Complaints against it are growing. Known as the Home Valuation Code of Conduct, or HVCC, it is only some two months old and is now being attacked from several directions. It is the required appraisal system for Fannie Mae and Freddie Mac, the giant government-sponsored mortgage investors. Just about everybody is upset about it - home builders, mortgage lenders, real estate agents and even consumers - because of low appraisals it is producing are killing deals.
Under the new setup, designed to keep the process more honest and accurate, so-called appraisal-management companies are now sending their experts out to do the work. In the old days it was the mortgage lender who ordered an appraisal. What is often happening today, though, is that appraisers are venturing into areas they know very little about and therefore their evaluations can be way off the mark. And usually it is on the low side, to be safe. Lack of local knowledge is essential for accuracy and obviously the revamped system is doing just the opposite. Critics here have a legitimate beef.
The other major gripe, especially from the National Association of Home Builders, or NAHB, is that appraisers are using foreclosures, bank REOs and short sales as comps in their reports, thus distorting true values. This is a tough one.
Let's take Las Vegas as an example. Resale prices have plunged here to the levels of the late 1990s due to distressed property sales. This has created a wide gap between existing home prices and new home prices, putting the latter at a great disadvantage. Yet, the marketplace is all powerful and what it says should stand. In truth, it's hard to argue against using foreclosures as comps.
The housing industry is up in arms and calling for an 18-month moratorium on HVCC. This new code was sort of rushed through without too much debate and now it seems to be heading toward at least some revision by Congress. Stay tuned.