SF Mortgage Spot

As many of you know, New York Attorney General Andrew Cuomo has set out guidelines for new appraisal standards, nicknamed HVCC (Home Valuation Code of Conduct).  Fannie Mae and Freddie Mac have chosen to follow these guildelines and now we are all stuck with the result:  a huge mess that is hurting consumers and doing nothing to stablize the housing market!

The guidelines require all appraisals to be ordered by "disinterested third parties", also known as AMC's (Appraisal Management Companies).  Six or seven huge, national entities (and remember, real estate is local), have been formed as AMC's and they have 99% of market share at this time.

Whereas mortgage lenders formerly could order our own appraisals, we now need to order through the AMC's.  Whereas our appraisers collected about $350 for a single family home appraisal, the AMC now collects about the same $350, but keeps 30% of the fee as its profit, and pays the appraisal 70% of that fee.   That means AMC's are hiring appraisers who are willing to churn out appraisals for $245 each!  Those appraisers tend to be less experienced and less capable than the appraisers we formerly worked with and more likely than not, they are from out of town. In San Francisco, that is a big deal, because our properties not cookie-cutter tract homes, but a true mix of styles and vintages.  In San Francisco, values can and do change from one block to another, from one view to another, from one vintage to another.  

These AMC appraisers are of course inundated with business and are unable to devote the required time to each appraisal.  The results have been as we predicted:  the quality of the appraisals has diminished, the reports take a lot longer, there is more red tape, and consumers often need to pay for more than one appraisal before an accurate job is done --  if then. 

Many appraisers who won't or can't work for the reduced fees have been put out of business, or they are doing "comp searches" for us for $50 per job.

Because the AMC appraisers get paid regardless of the quality of the work, they are underappraising many homes because they cannot or will not take the time to do a proper job and find the best comps.  Or, they are sending out trainees who are underappraising the homes due to lack of experience and knowledge of specific neighborhoods.

If a client wants or needs to refinance and the appraised value comes in too low, he has no choice but to pay for a second, or even a third, appraisal. 

Another problem is that appraisals are now taking much longer to complete, and we cannot always lock in a rate until the appraised value is known.  That's because the value affects the "loan to value" ratio which in turn affects interest rates ( an 80% loan to value mortgage costs the borrower more than a 60% loan to value mortgage.  I would hate to quote a client one rate, believing the loan to value is low, and then have to turn around and tell the client his rate will be higher than what I first quoted, because the loan to value ratio is higher.  Sometimes the rate may be so much higher than a refinance is not even viable.)  While we are waiting to learn the appraised value so we will know the loan to value ratio, if rates go up, the consumer loses because we were not able to lock in sooner.

The end result is consumers are paying more for inaccurate appraisals delivered more slowly than ever.

The idea behind the guidelines (called HVCC) was good:  to prevent mortgage fraud and inflated appraisals.  However, lenders have always had the power to review appraisals by checking comps themselves or by ordering review appraisals.  Historically, this was often done by responsible lenders.  That would certainly make a lot more sense than putting small business owners out of business and causing home buyers and refinancers added expenses and worries.

Thousands of real estate industry professionals are gathering forces to repeal the HVCC Guidelines and I am askingyou to sign the petition, especially if you have been negatively impacted:

Please visit:  www.hvccpetition.com and let your voice be heard!