Freddie Mac: Home Valuation Code has improved appraisal quality

WASHINGTON – Oct. 20, 2009 – While Realtors and appraisers report widespread problems with the Home Valuation Code of Conduct (HVCC) – new appraisal oversight rules that became effective in May – Freddie Mac said it has seen a tangible improvement in the quality of appraisals.

Speaking at the Mortgage Bankers Association’s (MBA) convention, Patricia McClung, Freddie Mac vice president of offerings management, said that Freddie Mac also runs an automated valuation on each property and compares that number to the value submitted by an appraiser in the field. Since implementation of the HVCC, she says, 15 percent more submitted appraisals closely match the automated ones.

The HVCC, among other things, stopped allowing mortgage brokers and loan officers to directly hire appraisers. The goal was to keep appraising at arm’s length from the people who stand to make money off a deal, to protect homeowners and investors who rely on an unbiased appraisal that does not overstate a home’s value.

To adhere to the HVCC rules, many lenders started relying on appraisal management companies (AMCs) as an easy way to follow the law. The lender could call AMC office staff, order an appraisal, and allow the staff to select and send an appraiser to the property. Use of an AMC kept the lender at arm’s length from the actual appraiser – and out of the regulatory spotlight.

AMCs, however, have been accused of underpaying appraisers and forcing the best appraisers out of the business. The quality of AMC appraisals has also been questioned, and, according to mortgage brokers and real estate agents, the AMCs sometimes send an appraiser to neighborhoods beyond the appraiser’s expertise. As a result, critics say, the appraisals often come in below actual market value.

Ezzard Alves, Fannie’s director of credit risk, said much of the HVCC info circulating is simply a myth. For example, he said at the MBA convention, many people believe you cannot talk to an appraiser; but he says a lender or authorized third party may contact an appraiser to correct errors within the appraisal, to give the appraiser more information, or to ask for more information.

Alves also said that under Fannie Mae and Freddie Mac rules, AMCs may not send an appraiser to a job if he is unfamiliar with the neighborhood.

The mortgage bankers in attendance reported some problems with the AMCs, however. One mortgage banker questioned the rule about out-of-area appraisers, for example, saying she had to explain the rule to her AMC. Kathy Coon, chief appraiser at a technology company, answered that perhaps that AMC should be replaced if the lender knows more about the process. However, another banker noted that many financial institutions have contracts with AMCs, and the people who order appraisals no longer have even that much control over the process.

Source: American Banker, Oct. 20, 2009, Brad Finkelstein

© 2009 Florida Realtors®