The Home Valuation Code of Conduct (HVCC) — implemented by Fannie Mae and Freddie Mac during 2009 resulting from their settlement with Andrew Cuomo, Attorney General of New York — is generally considered a failure by individual appraisers, mortgage brokers, and real estate agents.
While the goal of the HVCC is laudable, it was only a political and public relations event for Attorney General Cuomo without addressing the fundamental problems associated with the residential appraisal and mortgage industry uncovered by the current decline in housing prices. For example, the IVPI, which was to be the watchdog entity over lenders and appraisers, has not been funded by Fannie and Freddie and is highly unlikely to ever come into being.
After more than six months of the HVCC, secondary market participants still do not have a high degree of confidence in the LTVs of newly originated loans and consumers are complaining about costs, delays, and quality of reports provided.
A number of AMCs add little to the process other than as third party ordering platform that meets the letter of the HVCC, but not the intent. Who is auditing their policies, procedures and quality control? Who decides what the quality control criteria should be?
In addition, the two largest lenders — Wells Fargo and Bank of America — own their own AMCs in joint ventures with First American.
The result is an increase in cost to the consumer without the resultant increase in reliability to the end investor, Fannie and Freddie. The fact is there is little, if any, transparency regarding the quality of the AMC and individual appraiser beyond the AMC and originating mortgage lender relationship. Secondary market participants have no idea on the overall quality and qualifications of the AMC and individual appraiser performing the work. But hey, I don’t think the appraiser was forced into a number!
Discussions with market participants and anecdotal comments also indicate AMCs do not utilize a quality scoring model to insure the bet appraiser gets the assignment, but rely solely upon fee and turn time. So therefore, the only role the AMC provides is that they in theory, have policies and procedures to insure the appraiser is not forced to arrive at a pre-determined value.
Guess what, the Uniform Standards of Professional Appraisal Practice, (USPAP), has had this provision since FIRREA was enacted in 1989, and applies to Fannie and Freddie. They just never enforced it.
But the whole impetus for HVCC was that E-AppraiseIT, an AMC, was thought to have forced appraisers to arrive at higher values to keep a large contract. As many have stated before, it does not matter if it is an individual or a large AMC, when lenders threaten to pull business, you do what you need to keep the business running. (Even Fannie and Freddie bought billions in non-agency subprime MBS to keep Congress off their backs).
In the end, HVCC will have no positive effect on the quality of appraisals used in the mortgage process. It is a wasted opportunity given what has recently happened to real estate markets over the past 10 years. To paraphrase Rahm Emanuel, Obama’s chief of staff: Never let a crisis go to waste.
HVCC will be seen as a failed attempt to take advantage of the most recent crisis to put in place meaningful changes that improve the quality and reliability of the appraisal product used by the mortgage industry.