New Financial Reform Legislation Transforms Appraisals

Written by: Steve Cook   Sat, July 24, 2010 Beyond Today’s News, Market Trends

The financial regulatory reform bill signed into law the week could result in more accurate home valuations, higher appraisal costs, faster closings, more completed transactions and maybe even higher prices, according to critics of a controversial quasi-governmental regulation that the legislation eliminated.

Enacted a year ago last May, Fannie Mae and Freddie Mac enacted the Home Valuation Code of Conduct (HVCC), meant to reduce mortgage fraud and collusion.  However, instead the HVCC generally caused chaos, increased costs and delays in the closing process.

The bill eliminated the HVCC and creates a new Bureau of Consumer Financial Protection that takes over from the HVCC and that is charged with carryingout the first modernization of real estate appraisal regulations in more than 20 years.

“This bill will mean good news for consumers because they should see more reliable home appraisals,” said Appraisal Institute President Leslie Sellers. “It will encourage the use of highly trained and competent real estate appraisers and will provide much-needed resources for oversight and enforcement.”

Critics of the HVCC said the regulation forced lenders to use appraisal management companies that charged less and lacked the manpower to provide timely appraisals, often using appraisers from outside the local marketplace who were unfamiliar with market conditions.

A study by the National Association of Realtors released a year ago found that more than three quarters of Realtors reported the time to get an appraisal increased after the HVCC took effect, ,most said the waiting tine increased more than eight days.  More than a third said they lost sales as a result.

Eighty-five percent of appraisers and 55 percent of Realtors reported a decline in appraisal quality.

Many also have charged the HVCC with encouraging appraisers to issue valuations on the conservative side.  ” The HVCC has distanced the appraiser from both the buyer, buyer’s agent, and loan originator, while at the same time reducing the amount of money an appraiser can expect to earn per appraisal by as much as 50%, and appraisers today are now more conservative than ever before,” said Phoenix Realtor Steve Belt last year.

In New York City, the Real Deal blog reports many New York brokers and appraisers say HVCC has wreaked havoc on the city’s residential real estate landscape because it’s resulted in a great number of lowball appraisals, often determined by appraisers with limited experience in the New York market.

Low appraisals aren’t necessarily good news for buyers.  When appraisals come in under the purchase price, buyers must come up with the cash to make up the difference or lose the home.  Today many buyers already are stretching to make down payments and closing costs, which must be paid out of pocket.

Ironically, during its short life, the HVCC did not reduce appraisal fraud.  Incidents of mortgage fraud and misrepresentation increased by 7 percent from 2008 to 2009, according to the Mortgage Asset Research Institute.

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3 Comments For This Post

  1. Jim Clark Says:

    What is time frame for HVCC to be gone and the new agency setting the rules?

  2. Steve Cook Says:


    When President Obama signed the financial reform legislation last friday, July 23, the wheels were set in motion to kill the HVCC forever. I will officially terminate 90 days after the bill became law.

    However, more changes are in store. A new set of “appraisal independence standards” will replace the HVCC, to be written over the next 60 days. Unlike HVCC, the new standards will allow Fannie Mae and Freddie Mac to accept any appraisal report completed by an appraiser selected or paid by a mortgage loan originator. The new standards will also include a requirement that lenders and their agents pay appraisers at market rates.

    Nothing in the new standards will prohibit a person with an interest in the transaction from asking the appraiser to consider other information, provide further detail or correct errors in the appraisal.

    Steve Cook

  3. Stephanie Says:

    I would first like to say there was absolutlely no point in having a middle man between the lender and the appraiser. Whether or not the lender needs a certain value and the appraiser supports it the UNDERWRITER is the one who APPROVES the loan. The real estate profession is suppose to be about independence and building a team and business. Appraiser’s are independent contractors who go out and are suppose to draw up business.Brokers and lenders should be allowed to choose there own appraiser. We were fighting to get orders left and right on with these management companies to get orders and a decent fee . Its ridiculous. We bust our butts driving around every day then have to type up reports and get them in within 24-48 hrs for our fees to be cut. To top it off these management companies pay once a months or 45 days, I have bills to pay just like the rest of the world. I think we should go back to normal were appraisers and lenders have there own team and structure, and collect at the door. I got my fingers crossed

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