(10/21/2010) Tolling the death knell for the Home Valuation Code of Conduct (HVCC), the
Federal Reserve Board recently announced final regulatory orders for real
estate appraisers.
Appraisers have been heavily pressured for
years -- before, during and after the boom -- to do the home valuation
bidding of mortgage lenders, real estate agents, even buyers, sellers and refinancing homeowners who needed home values based on
risky assumptions rather than true worth factors.
Bowing to pressure to over-value homes was one of the factors
contributing the housing market crash that spawned the greatest
recession since the Great Depression.
Amid howls from appraisers and other real estate industry quarters,
the Federal Housing Finance Agency (FHFA) implemented HVCC in May 2009, after the housing
bust, purportedly to improve the independence of appraisers by prohibiting
lenders and third parties from influencing appraisers' work.
Unfortunately, the code of conduct cut deeply into appraisers' income
and, as the housing market floundered, it worsened working conditions for
honest, hard working appraisers, who have since been looking
forward to new regulations.
Appraisers deemed the HVCC as a bogus effort to clean up
the industry, because it didn't focus enough on appraiser competency; it
undercut professional relationships between honest appraisers and reputable
mortgage professionals; it increased the influence of bottom-line oriented
appraisal management companies; and it
encouraged the use of glossed-over appraisals that didn't reflect the true
value of a property.
In advance of the new interim rules, Fannie Mae, working FHFA and Freddie Mac released its
own Appraiser Independence Requirements -- new rules for mortgage companies
selling loans to the government-sponsored enterprises -- which also
overwrite HVCC rules.
Fannie's rules are in line with the new federal regulations, but all
conventional, single-family mortgage loans must still be in compliance with
HVCC until the release of the final Federal Reserve rules, effective April
1, 2011. A public comment period on the new rules ends in December, but the
interim rules will likely take hold with few changes.
The Fed's interim final rule:
• Prohibits coercion and other similar actions designed to cause
appraisers to base the appraised value of properties on factors other than
their independent judgment.
• Prohibits appraisers and appraisal management companies hired by
lenders from having financial or other interests in the properties or the
credit transactions.
• Prohibits creditors from extending credit based on appraisals if
they know beforehand of violations involving appraiser coercion or conflicts
of interest, unless the creditors determine that the values of the
properties are not materially misstated.
• Requires that creditors or settlement service providers that have
information about appraiser misconduct file reports with the appropriate
state licensing authorities.
• Requires the payment of reasonable and customary compensation to
appraisers who are not employees of the creditors or of the appraisal
management companies hired by the creditors.
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