HVCC Eliminated 'Guns for Hire', Says LPS' Compliance Officer
More than four months into the Home Valuation Code of Conduct (HVCC), and industry players are still grappling with the implications of the sweeping code. Deputy general counsel and chief compliance officer at Lender Processing Services (LPS), Donald Blanchard, recently shared his view of the HVCC, which took effect May 1 and changed the way the industry orders appraisals. The HVCC applies to loans purchased by the government-sponsored entities (GSEs) and aims to enforce greater independence of appraisers. It was adopted to eliminate the trend of "hired guns" where lenders used a group of preferred appraisers that supposedly met a certain desired value, according to LPS' Blanchard. The former president of Title Appraisal Vendor Management Association (TAVMA) said the HVCC did not create the Appraisal Management Company (AMC) model, despite some misinformation in the industry. While LPS remains neutral on the HVCC itself, he said use of an AMC by a lender is only one option to achieving compliance in ordering appraisals. In an exclusive interview with HousingWire, Blanchard debunked several such HVCC "myths," including a consensus that HVCC is pulling down house values -- as some opponents argue appraisers compare new houses with distressed sales in the same area. HousingWire's sources have long said comparing distressed sales is relevant as an overall market view. Blanchard said the HVCC opponents are responding to their disappointment in declining property values. He noted another major myth circulating in the industry is that AMCs bring outside appraisers from up to 50 miles away. Such proximity claims are not plausible, he said, due to Uniform Standards of Professional Appraisal Practice (USPAP) requirements that appraisers decline jobs that do not meet certain proximity standards. What HVCC did was essentially prohibit brokers from hiring appraisers by requiring all loans bought by the GSEs to be closed based on appraisals ordered by lenders, Blanchard said. Brokers tended to pay their preferred appraisers more than AMCs even before HVCC took effect. "It doesn't surprise me that once they're not being paid directly by mortgage brokers and are now being paid and managed by AMCs, many appraisers are not happy with the reduced fees," Blanchard said. "I'm sure there are reductions from the fees paid by brokers." He indicated the higher fees paid by brokers played into what New York Attorney General Cuomo did in pursuing the HVCC in the first place when such preferred appraiser relationships seemed to come in at higher values. "He was worried about guns for hire," Blanchard said. "He was worried about appraisers who were hired by mortgage brokers who came in at the value every time." He added: "Frankly, I think AG Cuomo was right. Overvaluation has been a major issue during the current recession in housing prices. The HVCC was adopted to eliminate that." As for some HVCC opponents that say AMCs take significant cuts of appraisers' fees -- to the tune of 50%, according to some sources -- Blanchard said LPS' AMC, called LSI, receives "a smaller percentage" than many people in the industry seem to think. He could not offer a specific figure. Although the use of AMCs is only one option available to lenders seeking HVCC compliance -- software providers, for example, offer suites designed to achieve compliance -- Blanchard said working outside an AMC is "unlikely." Outsourcing the appraisal process is often seen as a necessary, cost-saving method that is less labor-intensive than managing the process in-house. Blanchard added there has been a lot of consolidation in the industry to the point that the top lenders do the majority of the market share of mortgages. He said these large lenders uniformly decide to outsource the appraisal process. "The centralized use of an appraisal management system, whether you do it in-house or externally, is really mandated by today's turn time requirements," Blanchard said. Some appraisers complain the turn times are unrealistic -- as quick as a day in some cases -- while other mortgage market players have said the HVCC is causing delays in closing mortgages due to faulty appraisals. But Blanchard indicated LPS' AMC, called LSI, has seen no significant delay in turn time, as the process remains under a week. "The lenders' own requirement for turn times and speed have set the standard for all of us -- the AMCs, the individual appraiser, the realtor, the broker," he said. "Those benchmark requirements are set by the consumer." Blanchard said he used to see the appraisal process take two or three weeks. Electronic documentation, e-signs and e-closings led to a newer, faster appraisal process. It's a fast, secure way to share documents that cuts out the courier time seen before. While Blanchard said he sees room to improve efficiency and reduce turn time, he worries "a little bit" about a push for speed. "I think we may be reaching the point of -- I don't want to say diminishing returns -- but we've taken a closing that used to take weeks and we now have it down to days," he said. "I think the regulators will require us to maintain quality even as we reduce turn times." Write to Diana Golobay.