Industry Players Bring the Heat over HVCC
Industry groups participated in a long week of discussion over the Home Valuation Code of Conduct (HVCC), arriving at no sound conclusion but illustrating the depth of contention felt over the code. The new, revised HVCC took effect May 1, officially changing the way home appraisals must be ordered. The government-sponsored enterprises (GSEs) agreed to the code with their conservator, the Federal Housing Finance Agency. "The Enterprises have a strong interest in ensuring the soundness of the appraisal practices that lead to appraisal reports supporting the mortgage loans they purchase from lenders,” said FHFA director James Lockhart at the time the code was announced. "The Code," he added, "strikes a balance of assuring enhanced protections for appraisers while maintaining lender ability to address unprofessional appraisal practices and to perform quality controls on appraisals received." Fannie Mae (FNM), in a frequently-asked-questions document on its Web site, said adopting the code would "help enhance the integrity of the home appraisal process," but industry sources are raising an outcry against it several months after the effective date. The contention even resulted in an online petition for the reconsideration of the HVCC, launched June 1 and bearing 35,000 signatures and testimonies as of June 22, according to a statement by Think Big Work Small, the real estate industry group that aims to deliver 100,000 signatures to rescind the code. Other groups this week began adding to the outcry. The National Association of Home Builders (NAHB) spoke out against the use of distressed sales as a comparison in valuating single-family homes, which it says is needlessly keeping prices low. “Any home buyer can recognize the difference between a well-kept home and a distressed property that is damaged or not properly maintained," said NAHB chairman Joe Robson. "So it only makes sense that an appraiser should be required to consider the overall condition of a property and the specific factors related to a foreclosure or distressed property sale when selecting and adjusting the value of comparables.” Robson urged new regulatory guidelines to end this practice of using distressed sales to valuate non-distressed properties. One of HousingWire's sources, however, says comparing distressed sales is a normal aspect of the business. "Who can deny the competition? You have to represent your market proportionately and not just ignore negative aspects," says the source, a certified appraiser who asked not to be named in this article. Aside from the way the appraisals are conducted, another hot button issue developing this week involves the value achieved through appraisals under the code. The National Association of Realtors chief economist Lawrence Yun said a 2.4% increase in existing home sales in May "is less than expected because poor appraisals are stalling transactions.” Further, he claimed contracts fall through due to "faulty valuations" that prevent buyers from obtaining the loan. In a direct response to his comment, the Appraisal Institute's director, Bill Garber, issued a statement arguing that valuations are objective and fair representations of what a particular house is worth in today's market conditions and in the context of the local market. "We take offense with the notion that an appraisal is only good if it happens to come in at the sales price," Garber said. "That mentality helped cause the mortgage meltdown to begin with. The fact that the value reflected in the appraisal does not match the sales price is not the fault of the appraisal but a result of the market today." Subscribe here and make sure you receive the forthcoming August issue of HousingWire, which looks in depth at the argument surrounding the HVCC and its effect so far on the industry. Write to Diana Golobay. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.