Appraisal Reform? Not.
I know it may come as a surprise . . . . but we have a very serious problem on our hands in the real estate industry that you are not hearing about on the news!
It is called HVCC: Home Valuation Code of Conduct - it sprang out of a March 3rd agreement reached between the Attorney General of New York (Andrew Cuomo), the OFHEO, and Fannie Mae and Freddie Mac. And, oh by the way, this agreement faciliated the termination of a federal investigation into practices used by Freddie and Fannie.
Unfortunately, while HVCC was supposed to assist in a "fix" for our troubled industry, mortgage fraud, etc., it has created an entirely new problem which is making recovery seem impossible to me. It's almost like they have created an even bigger problem using the same exact tactic that got us in the trouble in the first place.
As a full time Realtor, I faciliate and watch transactions everyday. I have conversations with other Realtors, lenders, appraisers, buyers and sellers regarding the process of buying or selling a home. Everyone has the same basic question (or fear): will the property appraise? And no it doesn't matter what seat you are in at the negotiating table - while it might be a good thing for the buyer temporarily, it absolutely will not be in the very near future.
Here are my biggest contentions:
(1) HVCC encourages lenders not to use licensed and certified appraisers for the origination and underwriting process by providing loopholes to use alternative valuation products and sticking professional licensed appraisers with substantial regulatory risks and additional costs. I had a personal experience recently with a short sale listing where the person performing the BPO (Brokers Price Opinion which is one of these alternative products) was a BRAND NEW and obviously inexperienced real estate agent that was too afraid to go in the house for fear of upsetting the seller because he was short selling. Hello? My point: we are not getting qualified appraisals - AND FURTHER MORE, if I have a home listed that is "historic" or "green" for example, I don't have the ability to request an appraiser that is experienced in this particular type of product.
(2) There is now a 3rd party involved - which is exactly what got us into trouble in the first place - called an Appraisal Managment Company. They take an average of 40% of the appraisers fee AND there is only a small handful of them out there! Don't we have federal and state laws regarding anti-competitive behavior in consumer transactions? So put #1 and #2 together and you have more risk, more expense, and less income for a licensed appraiser. Alot of good independent appraisers' business and careers have been brought to an abrupt halt. Also, by inserting this 3rd party it has also shut down communication between the lenders, Realtors, and the appraisers. While I get that some might think this is a good thing, trust me when I tell you that in the majority of cases, it is needed and assists in the process and does not automatically create fraud.
OK, there is more but rather than me go into it, I have two places to send you:
http://www.appraisalpress.com/news/articles/hvcc_the_cure_is_worse_than_the_disease/
This first link is an article written by Dave Biggers for the Appraisal Press. It is a concise summary of the issues with HVCC from the real estate professional's point of view. The second link is a request to sign a petition that is gathering steam day by day:
http://www.hvccpetition.com/
Because I've had pretty extensive reason to do my research on this subject based on several problematic transactions, I strongly encourage you to sign the peitition. It's also got a concise summary on the front page of the issues.
Once again I think this is a very clear example of the "fox guarding the hen house". We need to make professional standards stronger . . . not by finding ways to get around the standards by watering down the guidelines.
My website is www.HomesByMia.com . I would love to hear from you.