BLOG VIEW: Much Ado About HVCC

e is National Homeownership Month, but after this past week, whatever[/b] committee it is that's tasked with making such pronouncements may want to consider renaming it National Point-Out-HVCC-Flaws Month. I admit my suggestion does not roll off the tongue quite as nicely as National Homeownership Month does, but I think it is, nonetheless, worthy of consideration. The [link=][u]HVCC[/u][/link], or Home Valuation Code of Conduct, went into full effect May 1. The result of a joint agreement among the Federal Housing Finance Agency, Freddie Mac and New York Attorney General Andrew Cuomo, the code's objective was to eliminate collusion between lenders and appraisers. The appraisal industry, as has been well documented, provided fertile ground for fraudulent behavior in years past. But now, barely a month after the HVCC went into full swing, the code's shortcomings have become all too apparent. On Tuesday, the National Association of Realtors released its monthly report on existing-home sales, and there was some good news to be found: Sales showed another gain in May – the first back-to-back monthly gain since September 2005. The $8,000 first-time home buyer tax credit has apparently succeeded in spurring activity among buyers who, prior to the credit's enactment, had been largely constrained to a sideline view. But NAR's chief economist, Lawrence Yun, did not mince words in explaining why May's sales numbers, though reason for cautious optimism, came in lower than expected. "Pending home sales indicated much stronger activity, but some contracts are failing through from faulty valuations that keep buyers from getting a loan," Yun said. Many industry players are drawing a direct correlation between these faulty valuations and the HVCC's enactment. The code does not prohibit lenders from contracting directly with independent appraisers, but many lenders have opted to skirt around the possible compliance risks inherent in direct contracting by choosing to outsource the job to appraisal management companies (AMCs). The AMC business model, however, presents room for error. Poor-quality valuations, Yun said, are commonly the result of one of two scenarios: Either the appraiser performing the valuation is not local and does not have great familiarity with a specific neighborhood, or the valuation itself was based on bad comp choices, such as distressed properties. These valuations, in turn, are causing massive delays, which lead to buyers backing out. "In the past month, stories of appraisal problems have been snowballing from across the country, with many contracts falling through at the last moment," Yun said. "There is danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected." The HVCC was also a major talking point at a congressional hearing last week. The House Financial Services Subcommittee on Oversight on Investigations convened to discuss fraud prevention in FHA. Many of those testifying offered their observations on where the HVCC is lacking. Mortgage Bankers Association Chair David Kittle voiced concern over appraisal portability. Lenders are allowed under the HVCC to use appraisals that are produced for other lenders, provided the receiving lender has written confirmation from the original lender that the appraisal is up to HVCC snuff. But there is no industry standard that dictates what, precisely, qualifies as adequate written confirmation of HVCC compliance, Kittle said. "Therefore, receiving lenders are reluctant to accept another lender's appraisal because of the repurchase risk associated with breaching the code," he stated. "Thus, receiving lenders typically order a new appraisal at the expense of the borrower." Kevin Nunnink, chair of commercial appraisal company Integra Realty Resources, pointed out that many bundled service providers with roots in title work have appraisal management units. "We believe it to be an inherent conflict of interest for individuals whose income is fully or partially dependent upon the origination of a loan to select or interface with the appraiser," Nunnink said. "More fully stated, we believe the real estate broker, the mortgage broker, the title company or loan origination staff members should not participate nor influence the selection of the appraiser, nor be in a position to influence the outcome of the appraised value." Discontent over the HVCC can be found elsewhere, too. Craig Strent of Maryland-based Apex Home Loans, echoed Yun's sentiments in an interview with NBC's Chicago [link=][u]affiliate station[/u][/link]. "The new HVCC is certainly increasing processing times, raising costs for consumers, and, in often cases, bringing in valuations that don't appear to be correct as a result of lesser experienced appraisers from outside the area appraising properties at potentially lower valuations," Strent said. "When that happens, that throws the refinance or the purchase mortgage out of whack, of course, and creates fairly large problems for the financing, so we're seeing some really negative effects as a result of this HVCC," he added. As the media still dedicates most of their mortgage banking coverage to the foreclosure crisis – and justifiably so – it will be interesting to see what changes, if any, happen to the HVCC in the months ahead. In the meantime, HVCC haters may want to check out, a Web site that, as its name suggests, is compiling a list of stakeholders interested in revising the current code. – John Clapp, editor, [b][i]Servicing Management[/i][/b] (Please send any comments on this blog to clappj@sm-onli


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