How HVCC Could Effect You

The Home Value Code of Conduct (HVCC) was created to have a nuetral 3rd party in between mortgage originators and appraisers. The appraisal would have to be ordered through an “Appraisal Management Company” (AMC), who in turn would submit the order to an appraiser of their choice. Although it sounds like there are some good intentions, there are many flaws that we should discuss.

HVCC rules have to be obeyed on every Conventional loan originated.  So this is obviously an important rule that effects both homeowners and potential homebuyers as well as the overall housing industry and economy.  So if HVCC is flawed, how did it ever pass Congress and be signed by the President?  Because it never went to either!  So how does a rule that effects millions of American’s never receive a single vote from our elected officials and still become law?

Meet Andrew Cuomo, the New York State Attorney General.  Formerly a regulator for Fannie Mae and Freddie Mac, and eventually become the youngest HUD secretary in history.  All without a finance background.  It doesn’t take a history lesson to understand that a lot of the issues we are facing today are a result or poor regulation of years past.  Now as New York’s State Attorney General he is looking to play a different role in the foreclosure crisis.

During an investigation on Fannie Mae and Freddie Mac, Cuomo threatened to subpoena the personal records of both CEO’s.  What leads to the agreement is not made public, but eventually the investigation ends, the personal records are never revealed, and the 2 companies write a $24 million dollar check to fund the Independent Valuation Protection Institute.  On May 1st, 2009 HVCC went into effect.

When an appraisal is ordered through an AMC, they select an appraiser in the area, and send them the order.  When the appraisal comes back, they send a copy to the bank along with a certificate stating the appraisal is HVCC compliant.  For this service, they receive 40-50% of the roughly $400 appraisal fee.  So the appraiser that does the inspection, and writes the report only receives 50-60 cents on the dollar while the middle man makes in some cases an equal share.  This has caused some appraisers to go out of business, and many veterans to refrain from conventional appraisals (and only doing FHA appraisals).  So you can understand how the quality of appraisals has gone down.

Most rules are supposed to create transparency and also protect the consumer.  It’s hard to see the transparency here when you can’t select a qualified appraiser, or hold them accountable for their work.  It also seems that borrowing costs continue to go up for the consumer.  In situations where a mortgage broker is involved, the report is written in the banks or wholesalers name.  So if rates go down at a competing bank, the customer would have to spend another $400 on an appraisal instead of the broker providing the appraisal they already have on their house.  Appraisals were previously assigned to the broker, who would have the rights to submit it to as many wholesalers as needed to fund the loan at the best cost to the customer.  If the appraisal was done from a licensed individual, and has a certificate that it’s HVCC compliant, why should it only work at one bank?  Doesn’t this seem protect the bank from fair competition, instead of protecting the consumer?

So what can be done to undo HVCC?  There is currently a bill called HR 3044 that proposes to put a 18 month moratorium on HVCC.  You can write your elected official and ask them to support the bill.  There is also a petition you can sign by clicking here.

-Matt Cady

By the way, if you would like to read a more in depth article you can read Cuomo’s Crossing.