Legislation proposes an 18-month break from the new HVCC appraisal policy
Thanks to Mississippi Rep. Travis Childers (D) and California Rep. Gary Miller (R) for introducing a bill that would suspend the Home Valuation Code of Conduct (HVCC) — a new federal policy that encourages ultra-conservative appraisals and disconnects appraisers from local Realtors and mortgage brokers. In typical mortgage industry style, this policy comes with collateral damage to home values and home sellers.
The above-mentioned lawmakers introduced HR 3044 in late June, proposing an 18-month moratorium on the HVCC. HR 3044 is in review by The House Financial Services Committee. More information on HR 3044 can be found here.
The HR 3044 bill is little more than an idea at this point (in committee review), but the bill’s introduction is great news - the HVCC is still new and its negative effects have only been proven by individual experiences. This issue will certainly demand more exposure when broad market statistics emerge correlating policy with home value trends.
About the Home Valuation Code of Conduct (HVCC)
Most of the uproar about the HVCC has come from real estate professionals, but consumers (home buyers) are affected the most by this questionable policy set forth by our beloved Fannie Mae and Freddie Mac (if you’re not familiar with Fannie Mae and Freddie Mac, read this).
HVCC Basics
- The purpose of the HVCC is to eliminate unethical behavior between appraisers and lenders, thus shielding consumers from deceptive lending and sales tactics. In plain English, it’s meant to protect home buyers from inflated home appraisals.
- Before HVCC, mortgage brokers ordered appraisals through an appraiser or appraisal company of their choice, ideally based on neighborhood-specific expertise and genuine confidence in the appraiser’s competence. Under HVCC, brokers may only order appraisals through a third-party Appraisal Management Company (AMC), who then orders the appraisal. Lenders may also order appraisals directly without the use of an AMC, though it’s likely the majority of appraisals will funnel through AMCs.
- Lenders are required to obtain a 2nd appraisal on 10% of their loans, with guidance to accept the lower of the two appraisals.
As a Realtor in the Houston, Texas market, I really shouldn’t have significant appraisal issues - our market just doesn’t move that much. Yet in the few months we’ve been living with HVCC, my office has already seen HVCC kill two completely legitimate contracts. I’m talking about standard $200,000 homes in popular master-planned communities, being sold at market average prices.
How did HVCC kill the contracts? The policy pushes appraisers to go the extra mile in selecting the worst possible comparable sales. The policy meant to shield appraisers from outside influence is directly influencing appraisal values - in the negative direction.
Perhaps this overcompensation will lessen over time, but for now it seems likely that the new appraisal process will certainly restrict value growth.
Click here for more information about the Home Valuation Code of Conduct.
Johnny Schiro, Broker
Icon Real Estate
The Woodlands, Texas
About the author
Johnny Schiro is a Houston Realtor and co-owner of Icon Real Estate — an independent residential brokerage in The Woodlands, Texas. Johnny writes mostly about local market trends, buying & selling strategies, and industry insight. Comments and feedback encouraged.
July 30th, 2009 at 5:51 pm
The HVCC is due to expire in 2010 (18 month life). By the time all the efforts to block the HVCC can be enacted . . . it could die all on its own. The problem? The impact of the HVCC has ALREADY become part of Fannie Mae’s and Freddie Mac’s Selling Guide and lenders and brokers have already changed their business models. The appraisal profession has been adversely impacted for years to come.