BluefoxToday blog : HVCC, the new appraisal regimen for Fannie Mae and Freddie Mac, receiving flak

HVCC, the new appraisal regimen for Fannie Mae and Freddie Mac, receiving flak

The mortgage and real estate mess has drawn the keen attention of many regulators in Washington and elsewhere, as if the existing laws governing those industries were largely inadequate. It must be, is the thinking, that there were too many gray areas and too many gaping holes in them. By amending a few of them or legislating brand-new stuff will cure the present ills in no time.

That's how there now is the HVCC, or Home Valuation Code of Conduct. It is an appraisal system required by Fannie Mae and Freddie Mac on mortgages they purchase from lenders. The aim here is to keep loan originators from strong-arming appraisers into fudging the numbers for their own purposes. In other words, make them more accurate. The result of the code is that independent appraisers are now largely working for appraisal management firms from whom they get their assignments, meaning they are no longer in any direct contact with mortgage brokers and loan consultants.

Well, the first reports are in on this and they aren't all that appealing. First of all, the cost of an appraisal has gone up 15 to 30%, like from around $325 to $425. Usually the appraiser takes home about half of that, so his income is obviously whittled down. The borrower may also have to pay a no-show fee of $50 to $100 if he can't make it to the house on time. The end result is that the consumer is paying more and the appraiser is making less. And the only beneficiaries appear to be the appraisal management companies.

Was this change necessary? Perhaps not. The old system certainly had some weak areas but still functioned acceptably. It was at times abused by some mortgage brokers and also others in the business. All in all, though, it had a very small role to play in the collapse of the real estate market.

If the old regulations were enforced properly, many of the manipulations had been avoided. But they weren't. So now it seems those legislators and regulators who for the most part failed to provide oversight when it was needed are behind this change. Shifting nicely any blame from themselves to the defective laws and thus skirting responsibility. And living another day working on more regulations that aren't really necessary.  



Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst - syndicated mortgage, housing and property management blog
My cell: 702-499-1006

Comment balloon 18 commentsEsko Kiuru • May 19 2009 04:25PM


I think your articlie is dead-on.  Politicians trying to put blame somewhere else.  The real problem started when goverment wanted everyone in a home no matter whether they could afford one or not!

Posted by Edward & Celia Maddox, EXPERIENCE & INTEGRITY - WE TAKE THE HIGH ROAD (The Celtic Connection Realty) almost 11 years ago

I have found problems with appraisers that are chosen that don't know the area. They are coming in with inaccurate appraisals sometimes taking weeks to correct.

Posted by Mike Harrison almost 11 years ago

Same old, same old, same old stuff. Add more regulation instead of enforcing the rules currently in effect. The real problems with the encouragement of the democrats to loosen the standards under Carter and Clinton. Everyone should own a home, right?

And now what are they doing? Giving out 1 1/2% mortgages to folks who have filed for bankruptcy or are in the process of doing so. Isn't that what got us into this mess to begin with? Putting people in homes they couldn't afford?

Posted by Norma Brandsberg (Marks Realty Co. Inc., Lynchburg, VA, 540-586-9496) almost 11 years ago

Esko, you made some excellent points in this blog.  This has done nothing but to make it more expensive for the homeowner, creates more problems then it solves. 

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) almost 11 years ago

ESKO:  I am so ANNOYED by this.  I have had about 30% come in low this month and then one tagged a property as "no utilities" when it had them and they have been on since February.  I need to get over it but I can't.  This is causing more work for me and there seems to be ZERO accountability about the quality of the appraisals which SUCK (for lack of a better word!)

Posted by Renée Donohue~Home Photography, Western Michigan Real Estate Photographer (Savvy Home Pix) almost 11 years ago

Edward & Celia,

What bothers a lot of us is that no one in Washington wants to take responsibility.

Posted by Esko Kiuru almost 11 years ago


That is rather common I hear.

Posted by Esko Kiuru almost 11 years ago


Proper enforcement of the existing regulations had spared the real estate market from a lot of pain.

Posted by Esko Kiuru almost 11 years ago


The homebuyer unfortunately pays the price under this new regimen.

Posted by Esko Kiuru almost 11 years ago


Quite a few industry pros and homebuyers are unhappy with this HVCC.

Posted by Esko Kiuru almost 11 years ago

Esko, this statement say's it all: "If the old regulations were enforced properly, many of the manipulations had been avoided." This is true not only in appraisals but in many other aspects that have caused the situation we are trying to climb out of.

Posted by Tim and Pam Cash, Real Estate Professionals - Clarksville TN (Crye-Leike (Sango)) almost 11 years ago

Tim & Pam,

The focus obviously is not on the real problem, the enforcement of existing regulations.

Posted by Esko Kiuru almost 11 years ago

Try $700 for the appraisal costs, because they say we are a remote area.  And it appears to take weeks to get an appraisal.  Congress sure knows how to screw things up.

Posted by Preston Russ (Coastal Realty Group) almost 11 years ago

Umm... I hate to bring this up guys, but you created this mess.  What exactly did you think would happen when you started calling three or more appraisers at a time and then giving the assignment to whoever came in at the highest number?  Here's a breakdown, in general terms, of what you caused.  At one time, almost all appraisers were extremely honest.  That started to change after the institution of nationwide licensing of appraisers, for a variety of reasons I won't get into right now.  We began to face increasing pressure from lenders to appraise properties for more and more money.  If we did not do so, we did not get work.  For those of us who wouldn't do this, the price we paid was high.  We were at the bottom of the economic food chain to begin with, and then, we were supposed to lie, or do other illegal things in order to continue working?!?

I spent fifteen years as an appraiser in Las Vegas and I know all the major players there.  Because I reviewed so many appraisers' work, and knew so many people in the industry, I can state with absolute certainty, that over ninety percent of the residential appraisers in that market were crooked.  I can further state that all of the largest residential appraisers were crooked.  I say this because I personally know most of them, and I have reviewed their work many times.

Sure, the HVCC blows goats, but if you lenders hadn't been so greedy and hadn't put so much pressure on your appraisers, this wouldn't have happened.  It would have been just like many other cyclical market collapses that came before it.  The vast, vast majority of the incentive most appraisers have ever had to artificially inflate values has come from their lender clients - aka - you.  You are now reaping what you have sowed.  I read over and over how the dishonest few have made it hard for everyone, but my experience - and I have a lot of it - has shown that the vast majority of lenders will do whatever it takes to consummate a loan.  Innumerable conversations I have had with other honest appraisers have repeatedly borne out this same conclusion.  This "pressure" we have been under since 1992 has not been the exception, it has been the rule.

Esko, you stated "The old system certainly had some weak areas but still functioned acceptably. It was at times abused by some mortgage brokers and also others in the business. All in all, though, it had a very small role to play in the collapse of the real estate market."  In a way, that's true, because the market has always been cyclical, and each cycle ends with some sort of a collapse, or bursting of the bubble.  This particular collapse, however, was exascerbated greatly by the actions of the vast majority of those who originate loans.  What could have been a normal resetting of the market over the span of two or three years, has become something much more onerous.

One last thing - isn't it funny how everyone seems to blame others for that which has beset the industry?  I haven't yet seen one group of people stand up and admit they had anything significant to contribute to the demise of our livelyhoods - and that's a lot of teflon!

Posted by David Mescon (DAVID B. MESCON REAL ESTATE APPRAISER AND CONSULTANT) almost 11 years ago


I think the industry jumped into this one without too much thinking.

Posted by Esko Kiuru almost 11 years ago


All sectors of the real estate industry were involved in the collapse, some with more bang than others. Your point of view gives readers food for thought.

Posted by Esko Kiuru almost 11 years ago

If the lenders practiced due diligence and fiscal responsibility as they were obligated to do, we would not hat this dilemma. Governmental regulations develop when self-regulation fails

Posted by Larry Linn over 10 years ago


Self-regulation has a poor track record.

Posted by Esko Kiuru over 10 years ago