Less than a year old, the Home Valuation Code of Conduct has come under heavy attack by Realtors, home builders and mortgage brokers, the very people it was set up to control.
They and their lobbying groups are pushing hard to abolish the HVCC and return to the good old days of wildly inflated appraisals and easy money. Replacing the HVCC, or modifying it to the point of making it ineffectual, would be a huge mistake.
The HVCC was created to ensure honest and objective appraisals in order to give lenders the closest possible estimate of a property's true value. It assures that appraisers will not be subject to undue pressure from people who stand to benefit financially from an inflated value.
Critics and lobbying groups argue that the HVCC has led to inaccurate, low appraisals and therefore has held back the housing recovery. It is wrong to label appraisals inaccurate just because they are low. The appraisals are not low because of the HVCC. They are low because they reflect the current market. The HVCC has no effect on which comparables an appraiser selects to determine the value of a property.
The same critics also say that the HVCC causes inferior appraisals because overwhelmed and understaffed lenders are relying on appraisal management companies, which force appraisers to work for less and take most of the fees for themselves. This claim is fear-mongering fostered by lobbying groups. AMCs were prevalent long before the HVCC became effective and, in fact, were considered a reliable source of appraisals.
At my firm we generally do not go through AMCs for our appraisal assignments. We have people on staff who are experienced in the appraisal review process and qualified to analyze appraisal reports. This is the best approach to risk management, as appraisals are a very important part of the lending process.
For those lenders who must use AMCs, I propose rules to compel the AMCs to give the lender an invoice breaking down how much the AMC was paid and how much the appraiser was paid.
This will provide more transparency and help to improve the system.
The HVCC must remain intact if we are to continue on the road of sorely needed change and reform.
