HVCC Wreaks Appraisal Havoc

Some inside baseball....

On May 1, 2009, the Home Valuation Code of Conduct became law as a regulatory mechanism on the hiring and management of the appraisal process.

Since many feel, inaccurately, that appraisers are central to the fraud associated with the Housing Crisis, the government, led by New York Attorney General Andrew Cuomo, D-NY, has implemented the HVCC. Although no governmental official is apparently interested in investigating the role of many of their own, inclusive of Chris Dodd, D-CT, with his sweetheart loan from Countrywide's Angelo Mozillo and/or Barney Frank, D-MA, who was the regulator of Fannie and Freddie while accepting campaign contributions from both, in the housing crisis, they did determine that legislation regulating appraisers was in order. Of course, as you may imagine, there already exists regulatory bodies that can examine appraisers conduct and the quality of the work through the Uniform Standards of Appraisal Practice. As is the case with Realtors and Brokers, licenses can be suspended or revoked and fines can be imposed.

The HVCC mandates that for an appraisal on a conventional loan, the appraisal must be ordered through a third party, referred to as Appraisal Management Companies, which are unregulated. The companies often receive orders from the lender and then employ an appraiser who has registered with the company to perform the appraisal. The fees are generally split, thus cutting the appraisers fee in half.

Beyond that, previous relationships the appraiser has worked hard to obtain and cultivate are lost. Needless to say, this legislation impacted the revenues of most appraisers as conventional appraisals now make up about 40% of the market. In addition, fees obtained by the appraiser for those orders they are fortunate enough to receive are halved.

Due primarily to having to meet strict time constraints, the quality of work delivered by appraisers under this system is diminished. With appraisers looking to recoup lost revenues, appraisers may be inclined to accept work in areas they are not particularly familiar with and in striving to meet time deadlines, they may not perform as much research as they commonly do.

Miller Samuel CEO Jonathan Miller speaks with Brian Sullivan and Dagan McDowell of the FOX Business Network about the HVCC. Take a listen:



The Orlando Sentinel recently presented an article outlining many of the issue swirling around the HVCC.

When an appraiser signs a report, that appraiser is responsible for its contents and must be able to defend the indicated value of the subject. If challenged by the current appraisal regulatory bodies, penalties, inclusive of loss of license (and ability to work in the business) are possible.

As usual, the government has infiltrated a business environment and caused more problems than they set out to correct. Whose to say the Appraisal Management Companies will not pressure appraisers for a value?

Free Market Capitalism, one where government regulation does not prohibit a business owner from doing business with his clients, is the best path to prosperity. Prosperity seems to be hiding these days, and I know why.