The Home Valuation Code of Conduct In Full Effect

The HVCC, or Home Valuation Code of Conduct (link: Fannie Mae FAQs), went into effect on Friday, May 1, 2009.

Michael wrote about its imminent arrival in an April post as the National Association of Mortgage Brokers (NAMB) had just announced the withdrawal of their lawsuit versus FHFA, thus ending their legal battle against the HVCC.

After months of preparation by lenders and appraisers alike, we're just past the May 1st start date and now submitting files according to the new guidelines. At this point, any appraisal ordered or paid for by loan production staff members (loan officers and processors at brokerages and banks alike), homeowners or real estate agents will not be accepted by Fannie Mae or Freddie Mac.

While NAMB was vociferously opposing the Code, the reaction was mixed in the appraisal industry (as far as I could see).

But the grumbling in the appraisal industry is picking up: HVCC Appraiser Talkback Survey: What's Really Going On? (Appraisal Scoop, April 30th)

The intentions of the HVCC were admirable. Everyone wants a better appraisal system. The reality of the new rules? So far the biggest beneficiary has been AMCs, or Appraisal Management Companies - the companies through which lenders order/pay for appraisals. Business is booming for them. Borrowers pay $50-75 more for appraisals, the AMC takes their cut, and the appraiser gets paid approx. $100 less for the same report they did back in April.

But I guess only time will tell if the HVCC is the appraisal panacea, or if it was just an ill-conceived solution to a complicated problem.

Full Steam Ahead for HVCC

The National Association of Mortgage Brokers (NAMB) announced today that they were withdrawing their suit against the Federal Housing Finance Administration (FHFA) to block the implementation of the Home Valuation Code of Conduct (HVCC). 

What this means is that the HVCC is coming.  Nothing is going to stop this train.

The intent of the HVCC was to clean up the appraisal process, to keep loan officers from exerting pressure on appraisers to inflate home values.  It attempts to do so by separating the loan originator from the appraiser.

Starting May 1^st, mortgage brokers will not directly be able to order appraisals for borrowers.  They will have to use national clearinghouses to make the order. 

Thus, the new process puts another middleman collecting his ounce of flesh in the process.   Additionally, appraisers will feel less need to be competitive, as their services will no longer be “shopped.”

It will make the process more expensive to the borrower.  And it is unclear what benefit the consumer, or the housing market, will reap from these new regulations.

The NAMB claims their withdrawal was done for strategic reasons.  It hopes to assess its legal options and challenge the HVCC through various means.  I hope they find this route soon.

NAMB press release.

More on HVCC.

Questioning Lockhart's Grasp Of The Situation

I want to give FHFA Director James Lockhart the benefit of the doubt. I really do. He's been willing to take on the giant mess that the GSEs, Fannie Mae and Freddie Mac, find themselves in. It takes guts and brains and ability.

But his latest comments make me wonder about, well, his understdanding of the problems in the housing market. From Bloomberg, Dec. 10, Fannie, Freddie May Waive Appraisals for Refinancings:

Fannie Mae and Freddie Mac, the mortgage-finance companies seized by the U.S. government, are considering forgoing new appraisals on refinanced loans to help struggling homeowners, their regulator said.

“If they refinance someone, rather than doing a loan mod, do they need a new appraisal if they already have the credit?” Federal Housing Finance Agency Director James Lockhart told reporters after a speech in Washington today. “That’s an issue that’s being discussed. They’re looking at it.”

They're looking at it? You mean "they" (and you, Mr. Lockhart) are actually considering the idea of ignoring the actual/current value of the collateral on which tens or hundreds of billions of loans would be based? I certainly don't expect that you'd go as far as allowing loan applicants to place their own value on their properties. Of course not, that would be crazy.

Maybe you're thinking about just requiring an AVM (Automated Valuation Models) instead of a full appraisal. But wait, that's still a type of appraisal, and you did say "... do they need a new appraisal if they already have credit?"

Or would the plan be to have Fannie/Freddie accept the original purchase price or appraisal done for a previous refinance? If that's what you're going after, you'd certainly take care of a lot of underwater mortgages. But what about the investors, who Fannie/Freddie depend on for capital? The folks who buy your loans, do you really think they will accept this? I have a hard time believing they will if they know that what they're buying is upside down from the get go. Okay, you at least have the FED - they'll buy anything.

There's also a post (and tons of comments) on Calculated Risk - Report: GSEs May Waive Appraisals For Refis

After(post) Thought: FHFA could bring back the PIW (property inspection waiver) or the FNMA 2075 (Property Inspection Report) . The PIW required no appraisal/inspection, was used for purchases and refis with low LTV (80% or less) and applied to borrowers with high credit scores. A PIW cost the issuing bank $50, a fee which they passed on to the borrower at closing. The 2075 was also used for purchases and refis with low LTV, but did come from an appraiser and required them to inspect the property (but no value given). But using these on a nationwide, across the board basis in today's market could be very problematic.