The U.S. House of Representatives Financial Services Committee, chaired by Barney Frank of Massachusetts, recently passed the Consumer Financial Protection Act of 2009. Included in this bill is an amendment poised to sunset the Home Valuation Code of Conduct (HVCC), a set of guidelines that is supposed to regulate and improve appraisal quality throughout the country. Effective May 1, 2009, the HVCC established guidelines for "solicitation, selection, compensation, conflicts of interest and appraiser independence" for mortgages sold to secondary mortgage companies.
The HVCC was created in March 2008 with the joint effort of Fannie Mae and Freddie Mac, along with the Federal Housing Finance Agency and the State of New York. Its chief purpose is to put an end to the inaccurate appraisals that helped cause the housing market meltdown. Additionally, HVCC aimed to negate any potential pressure banks might place upon appraisers to produce inflated home values which would justify a mortgage loan.
Freddie Mac argues that there has been an improvement in loan appraisal quality since the implementation of the HVCC, but many disagree. To date, a website entitled "Request for Permanent Reversal of HVCC" has garnered close to 118,000 signatures by calling for appraisers to follow the codes of conduct and ethics already in place instead of further complicating the process with the HVCC. The petition also seeks more direct communication between sellers and their appraisers and an end to what many see as unnecessary or excessive appraisal fees.
A poll taken in collaboration with the site's petition shows that 67.1% of realtors who took the survey reported HVCC appraisals lower than their listed contract sales price, with 57.7% of those responding saying that the appraisal was more than 3% below the home's value. The website shares many stories of homeowners suffering since the inception of the HVCC, arguing that the "HVCC is artificially deflating the value and equity of every home in America." In opposition, Fannie Mae argues that the low appraisals are instead due to declining home values across the country, a trend they say started long before the implementation of the HVCC.
The Consumer Financial Protection Act of 2009 provides for the creation of a consumer protection agency, which would be given the task of constructing new appraisal independence guidelines within the first two months of its enactment. If this legislation is implemented into law, the HVCC will sunset, but exactly what replaces it cannot be predicted.
The National Association of Realtors (NAR) supports ending the HVCC, as proposed in the Consumer Financial Protection Act, pointing out that the HVCC prohibits realtors and mortgage lenders from choosing appraisers and serves only to increase the expense and length of the appraisal process.
In support of its position, NAR released the results of a survey from this past July. NAR's survey reveals that 76% of participants experienced an increased length of time for appraisals to take place, with 69% percent stating that the wait was at least eight days longer than before. Furthermore, 37% of respondents said they had lost sales due to the HVCC, including 20% who had lost multiples sales. In a market with an overwhelming need for increased housing sales, these lost sales hinder the transformation which needs to take place.
Even more disturbing is the fact that 70% of those responding to NAR's survey noted that they dealt with non-local appraisers who did not have an intimate knowledge of the area. NAR believes such knowledge is critical to establish accurate home values and correct the current real estate market.
Supporters of the proposed House bill believe new regulations could more effectively work towards the HVCC's initial goals - mainly improving appraiser independence and reducing undue influence - ultimately making home sales easier and less costly in a real estate market still trying to regain its strength. A vote decided that the bill be amended before appearing on the House floor, but the legislation has significant support from those recognizing the issue at hand. Only time will tell if a new agency will be voted into existence, and if so, what its regulations will be.
