funded by the lender who issued a sanctions letter. The same appraiser completed an appraisal for us and the same lender had an underwriter reject the appraisal because the appraiser’s name was on a blacklist. The lender could not produce a sanction letter which the appraiser retained. The appraiser had no disciplinary action by the state or agency. The lender refused us a copy of their blacklist so that we would not order an appraisal from their blacklist. The lender had no future plans to give the appraiser another opportunity. The victim is the borrower. The borrower had to pay for another appraisal and the new appraisal was within a few hundred dollars of the previous appraisal that was performed by the blacklisted appraiser. The lender was coercing the mortgage professional to use an AMC that the nationally-known lender owns. This particular appraiser is repealing the sanctions through the industry because of past accepted appraisals and plans to take this issue to the Evaluation Protection Institute.
As I come into contact with various lenders with mortgage banking status, community banks and credit unions, they are under the opinion they can create an internal AMC outside of the mortgage department. This is true for now, but once attorneys start prosecuting lenders for Real Estate Settlement Procedures Act (RESPA) violations for inappropriate business affiliations and associations, and kick-back fees, lenders will start making better use of AMCs.
HVCC is not a law, but only a policy. There will be more heated discussions over HVCC as soon as more advocacy for fairness requiring the large lenders and banks to fall in line with the mortgage brokers comes to light. However, I do not see this changing until Fannie Mae and Freddie Mac come out of conservatorship. Regardless if you agree or disagree with HVCC, one has to admit the industry is taking the right step in preventing undue persuasion and influence on the appraisers. I hear it from mortgage professionals and appraisers. Based on being the middle man, HVCC is the future and everyone will need to be flexible and adjust accordingly.
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