“This bill will mean good news for consumers because they should see more reliable home appraisals,” said president of the Appraisal Institute Leslie Sellers. “It will encourage the use of highly trained and competent real estate appraisers, and will provide much-needed resources for oversight and enforcement.”

The Dodd-Frank Act is the first overhaul of appraisal regulations since the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) of 1989. The House passed the bill on June 30, 2010, and President Obama is expected to sign it into law shortly.

The Dodd-Frank Act will require that “reasonable and customary” fees be paid to real estate appraisers. Appraisers have complained that with the growth of appraisal management companies (AMCs) since the passing of the Home Valuation Code of Conduct (HVCC) in May 2009, they have experienced sharply reduced fees from these appraisal management companies. “Reasonable and customary” fees will reflect what the appraiser would typically be paid for the assignment without an AMC. Under the new act, violations of this policy will result in severe penalties.

By: Present Value

Additional reading:

The Dodd-Frank Wall Street Reform and Consumer Protection Act
Mortgage Players Look to Soften Bill

Well, the final version of the bill is ready for a vote, and the real estate appraisal community is applauding the new measures, which are the first modernization of U.S. real estate appraisal regulations since the Financial Institutions Reform Recover and Enforcement Act (FIRREA) was enacted in 1989.

“We applaud the conference committee’s efforts and urge Congress to pass HR 4173,” said Appraisal Institute President Leslie Sellers. “We are extremely pleased that this bill will protect consumers by encouraging the use of highly trained and competent real estate appraisers with much-needed resources for oversight and enforcement.”

If passed, the measure would:

• Establish a federal appraisal independence standard, sunsetting the HVCC
• Require AMCs to register with state agencies
• Enhance appraiser competency provisions, including clarification regarding consideration of professional appraisal designations
• Provide financial resources for oversight and enforcement

The vote is slated to take place sometime in July.

By: Present Value

Additional Reading:

HVCC and Uncertainty

Pointing Fingers

HVCC: The Comp Check Killer

A key issue on the table is changes to rules of real estate appraisals. Ever since the advent of HVCC, virtually every type of player in the real estate game wants changes in the current rules for ordering appraisals; these rules were established after the collapse of the mortgage market. Real estate professionals say the rules have gone too far, and often inexperienced appraisers are assigned appraisals when they do not understand or are unfamiliar with the local real estate market.

We will know soon enough if lenders were successful in their bid to make adjustments to the new regulations, and how much it will affect the currently volatile real estate market.

By: Present Value

HVCC and Uncertainty

Pointing Fingers

HVCC: The Comp Check Killer

Unfortunately for appraisers, November 1 may not be a day for confetti and champagne after all. Though that is the expiration date, it doesn’t necessarily mean that HVCC will disappear on that day. Fannie Mae, Freddie Mac, and other lenders are not required to remove HVCC guidelines from seller service agreements after the deadline, and as of right now, the belief within the industry is that the HVCC will linger well after the expiration date.

As they have been since its inception, new problems created by the well-meaning HVCC seem to keep cropping up and the issues appear to be growing. It’s more important than ever to make sure you use an established, licensed appraiser.

By: Present Value

Additional Reading:

Working with HVCC Regulations

Recent Articles about HVCC Changes

HVCC: The Comp Check Killer

As the article points out, the Home Valuation Code of Conduct (HVCC) was supposed to result in better, more honest appraisals. But a year after it was put in place, there’s still a question of whether or not home buyers are getting their money’s worth.

Real estate professionals, mortgage brokers, and even some appraisers themselves complain that lenders are using appraisers who lack experience, sometimes travel great distances to determine values in unfamiliar areas, or base their determinations on sales that are not similar to the property they are appraising.

So if you hire an appraiser that you feel violates the standards of his or her profession or is downright incompetent, you should definitely report him or her. If you think the valuation has come in way too low, you need to appeal, but with as much finesse as possible. Bear in mind that if the lender orders the appraiser to take a second look, it’s like telling him he was wrong the first time.

Of course, you can always ask for a second opinion from another appraiser. But you’ll have to pay for that one, too. Moreover, to stand any chance of winning your point, the second valuation must be more than 5% higher than the first. Anything less is considered an acceptable difference. Besides, even if the second appraisal is far above the first, it’s the lender, not you, who gets to pick the appraisal on which the loan is based.

The issues created by the well-meaning HVCC appear to be growing and new problems seem to keep cropping up. It’s more important than ever to make sure you use an established, licensed appraiser.

By: Present Value

Additional Reading:

Working with HVCC Regulations

Recent Articles about HVCC Changes

HVCC: The Comp Check Killer

The appraiser continued, “It’s important to note that I said ‘some’ in both cases. You can’t say every mortgage company engaged in comp checks any more than you can say every appraiser agreed to the practice. It’s just those few who ruined it for everyone.”

As stated in the previous blog, assigning blame for the crisis does nothing to alleviate it, but it is important to view it from both sides.

By: Present Value

Additional Reading:

Pointing Fingers

HVCC: The Comp Check Killer

Comp Check: The Code Red of Real Estate Appraisal

Now, however, the Consumer Financial Protection Agency itself seems to be in jeopardy. Squabbling on Capitol Hill regarding how much power and independence the agency should have is moving the bill closer to the congressional junk heap than to a significant new law.

Senate Banking Committee Chairman Christopher Dodd has set forth the idea of putting the new agency in the Federal Reserve. But Travis Plunkett, legislative director of the Consumer Federation of America, has stated, “I don’t know if we can have an agency like that in the Federal Reserve.” Watering down of the bill to gain bipartisan support looks to kill any true impact the agency might have had.

The HVCC has been universally unpopular among those in real estate appraisal, and the Consumer Financial Protection Agency looked to be the salvation. But unless some compromise can be reached, the HVCC may be here to stay.

By: Present Value

Additional Reading:

Working with HVCC Regulations

Recent Articles about HVCC Changes

HVCC: The Comp Check Killer

Industry experts, however, still appear to be concerned about issues surrounding real estate appraisals and the unintended consequences of the implementation of the Home Valuation Code of Conduct (HVCC). As we have discussed in other blog posts, the perceived problem is that appraisers, working for appraisal management companies, are often working outside areas with which they are familiar and may not have access to information about specific markets. Realtors argue that as a result of valuations that sometimes are too low, sales have been delayed and even cancelled.

This Banker & Tradesman article provides some interesting suggestions by realty agents of ways to work with the HVCC changes, including providing appraisers with detailed property comparison information and background materials to help appraisers achieve the most accurate appraisals.

As always, Present Value LLC is both an appraiser and an appraisal management company, which means that it can play the role of the third party required by the HVCC changes and save you the step of having to seek out a separate appraisal management company.

By: Present Value

The Seattle Times published an article that followed one appraiser’s experience of the industry before and after the HVCC changes designed to keep brokers and appraisers from working too closely together went into effect. For this particular appraiser, appraising is a family business and he describes not only his worries for the industry as a whole, but his personal pain as he watches the HVCC changes’ negative effects on the industry he loves.

The article in The Seattle Times briefly mentions the effect of the HVCC changes on consumers, but another article published in the Chicago Tribune goes into a more in-depth exploration of consumers’ worries. This article discusses a man’s experience selling his home in Massachusetts. He had a successful sale, but found that the HVCC rules designed to protect him made the experience more stressful than it had to be.

To read the article in The Seattle Times, click here. The Chicago Tribune’s article can be found here.

By: Present Value  

The letter calls the FHA to enhance appraiser independence and to more closely monitor mortgage brokers and appraisal management companies. Below are the specific, overarching recommendations made in the letter:

• Recommendation 1: Establish the conditions for mortgage broker participation in the FHA appraisal ordering process.

• Recommendation 2: Supplement state and federal appraiser independence requirements with more robust appraiser independence requirements specific to FHA.

• Recommendation 3: Rescind Mortgagee Letter 97-46.

• Recommendation 4: Develop rules and expectations relating to appraisal management companies.

To view the full letter to the FHA, visit the Appraisal Institute website, here.

To view Present Value’s previous blog posts on HVCC changes and industry reactions, click here, here, and here.

By: Present Value