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Grassroots support could help change new appraisal rules

Since May 1 homebuyers who took out a mortgage (or those getting a refinance) have been subject to the now-infamous Home Valuation Code of Conduct (known as the HVCC).

This code is not actually a law that anyone voted on – it is an agreement between the State of New York Attorney General Andrew Cuomo and the mortgage giants Fannie Mae and Freddie Mac.

It stems from evidence that Washington Mutual Bank was coercing appraisers to inflate home appraisals. The purpose of the code is to remove the appraiser from the influence of anyone involved with originating the loan. In principle this may not sound like a bad idea, but in reality it has been a train wreck of epic proportions.



In the past, originators like myself could order the appraisal, and we could submit it to the lender of our choice. In addition, if we switched lenders in midstream for any reason the appraisal was portable in that it could be used by different lenders.

Certainly there were instances where a loan originator tried to exert undue influence over his chosen appraiser with the promise of lots of future business if the appraisal came in at a certain level, or a threat of no future business if it came in below a perceived value. There are a bevy of laws and regulations out there that prohibited such acts, and certainly the government could have easily stopped such abuses by using the laws on the books.



However, in the spirit of politics, if the presence of a law isn’t deterring a crime, it seems that politicians like to enact new laws and rules on the assumption that somehow the new rules will be better than the old ones.

In this case, there were no Senate hearings, no votes, and no chance for public input. The agreement was forced on Fannie Mae and Freddie Mac in exchange for AG Cuomo not pressing a criminal investigation against just about everyone who is anybody in the mortgage industry.

The agreement created a framework for ordering mortgage appraisals whereby the loan originator (that’s me) selects a lender for the client’s loan. The lender then calls an Appraisal Management Company (AMC) who then selects an appraiser in the vicinity of the property and contracts with the appraiser for the assignment. Neither I nor the lender knows who the appraiser is until he shows up to do the appraisal.



The way the appraisal is assigned is troubling. The AMC will charge the borrower a flat fee and then reverse-auction the work off to the lowest bidder. This means that an appraiser with 20 years experience has the same shot as someone with a week’s experience if they are willing to do it cheap enough. In addition, AMC’s don’t seem to know that Denver is 100 miles from Vail and they have been known to bring in appraisers from Denver who, combined with their youthful inexperience, don’t have a clue what’s going on.

This has resulted in thousands of real estate deals across the nation being killed because of bad appraisals. Innumerable professional groups involving realtors, mortgage brokers and appraisers have raised increasingly vocal opposition and word is finally reaching Washington that something needs to be done.

As a result, U.S. Rep. Travis Childers of Mississippi introduced HR 3044 in the U.S. House of Representatives to impose an 18-month moratorium on the HVCC to allow time for the situation to be reassessed. The legislation has attracted 54 co-sponsors, which is a respectable amount of attention and support. Currently it is in the House Finance Committee for consideration. Unfortunately Rep. Jared Polis, who represents Eagle County, has not joined support for the bill and refuses to comment on his stance on the matter.

Over 90,000 individuals and nearly 4,000 Coloradoans have voiced their opposition to the HVCC at http://www.hvccpetition.com and I would suggest everyone reading this that has a stake in real estate anywhere might consider signing it. Let’s hope that Congressman Polis might note the massive support growing to repeal HVCC and help out the struggling property owners in his district by working to support HR 3044.

Also, reportedly the U.S. Justice Department is reviewing claims that the HVCC may pose anti-trust violations in that it restrains trade. Also of interest is that several of the major lenders own their own AMC’s. The issue of an appraisal being portable (which is allowed under the HVCC but restricted by the lenders) also is being looked at. The lack of portability is very detrimental to consumers because if they get offered a better deal from another lender during the loan process, they have to get (and pay for) a new appraisal to switch lenders.

However, there will be stiff opposition from Attorney General Cuomo and many AMC’s in doing away with the HVCC and grassroots support is what is needed.

Chris Neuswanger is a loan originator at Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage-related inquiries from readers.

Since May 1 homebuyers who took out a mortgage (or those getting a refinance) have been subject to the now-infamous Home Valuation Code of Conduct (known as the HVCC).

This code is not actually a law that anyone voted on – it is an agreement between the State of New York Attorney General Andrew Cuomo and the mortgage giants Fannie Mae and Freddie Mac.

It stems from evidence that Washington Mutual Bank was coercing appraisers to inflate home appraisals. The purpose of the code is to remove the appraiser from the influence of anyone involved with originating the loan. In principle this may not sound like a bad idea, but in reality it has been a train wreck of epic proportions.

In the past, originators like myself could order the appraisal, and we could submit it to the lender of our choice. In addition, if we switched lenders in midstream for any reason the appraisal was portable in that it could be used by different lenders.

Certainly there were instances where a loan originator tried to exert undue influence over his chosen appraiser with the promise of lots of future business if the appraisal came in at a certain level, or a threat of no future business if it came in below a perceived value. There are a bevy of laws and regulations out there that prohibited such acts, and certainly the government could have easily stopped such abuses by using the laws on the books.

However, in the spirit of politics, if the presence of a law isn’t deterring a crime, it seems that politicians like to enact new laws and rules on the assumption that somehow the new rules will be better than the old ones.

In this case, there were no Senate hearings, no votes, and no chance for public input. The agreement was forced on Fannie Mae and Freddie Mac in exchange for AG Cuomo not pressing a criminal investigation against just about everyone who is anybody in the mortgage industry.

The agreement created a framework for ordering mortgage appraisals whereby the loan originator (that’s me) selects a lender for the client’s loan. The lender then calls an Appraisal Management Company (AMC) who then selects an appraiser in the vicinity of the property and contracts with the appraiser for the assignment. Neither I nor the lender knows who the appraiser is until he shows up to do the appraisal.

The way the appraisal is assigned is troubling. The AMC will charge the borrower a flat fee and then reverse-auction the work off to the lowest bidder. This means that an appraiser with 20 years experience has the same shot as someone with a week’s experience if they are willing to do it cheap enough. In addition, AMC’s don’t seem to know that Denver is 100 miles from Vail and they have been known to bring in appraisers from Denver who, combined with their youthful inexperience, don’t have a clue what’s going on.

This has resulted in thousands of real estate deals across the nation being killed because of bad appraisals. Innumerable professional groups involving realtors, mortgage brokers and appraisers have raised increasingly vocal opposition and word is finally reaching Washington that something needs to be done.

As a result, U.S. Rep. Travis Childers of Mississippi introduced HR 3044 in the U.S. House of Representatives to impose an 18-month moratorium on the HVCC to allow time for the situation to be reassessed. The legislation has attracted 54 co-sponsors, which is a respectable amount of attention and support. Currently it is in the House Finance Committee for consideration. Unfortunately Rep. Jared Polis, who represents Eagle County, has not joined support for the bill and refuses to comment on his stance on the matter.

Over 90,000 individuals and nearly 4,000 Coloradoans have voiced their opposition to the HVCC at http://www.hvccpetition.com and I would suggest everyone reading this that has a stake in real estate anywhere might consider signing it. Let’s hope that Congressman Polis might note the massive support growing to repeal HVCC and help out the struggling property owners in his district by working to support HR 3044.

Also, reportedly the U.S. Justice Department is reviewing claims that the HVCC may pose anti-trust violations in that it restrains trade. Also of interest is that several of the major lenders own their own AMC’s. The issue of an appraisal being portable (which is allowed under the HVCC but restricted by the lenders) also is being looked at. The lack of portability is very detrimental to consumers because if they get offered a better deal from another lender during the loan process, they have to get (and pay for) a new appraisal to switch lenders.

However, there will be stiff opposition from Attorney General Cuomo and many AMC’s in doing away with the HVCC and grassroots support is what is needed.

Chris Neuswanger is a loan originator at Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage-related inquiries from readers.


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