(Article originally published May 22, 2009.)
There’s huge controversy raging in the real estate industry over a mandate that took effect May 1, 2009. The Home Valuation Code of Conduct (HVCC) is the end product of a settlement involving New York Atty. Gen. Andrew Cuomo, the Federal Housing Finance Agency, and Fannie Mae and Freddie Mac.
The HVCC resulted from allegations that Washington Mutual Mortgage pressured appraisers to overvalue properties in order to close loans. As a result, banks, brokers, and mortgage lenders are no longer allowed to work with the qualified and reliable appraisers they’ve trusted for years. Instead, appraisals must now be ordered through a third party appraisal management company (AMC) typically covering the entire nation, who will then randomly designate an appraiser to perform the work.
Yet lenders, brokers, appraisers, and realtors almost universally agree that HVCC is a bad idea. It unnecessarily complicates the loan process, stands to put many good appraisers out of business, and hurts consumers by driving up appraisal costs while driving down their quality – and accuracy.
Ironically, HVCC only applies to mortgages originated and destined for sale to Fannie Mae and Freddie Mac (admittedly a huge percentage of all loans originated). Government mortgages under FHA and VA are not affected, nor are mortgages portfolio’d by a lender.
What does this mean to you? Shoddy appraisals can severely undervalue properties forcing buyers to come up with larger down payments. They can destroy your efforts to refinance. We’re already seeing blatantly inaccurate undervaluations nationwide. Inferior appraisals can also overvalue houses that should be selling for less. This is yet another example of the government’s “cure” being worse than the disease. Legal challenges and Congressional appeals by industry trade groups and lobbyists are already in the works.
If you plan on obtaining a mortgage in the near future, call me to discuss your options. We have numerous “portfolio lenders” still accepting work from qualified, competent, local appraisers with the integrity to do the job right.
Since 1992, Warren Goldberg has helped thousands of clients own their homes, refinance their mortgages, restructure their debts, and invest in real estate. Warren is known for his wide knowledge of mortgage products and wealth-creation strategies.