Appraisers attack new HVCC rules

ORLANDO, Fla. – June 29, 2009 – In a blaring online video making the rounds in some real-estate circles, two men wearing black shirts denounce changes in the way properties now get appraised.

The men verbally blast a set of national reforms called the Home Valuation Code of Conduct (HVCC), which took effect in May and was drafted to keep appraisers from altering property values to please lenders. The code was initiated after New York Attorney General Andrew Cuomo prosecuted the giant home-mortgage lender Washington Mutual in 2007 for working in collusion with a large appraisal firm.

The code is the result of a 2008 agreement between the giant mortgage backer Fannie Mae and its government regulator, the Federal Housing Finance Agency, and Cuomo’s office imposing new appraisal policies that effectively distance appraisers and lenders.

For instance, anyone associated with producing a mortgage cannot select the appraiser judging the property. To comply with the new regulations, which cover all Fannie Mae- and Freddie Mac-backed loans, lenders have turned to “appraisal management” companies, which typically select appraisers from a pool.

Appraisers in Florida and elsewhere say the new rules have crippled the housing market, destroyed some appraisers’ careers and cost homebuyers and sellers millions of extra dollars. They hope the online video and a related petition drive will rally the support needed to undo the code.

Appraisers complain that the new rules prevent them from talking with lenders. They also say the measure favors large appraisal-management companies, which often pay relatively small fees to appraisers far removed from the property they are valuing.

Winter Park appraiser Tim Burns said he has helped circulate the video, which has helped generate more than 37,000 petition signatures. Burns is among those independent appraisers who say the changes have driven up costs for consumers because homebuyers are now sometimes forced to pay an additional $300 to $400 for a second appraisal when the initial one from an appraisal-management company doesn’t reflect local market conditions.

The National Association of Mortgage Brokers estimates that the new code has added an average of $711 to the cost of getting a mortgage because of added fees for second appraisals and extended loan locks.

In Central Florida, Burns said he sees appraisers from Polk County determining the value of houses in Winter Park. He said he’s so uncomfortable weighing in on the worth of some houses that he turns down work.

“I’m being offered jobs in Lakeland, Mount Dora and Titusville. I think it’s unethical for an appraiser to accept work for places he’s unfamiliar with,” said Burns, owner of Burns Appraisal Inc. of Winter Park. “ ... It’s important to be familiar with your surroundings.”

Frank Gregoire, former chairman of the Florida Real Estate Appraisal Board, considers the code “a disaster.”

“The main concern of people involved in the brokerage business is the number of appraisal assignments that are being awarded to appraisers from outside geographic areas,” Gregoire said.

Out-of-area appraisers “don’t know the market. They may have comparables but don’t bother to get documents to show that some sales are not arm’s-length transactions,” he added.

And they’re unhappy with the reduced fees they’re being paid. Under the new system, appraisal requests now go through the management companies, which retain as much as 40 percent of the appraisal fee.

Gregoire said he typically charges about $400 for an appraisal, but the management companies are doling out jobs for half that amount – and appraisers who accept those nominal fees will not take the time to adequately research a market, he said.

The campaign to undo the reforms appears to be gaining ground. The National Association of Realtors has asked ranking members of Congress, and the conservator overseeing the government-supported mortgage backers Fannie Mae and Freddie Mac, for an 18-month moratorium on the new system. The association is also collecting data to help build a case with the New York Attorney General’s Office to hold off on further implementing the code.

Meanwhile, the industry continues to struggle with the task of determining the worth of real estate at a time when no one seems to have a handle on property values because of the slumping housing market’s mix of foreclosures, short sales and conventional sales.

Last week, the National Association of Home Builders complained that new-home prices are “needlessly” dropping because appraisers use distress sales in their comparisons without distinguishing those transactions from a regular sale.

“Any homebuyer can recognize the difference between a well-kept home and a distressed property that is damaged or not properly maintained,” association President Joe Robson said in a recent written statement.” So it only makes sense that an appraiser should be required to consider the overall condition of a property and the specific factors related to a foreclosure or distressed-property sale when selecting and adjusting the value of comparables.”

The turmoil in the industry follows years during which appraisers certified rising values during the runaway housing market. Ninety percent of appraisers reported in 2007 that they felt pressured to adjust property values – up from 55 percent in 2006, according to a nationwide survey of 1,200 appraisers by October Research Inc. The pressure came primarily from mortgage brokers but also from real-estate brokers and their agents, the survey found.

Burns said he understands the federal reforms were a reaction to the housing bubble of the mid-2000s. “In 2005 and 2006, it was incredible appreciation,” he said. “I was part of it – I did a ton of appraisal work. I had Realtors calling me with three backup offers. The supply and demand was totally different. It was the appraiser’s job to reflect those times. I don’t think we were inflating. I think it was reflective that it was a real estate frenzy.”

Now, as attention turns to undoing the reforms, the creator of the video that slams the new code says the message is getting traction.

“We posted the HVCC petition as a public service to those in our industry who were being impacted, as an outlet to have their voices heard,” said Tim Kearns, chief executive officer of Think Big Work Small, a California-based multimedia company serving the real estate and mortgage industries.

“We knew this was causing extreme hardship to the industry, but we didn’t expect to get thousands of horror stories from would-be home buyers whose dreams have been dashed by this well-intended but misguided policy.”

Copyright © 2009 The Orlando Sentinel, Fla., Mary Shanklin. Distributed by McClatchy-Tribune Information Services.

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