Why Are Mortgage Brokers Fighting Against HVCC?
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The Home Valuation Code of Conduct, HVCC, has been under fire by groups like the National Association of Mortgage Brokers, NAMB, since it’s inception. What is all the fuss about?
HVCC was created to provide protection for the consumer from undue influence being placed on appraisers to provide an inflated home value during the mortgage process. Loan originators would tell the appraiser the value they were looking for when an appraisal was ordered. Very often, it was a problem for the appraiser if the value determined by the appraiser was lower than the requested value by the originator.
Appraisers frequently relied on a relatively small set of banks and brokers to provide them with work. If values kept coming in lower than the value desired by the originators, how long do you think it would take for the originators to move the business to someone who would be more “flexible” with their values.
When the government started examining the causes of the mortgage meltdown, inflated home values were a significant factor.
The appraisers very loudly proclaimed that it was the originators fault. They were right. As an insider, I can say there was a lot of pressure put on appraisers to “make the value”. The HVCC was born.
The concept is that a third party will sit between the person ording the appraisal and the selection of appraiser to perform the work. If the originator did not know who the appraiser would be and was expressly forbidden from interacting with the appraiser then it is obvious that the values would be much closer to a true market value.
Let’s take a quick look at why this is a good thing. An originator “nudges” an appraiser to bring an appraisal in at an artificially high value. The loan gets done and everyone is happy. Right? Not necessarily. What happens if the homeowner decides to refinance or move 2 years later. The value has probably gone down due to market conditions and that drop is seriously magnified by the inflated value used for the previous loan. Now an 85% loan to value is 110% and the homeowner is way underwater in the loan. What do they do now?
In the end, it didn’t help the homeowner at all. The only real beneficiary of this was the originator who got paid a percentage of the higher value. The bank/lender now has a loan against an overvalued asset and the homeowner is just plain up the creek.
Undertand me, there is plenty to say about how the government implemented HVCC. In true government fashion, there are plenty of holes and it favors the big banks. I know, your shocked. What puzzles me is that anyone is taking the complaints of the brokers seriously.
Don’t misunderstand me, there are plenty of good brokers out there – I would say even the majority of the ones complaining about HVCC. The problem as I see it is that they are barking about wanting to control the appraisal process again and masking it with claims of the appraisals costing more or that values on rural properties are not as accurate as they should be. To that I say, how much did it cost all of us to save a few dollars on the cost of an appraisal? What price can you put on losing your home to foreclosure because you can’t refinance or sell it when you lose your job?
In the end, there are a number of ways that HVCC could and should be improved but let’s not forget that HVCC is about appraiser independence first and foremost and to that I say, it’s about time.
Related articles
- FHA Adopts Some HVCC Guidelines – Mortgagee Letter 09-28: Appraiser Independence (appraisalnewsonline.typepad.com)
