Homeowners are being hurt by the latest attempt by the Obama Administration and HUD – Fannie Mae and all other housing powers that be in the US to clean up the mortgage industry. The latest attempt to which I refer is a major policy change about how mortgage loan officers order appraisals for Fannie Mae home loans went into effect in May 2009. This change was called the: Home Valuation Code of Conduct or HVCC.
For more information on the HVCC see: Value Of A Home – The Rules Have Changed For Mortgage Brokers
The HVCC is a huge problem for the mortgage and real estate industry. Couple this with current trends in the appraising business and we may create more unexpected and serious problems for housing and mortgage industries.
- These problems ultimately arise from homeowners not being able to refinance because their home values continue to decline.
- Home sellers won’t be able to sell because they cannot get their home to appraise for enough to payoff their mortgage.
Appraisers Are Comparing Occupied Homes With Foreclosed Homes – Bad Idea
As a result of the high scrutiny that has been placed on the value of homes since 2008, appraisers have turned into an extremely conservative bunch. From my experience working with customers and their appraisals, it seems as though home values are being appraised far lower then expected – this is especially true since occupied homes are now being directly compared to foreclosed properties.
It is bad to compare an occupied and up kept home with a foreclosure property that is not kept up and possibly trashed. Foreclosed properties are being sold as is for far less money than they are worth just so that the bank can get some of their money back. With this being the case, the fundamental standard practice of appraising residential properties – comparing like properties to determine value – has been seriously compromised.
Appraisers Are Appraising Low To Cover Their A_ _ es!
Second, “appraisers are appraising low or deflating property values to the lowest possible point to insulate themselves from any possible accusation of impropriety,” says Tim Gilker of HomeRun Financial out of Chandler AZ. With this being the case, an appraiser is no longer appraising the property on the merits of the home rather the appraisal is based on the appraiser covering their ass. CYA at its appraising’s finest. But isn’t inflating or deflating an impropriety in and of itself?
Now back to the HVCC. Given that appraisers are appraising low, in my opinion, for the two reason just mentioned above, we deal with the facts of the HVCC.
Says Gilker, “HVCC management companies are not required to hold an appraiser’s license. With the HVCC being responsible for hiring an appraiser to work for it, is it possible for the HVCC to govern the quality of the appraiser and the appraisals that they are hired to complete? The answer is unequivocally NO.”
In theory, the HVCC was designed to put a buffer between the mortgage industry and the appraiser to prevent the mortgage industry or the real estate industry from influencing the values determined by the appraiser. Mortgage companies have to order their appraisal through an appraisal management company hired by the mortgage lender.
The HVCC is not a bad concept HOWEVER with what was presented here there are many more problems on the horizon for US homeowners, home buyers and the US banking and real estate industries if the HVCC doesn’t get modified and appraisers continue to feel the pressure be conservative and deflate values to cover their a_ _ es.