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September 17th, 2009 (Modified on January 12th, 2010)

Update 1 Consumers Will Have to Pay Up Thanks to HVCC



Concerns are mounting by the day that the industry woes caused by the recently-enacted Home Valuation Code of Conduct (HVCC) are beginning to really financially impact borrowers. The HVCC, which was constructed in the first place to “improve” the appraisal process, has long been criticized by many to be hurting it.

HVCC has accumulated a host of skeptics in nearly every sector of the real estate industry. Mortgage lenders and brokers, realtors, and independent appraisers have all complained for months now that HVCC was delaying closings, costing them money, and hurting their businesses. We’ve read reports before that the HVCC was negatively impacting consumers, but we’re now hearing it first hand.

We had an interesting conversation the other day with Kris Taraz — the Managing Director of Inhouse Capital Mortgage Services Inc. in California — who told us that if HVCC continues as is, it will “without a doubt slow down the recovery of the housing market in this sluggish economy.”

Here’s what he had to say: Kris needed an appraisal conducted on a property that a borrower was interested in buying. According to Kris, HVCC prevents mortgage companies from informing borrowers of the home’s value before an appraisal has taken place. The cost of the appraisal was $400.

Before HVCC, if a lender or servicer did need an appraisal, they would call up a local appraiser — usually one that they had a long-standing business relationship with — to determine the property’s value. Under the new way of doing things, the lender or service must now contact an appraisal management company (AMC) to dispatch an appraiser to the property.

In a fast-changing marketplace, the homebuying process can be a fickle one. According to Kris, whether the borrower wishes to change programs, renegotiate the sale price, or hold off for a better rate, HVCC requires another appraisal. Two appraisal can cost in the neighborhood of $900. In order to keep his clients, Kris said he has been paying for at least some appraisals out of his own pocket in an attempt to limit the growing costs for borrowers.

More to the Problem

One of our regular readers, who also happens to be a private appraiser (one who doesn’t work for an AMC), said there’s more going on here, other than just HVCC, that’s negatively impacting appraisals:

Shoddy appraisals are one spoke in the hub…

…it should be noted that there are 2 seperate issues here that are affecting appraisals. One is the HVCC which is to blame for shoddy appraisal work by cut-fee shops, and the other is the market data analysis form required by Fannie Mae for risk analysis, called the 1004MC (Market Conditions Summary Form).

The form requires median prices of similar proximate properties that sold within 3 mos, 4-6 mos, and 7-12 mos, as well as listings, market times, list price to sale price ratios, etc, which tracks the increase or decline of values within the neighborhood. The fewer comparable sales there are in the neighborhood, the higher the risk of the property not having typical marketability.

When a rule that’s designed to protect the consumer complicates the lives of industry professionals, it should deserves at least a second look, or a forum for those professionals to voice their concerns. But when the rule begins to cost the consumer, we think that the issue demands a re-evaluation.

For more information be sure to read:

“Update1: Lawmakers Call to End HVCC”

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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