Why Fighting the HVCC Matters
Brokers likely know how they’re cut from the appraisal process — but what of AMCs’ role?
By J. Daniel Neumann, president, J. Daniel Neumann Appraisals Inc.
Editor’s note: At press time, the U.S. House Committee on Financial Services had yet to discuss House
resolution No. 3044, which had called for an 18-month
moratorium on the Home Valuation Code of Conduct.
U.S. Reps. Travis Childers [D-Miss.] and Gary Miller
[R-Calif.] introduced the bill this past June 25, and it
was referred to committee the same day.
If you’re a mortgage broker wondering why it’s taking so long to get an appraisal for a refinance or
sales transaction, read on. If not, count
Since the adoption of the Home Valuation Code of Conduct (HVCC) on May
1, lenders have turned to appraisal-man-agement companies (AMCs) to allow
compliance with new regulations. The
HVCC is a Fannie Mae and Freddie Mac
requirement for conventional loans. It
came about after an agreement between
the former government-sponsored enterprises, now under conservatorship, and
New York Attorney General Andrew M.
Cuomo to help stave off overvaluation and
improper conduct between mortgage brokers and appraisers.
Among other things, the code establishes a barrier preventing direct contact
between mortgage originators and appraisers. This has led to a growth in the
number of AMCs, which are entities that
oversee a network of certified or licensed,
third-party appraisers who work on an
independent-contract basis. Lenders are
not required to use an AMC for HVCC-compliant appraisals, and the code does
permit some affiliation between an AMC
Widespread use of AMCs, however, has
resulted in many instances of slow service,
unrealistically low valuations and poor
overall appraisal quality. It also appears
that many lenders determined that the
easy way to comply with the new regulation was to turn over all of their appraisal
ordering and review to an AMC.
Because of this, already-serious problems appear to be worsening.
By learning about the issues and voicing their opinions, mortgage brokers can
help protect their livelihood. If they don’t,
the HVCC could permanently impair the
lending process by unnecessarily lengthening processing times for appraisals.
20 Scotsman Guide | Residential |
scotsmanguide.com | August 2009
particular lender or with an underwriter’s
particular expectations in an appraisal report. Good working relationships evolved
through prompt service and processing
most loans successfully from a valuation
point of view.
This setup worked well for the most
part, though it did allow some abuses by
unscrupulous appraisers and over-ag-gressive mortgage brokers. These brokers
threatened to withhold future appraisal
business if the appraisal didn’t meet their
minimum desired values or if they uncovered serious property deficiencies that
might disqualify a property from most financing options.
These rare occasions of abuse, combined with the subprime (aka, nonprime)
meltdown and predatory-lending practices
in some areas, in part led to the adoption
of the HVCC.
The advent of the valuation code and
the emergence of AMCs transformed the
appraisal process. In a number of cases, the
AMC acts as a firewall between the loan-production staff and the appraiser. A panel
of appraisers is assembled — presumably
with the input of lender-clients — and
lenders place orders with the AMC.
The AMC forwards the orders to appraisers on some sort of rotating basis under which lenders have no direct
input as to who performs the appraisals.
Except in the case of a sale, no data are
provided about the loan amount, desired
value, etc. This helps ensure an unbiased
appraisal product. Completed appraisals
are funneled back through the AMC to
Follow-up requests also are sent to the
AMC and forwarded to the appraiser with
the subsequent alterations sent through
the same channels in reverse. While the
potential for delay is obvious, this type of
system only lengthens the process by a few
days at most.
The appraisal process
Before the HVCC, independent appraisers
developed a client list of companies that
appreciated their work. Through months
and years of relationship-building, an
appraiser developed a familiarity with a
J. Daniel Neumann is
president of J. Daniel Neumann Appraisals Inc. He
has been a residential appraiser for 22 years and has
appraised nearly 10,000
properties. Reach him at
Another AMC business model, however,
appears to create intrinsic inefficiencies
in the system and lengthen turnaround
times without adding appreciable value to
the process. These could lead to borrowers
waiting longer for appraisals or the need to
pay for a second appraisal.
In this model, appraisers receive their
appraisal orders from the AMC and set
up an appointment. They then complete
the appraisal per the AMC’s appraisal
guidelines and send in the report. The
appraisal then goes back to the appraiser
to make corrections based on the AMC’s
After corrections, the appraiser resends
the report to the AMC. The appraisal then
goes back to the appraiser again, this time
to make corrections based on the lender’s
guidelines. After the second round of corrections, the appraiser again sends the report back to the AMC.
Delays and complications pile up
throughout this process, from appraisal
orders sitting in queues before being assigned, to AMCs calling appraisers for
price quotes or estimated turn times, to
back-and-forth review processes.
Other complications also lurk, often
because AMCs can attempt to develop
universal appraisal models that apply exhaustive and often unnecessary requirements. Included among these might be:
■ Interior photos of every room;
■ Current list prices of all comparables;
■ Prior list prices of all comparables;
■ Days on market for all comparables;
■ Statistical market data over and above
that required in the 1004MC Market
Conditions Addendum to the Appraisal
■ A minimum of five comparables per ap-
praisal, sometimes including listings; and
■ Extensive commentary and inclu-
sions over and above Fannie and Freddie
Illustration: Dennis Wunsch
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