HVCC Redux
How to Repair the Damage:
Fixing the Home Valuation Code of Conduct (HVCC)
by Gary Denny, IFA, Certified Residential Appraiser
Background: The Home Valuation Code of Conduct (HVCC) established standards for solicitation, selection, compensation, conflicts of interest and appraiser independence. It went into effect on May 1, 2009, for any mortgage that will be sold to Fannie Mae or Freddie Mac; Federal Housing Administration (FHA), VA loans and Federal Home Loan Bank (FHLB) mortgages are not covered in the agreement.
The catastrophic affects created by the HVCC threaten the very survival of the Appraisal industry. Although the HVCC does not require lenders to utilize the services of Appraisal Management Companies (AMC), the result of the regulation has been to herd lenders down this path. Existing appraisal companies are no longer able to compete in the marketplace as their clients have been effectively handed to these middlemen. AMC’s generally take a substantial portion of the appraisal fee, sometimes as much as 50%, directly off the top of the appraiser’s regular payment. As a result, appraisal companies, which have been the backbone and life blood of the appraisal industry, are being forced out of business at an alarming rate. Additionally, many individual appraisers are facing serious financial hardship as a result of the HVCC. Consequently, scores of the industry’s best appraisers are simply leaving the business in search of more favorable employment opportunities.
The effects on the Mortgage Brokerage industry have been equally destructive. The critical service mortgage brokerages offer the public is their ability to shop different lenders to find the most favorable financial arrangement for their customers. The need for their expertise in this field is essential as local banks don’t always provide the services the consumer needs. Their ability to locate and employ the best qualified local appraisers has always been another positive element of their services. These specialties were the very services which allowed brokerages to exist and compete with other lending sources. The HVCC has revoked the Mortgage Broker’s ability to order appraisals from the local appraisal companies they rely on and trust. As a result, the HVCC essentially nullifies many of the most desirable services these institutions offer the public, making them less able to compete. The end result has been many mortgage companies going out of business, lack of mortgage portability, and reduced lending choices for consumers.
The HVCC has also derailed numerous real estate sales and mortgage refinancing transactions. Unfortunately, this is happening at a time when the economy needs a boost and real estate inventory desperately needs to be moved. For Realtors and consumers, the regulation has resulted in delayed settlements as AMC’s are adding to the time required to complete an appraisal. Sales and refinancing transactions are also being jeopardized as mortgage companies no longer have a say in the selection of appraisers. Because many of the best qualified appraisers will not work for AMCs, and because many of these intermediaries have little or no knowledge of local markets, less qualified appraisers are being assigned to real estate sales and refinancing transactions. All of these influences negatively affect the public's ability to purchase or refinance homes.
The solution to the problem is simple….require the licensing of loan officers! Currently Realtors and appraisers, two of the major players in the housing industry, are required to be licensed. Licensing sets a minimum standard of professionalism in these industries which has helped eliminate problems once found in these sectors. Since the major contributor to the current national financial crisis has been questionable mortgage lending practices, many of which can be traced directly to the loan officer level, the need for licensing at this level is apparent. The need to hold loan officers responsible for the conduct of their business transactions is imperative.
Article continued below...
Licensing of any and all Loan Officers, along with required continuing education courses in ethics and consequences for abuses of the appraisal process and other ethical violations is truly the obvious solution to the current situation. Along with licensing is the need to establish a regulatory agency for reporting any ethical abuses, or simply place state licensing boards in charge of this responsibility. Further, require appraisers to report all abuses of the appraisal process and implement consequences for failure to report incidents of abuse. This set of solutions should rectify the problems created by the HVCC, while retaining the positive aspects of the document.
Finally, the portion of the HVCC which prohibits Mortgage Companies from ordering their own appraisals needs to be eliminated. After several months of operating under the HVCC, it is evident the horrendous affects this regulation is having on the real estate sector of the economy. Although the HVCC has brought to light many reforms needed in the mortgage lending and appraisal professions, restricting Mortgage Companies from ordering appraisals directly from reputable appraisers is only creating turmoil and hardship in the real estate sector and for consumers.
There may well be other reforms needed in the mortgage industry. Instituting the reforms noted above will go a long way to correct existing problems at the point of the mortgage process at which they occur. Loan officer licensing is truly the intuitive answer to correcting several of the worst problems in the mortgage lending arena, and would repair the problems created by the HVCC. Although many of the reforms that protect the appraisal process found in the HVCC should be applied to all lending and real estate transactions across the board on a national basis, restricting a Mortgage Broker’s ability to order appraisals is clearly not the solution, and is not in the best interest of the general public or the real estate industry.
Gary Denny has been involved in real estate and appraising for the past 20 years. He is a Certified Residential Appraiser in Washington, DC, Maryland and Virginia. He founded Woodbridge Appraisal Service in January 2004. He has served for the past two years as President of NAIFA's Northern Virginia Chapter, and was named Appraiser of the Year in 2008. In addition to his certification as an appraiser, Gary holds a B.S. with Honors in Business Administration from George Mason University in Fairfax, VA where he was a Finance major. Reach him by phone at 703-978-3444 or by email at: garydenny@verizon.net
