This morning I attended Washington Association of Mortgage Professionals (WAMB) meeting in Bellevue to learn more about the Home Valuation Code of Conduct (HVCC) which will dramatically impact conventional appraisals. It was a somber room of fellow mortgage brokers and correspondent lenders along with the panel of various representatives from the industry.
In a nutshell, mortgage originators (if paid commission) will no longer have contact with appraisers for conventional mortgages. Appraisals will be ordered via an appraisal management company–oddly similar to what Washington Mutual used before New York Attorney General Cuomo investigated. Although this is effective for loans delivered to Fannie/Freddie on May 1, 2009 or later, lenders will adopt the Code well in advance in order to be able to deliver compliant loans.
Lisa Goldsmith from Amtrust Bank discussed how they’re going to comply with HVCC beginning around April. Amtrust will treat mortgage brokers and correspondent lenders the same.
- When the loan is registered with Amtrust, they will provide an AVM (an unreliable estimation of value IMO). This is the only chance the mortgage originator has to decide whether or not they should proceed with the appraisal order.
- The order is placed with an Appraisal Management Company (AMC).
- A copy of the appraisal is sent to both the borrower and the mortgage originator.
The mortgage broker will have no idea who the appraiser is until the appraisal is delivered. Correspondent lenders may be able to order appraisals as long as they meet the HVCC (and I’m sure they’re a huge risk of buy-backs if correspondents opt for this route). In fact, mortgage originators (if paid commission) may not communicate with the appraiser.
A big issue is portability of the appraisal. If for some reason, a broker starts with a lender, like Amtrust, and then decides during the process they want to switch to another lender, Amtrust holds the appraisal. The consumer has all ready shelled out $400-$500 to one lender. It will be up to Amtrust to release the appraisal (if this is even acceptable) or another appraisal may need to be issued if the loan is switched. The power is not with the consumer and it’s not with the mortgage broker.
Quality is a huge concern as well. One mortgage originator stated that he currently has an issue with an appraisal that was provided via an AMC for a waterfront single family residence. What he received was an appraisal with 6 comparable properties–4 of them were condos! Second appraisals can be requested when it’s a question of quality–they cannot be done for “value shopping”.
It gets better…Fannie Mae amended guidelines earlier this year allowing appraisal management companies to be owned by lenders!
“The lender’s ownership of or affiliation with an appraisal management company is no longer restricted. However, any appraisal management company that provides the lender with an appraisal must adopt written policies and procedures implementing the revised Code.”
From Appraisal Press:
“In it’s current form, the HVCC discriminates against appraisers by (a) effectively requiring lenders to engage appraisers through appraisal management companies, which retain 40-50% of the fees paid by lenders, reduce competition as a result of industry consolidation, and deteriorate appraisal quality by forcing veteran appraisers from the workforce, and (b) creating an artificial preference for automated valuation models, which will result in fewer appraisals, reduced market transparency and the danger of increased in-house lender abuses. The HVCC will deprive consumers of their right to obtain independent, quality appraisals.
So let me get this straight… banks and lenders can own or have ownership interest in appraisal management companies. The AMCs (possibly owned by banks/lenders) can select which appraisers make their list AND they will reduce the appraisers incomes in an all ready challenging market. Who regulates the AMCs?
NAMB’s fighting HVCC and I don’t always support all of NAMBs views…I have to agree with them here. Once again, instead of dealing with the offenders, industries are in the process of being punished wiped out.