Arizona Republic: New Appraisal Law Creates Unintended Consequences

Arizona Association of Mortgage Brokers -- An article in yesterday's Arizona Republic addresses the possible unintended consequences of the new House Valuation Code of Conduct (HVCC) that went into effect on May 1, 2009.

Mortgage brokers across the country, working together through the National Association of Mortgage Brokers (NAMB), have long been contending that this will ultimately hurt the consumer (see NAMB's position paper).

Now that this law has gone into effect, we would like to hear from mortgage brokers, appraisers, and real estate agents about their view of unintended consequences. What has your experience been?

Please post a comment below.

Comments

[Jon Laird]

The AMCs have consistently assigned appraisers that are not qualified to appraise the particular type of property. We do a lot of manufactured homes. Since May, we have had to laboriously order corrections on every appraisal. In one recent case the AMC sent an appraiser from Mesa, AZ to appraise a home in Ft Mohave, AZ some 5 hours away by car. The appraiser was desperate enough to take the case. The average increase in the cost to the consumer has been $120.

[Chris Bing]

Bottom line: It costs consumers much more in cost to pay for these reports. I have had 10-year relationships with appraisers thrown away so that the lender can pick who appraises for my customers. What used to cost $300-350 now costs $450-550 on average, and even worse is the fact that you can't pick appraisers who specialize in particular areas. The lender now does this, resulting in cases such as an appraiser who lives in Anthem and specializes in his immediate area, being assigned to do reports on historic homes in Encanto. Doesn't work.

This HVCC ruling is garbage and needs to be repealed. Just like everything that supposedly protects the consumer, it BACKFIRES and now hurts the consumer, end of story.

If lenders are so worried about bad appraisals, simply review the submitted appraisals in further detail for accuracy. Don't like them? Don't use them. More bureaucratic BS.

[Tim Gilker]

My experience has been that appraisers are able to work for multiple HVCC companies all at the same time in order to obtain an overload of business which has caused poor quality workmanship in appraisal reports. Further, the HVCC management companies are apparently not licensed as appraisers whatsoever, thus, are unable to effectively manage the quality of the appraisal reports provided. Overall, appraisers are using the new law to their advantage, and certainly at the customer's expense.

[A Battin]

As a mortgage processor, it is very important that I deal with competent professionals in order to do my job properly. I chose the appraisers I worked with on a daily basis because I trusted their expertise and their ability to provide the fairest appraisal for my borrowers. Now I am getting less than adequate appraisals and unable to explain to customers what exactly they just spent $400+ on. This law is really only hurting the borrowers, and will continue to do so.

[HOWARD SPLETT]

amc appraisers are not qualified to appraise anything in maricopa county. the increase to the consumer is far more than 120.00 the hvcc guidelines have forced the average consumer to purchase a home through the fha because we can use our own appraiser thus resulting in 1.75% extra cost to the file no just a 100 dollars.
lets get real a man in new york has no idea what happens in arizona

[Michael Aldridge]

My experience with HVCC is that it extends the loan process from my normal 15 to 20 days to refinance a home into an excess of 45 days. A recent appraisal I ordered took 21 days to receive from the day it was ordered. In the normal course of business I would have already closed the loan inside of 21 days. HVCC does nothing for the consumer other than extending the time it takes to get a loan, increasing cost due to longer lock periods and frustrating the client, broker, lender due to the poor service and performance received by AMC's "appraisal management companies". These AMC's that are supposed to protect the consumer by keeping undue influence away from appraisers are getting fat by charging appraisers up to $100 to join their AMC's as well as paying the appraisers a below market rate for their work and over charging the client by at least $55 per file based on the normal cost of an appraisal in our market. Do the math, if you are an AMC and you sign up 10,000 appraisers dying for work you just cashed in on a cool $1,000,000 not to mention the extra $55 per file and paying the actual appraiser less.. Do you think Cuomo really thought through this before strong arming Fannie and Freddie? The answer is clear, open a newspaper in any city in the U.S. or Google HVCC and you will see an article referring to the problems with HVCC.

[Scott Gaffney]

I can remember the old days, that some people are trying to forget, when the appraisal cost was $350.00. Now it is $450. with the additional $100. for review and administration costs. Also, I would ask you to remember when the appraisal review fee was incorporated in the underwriting fee, not just an additional fee to the borrower.

Recently I needed an appraisal and had to wait four days for the appraiser to visit the property. When he got to the property, he said I am not qualified to do this appraisal, the house is too big. Had to wait another four days for another appraiser. As brokers should we know the quality and qualifications of individual appraisers? I would think so after over 25 years of brokering loans.

[Peter Kwee]

I recently had a Non-Owner Occupied loan in underwriting that took more than 3 months to process, and the first appraisal was "too old", so a second appraisal had to be ordered via the Lender as it was post May 1 2009. Client was not happy to have to pay for another appraisal, and was very upset when she found out that the second appraisal was going to cost her $600 vs the first one that I ordered at a fee of $450. She asked me why there is such a big difference in appraisal fees between the two appraisals as the work load is the same. My only answer that I could give to her was that when I order an appraisal from appraisers that I have done business with for 10 years, I have shopped and negotiated the lowest rate from reliable appraisers I have worked with in the past. Whereas post May 1 2009, I was not allowed to order appraisals any more, and the lender had to order it, and the lender doesn't care how much it cost the borrower as the lender had no relationship with the borrower, therefore, the client had to pay an extra 33% for a similar appraisal when it was ordered by the Lender.
In this instance, the client actually had a comparison to go with as the client had to pay for two identical appraisals done 3 month apart.

[Jim Garth]

The short story is that this law that had the good intention of protecting consumers, is instead hurting consumers. At the very best it is costing borrowers more for the loan appraisal and extending the time it takes to get their mortgage loan processed and funded. At worst it is wreaking havoc on the real estate market itself by lowering property values, killing deals, destroying long established business relationships, and undermining long established credible professional patterns of business.

[Fred Shaylor]

Being a small mortgage in Northern Arizona you can imagine our surprise when a local Realtor called and asked why we had ordered an appraisal from an appraiser in Florida, who called her and said she needed to get comps for them to do the appraisal! And then there is appraiser from the Phoenix area who can't complete the forms correctly and then the comps prove her wrong on the appraisal. I understand that AMC's will put the appraisal out for bid on the internet. Is it true that appraisers must live in the area of the appraisal and be knowledgeable with the area?

[Brian Yampolsky]

I was going to add my "two cents", but it seems that all the comments I have read follow the same line....increased expense for consumers, longer closings/turn times, lower quality appraisals, reduced options for my clients and added frustration on all levels. The most memorable experience I had was when I tried to order an appraisal through the lender/AMC for my client who lives in Colorado. My client asked me if I would mind meeting the appraiser at the house since he was in CO. I attempted to meet the appraiser at the house at 4:10pm for a 4:00 appointment. When I arrived and found the appraiser wasn't there, I called him on his cell and he said he couldn't wait for me, had to go to his next appointment and couldn't reschedule me. He said he only allows 10 minutes to inspect the property as he has to do twice as many appraisals in order to make the same amount of money (since the AMC's are paying him less). Once we eventually received the appraisal, it came in at $460k on a house that we all expected to come in at $600k. I cannot recall a lower level of customer service experience in my 17 years as a mortgage broker. The government has it's place and it is not in small business.

[Henry W. Bried]

This particular law/regulation is in my opinion a knee jerk reaction by government persons who have probably NEVER worked for a profit company and have NO idea what the effect of their action is. Further they do NOT care. The real problem with this approach is the the people who are most affected lose line of sight and have absolutely NO control over whether the person doing the appraisal is MAI qualified or some ex street merchant looking for something better to earn money. Summary, No job training or qualifications specified for the appraisal position, NO accountability and a lazie faire attitude on the part of the organizations doing the work.
Significantly less money that the qualified MAI appraiser can earn. There will be significant delay in the lending process and competitive rate locks lost due to unaccountable delays. This is a STEP backward in life

[Alice Franco-Anderson]

Northern Arizona says we feel your pain. We have a few very good appraisers who are NOW mostly unemployed because appraisal management companies send unqualified and unprepared appraisers that are being paid 1/2 what it takes to do an appraisal "on the mountain." One appraiser that was inflicted on me as a mortgage broker was not even a member of local MLS - so he was trying to get his comps from a real estate agent and the appraiser lives in the valley - more than 3 hours from the subject property.....and this is supposed to be good for the consumer? NOT - we ended up having to get a new appraisal...and that's just one experience.

This policy is good for friends of politicians that needed work....they now own appraisal management companies. A previous commenter said the management companies are not qualified - I agree. They have clerks "checking" the appraisals. One of my lenders has entered into contract with a company that agreed to do appraisals for $325.00 each. We all know they can't do it....but they skim from the top and try to find an appraiser that is hungry and desperate enough to settle for the $200.00 left after they skim. And we get what he has been paid to do......JUNK!! The lender has to do appraisal review because they can't trust the work they're getting. Meanwhile, deals die.

So what does Cuomo of New York state have on Fannie Mae and Freddie Mac execs and politicians that they agreed to this outrage against consumers? It's not like they don't know what this is doing to the market. What would have been exposed if they had not agreed to this blackmail policy? No one ever thought it would be a good thing, they knew from the get go it would make a bad market even worse. And don't we in the business already know what dirt would have been exposed? Truth will eventually out, but we will be stuck with this bun-cover policy for years and years. Why? Because they have to blame brokers and appraisers for the mess THEY made and pay off banks to keep quiet and pretend to be open for business. Heaven forbid that America find out about the years of grand theft and larceny that has been perpetrated at the top. Meanwhile folks at the bottom pay. I appreciate this newspaper trying to bring attention to this mess, but I have no illusions that the responsible parties will step up and take the blame. They will play the blame game until they die and our economy dies too.

[David Krushinsky]

There was obviously a big problem with over-inflated appraisals nationwide in the mortgage industry. Every industry has individuals who compromise their morals for money and the mortgage industry is no different. However, I don’t think that HVCC is the answer. The mortgage industry has already put many fraud guards that protect the consumer, lender and investors from over-inflated appraisals. Most wholesale lenders are requiring automated valuations, desk reviews and field reviews of the existing appraisal. The HVCC restricts communication between two parties that work together. There are enough comments here to see what is happening and who is really being hurt. The Appraisal Management Companies are currently allowed to be owned by the same bank that orders the HVCC. Seems to me the only people benefiting from the HVCC are the politicians being bribed by the banking industry.

[Bob Gillespie]

After 40 years in the biz, it has never been more apparent that the only thing that is constant is change. HVCC is the rule of the day. I don't agree with it, nor is the final version reflective of what was intended; that being getting CW (BofA), WF and WAMU out of the AMC business. After all, as a last defiant act, Dubya quashed the HVCC requirement that these massive offenders, the reason for the change, divest themselves of these entities. That's the scam we have to deal with.

Complain all you will about the appraisers having to do twice the work to make the same money. I'm based in Maricopa and my average loan today is under $80,000, in spite of the fact that we are licensed and active in CA as well as AZ. That's down from $260,000 two years ago. Do the math.

We have been fortunate in that we have only had to order three appraisals under HVCC. Two purchase transactions at a cost of $360 and $370 (less than our hand picked appraisers usual $400) both took a few extra days but both came it at sale price. Our San Diego refi came in at $500,000 against our best estimate of $550,000. Still enough to get the deal done. So to this point, I have no issues.

AS to the effect on the consumer, that is where the travisty begins. We have converted the majority of our Pinal County conventional borrowers to USDA loans, even with 20% down. This, as a result of most bank/sellers requiring the buyer to waive the appraisal requirement if there are multiple offers on the property. Some have agreed, some have not.

If we can select the appraiser, as we can with FHA, VA & USDA, we are confident with their initial estimate of value. Yes, I have to go inspect the property for a fair assessment regarding condition, but that's a small inconvenience to get my borrowers offer accepted. And yes, the borrower has to finance the up front 2% USDA Guarantee Fee, but they understand it's a cost of doing business if they want the property.

I expect the pendulum with swing back eventually: too many unhappy people with lobbyist for it not too. In the mean time, use the skills you have developed over the years to help your clients achieve their goals. Of course, if you lack those skill, don't let the door .... well, you know the rest.

[Matt Howard]

DOWN with Cuomo! I mean this is quite a fiasco and it's not just me the whining mortgage broker saying this. Contrary to news reports I absolutely care about my customers and am only satisified if they are with the process. HVCC has become a HUGE problem. The better appraisers (like mine) have gotten the shaft, appraisals are taking forever to get done and costing $100-150 more...we're blowing 30 day locks which compounds the issue and costs the consumer with higher monthly payments. It's absurd! HVCC doesn't work-Cuomo is an idiot and people should complain and send letters directly to his home.

[Lynne Ramey]

Thanks to the bureaucratic nonsense that has been imposed with this new law I lost a transaction.

Nice gated, waterfront community with a unit that overlooks a park in Scottsdale. The lender was USAA and the appraiser from Peoria. Sales price $205,000.

The appraiser called me and indicated there were no comps in the sudivision so he used a conversion project for all his comps that is loaded with investor repos.

I just closed a condo not more than a mile away in a much lesser community, non gated, no garage for $202,000.

The appraisal came in at $158,000. The buyer also felt the appraisal was too low. She had lived in this subdivision before and felt the value was there. In subsequent conversations with other appraisers and friends, however, she lost confidence in the system and decided to walk away from the transaction rather than change lenders and start over.

It's doubtful she will purchase although fully qualified and a savvy buyer.

So much for stimulating the economy. I call it "stiffiling the economy".

[Mike Roberts]

This HVCC debacle is atrocious. There are absolutely no benefits to consumers, banks, or end investors. Consumers pay 25-75% more for the appraisal. Banks and investors now get appraisals with higher incidents or second rate appraiser errors. The loan process has been extended up to 2 weeks. (depending on the ineptness of the Appraisal Management Company) Even the portability (ability to have another lender use a previous appraisal) has been a sham. Whomever put this into effect clearly did not think this through or had a secondary agenda.

[Joel Hutton]

The HVCC rule is a complete sham! We know that the banks are only paying the appraiser around $250 for the appraisal and are charging the borrower $450!!!! This was just a way to generate revenue for the banks and Cuomo is in their hip pockets, so..... It is clear to us that Nobama is not going to do anything about it as he is a crook too!! It has made our lives(not to mention our poor realtors who are losing deals daily as a result of this) miserable! It is also clear that the banks want the brokers out of the lending business and this is just another way to do it!!

[Todd Abelson]

Like "HMOs" for Appraisers, if a qualified, experienced provider refuses to work for less-than-fair-market fees the administrator (AMC) turns to lower-cost alternatives and the results often suffer. Besides, who's screening and certifying the AMC's? HVCC has only acted to make the process more cumbersome AND expensive while reducing responsiveness AND lowering quality in the process. "We're with the government and we're here to help!"

[Bob Gillespie]

Would you like some cheese with that whine????

Each of you worrying about you fave appraisers income dropping and Realtors losing deals because of HVCC. Yeah, life sucks in the biz today. That said, you should concentrate on your borrower/clients dilema, followed by the impact on your livelyhood and family.

Our function today (as it always should have been) is to be a problem solver and mortgage planner for our borrowers. If you are still stuck in 2006 where all you had to do was take an app and cash the check, perhaps it's time to move on. Within a few short days, you can have your new mantra down to a science .... Welcome to WalMart. I'd say work on 'you want fries with that?' but more appropriately today it's 'can you afford fries with that?', which I'm afraid you can't master.

How many of you ask your borrower 'are you a Veteran?'. You would be amazed at the percentages. With the utter lack of MI available in the market today, even sales at $430,000 can qualify for FHA loan limits with 20% down. Neither loan is subject to HVCC. Nor are a number of ARM program still offered today. Yes, these are stop gap measures. But think of the accolades from the agent and borrower when you have solved the problem in the short term. As I've stated previously, the pendulum will swing back. So you get to close a loan today and refi it when the worm turns.

If all of this is too confusing for you originators, feel free to refer your book of business to me as you exit. For any agents reading this, if your 'Mortgage Guy or Gal' hasn't already figured this out, perhaps it's time for a new relationship.

[Frank Ceizyk]

Sent this to my entire client database today. Hope it helps drive home the point.

Noticed one post saying we're whining. Couldn't disagree more: HVCC is not good for MORTGAGE CONSUMERS any way you slice it. We weren't vocal as an industry educating consumers about the dangers of Option ARMs and subprime mortgages when they were being sold unnecessarily and unwisely during the boom years. Now we have an appraisal guideline that hurts CONSUMER HOUSEHOLD WEALTH, and we're whining--if you don't want to fight for your client's best interests fine--but there are many of us originators who see this as a big problem that needs to be solved in the best interest of our agents and borrowers.

The Home Valuation Killer Code: Designed So Mortgage Banks Can Hold You Hostage?

I know, I know, the title is melodramatic. I mentioned the HVCC--Home Valuation Code of Conduct in the Mortgage Minute a few weeks ago, but you may not be aware of just how devastating the effect has been on home values thus far.

A little backround first:
A few years ago, Andy Cuomo, Attorney General of New York State sued a large appraisal management company (AMC) First American for producing nearly 260,000 value inflated appraisals for Washington Mutual (big bank). His vendetta against these two plaintiffs turned into a vendetta against the entire mortgage industry resulting in the HVCC being heaped upon anyone trying to get a conventional mortgage loan.

In May 1st of this year, the HVCC became mandatory for all mortgage lenders--and the new system is wreaking havoc with already troubled mortgage and real estate environment.

As a result of Mr. Cuomo's misguided attempts to solve the problem, he has created a national replica of the exact same structure that resulted in over 260,000 inflated appraisals in the state of New York. Large Banks contracted or created their own "AMCs" or Appraisal Management Companies" and on a blind rotation basis pick any appraiser signed up. So....big banks (like Washington Mutual was) now order appraisals from big AMCS (like First American effectively was) and the appraisers charged with establishing a fair market value for your house, now work for about $120/appraisal, while the bank/AMC nets the difference. Good plan Mr. Cuomo! Here are the the results so far:

*Your ability to choose an appraiser you know and trust in the past has been eliminated--it is a random system, that is different for every lender. You may have an appraisal management company based in Florida reviewing an appraisal done by someone who has been licensed for maybe a year or two, or doesn't know that choosing all distressed foreclosed home in a 1 mile square radius is not an accurate way to determine value.
*The lower appraisals have a more sinister effect: your household net worth is plummeting as values are artificially dropping due to incompetent, inexperienced appraisers, managed by business people who may or may not know anything about mortgage lending.
*Want to argue an appraised value? Good luck. You can't speak to the appraiser, your realtor can't speak to the appraiser, and your mortgage consultant can't talk to the appraiser. You can file your complaint with the AMC folks--but see above: who knows if they even understand basic appraisal fundamentals.

HOW THIS POLICY HOLDS YOU HOSTAGE IF YOU ARE GETTING A MORTGAGE:
*In the past, if you were bait and switched or receiving less than acceptable service or interest rate you could just transfer your appraisal to a new lender. Because all lenders set up their own AMCs (primarily as an additional guaranteed, non refundable, non-rebuttable income source) guess what? The appraisal is worthless! Why? Because each lender has set up internal guidelines that say they will only accept the appraisal from their own AMC!!! That means you have to pay $460 for a new spin on the appraisal roulette wheel to move your loan to a new lender. Talk about coercion! Talk about eliminating customer choice!

There is hope. A bipartisan bill has been introduced calling for an 18 month moratorium on the HVCC to work out these problems. Please email/call/yell at the folks in the links below if you are as disgusted as I am.

http://www.azampblog.org/2009/07/hvcc-call-to-action-from-namb.html