On May 1, 2009 the Home Valuation Code of Conduct (HVCC) took effect. The Home Valuation Code of Conduct was created to apply "Appraiser Independence Safeguards". In plain english it was created to remove the pressure mortgage brokers, loan officers, lenders, etc. were putting on real estate appraisers to complete fraudulent appraisals. The HVCC is supposed to remove anyone (mortgage broker, loan officer, etc.) who will receive compensation that is contingent on a home loan closing, from being a part of the appraisal ordering process.
As an appraiser for 18 years I do not agree entirely with the HVCC's, however there is hope for improvement. The main issue most appraisers have with the HVCC is with the appraisal management companies placing the appraisal orders. These management companies are taking up to 50% of the appraiser's fee and many still pressure appraisers to inflate values and also require appraisers to complete the appraisal report so quickly that it is tough to complete a thorough appraisal report and verify information.
Even though the HVCC affects appraisers incomes, loss of clients and the necessary evil of dealing with appraisal management companies the industry that is crying the most is the mortgage brokers. Why are the mortgage brokers so upset? I'll tell you why. With the HVCC they can't control appraisers, hire only numbers hitters (fraudulent appraisers) and withhold fees to appraisers that don't "hit" their number. The mortgage brokers and some of their associations are actually complaining to the media, government, etc. to get rid of the HVCC. Does anybody really think they are doing this out of the goodness of their hearts and they feel sorry for the appraisers that are mostly affected by the HVCC. Not at all. It is of course for their own selfish purposes, if they can't pressure, control and influence appraisers to commit fraud their incomes are affected.
I have listed below some things mortgage brokers are saying about the HVCC and I will give a response to each one.
1. Sellers are starting to get impatient with this law. Since the process takes much longer now, many sellers prefer a cash basis arrangement.
Are you kidding me, of course all sellers would love to have a cash deal, this has always been the case. This did not change because of the HVCC. It is unrealistic and has been for the past 30 years to have a cash transaction in most real estate deals.
2. Chosen appraisers could come from a different place, and there is a chance that he or she may do an appraisal of an area he or she is not familiar with. There is also a chance of undervaluing properties.
What about overvaluing the property? They never say that. Mortgage brokers and Realtors never had a problem with appraisers from out of the area before as long as they hit their number. Now with the HVCC they want to blame all the appraisers that come from out of the area. In my area I routinely had to compete against appraisal firms for business that were over an hour away from my area, however if they made the number the mortgage broker or Realtor needed they never had a problem with them and wouldn't use my services even though I would be located in the same city as the property.
3. Appraisers are randomly selected, and this could mean that lenders could end up hiring appraisers who are inexperienced.
As an appraiser we are not supposed to accept appraisal assignments when we don't have experience appraising that type of property. The appraisers certification even states "I have knowledge and experience in appraising this type of property in this market area". Just like the previous issue (#2) mortgage brokers never had a problem with appraisers that didn't have experience with appraising a specific type of property. As long as you hit their number you were OK with them even if you had no experience and were located 300 miles away.
4. Appraiser valuations that are erroneous can prove costly for many agents.
This is the real issue. Mortgage brokers and Realtors don't really care about the HVCC, distance of the appraiser or the appraisers experience. They only care about their commission. I actually would have a little respect for a mortgage broker if they would just say the words:
"I only care about me and my commission, I don't care about fraud, lack of collateral for the loan or if the buyer overpays for a property, I just want my commission"
In a way they are saying it. The more they fight and argue about the HVCC the more this is evident. Why else would mortgage brokers care about appraisers. The appraised value should be similar no matter who hires the appraiser or what appraiser is hired. The only reason I can think of that a mortgage broker would care about appraisers is that they want to continue to pressure and influence them.
