Appraisal Service Code May Be Terminated and Replaced

The appraisal service code called Home Valuation Code of Conduct, which was launched earlier this year, may be terminated and replaced due to pressure from various parties adversely affected by changes in home valuation.

The possible termination and replacement of the HVCC has been coming closer to reality after the proposed creation of the Consumer Financial Protection Agency was passed by the U.S. House Financial Services Committee this week.

The HVCC was developed after New York State Attorney General Andrew Cuomo and the Federal Housing Finance Agency settled the problem of inflated valuations by appraisers working for home loans that would be guaranteed by Fannie and Freddie. Cuomo aimed to ensure the independence of appraisers from the influence of loan officers and brokers who had interests in the approval of loans.

The HVCC however created unintended consequences, according to real estate agents, homebuilders, sellers, buyers and other real estate professionals. Homebuilders complained that appraisers trying to comply with HVCC provisions submitted very low appraisals, causing failed sales of new homes.

Sellers complained that they could not sell their properties because buyers could not obtain the loan amounts they want, as the appraisals were coming in much lower than the agreed sales prices.

Experienced appraisers complained that big appraisal service providers were hiring less experienced appraisers so they could pay them lower fees. They said that appraisal management companies were sending appraisers to do valuations in housing markets where local trends are unfamiliar to them.

Roy DeLoach, chief executive of the National Association of Mortgage Brokers, said that low appraisals presented by appraisers who are not familiar with certain markets and who incompetently use low-priced foreclosure as comparables not only block individual home sales, but they also unfairly depress home values in neighborhoods.

DeLoach explained that the creation of the consumer agency will provide a platform for housing advocates to take up the issue of low appraisals, the adverse market impact of the HVCC and the use of foreclosures as comparables.

The experiences of the housing market from HVCC will become lessons for the head of the proposed consumer agency to develop a valuation code through comprehensive and adequate discussions with all groups participating in the housing market.

According to DeLoach, if the proposed consumer agency is rejected by national legislators, housing advocates will continue to campaign for the proposed moratorium on the implementation of the appraisal service code imposed by Fannie and Freddie early this year.