Home Valuation Code of Conduct (HVCC) - How This System Will Affect Your Next Home Appraisal

In the past, when a mortgage application was taken, either for a purchase or refinance, the lender or mortgage company ordered an appraisal of the property from a list of appraisers with who we deemed reliable and professional. In most cases, if the appraiser clearly saw an issue with the requested value he/she would contact us and let us know before performing the work. This ‘opinion’ was highly advantages, since it saved considerable time and effort, not to mention our borrowers money.

The problem with this relationship was that certain entities (Like Washington Mutual) took advantage of this autonomy and pressured appraisers to inflate values in order to do more mortgages. Please take notice that the entity I mentioned was one of the largest banks on the country….NOT A MORTGAGE COMPANY OR BROKER!

The solution to this problem is the new HVCC, or Home Valuation Code of Conduct. I’ll let you form your own opinion on whether this solution was a good one.

#1. Under the new code, the appraisal is ordered through a new 3rd party which is randomly selected from a pool of appraisers. The appraisal must be paid for in advance and the appraiser’s identity, record, and experience is concealed. You will have no idea whether you are getting a good appraiser, or a bad one.

#2. Under the new code, the appraiser cannot provide any advance opinion. This is now the only industry I can think of where you are unable to get any opinion prior to writing a check. For example: As a mortgage banker, if a consumer told me they had a poor credit score, low income, and wanted to get a conventional mortgage with 5% down, I could very easily tell them that based on my experience, I felt they would be unlikely to obtain credit. This ‘opinion’ would have value to the consumer since they would potentially save time, money, and aggravation. As an appraiser under the new rules, a borrower looking to buy a 600 square foot home in Southwest Detroit for $750,000 would have to spend $350.00+ in order to be told he was nuts. The consumer has completely lost the benefit of getting ANY opinion.

#3. The new code randomizes who the appraiser is. No longer does a lender, mortgage company, or consumer, have any say in who appraises the property. The consumer pays a considerable amount of money for a service to a completely unknown entity. If the work performed is shoddy…TOO BAD! The consumer has no say in the matter. Again, I can’t think of any service that I have to pay for, where I have zero control or recourse.

#4. The Consumer is stuck if they want a second opinion on the application. THIS IS HUGE! After over 20 years in the mortgage business, there are many times when one bank/lender just doesn’t like a particular file. Since each bank/lender has their own likes and dislikes, there are many times when a good borrower does not get a favorable decision on an application. In that case, I as a mortgage broker have the option to submit the application to another lender for a second opinion. Under the new rule, the applicant would need to obtain a brand new appraisal and spend another few hundred dollars, not to mention adding a few more weeks to the process! The HVCC people have claimed that the original appraisal ‘may be transferable’…horsepucky! None of the banks/lenders I work with will accept a transferred appraisal…I’d like them to name one!

#5 Look out for increased fees! Right now a standard appraisal runs about $350. But the new 3rd Party that regulates this is taking a huge chunk of this money and then forces any appraisers who want to be in the pool to take a huge pay cut. So far the only result has been the exodus of tons of good, qualified appraisers that already worked on tight margins. But for how long? At some point in the near future I can clearly see this added cost being put on the consumer. Are you ready for $500 minimum appraisal fees everyone? I think closing costs in excess of $2,000 are already high enough…let’s not jack the fees up unless we have to ok? That said, l wonder about the quality of appraisals that we are now getting where the appraiser took a 40% pay cut to do!

Sooo…what’s the benefit to the consumer exactly? The intention was that this would eliminate ‘jacked up’ appraisals. While I agree that this should certainly solve the problem, it think it is a huge overkill and does more damage than it prevents.

What has happened so far to the culprits? Oh yeah….Washington Mutual was given BILLIONS in TARP money…..man, with that type of logic I should give my kid $20 every time he doesn’t do his homework.

Nick Wuest
President
Liberty Lending
Troy, Michigan

Nick Wuest is President of Liberty Lending http://www.liberty-lending.com

Nick Holds Series 7 and 63 Securities licenses and has over 20 years lending experience.