REALTORS(R) Ask that Home Valuation Code of Conduct (HVCC) Implementation be delayed
Dennis Norman
By: Dennis Norman
Earlier this month I did a post about the Home Valuation Code of Conduct (HVCC) which is scheduled to take effect May 1st (click HERE to see post)
Last week, Charles McMillan, the President of the National Association of REALTORS(R) sent letters to Fannie Mae President and CEO Michael Williams and Freddie Mac Interim President and CEO John Koskinen requesting that the Home Valuation Code of Conduct (HVCC) be delayed until May 1, 2010.
Mr. McMillan’s letter stated “there are many benefits for consumers and real estate practitioners to delaying the effective date of the HVCC until May1, 2010.” Mr. McMillan gives the following as issues that, as a result of the additional time, could be properly addressed:
- Lack of guidance – Fannie Mae and Freddie Mac were only able to provide guidance on implementation weeks before the effective date. The Federal Housing Finance Agency (FHFA) has been silent.
- States are Regulating AMC’s – HVCC requires mortgage brokers to order appraisals through third party organizations such as Appraisal Management companies (AMC). Many states are in the process of enacting laws to regulate AMC’s. States should have more time to finalize their actions.
- HVCC does not Apply to FHA – This has caused some confusion particularly from form 1004 MC which FHA announced it would require. Lenders and appraisers may be confused over where HVCC applies and where it does not.
- HVCC May Increase the Cost of Real Estate Transactions – The creation of a new set of standards to follow and a new oversight organization may lead to increasing the cost of the real estate transaction.
- Lenders are not Prepared for HVCC – According to a survey distributed by FNC, Inc., lenders have not completed necessary upgrades to assure compliance with the HVCC.
- No Clear Enforcement Agency – It’s not clear who will be responsible for enforcement of the agreement.
- IVPI is not yet functioning – The Independent Valuation Protection Institute (IVPI) was announced as part of the HVCC to receive complaints from appraisers and user of appraisal services. It’s not clear whether the GSEs will provide the up front funding for this and long-term funding was never addressed in the HVCC.
To read the letters in their entirety click on the links below:
Letter to Freddie Mac on HVCC Delay
Letter to Fannie Mae on HVCC Delay
With the effective date only 4 days away there is not much time left. I assume there will be a response by FNMA and Freddie MAC prior to May 1st. I’ll post something on this topic again once I hear more.
For reference below is a bulletin issued by Freddie Mac on March 31st with information about complying with HVCC.
http://www.freddiemac.com/sell/guide/bulletins/pdf/bll097.pdf
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It’s unlikely the HVCC will improve anything or relieve the pressure on appraisers. With over 30 years appraisal experience and eight years as a member of a State Regulatory Board for appraisers, I see no benefit to the HVCC. Instead, I see plenty of problems for an already troubled mortgage loan origination process, increased costs for borrowers and less reliable and credible appraiser reports. For a variety of reasons, many of the appraisers utilized by appraisal management companies are at the low end of the experience scale and ofter provide appraisal services beyond their area of geographic competence.
For a number of reasons, I agree with the National Association of Realtors that a delay is in the best interest of all parties:
One of the pillars necessary for implementation of the HVCC is the Independent Valuation Protection Institute. Without the IVPI there is no enforcement mechanism, hotline, or means of verifying compliance. Delaying implementation would allow creation of the IVPI or establishing an alternative framework
Many state legislatures are in the process of enacting laws to regulate Appraisal Management Companies. In other states, the regulatory agencies are in the process of promulgating rules and procedures to deal with Appraisal Management Companies. Delaying implementation would allow these states to finalize their actions.
To this day, the fact that the HVCC resulted from improper influence on appraiser independence by a Federally regulated lender and a rogue Appraisal Management Company cannot be reconciled with the apparent endorsement of unregulated Appraisal Management Companies as the “protector” of appraiser independence by the HVCC. Delay would allow a reconciliation of this glaring conflict.
Fannie Mae has adopted policies that protect the brokerage fees from downward negotiation in certain transactions (short sales). Delay of implementation would permit efforts to protect appraiser’s fees from downward negotiation by Appraisal Management Companies. At the very least, it would allow time to arrange for full and transparent disclosure of valuation related fees in closing documents (AMC fee, Appraisal Fee, etc)