HVCC – More BS From Fannie and Freddie
April 25, 2009 
4 Comments
The Home Valuation Code Of Conduct (HVCC) goes into effect May 1st. It’s a law that says real estate appraisers should not be “intimidated, coerced or bribed into coming up with a valuation on a property.” (um, we need a law to tell us that?!)
Fannie Mae and Freddie Mac are now regulating the appraisal business and, with their track record, I don’t think that’s who you want in charge.
Let’s talk about what this means to investors.
First Fannie and Freddie came after mortgage brokers putting the kibosh on most third party originations. Then they came after us real estate investors with the crazy rules on investor loans, LLC’s, stated income and cash out refinances. Now, they’re coming after independent appraisers.
This law requires all appraisers to join Appraisal Management Companies (AMC’s), where they’re forced to give up 40% or more of their income. My favorite appraiser, Chris Shannon, says that the AMC’s are hiring young, inexperienced appraisers who are willing to work for 60% of normal wages. Oh, and guess who owns the AMC’s? An independent third party? Nope, the LENDERS.
It doesn’t take a rocket scientist to figure out what will happen to the quality of appraisals. Not to mention the values on investment properties.
Appraisers are also no longer allowed to have any contact with mortgage brokers. When I ran my mortgage company, I worked with Chris exclusively because he understood our business.
Most of the conventional loans we did were rehab loan takeouts and the lenders *hated* them. They were always cutting our values arbitrarily or denying the loan because of a rapid increase in value. Um, yeah, there’s going to be a rapid increase in value if you’re spending $50-$60K to REHAB a house!
Chris always did a great job of supporting his comps and providing a well-documented rebuttal. That won’t happen anymore. One strike and you’re out, investors.
Also, mortgage brokers can no longer choose the appraiser they want. They’re not even allowed any contact with the appraiser. Only the lender is allowed contact with the appraiser. So, as Chris said, the 20 years that he spent building up his relationships with brokers to get business is now *poof* gone with the wind. It’s now illegal for them to even contact him. This is nuts, guys.
Oh, and since the appraisal won’t be in the mortgage broker’s name, you can’t have it reassigned. If you need to change lenders (for any reason including value issues) you’ll need to get and pay full price for a completely new appraisal! This will increase your costs, delay the loan closing and cause a ton of frustration on all sides. Hope the appraiser that your new lender chooses isn’t too backed up with orders – your earnest money is at risk!
Fannie Mae and Freddie Mac have lost billions of dollars in the last few years, so it’s no wonder they want to manipulate the market and have more control. But is this really the way to do it? By adding a level of bureaucracy and knocking independent appraisers out of the industry?
Here’s a 25 minute call I recorded with Chris Shannon about HVCC. Hear his opinion and how he thinks it will affect YOU!
Be sure and leave a comment and let me know what you think about the HVCC.
Hi Susan. This is unbelievable! Does HVCC apply only to freddie and fannie loans? If you get a loan with a local bank will your appraiser have to be employed by an AMC?
I know, right?! This is for Fannie Freddie loans so all conventional loans. Portfolio lenders don’t have to play these silly reindeer games.
It is all about following the flow of motivations with all parties involved. What motivates “skippy” the appraiser? What motivates the seller? What is motivating us? We have to remain fluid and positive in our thinking and be willing to consistantly and honestly challenge our paradigms and financial goals. Steven Covey says it best, “begin with the end in mind”. There is always more than one way (legally) to get there, in whatever financial vehicle we choose. Personally I think real estate is still the best. If it were easy, everyone would be doing it. Thanks Susan for all of the vital information you provide! The only investors who will survive these extreme changes are those who arm themselves with information, adapt and overcome! You help make that happen in a BIG way!
Is it possible to find out which lenders use the same AMCs and focus our activities toward groups of lenders to avoid those additional costs? When one may decline and another may accept?
Any thought on REITs in this environment?
Hi Susan, this is great. I am not a guru, unless “confusion” has one. Here is how I see this, “Home Valuation CODE OF CONDUCT”, these days when we talk about the autombile industry or Banking industry in reality we are saying GOVERNMENT, since they took everything over, so “CODE OF CONDUCT” becomes an “oxymoron” written by morons. Now here is the “golden egg” they have created. My business moldel is 90% Short Sales 10% REOs. This is just my gut feeling and here is how I came up with it. Tax assessments are 20% low and are done by the government. AMCs are a company within a company (lenders company) which is now owned by the government, so the appraisals will be 20% low. This protects the owner of the lender (the government) because they only loan 80% LTV so with this new system they will be doing 60% LTV. Now if they foreclose they can gain instant 20% equity by giving an accurate appraisal. So my short sale offers will have a BPO that is 20% lower than normal and any REO I look at will have to have an appraisal on it after May 1rst, if not then I will take 20% off of my offer, if they take it great, if they don’t, then they can eat it, not me. I see two things here, first all houses have decreased 20% in value as of May 1, I already recieved a letter from Chase that my value on my home has gone down due to their “internal methods of calculation” on my line of credit. The second thing I see is there is going to be an onslaught of houses on the market, just sitting, and I can wait this out
Rental houses will become more available than lies out of DC. They have created a situation where Portfolio Loans and Private Money Investors will be the new banking industry. With the great information you have given us here, I will be able to defend my offer and protect my investors….thanks again…curtis