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If you thought the low rates and tax incentives would quell the storm in the Mortgage and Real Estate market, think again. With the implementation May 1, 2009 of the Home Valuation Code of Conduct (HVCC) regulations, loan officers and realtors are no longer allowed to select or influence the selection of appraisers.
The legislation was introduced by New York Attorney General, Andrew Cuomo. It was designed to decrease the likelihood of appraisal fraud by removing the individual most inclined to push for inflated value (the loan officer/realtor). This program severed communication with the appraiser. Whereas that may sound logical, the reality is that the extra layer of bureaucracy increases cost, slows down the loan process, decreases customer service and creates an increased potential for miscommunication
My main points of contention:
- Appraisals are now more expensive for the consumer, because the third party company charges a fee to process the order. The consumer, whom the legislation was designed to protect, can expect to pay more.
- HVCC is likely to create unnecessary customer service issues. I am more likely to follow up on a delinquent appraisal than a third party company. There are often mistakes on the appraisal. I am more likely to catch errors due to my direct interaction with the client. If I can’t address appraisal issues as they arise, the client becomes irritated and frustrated.
- Going through a third party Appraisal Management Companies (AMCs) is inefficient. These unregulated entities (AMCs) don’t acknowledge orders consistently, they charge additional fees and the turn-around times are slow.
- Whereas I used to be able to use local appraisers who knew every detail about their market, I am now forced to utilize large national companies who order the appraisal. Each AMC has a roster of appraisers at their disposal. There is no guarantee that the appraisers working for the AMC will be skilled or knowledgeable about the local market.
- Payment methods vary between AMCs. There are some that require the loan officer to collect payment from the borrower. If I collect the payment from my client, but have no involvement with the appraiser and they make a mistake, it is perceived as my fault, which negatively impacts my relationship and communication with my client.
- I have developed outstanding relationships over the last 7 years with appraisers all over the country. These relationships are based on an appraiser’s cost, speed and the quality of their work. Independent appraisers can no longer rely on the patronage of satisfied mortgage professionals and realtors. They will be forced to work with the AMCs or starve. Appraisers are being asked to work for less, though the AMCs are charging borrowers more.
- In the past you could opt to pay for the appraisal at the closing. Currently appraisals must be paid for up front. If the loan officer needs to change lenders before the closing for any reason, the borrower may have to pay for a new appraisal, incurring additional cost.
- How many loan officers have had to get two separate appraisals over the last month? On every appraisal, the appraiser must check one of three boxes regarding local market conditions. The options are: “market is appreciating,” “market remains stable” or “market is declining.” Given the nationwide decline in home values, appraisers are most likely to cite “market is declining.” This may prompt the underwriter to request a second appraisal.
- FHA has not adopted the HVCC. It is not requiring lenders to use the AMCs. However, many FHA lenders are using AMCs anyway, charging even more for the service than Fannie Mae and Freddie Mac.
- As a loan officer, I feel ridiculous telling realtors and clients that: I don’t know who the appraiser will be, I can’t use anyone they recommend, I don’t know when it will be done and I hope it doesn’t detrimentally impact the closing.
I am not the only one frustrated with the new policy. A quick Google search on “HVCC nightmare” yielded numerous articles discussing issues caused by HVCC regulations, including the following story from Maryland.
An investor purchased a property for $375k cash at a trustee sale. The property was listed for $450k on MLS. After reviewing multiple offers, they accepted a final contract price of $459k.The client wanted to do a conventional loan. The loan officer was limited in terms of investor. They selected Flagstar, because Flagstar does not have a 90 day anti-flipping policy. They scrutinize the appraisal.
The loan officer submitted the order to Flagstar’s AMC. The appraiser was given all of the information on the transaction; including the listing, previous trustee, sale information, offers and counter offers, executed contract, 24-month chain of title, etc. The appraiser measured the property inaccurately, by 500 sq. ft. As a result, they used the wrong comps. Rather than calling the agents about the discrepancy between purchase price and appraised value, they submitted a report with a value of $400k.The buyer freaked out. The seller freaked out. Both agents freaked out. The buyer’s agent emailed the appraiser to inform them of the error. The appraiser amended the report to reflect the correct square footage and provided new comps. The appraiser uploaded the revised report to Flagstar’s AMC; however, the AMC had not requested the revisions. They contacted the appraiser to ask why the report was amended. The appraiser told them that the buyer’s agent pointed out errors.
HVCC VIOLATION! The agents are not allowed to contact the appraiser either, despite the fact that the agent is the person who grants the appraiser access to the property. ALL communication has to go through the AMC.
As a result, the appraisal was voided. Flagstar would only accept the original $400k appraisal. The deal is dead, because Flagstar was the only lender that would allow flipping in less than 90 days. Dead loan. The seller will have to accept the next offer in line.
The new appraisal system is wreaking havoc on home values and transparency. It is unfair to the consumer. This nightmare could slow economic recovery in the real estate market. The system that we had before was flawed, but this system is no better. The National Association of Mortgage Brokers issued a “Call to Action” this week. Please take a moment to email hvcc@namb.org and tell them your horror stories.
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Comments
Well done Leslie. And if I might add, the appraisers who used to recieve on average $350.00 per an appraisal, now receive in most cases less than half (the AMC's get the rest).....Makes you wonder if the "powers that be" suddenly experienced a 50%+ pay cut, what effort would they make in their jobs? Does the Cuomo family own an AMC?
Keep writing Leslie.
IndianaAppraisals. com
twitter.com/AppraisalWord
New York Appraiser Mike Kennedy suggests Real Estate Agents, Appraisers, and Loan Originators should supply owners and borrowers (and their Listing Agents) with a "flash card" to phone interview ANY Appraiser contacting them for access PRIOR to setting an appointment to help determine the competency level of the appraiser. Too bad I can't include the url. Visit AppraiserActive if you're interested
Thanks for the comments. Jason: many appraisers worked years to build extensive networks and relationships with lenders and agents. I agree that forcing them to take less money, despite the homeowner paying more, is insane. They are already making less due to the slowdown in the market. Brett: thank you for your input. Frank: That's a good idea. I will check out appraiseractive.blogspot. com
Thank you for writing this. I'm just a home seller, and I have a story worse than what's featured. It's incredible to me that an appraiser could come up with a value that's $120K lower than the contract price which was chosen from 4 multiple offers. We had another house in the neighborhood that just came on the market on a similar price, and that house got 3 offers in one day as well. My appraiser came from out of the area, and is clueless with the market, yet he gets decide what the market price should be. My buyer's dream and my dream are both crashed by this rule change.
As a matter of fact Cuomo was a paid board member of AMCO, an appraisal management company. His buddy is Ed Davidson (a major campaign contributor of Cuomo) and was the CEO of AMCO, which was sold to SIRVA and renamed Valuation Services, LLC. It is reported that Davison has rights to future income from Valuation Services, LLC. (and I wouldn't be surprised if Cuomo does get a couple of bucks from it either, but that's pure conjecture on my part.) Jack Kemp was also on this board.
www.allbusiness.com/finance/3596034-1.htmloard
and a little history at
www.users.cloud9.net/~drs/deep_qt/deepqt_snackcake.html
HVCC was supposed to include Independent Valuation Protection Institute, which is a place to report fraud and coercion. That was never funded so AMCs are unregulated. It was rumored that Ed Davidson was to head the IVPI. As it stands, HVCC is nothing but a profit center for the big banks who own them.
Leslie
I too have been using 2 appraisers for 14 years.
If I can't have a professional discussion for the benefit of my client how do I help them?
They will never give me a # but they can tell me if we are in or out of line. Not waste my client's money or time and the bank too.
With the new system appraisers submit a bid on a fee they will charge. The Appraisal Management Company (AMC) looks at this bids list and guess who gets the job? Yap the cheapo one.
PROBLEM 1-
The professional appraisers will be out of business as they cannot do a "GOOD JOB" for $150, $175. Who will be left? You can answer it.
PROBLEM 2-
Buyer pays $350-$400 to the AMC Company, appraiser who does the job gets $150-$200. Who pockets the fat? You can answer that too.
At the end WHO LOOSES? the very person this system “Meant to Protect” the CONSUMER, and the whole system suffers as we are now.
Let’s get rid of the problem NOT choke the market.
Warm regards
Racheli Smilovits
www.loans-4-u.com
I hear Nationwide Appraisal Network pays their appraiser's the "reasonable/customary fees". Unless, its a VERY rural area, their fees seem to be very competitive and reasonable, especially for the service they provide.
They have been in business for over 6 years, they have appraiser's still aboard from the time they opened their doors. They definitely have the "can do" attitude. Turn times are awesome! no more 48-72 hrs from the time the home is appraised. They have a great, friendly staff. You actually will be assign to ONE specific team in the office so you have ONE person to turn too, instead of being tossed around from rep to rep. They provide daily updates every step of the way. Trust me you will feel 100% comfortable that your orders are being handled professionally and in a timely manner. They have GREAT working relationships with their appraisers too, as well as their clients :)
They also are providing a new "scheduling department" they conference call the borrower and the appraiser to set the appointment. They are all about the service! Thats for sure! If you like your orders being handled a certain way they will make sure the experience is customary to you and your homeowner.
Give them a whirl you may like who you deal with and what you experience..!
www.nationwide-appraisal.com.
888-760-8899
Enjoy!!!
Racheli: The system is seriously flawed. It was designed to protect the consumer and to reduce appraisal fraud. Instead homes are undervalued and independent appraisers are getting financially annihilated. It is preposterous that the AMC makes almost as much as the appraiser. This benefits no one other than the 'unregulated' AMCs. Judy: Thank you for the links...interesting. Jean: Thank you for the feedback. Did the appraiser kill your deal?
I just reviewed my appraisal for the property located at 724 Penny Royal Lane, San Rafael, CA 94903. I am shocked at the value of $600,000 that Mr. Wen Tao Pan, 2619 Carlo Scimeca Drive, San Jose, CA 95132, came up with for my property. Mr. Pan does not live in Marin County and clearly demonstrates with this appraisal that he does know the local Eichler market in the least.
As a result of his low valuation, my loan expenses will increase by 0.25% of the loan amount, and the delay caused by the appraisal review process will add an additional .75% fee to extend the “Lock” established on May 17, 2009 -- if the loan goes through at all.
Firstly, the lot square footage on my house exceeds almost all the comps by 2000 square feet. Only one out of the seven had a lot comparable in size to mine.
Secondly, my house was a gutted and rebuilt from top to bottom. Everything is new, and it is insulting and unfair to have my home compared to some of the least expensive homes and poor
poorest conditioned homes in my neighborhood.
Thirdly, none of the remodeled comps had all new electrical wiring with a 200 amp service, all new copper plumbing, a swimming pool with or without solar heat, supplemental solar electrical power, an insulation package that includes perimeter wall insulation, roof insulation with a radiant barrier, and double pane windows throughout.
In addition, renewable and recycled materials were used for all of the cabinetry, counters, and floor coverings. No products were used that included solvents, created off gassing, or contained environmental contaminants -- creating a safe, toxic free home.
And finally, a high efficiency condenser boiler with comparable radiators, energy star appliances, water saving fixtures, and a drip irrigation system round out the improvements that set this real estate apart from ALL the properties that have been sold and are currently for sale.
just had one appraiser valued $100 more than purchased 1.5 yrs ago in an estate under market value (in a stable market)allcomps were 5-10000 more than value given plus appr. couldnt find final sale in mls frrom a 1.5 yr ago ??my wife(buyers realtor) sold it thru mls 1.5 yr ago??how good of an appraisal is that when they cant even use the mls properly??? this appraisal has been appealed way too many flaws ..sq ft wrong, bedroom count wrong,didnt measure house ??? is uspap followed any more ..it all just disgusts me ....???? god help us all!!!
As if this whole hvcc process was not awful enough as it is; I was thrilled to hear that i had a lender at there that was atleast willing to accept a appraisal that was done by another vendor, since the majority of my lenders refuse to accept other vendors appraisal. the current lender, who denied my loan, refuses to reassign the appraisal. there has to be a guideline out there, that i can't locate, that states they don't have the right to do this, there must be, correct? does anyone know that can help me..
A little information you might like to know. The comp sales should be less than a year old and within a mile of the subject. It is also good if the comp is the same style home, near in age and building size. The BAD NEWS-we have to use arms-length comp sales ! So what do we do if there are NO COMP SALES? We try to use the best sales we can locate. If this helps you than have a nice day !! John
Your just upset that you can no longer brow beat and threaten to take away you business if the appraiser doesn't hit the value you want. I am sick of these worthless people you owe twice as much as they bought their home for and they need you to hit top dollar so that they can refi again! I am making a bit less money now that HVCC has kicked in, but at least I don't have to listen to greedy mortgage brokers anymore. It they repeal the HVCC, I QUIT.
I live in one of the only South Side Chicago neighborhoods which has not experienced complete re-segregation over the last 60 years. It has been described as the "Village in the City" for that and many reasons. It is very unique. I applied for refinancing on 4-27-2009, so I should not be subject to HVCC effective 05-01-2009, but have been. The appraisor, from a suburb 8 miles(and over a million people)away has no clue as to the uniqueness of the neighborhood. Yet, he used 3 sale comps which were all vacant 3 months to 3 years before contracted, and 2 back up to a street with 34,000 cars per day. He use 2 for sale comps, both vacant, one having completely original mechanicals and roof from 1924 and no first floor bathroom. There were thirteen other closed sales with per square foot sales of 21% to 192% higher than he used for mine. He charged $265. I paid $350. He is angry and took it out on me. Cuomo(frmr Clinton HUD secy) forgot to include a recourse in HVCC. No refund $350.
Leslie,
Thank you for this article..It was very helpful when I explained to my client that the results of the appraisal had a lot of extenuating factors that caused problems, and of course adversely affecting the deal, and the analysis should be questioned.
Deborah Gaither
Metrobrokers GMAC Real Estate
You appraisers have lost your mind. you no longer have any interest in helping people out any more. if the value is not there, why do an appraisal and you walk away with money you should have never helped anyone out for? take a look at yourselves in the mirror and realize that you have no idea what the mortgage business is about. so keep your mouth shut and keep appraising homes, once the law is passed with this bs HVCC all you terrible appraisers that are lazy will be out of the business anyway..... What a joke you people are. you are taking peoples money... How would you like it if you went to a supermarket and didnt know if the milk was good or not? you just have to pray it is good.... come on now. that is not logical
The Decision of a Naive or Vested interest Attorney General not from my State has ruined my 27 yrs as a truly independant Appraiser. I have performed about 5 to 6,000 Appraisal. I have fired some lenders due to pressure. I am independant I have never
given into any pressure. I refuse to do 24hr Appraisals for 1/2 my Fee. I am being punished by no work since I'm honorable.
I'm a appraiser who works for AMC, I WOULD NEVER go back to doing work for Brokers. I'll take 1/2 the fee with no headache over values. I follow the standards, I don't do work in areas I don't know and it's true everyone, we are in a declined market so values are just not there so we aren't being pushed to get them anymore. Also i do sales all the time where agents over list the properties. I also do an REO everyday why are we in this mess because everyone pushed values on homes that weren't there. I not even like my value on my home right now but its how it is now. I'm thankful for HVCC and AMC. Everyone isn't happy right now because they aren't getting what they want.
Similar to Dan - we own a unique, historic condo in a building built in 1824 in the New Orleans French Quarter. The recent appraisal we had done to re-fi pulled comps that make absolutely no sense. In fact the appraiser inexplicably ignored 2 sales in our very same building, less than a year old, which were both over $450/square foot. The lowest comp he pulled out of 5 comps was $290/sq ft. Ours? $250/sq. ft. Who wants to explain that one to me?
Appraisers are just cutting the values on these HVCC appraisals. Every appraiser is talking about it. It's all over the local, regional & national forums. You cut my fee.....I'll cut your value! Simple!
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