On February 15, 2010 The Federal Housing Administration adopted new appraisal guidelines that include "geographic competency" requirements. Effective June 30, 2010 Fannie Mae adopted similar requirements, a move that we think is important.
The HVCC ruling came from NY Attorney General Cuomo and it is intended to protect appraisers from coercion from lenders. Since May of 2009, large banks have been using the HVCC (Home Valuation Code of Conduct) as a way to create "revenue" centers. Because the ruling prohibits lenders to SPEAK to an appraiser (or email, txt whatever) Big Banks set up "companies" that collect (for instance) $450 for an appraisal, and then pay the appraiser $275. Appraisal Management Companies (AMC)are at times, because of their size, working against the system.
Many appraisers refused to do this... and subsequently the Large Banks "hired out" people from 100's of miles away (or more) to do appraisals. My theory is "you get what you pay for..."
In the June 30th memo, Fannie Mae and Freddie Mac agreed that the new rules for appraisals adopted last year need some additional "guidance."
- The HVCC does NOT bar Realtors, or other authorized third parties, from requesting that appraisers correct factual errors in their reports, or provide additional information or explanations about the basis for their valuations.
- Fannie Mae put lenders on notice that they can only use appraisers who are knowledgeable about the area in which they are being asked to value property, and who have the ability to access records on recent sales in those markets.
- Fannie Mae also clarified previous guidance to lenders on the selection and use of comparable sales, saying appraisers must consider a property's condition when choosing to use foreclosure sales or short sales as comps.
The current Financial Reform Bills being debated in Congress create a Consumer Finance over site unit that will blend current National Predatory lending requirements and HVCC - so the CURRENT appraisal system will be out the window on November 1, 2010... but it's unlikely that whatever replaces it will be much better.
If you are interested in purchasing a home in North Carolina, or refinancing a home in Raleigh, please call Steve and Eleanor Thorne, FFSi 919-649-5058. We know the rules, and we have the best mortgage interest rates available! We are still closing USDA Home Loans!
What a concept, geographical competence for appraisers.
These appear to be reasonable guidelines. I prefer to work with lenders who have their own roster of appraisers and avoid the service.
Eleanor, I agree 100% with Lenn. Let the lender handle it with their own people they have chosen.
The law of unintended consequences reared it's ugly head. this is a good example that big banks should not be left to their own devices especially when the public suffers.
I think the requirement to require an appraiser to consider the overall condition of a home when using a foreclosed property is HUGE! 8o))
Eleanor...
Thanks for this information. I'm bookmarking it for future reference because this could affect a potential closing or two!
Awesome Stuff Eleanor, thanks for passing this along. Hopefully you are wrong with your unlikely scenario but we always have to be careful with what we wish for :)
"The HVCC does NOT bar Realtors..."
This just confirms what I've known all along. If you are not going to bat for your sellers, or in some cases buyers, when it comes to unsatisfactory appraisals, you need to be. I provide the appraiser with plenty of market info, as well as comps, price per square feet, etc., before they leave the house. Follow up phone calls are also helpfull.
Good luck enforcing geographical competence... the problem is all the appraisers that were worth anything have left the business. At this point, it isn't about geographical competence, it is just plain competence.
Well these seem pretty reasonable, IF they are enforced. Lenn raises anexcellent point, as always.
Jeff
I'm currently working with an appraiser who is WAAAAY off on his value and he's using comps back 12 months instead of comps that closed in the last 3 months. We've asked him to redo it, and we'll see, but right now he's $25k low when my buyers, according to my numbers, are already at a contract price about $20k below comps I ran. He did admit he hasn't done an appraisal in this area in quite a while...
In February I had an appraiser use comps from Billings MLS for a home selling in Red Lodge Montana. While there are some listings and comps on the Billings MLS in the Red Lodge area, the Red Lodge area has it's own MLS.
The appraiser said he didn't use comps from the Red Lodge MLS because his computer software system didn't work with the Red Lodge MLS? Yes the Bank picked this appraiser from the "pool". But I wonder how good appraisals are if the local data and comps is only a fraction of the real picture?
The rules seem a little btter... it will be the question of how the rules are applied that really matters...
I'm clicking my heels. There's no more HVCC, theres no more HVCC. I can't wait till everyone is on board and realize that a mistake was made. It is a problem everywhere.
Thanks for your post.
Eleanor, Great Blog!
Although I've always been under the impression that the Realtor could always talk to the Appraiser. I just couldn't as a lender. That hasn't changed.
I know the lender I work for, one of the big three, has always maintained that the appraiser stay within a 25 mile radius of his/her office. The only time we have issues is when we get into really, really, rural areas where the are very few appraisers to choose from. That's where things go a little hinky with the system.
Now the change in the overall condition of a short sale/REO is a good thing because here in Florida using those distressed homes are really hurting the homes that have been well maintained.
When ever the federal government get involved it's not always for the better. I cringe when I hear some of their comments and their lack of knowledge of our industry.
yet it makes such common sense I am surprised that a GSE figured it out.
Thanks for the update. Guidelines sound great now let's see them in action in the real market!
There ought to be a way for us to report the Appraisers who operate outside of their area of experise.
Eleanor: This is too little, too late in my opinion. Leave it to the government to fix problems that don't exist and ignore problems that do.
I hope that things improve. A lot of folks have totally misinterpreted the No communication rule... I think more guidance and level headed interpretion is needed.
Mike, in #7: I would be careful. The HVCC does not disallow real estate agents from speaking to appraisers, but the HVCC does prohibit the appraiser from being influenced by a real estate agent. Provide information, YES, but influence is a NO-NO.
Eleanor: the more that is written and discussed, the better off we all are. Thank you for writing a good post.
Eleanor - Seems reasonable to me. The original concept (HVCC) was a bit of a joke, but so goes living and learning.
Good information - thanks.
I know the government tried to help with HVCC but caused more trouble, and I'm less than convinced this will fix the issues though I'll remain hopeful.
Thre have always been many misconceptions of what the original HVCC actually meant. The issue of geographic competence has always been required of appraisers (through USPAP). The problem came, however, when banks HAD to go through a middleman company and the middleman CHOSE to hire the cheapest guy out there. So you had people from not just "out of town," but form out of the frickin MLS region rolling in, perhaps using the Sunday Washington Post for their selection of comps...
With regard to the issue of "influence," I can tell you what they mean there too:
A) Outright fraud. A bribe. A threat (remember that episode of The Sopranos?). Something fairly wacky and thankfully rare.
B) The promise of or the denial of future business based on arriving at a value opinion that supports some number. "Mr. Appraiser, you either hit this number or we don't hire you in the future."
Those are the practices that are problematic.
At the end of the day, agents and their clients benefit from a good appraisal, be it higher or lower than the sales price.
Eleanor--This is an excellent post and information which I may be able to use to help my clients. The Appraisal process is flawed, there is no question about that. I tend to try to work with Lenders who have their own group of Appraisers, who have a stake in accuracy to retain their position.
Eleanor, makes sense, I had an appraiser from Wilmington say he couldn't appraise a hose in Wyndfall because there was no way he could appraise it for the loan amount. The buyers agent was able to get a local appraiser and guess what...it appraised!
Just earlier this week a VA appraiser said "replace roof". The roof is 10 years old. The lender told me I cannot call the appraiser, but I did. I got 2 letters from licensed roofers that there was at least 5 years life left on the roof. The appraiser will not change his appraisal although he is not a licensed roofer.
Appraiser independence is going to be a guiding principle going forward, even after the HVCC is sunset. No problem, but whatever can be done to remove the third party incompetence, to bring appraiser competence to the selection criteria along with local area competence, is OK with me. Most originators have no desire to use over valuations for their loans, but we would like competent valuation.
Leslie #21. I know exactly what the rules are. Realtor.org has an HVCC resource page.It is perfectly acceptable to provide info and even call them on certain issues. All agents should familiarize themselves on the topic. Too many are using HVCC as an excuse to be lazy, based on conversations that I've had with many agents.
In Manhattan an appraiser coming in from 100 miles away can mean they don't have lots of apartment experience which is a hard skill to come by.
Eleanor, I never could understand how an appraiser 100 miles away can know the market outside of their geographic area. Thanks for the update.
Eleanor, as always great informatioIt's amazing that anyone would think they could do a just appraisal when they don't know the area. It just won't happen!
On the surface this sounds good, but just how does it prove the appraiser is truely AREA COMPETENT ????
Very informative post, Eleanor. I've bookmarked it for future reference.
Great post. Am helping some neighbors prepare some comps for a re-fi appraisal right now. Good to learn through the comments about Realtor.org having a HVCC resource page also!
Thank you for the update. I had heard changes were coming, but didn't hear much more after that.
Common sense rules how about that appraisers who know the area, who woulda thunk it
It took them over a year to figure out that they needed some additional "guidance"??
LOL!
Realtors have always been permitted per HVCC to communicate with the appraisers and provide additional information to assist in determining the properties value. This may not be popular in this arena, but the appraiser regardless of the distance they travel should be able to do a quality job. They are licensed professionals. If you feel that they didn't take certain things into consideration, then by all means be an advocate and provide the information. My personal experience is that appraisals don't like their work being questioned by others especially those of us who aren't licensed appraisers. We have to be careful. We should be licensed in order to review or provide an analysis of the appraisal, so tactfully advocate for your client. I have seen some lousy appraisals from local appraisers, I think it has more to do with the individual doing the appraisal and not his/her proximity to the property. A true professional wouldn't accept a job they couldn't do properly. In short, appraisers are no different than anyone out there trying to make a quick buck without any regard for who they hurt in the process.
We work with AMCs but it is so frustrating. Frequently we don't even get paid for the work we do. For example, Equifax, a large AMC, sent us orders and I just was told by our accounting person that only 1 in 4 Equifax orders are ever paid for by Equifax.
I had the accounting person submit and resubmit orders/invoices 3x recently, and each time she called she was told a different way to submit them. Each time they told her they would pay, and did not. I think they think we'll just quit and stop bugging them.
But paying 1 in 4 invoices is not good enough. See why appraisers don't want to use AMC's?
Mike #7 and #30: I am sure you understand the rules from the perspective of a real estate agent, as most of us do. Yes, an appraiser can communicate with a real estate agent who can be a valuable source of information.The "be careful" refers to
- an appraiser must independently verify all data provided by others
- the appraiser is responsible for demonstrating that the appraisal was not subject to influence by others.
All you need is one round through underwriting with an appraisal from an appraiser who can't independently verify the source of the information he submits, to learn that an underwriter can throw the whole thing back if he is suspicious. While I am sure most or all real estate agents intend to helpful, and often are, a suspicious underwriter is a bad thing. The buyer and seller could be very unhappy if this results in a request for a second appraisal, possibly rushed and more expensive, that they buyer needs to fork out for.
Just sayin'....
The HVCC is a fraud and everyone knows it. It was simply put in place to generate additional fees for the lenders who in fact own the AMC's. The code requires the use of AMC's while these lenders require the use of their AMC's, a clear violation of RESPA and FIRREA. The banks never get called on their criminal activities. Think about it, MR. Cuomo steered the majority of the appraisal business towards his defendant (eappraisit) in the WAMU case. That is equivalent to sentencing a pedophile to community service in a daycare. The funny thing is that now even the AMC's are starting to violate the same code that created their existence as many allow brokers to request appraisers. Frankenstien has turned on his creator. If you think that an independant appraiser is more subject to coercion than a large AMC trying to maintain a large continual business stream then you simply do not understand brokers,criminal banksters and their MO.
Geopgraphic compentence is probably the dumbest rule ever as a quality appraiser will not perform a report unless they have access to the appropriate data, for the market area, to complete a quality report. In fact, I believe, that many local appraisers can get hung up on beliefs they have about their market area and therefore ignore the facts that a true appraiser will discover by researching the current data. I have always said "as long as I have good data I can appraise on the moon".
As for discussions with realtors this is another flaw of the HVCC as realtors are someitmes the best form of information within a given market area, especially in rural areas where realtors do not utilize MLS, which is becoming more and more frequent in rural areas due to costs associated with being a member of the board and many part time realtors. This problem is also compounded by the fact that database searches are never 100% and many run 30-60 days behind. I cannot tell you how many times different data searches have revealed varying comps. A good appraiser should reveiw all the data possible and utilize that which produces the most accurate opinion of value. Unfortunately the major banks are only interested in trying to reinflate the bubble, with unqualified form filling value whores, as they are the proud owners of a large portion of the real estate in america. The problem is that the american home buying public has caught on and have no faith in the system or the players. Unless this confidence is repaired it is going to be a long summer.
I never would have thought we could have a 4.5% 30 year fixed rate mortage and the market be in the tank. Keep up the hard work and good luck to all.
Yesterday someone asked what the future of Real Estate looks like. I hope I am wrong but I responded "Bank owned sales, Short sales and land contracts".
Eleanor,
The HVCC sure needed some more "guidance" to be more effective and give the real estate market the feel of competence. Now if ever it needs just that.
I've received phone calls recently from appraisers who asked about the condition of a listing that I sold, as well as asked about the concessions.
Spoken like true agents. I am both a licensed appraiser and agent, no realtors were complaining whne banks were using these same appraiser's and the market was appreciating. But now its what have you done for me latley. You want to blame someone point the finger at everyone including realtors. Appraiser's have taken the blame for more than what we had control over. Everyone one of you holds a license in your state, does it restrict you to a 30 mile radius form your business adress or home address? I'll bet it makes you legal in the entire state. Just as my appraisal license, does. I live in a rural area, does that mean that I should have my income cut even more than the fess have been because of where I live? USPAP requires an appraiser to tell the clinet of the competence, which includes geographic competence, if an appraiser is not familiar with an area they must tell the client and then it is up to the client. WE are all about to reap whata we so, because you think this is a great thing now, but wait till you are stuck with a bad appraiser in your area because they are the only one that makes the distance cut, then we will see how much you like. Also how would you feel if you were given a referral bu the property was 35 miles away, and there is a requirement that you be within 15 miles (as some lenders are now requireing)? Therefore you can't take that listing.
Just an FYI: This is not how it works. The appraiser can only talk to their client, which is the lender per USPAP. It would be up to the lender to require any corrections by the appraiser. Also the appraiser is not required to reconsider their value if they feel that the opinion is supported with the best and most appropriate comparables.
The HVCC does NOT bar Realtors, or other authorized third parties, from requesting that appraisers correct factual errors in their reports, or provide additional information or explanations about the basis for their valuations.
As far and considering the conditon of REO's and short sales, in a lot of markets these are the driving sales affecting value, which means that they are competiting with the subject and based on the principle of substitution, why would a buyer pay more for the same home, if the neighborhing property is the exact same floor plan that they can get for $10k cheaper.
Becareful what you wish for.