After all you've heard and read, it may be hard to believe, but the Home Valuation Code of Conduct does have some fans in the mortgage industry.
We're not talking about the appraisal management companies that gained business as the code effectively forced lenders to remove their loan officers from appraiser selection. Nor do we mean the regulators and government-sponsored enterprises that helped craft the code. Both groups would be expected to tout the standards' benefits, as they've done.
A more compelling case for the code comes from executives at a small group of lenders that kept the ordering of appraisals in-house. Instead of hiring AMCs, they gave the job to employees, such as underwriters, who were firewalled off from the sales force.
The results, these lenders say, are the opposite of what critics of the code, and of AMCs, usually report.
"Our appraisal quality and timeliness has gone up, not down, and our appraisers get paid the same amount of money that they were paid prior to HVCC," said Kevin Marconi, the chief operating officer at United Fidelity Funding, a wholesale and retail lender in Kansas City, Mo.
The code reflects negotiations a few years ago between New York Attorney General Andrew Cuomo, Fannie Mae and Freddie Mac and their regulator, the Federal Housing Finance Agency. Cuomo had subpoenaed the GSEs as part of his probe of the former Washington Mutual.
For single-family loans headed to Fannie or Freddie, the code forbids commissioned loan officers or mortgage brokers from ordering appraisals or influencing an appraiser about a home's value.
When it took effect a year ago, "lenders basically had two choices: either do the work themselves or outsource to an AMC," said Jeff Schurman, the executive director of the Title/Appraisal Vendor Management Association. "And many chose that route because it was more convenient for them."
He estimated that AMCs have processed two-thirds of all appraisals so far this year, up from 20% before the HVCC went into effect.
The change "indicates that lenders like the separation of the appraiser from the originator," Schurman said.
Most readers are probably familiar with the claims made by appraisers, mortgage brokers and others who don't like what's happened. Among other things, these critics have said that the AMCs, by squeezing the fees paid to appraisers, are driving seasoned ones out of the profession, and thus making the quality of appraisals worse than before.
Schurman and others in the AMC camp have rebutted those claims, arguing, for example, that to get on a management company's roster, an appraiser must have a minimum number of years' experience.
But Marconi and other lenders who have taken over the appraisal process themselves say the code has improved the quality of appraisals simply by removing interested parties from the equation.
Matt Hackett, an underwriting manager at Equity Now Inc., a New York lender, said it has been easy for a lender to take control of appraisal lists and remove from the process any employee whose pay is tied to loan production.
"In that sense, my interests are always aligned with the idea of getting the most accurate value possible," Hackett said. "If the value of the collateral is not sufficient to support the loan, I don't want to put my name on the loan."
Allen Gardiner, an appraiser and vice president at Jackson Claborn Inc., a Plano, Texas, appraisal firm, said the HVCC has unintentionally created a bifurcated market. "A lot of mortgage bankers and lenders did not realize they had the option of taking the process in-house, and many have figured out it may be a better way," Gardiner said.
Marconi said that before the HVCC took effect, he rejected 12% of total submitted appraisals because of poor quality. These were appraisals that were ordered in the traditional method by a processor or an originator who selected the appraiser and in most cases communicated an expected value. Since then the decline ratio has fallen to 3% of submitted appraisals.
Paul Bossidy, the chief executive of Clayton Holdings LLC, a due diligence firm in Shelton, Conn., said that as a general matter, appraisals are more reliable these days.
"If you look at what is happening on the ground in terms of underwriting in general, including appraisals, we are in a much, much better place than we were a few years ago," he said. "Fannie and Freddie have driven this. … There is much more quality control, there is much more checking and rechecking stuff."
Forced loan buybacks have driven the improvement, Bossidy said. "It's been very painful for originators getting back millions and millions of dollars of loans which are worth 30, 40 cents on the dollar that you have to pay par for because you blew that appraisal."
Robert Miera, the president of Landmark Southwest Lending Inc., an Albuquerque mortgage brokerage, gave a more typical assessment. He said he is required to use the AMCs because he brokers loans to large lenders.
"We have not seen any better quality up to this point and the cost has not come down but instead has gone up," Miera said.
But even he agreed that "for the smaller correspondent lenders and banks who have brought the process in-house, I'm sure they are seeing better quality, as the appraiser is able to make his standard fee and therefore would be willing to research market data more thoroughly."