HVCC Changes Residential Mortgages
The Home Valuation Code of Conduct (HVCC) adds an extra element of risk for the consumer when buying a new home or refinancing their existing mortgage. The code requires the random selection of appraisers by appraisal management companies set up individually by the chosen lender. Homeowners, who were often accustomed to using a “preferred” appraiser during much of the last decade, no longer have this option. First implemented for most loans as of May 1st, 2009, HVCC has since expanded to include all FHA & conventional loans bought by Fannie Mae or Freddie Mac. The goal of the Code was to prohibit borrowers or mortgage originators from selecting appraisers which was believed to create a conflict of interest and thus reduce the quality of the appraisal. While the idea was noble in theory, it has substantial ramifications for the homeowner and the greater mortgage industry as a whole.
Homeowners have faced longer wait times, reduced quality of appraisals, as well as increased costs. Appraisal management companies (AMCs) have added an extra middle man to the process of loan origination. When banks sign up with relatively few management firms, it allows such companies to increase prices for the appraisal to pay for office staff and management while facing less competition. Such appraisal costs increases have been passed onto the homeowner and have been up to 33% higher than prior to HVCC. In addition local appraisers were forced to sign up to staff such companies, resulting in substantially reduced income due to reduced payouts by management companies to the appraiser. As a result of all of these changes, management companies will select appraisers far from the local market of the homeowner requiring the appraisal. Appraisers, trying to increase profits are taking on more jobs. Appraisal quality, speed of completion, and accuracy of appraised value have lagged. Homeowner’s have a difficult time disputing the inaccuracies in the reports, even after several rounds of quality control that are supposed to be part of the appraisal process. In addition, many have reported poor service with the AMC’s, delays with return calls, and a lot of added confusion from informal third party communication with the client. Most importantly, homeowners who spent up to $500 on an appraisal in an effort to obtain financing are often out luck when the completed appraisal makes them ineligible for a loan.
HVCC was intended to provide a more accurate picture of the value of a home for the benefit of the homeowner and the investor who buys the loan. While it is true there were cases of aggressive mortgage lending creating undue pressure on the appraisal process, HVCC by itself has done little to curb such practices. The unethical and often illegal behavior of the few originators, homeowners, and realtors engaging in such activity created undue problems for those involved in the mortgage process. Those engaging in wrongdoing will only find new and innovative ways to stay ahead of any new regulations, including ways to get around HVCC itself. Reform in the mortgage industry is a necessary and vital need for its future. However HVCC has turned out to be another poorly planned and executed regulation by politicians who are often more focused on their political futures than the actual issue at hand.
