May 1, 2009, the official date the HVCC went into effect, has come and gone. The Home Valuation Code of Conduct has appraisers, lenders, brokers and many others in the industry scared. How has the HVCC affected the industry? It depends on who you are. I want to share with all my readers what I have experienced with the HVCC so far and how it has affected various parties in the transaction process.
I have been hearing a lot of complaints from borrowers about their experiences with the loan process. Borrowers have been frustrated by higher fees on their closing statements. Since many lenders have been using appraisal management companies (AMCs) to order their appraisals, the appraisal cost to the borrower has gone up. The appraisal costs have gone up due to the fact that the management company has to earn a profit from each appraisal. Essentially what happens is the borrower pays more for the appraisal, the appraiser gets paid less for the appraisal, and the lender does not get to choose their appraiser. The HVCC has made it illegal for the originator of the loan to order the appraisal. In order to be HVCC compliant, many lenders are using AMCs.
A common misconception is that lenders have to use AMCs to order their appraisals. AMCs are only one option. They may also use the Mercury Network which is HVCC compliant and there are no fee splits with a third party such as an AMC. Some lenders have an appraisal department that handles the ordering of appraisals and the appraisers on their panel only communicate with those in the appraisal department.
While there are a lot of drawbacks to the HVCC, it is still a new law and its full impact is yet to be felt. The main reason it was implemented was to prevent pressure from lenders and brokers on appraisers to appraise the properties at a certain value. Some argue that the pressure will still be placed on the appraisers by the AMCs which are not regulated. I have heard other appraisers say they have experienced this but I have not personally been pressured by an AMC to hit a particular number.
From an appraiser's standpoint, the HVCC does have a negative impact on me since most lenders are now using AMCs which pay significantly less than full fee to appraisers. I had done some work in years past for AMCs for a lower, but reasonable fee. Most AMCs today are paying far below full fee, which is unfortunate. On top of that borrowers are paying well above full fee for their appraisal. However, I am an optimist and I still see a future for myself and others in the mortgage & real estate industry. As with anything else in life, nothing is perfect and as time goes on, I believe the flaws with the HVCC (or the whole HVCC itself!) will be corrected. For right now, the HVCC is a fact of life and we all have to deal with it.