HVCC: Appraiser Last Laugh?
David Brauner, Editor
As federal legislation that would end the Home Valuation Code of Conduct (HVCC) moves closer to reality, appraisal management company (AMC) interests are blitzing the media with their message that overturning HVCC means a return to lender pressure/appraiser compliance and an environment that allowed the current real estate collapse.
Industry thought leaders have been saying for months that, no matter the fate of HVCC, the shotgun marriage between appraisers and AMCs is sealed: if appraisers want to do business, they will have to do business with AMCs on the terms dictated by these middle men, or so goes the conventional wisdom.
Representatives from the Federal Housing Finance Agency (FHFA), Fannie Mae, Freddie Mac and others, tell appraisers that there will be no going back to business as it was prior to HVCC, no matter if the Code is allowed to sunset in November of this year or terminated before then (FHA, Fannie/Freddie Tell it Like it Is, WorkingRE.com, Current Edition). If this is the case, what is the AMC trade group TAVMA (Title/Appraisal Vendor Management Association) so worried about?
In recent weeks, TAVMA has published stories in the appraisal press and in other online real estate-related publications strongly defending HVCC’s role as a “firewall” protecting appraisal independence. TAVMA also recently published a widely circulated “AMC Standards of Good Practice in Appraisal Management,” in an apparent effort to head off the growing trend of AMC regulation by states (see WorkingRE.com, Sidebar for the AMC Standards of Good Practice in Appraisal Management). Such regulation, they argue, would create a confusing and expensive tangle of legislation that would drive smaller AMCs out of business and raise costs for consumers.
Safe Act
What may have rattled AMC cages is passage by the House late last year of the Financial and Mortgage Industry Reform Bill (find the bill at WorkingRE.com, Sidbar: HR 4173). If signed into law, the Bill would establish a Consumer Financial Protection Agency and require lenders to compensate appraisers their full fees, rather than splitting them with management companies. There are also rules to assure appraisal independence. The bill gives the director of the new agency 60 days from the date of enactment of this legislation to establish such appraisal rules and calls for the HVCC to sunset at the time the new rules go into effect. The bill was referred to the Senate Committee on Banking, Housing and Urban Affairs earlier this week.
The bill includes the following:
(1) shall not prohibit lenders, the Federal National Mortgage Association, or the Federal Home Loan Mortgage Corporation from accepting any appraisal report completed by an appraiser selected, retained, or compensated in any manner by a mortgage loan originator—(A) licensed or registered in accordance with section 1501 et seq. of the SAFE Mortgage Licensing Act of 2008; and
(B) subject to State or Federal laws that make it unlawful for a mortgage loan originator to make any payment, threat, or promise, directly or indirectly, to any appraiser of a property, for the purposes of influencing the independent judgment of the appraiser with respect to the value of the property, except that nothing in this section shall prohibit a person with an interest in a real estate transaction from asking an appraiser to—
(i) consider additional, appropriate property information;
(ii) provide further detail, substantiation, or explanation for the appraiser’s value conclusion; or
(iii) correct errors in the appraisal report; and
(2) shall include a requirement that lenders and their agents compensate appraisers at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.
(c) SUNSET.—Effective on the date the appraisal independence requirements are promulgated pursuant to subsection (a), the Home Valuation Code of Conduct announced by the Federal Housing Finance Agency on December 23, 2008, shall have no force or effect.
The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (“SAFE Act,” see the Housing and Economic Recovery Act of 2008 at WorkingRE.com, Sidebar), requires state licensing of mortgage brokers, including coursework, testing and fingerprinting.
These developments and a flurry of state laws to regulate AMCs may be what has TAVMA fighting back. Quoted in HousingWire.com, TAVMA executive director Jeff Schurman said, “Turning back-the-clock, and letting parties who are compensated based on closed deals order and interact with appraisers will inevitably lead to pressure and inflated appraisals.” (Find the story at WorkingRE.com, Sidebar: TAVMA Opposes New Consumer Protection Bill)
Reason to Believe- Speaking Up
Some appraisers have given up believing that their autonomy as businesspeople will ever be restored, since HVCC has cut them off from their mortgage broker clients. Indeed many have called it quits in recent months reporting that they can not earn adequate fees working with AMCs or generate sufficient orders to stay in business.
Passage of this Bill may be the light at the end of the tunnel. TAVMA and others are pushing hard to see that that light is extinguished and that HVCC remains in place. If you are opposed to HVCC, this may be a good time to make your voice heard with your Senators.
Pressure Tested
According to the Working RE/OREP HVCC Appraiser Talkback Survey, with over 4,500 appraisers responding as of this writing, 92 percent of appraisers are not in favor of HVCC as written and 82 percent do not consider AMCs to be a legitimate business model. Fifty-three percent (53%) report that they experience pressure for value with the AMCs they work with at least some of the time (47 percent say they “never” experience this pressure). Over 55 percent say that, with the AMCs they work with, they are asked to re-examine reports with the intention of trying to “make the deal work” at least some of the time (44 percent say they are “never” asked). So despite TAVMA's PR to the contrary, appraisers say pressure still exists.
Quality Not Job One
Survey and Blog results also support anecdotal evidence from appraisers that appraisal quality has diminished since HVCC, not improved. The reason, they say, is that many AMCs look primarily for the lowest bidder when selecting appraisers, not the most qualified professional. According to the survey, 98 percent say that, in their experience working with AMCs, appraiser selection is based solely on obtaining the lowest fee at least some of the time (less than two percent answer that appraiser selection is “never” based solely on obtaining the lowest fee).
Survey results clearly indicate that pressure for low fees and quick turn around also is hurting quality. To the question: “Do ‘low fee’ appraisals result in a product that is less reliable for the end user compared to a report where adequate fees have been paid, 45 percent answer that this is “never” the case (55 percent say it happens at least some of the time). To the question: “Does the time pressure (from AMCs) result in a product that is less reliable for the end user, compared to a report where adequate time has been allowed, 31 percent say this never happens (69 percent say it happens at least some of the time).
Freddie Mac, on the other hand, reports that an internal review indicates that appraisal quality has improved since HVCC and that complaints are down. (See FHA, Fannie/Freddie Tell it Like it Is, WorkingRE.com, Current Edition.)
FHA Fees- Customary and Reasonable?
An appraiser poll hosted by AppraiserSupport.com finds that today the majority of fees for FHA appraisals are under $250 nationwide. At issue is FHA’s new policy, which takes effect this week and mandates that appraiser fees be customary and reasonable. According to AppraiserSupport.com, “In 1986, FHA mandated the appraisal fee of $225 be paid to all FHA appraisers. FHA realized that a fair wage was required to produce quality appraisal reports. If you adjust the 1986 mandatory appraisal fee for inflation, a current appraisal fee would be $436, which was approximately the amount appraisers were charging prior to the HVCC. HUD has addressed the issue of ‘reasonable and customary’ appraisals fees. Their definition is that ‘customary and reasonable’ are reflective of those fees established and negotiated by an FHA-approved, self employed independent fee appraiser.’ However, we have evidence that, on average, AMCs are only paying 60 percent of the reasonable and customary appraisal fee.”
New FHA changes also stipulate that the fee for the actual completion of an FHA appraisal may not include a fee for management of the appraisal process or any activity other than the performance of the appraisal. (See Appraisers Talk, FHA Listens at WorkingRE.com, Current Edition.)
Side Notes: The Good, the Bad and Shangri-La (Montana)
Reaction to coverage of HVCC and AMCs in the current issue of Working RE magazine has been mixed, to say the least. Comments range from gushing praise to tirades that would make Senator John McCain blush. Here are two of many.
”I just read your latest article, it was very enlightening. I have been in the business for 23 years and sound very much like the appraiser at the end of your article. I worked very hard to build a reputation and good list of clients, just to have it all taken from me. I have to start all over again but this time it is not about my education or my designations. The only thing 95 percent of the AMCs ask for if my license, that in itself should indicate they are not interested in quality or education of any kind. The only requirement they have is the bare minimum and the lowest fee they can get. I have one exception, and that has been Landsafe. Landsafe is the only reason I am in business today, they have a staff that is knowledgeable and they actually look for quality work,” said Kevin Talbott, SRA.
And this from another appraiser: “So how much are AMCs paying you to help them? Give me an article that defends appraisers and criticizes our enemies.” (Name withheld.)
Also, several appraisers wrote us puzzled about what the acronym “HVCC” stands for- they had never heard of it! One of these appraisers, who lives in rural Montana, told us he has not been effected one way or the other by the Code.
Getting Out: Why I’m Leaving Residential Appraisal
A sometime contributor to WRE, appraiser Mike Read, sends us this letter:
I used to love appraising. Long before there was any appraiser regulation my clients came to me for valuation opinions because of my years of experience in real estate and their recognition of my accurate and reliable reports. Then came HVCC. Now my clients of 24 years are not allowed to contact me. They have to order appraisals through a third party appraisal management company (AMC) which takes up to 60 percent of my fee for their trouble.
I have signed up with about a half dozen AMCs. One went out of business owing me over $7,000. Three asked for all my exhibits and I’ve never heard from them again. One expected me to complete a URAR for $90. My most recent AMC has not sent me an assignment in months due to their lack of volume.
I recently testified before my state legislature in support of a bill to regulate AMCs. My first suggestion was to support the repeal HVCC at the federal level. Secondly to ensure that a certified appraiser is on staff at the AMC to do review work and third to require the AMC to have a surety bond of $500,000 to $1 million so payment to appraisers is assured if the AMC defaults. Others recommended that AMCs become regulated by the State Appraiser Licensing Board.
I have 24 years of appraising experience, am licensed in two states as a General Certified Real Estate Appraiser, have been HUD approved for the whole 24 years without any complaints and have completed hundreds of hours of special education. What good has that done for me?
What is driving this patchwork quilt of ineffective appraiser regulation? Have you heard of “The Golden Rule?” He who has the gold makes the rules! The greed of lenders is the source of the problem and always has been. They are the ones with the money to lend. They are the ones that establish the lending guidelines that have to be followed by everyone else in the lending chain. They are the ones with the “pipeline” to keep full and flowing. When they run out of borrowers with 20 percent down they reduce the requirements to encourage borrowers with 10 percent down. Keep that pipeline full. When they run out of borrowers with 10 percent down they reduce the requirements again to encourage borrowers with five percent down, then zero down, then “no doc loans.” Keep that pipeline full.
What about the increased risk? Well, they just pack the loans up and sell them off to someone else in a mortgage backed security that is so far removed from the valuation process no one can figure out the value any more…not even the sophisticated investors. (Nobody thought to ask the appraisers!)
Now it’s time for me to say goodbye to my clients and friends in the residential real estate and financial service fields. You’ve heard of the theory of “trickle down” economics? Well here is how my exit from the business will trickle down to you all.
Dear MLS provider, I will be canceling my subscription for data services at the end of my current period ($105/Q).
Dear title company, I will be canceling my subscription for data services at the end of my current period ($85/mo).
Dear software company, I will not be renewing my annual software maintenance agreement at the end of my current period ($399/yr).
Dear Board of Realtors, I will not be renewing my annual dues this year ($375/yr).
Dear Appraisal Institute, I will not be renewing my annual dues this year ($330/yr).
Dear E&O insurance company, I will not be renewing my policy at the renewal ($500/yr).
Dear state of Washington, I will not be renewing my appraiser license at the end of the biennium ($500).
Dear state of Oregon, I will not be renewing my appraiser license at the end of the biennium ($500).
Dear education provider, I will not be needing any more CE credits so will not need any more expensive classes ($500/yr).
Dear AMCs, goodbye.
Dear Consumer, you are the only one I feel sorry for. I will no longer be in a position to provide you with an independent valuation for your largest lifetime investment. Your lender does not want you to know who I am, how to contact me, how much I charge, what value opinion I reach, they just want you to pay for some conforming paperwork. If they receive any bad news they just shoot the messenger.
For more from Mike Read, including his entire farewell letter: http://appraisals4realestate.wordpress.com/.
About the Author
David Brauner is Editor of Working RE magazine and Senior Broker at OREP, a leading provider of E&O Insurance for appraisers, inspectors and other real estate professionals in 49 states (OREP.org). He has covered the appraisal profession for over 16 years. He can be contacted at dbrauner@orep.org or (888) 347-5273. Calif. Insurance Lic. #0C89873.
Survey Questions - Click to take the survey now!
1. Do you work with appraisal management companies (AMCs)?
2. Do you turn down AMC work because of inadequate fees?
3. Do you turn down AMC work because of issues other than fees?
4. Do you have trouble getting paid by the AMCs you work with?
5. Overall, are you satisfied with the AMCs you do work with?
6. With the AMCs you work with, are you asked to re-examine reports with the intention of trying to “make the deal work”?
7. Do you find that the “appraisal fee” listed in closing documents is more than the fee you receive?
8. With the AMCs you work with, do you experience pressure for turn around times that are unrealistic given the nature and scope of the assignment?
9. Does the time pressure affect the quality or completeness of the finished report?
10. Does the time pressure result in a product that is less reliable for the end user, compared to a report where adequate time had been allowed?
11. With the AMCs you work with, do you experience pressure for value?
12. Do the AMCs you work with provide an adequate “firewall” between you and the loan originator?
13. Are the fees offered by the AMCs you work with unrealistic given the nature and scope of the assignment?
14. Do you spend less time on “low fee” appraisals from AMCs compared with higher fee assignments?
15. Do “low fees” effect the quality or completeness of the finished report compared with higher fee appraisals?
16. Do "low fee" appraisals result in a product that is less reliable for the end user compared to a report where adequate fees had been paid?
17. Do reports for your AMC clients and non-AMC clients look basically the same in terms of quality and content?
18. Are the personnel at the AMCs you work with are knowledgeable and competent?
19. In your experience with AMCs, appraiser selection is based solely on obtaining the lowest fee.
20. In your experience working with AMCs, service, quality and other factors play a part in appraiser selection.
21. Would you say that working with AMCs is worth the “trade offs”? (For example, earning lower fees in exchange for no pressure for value, a steady flow of work, no time/resources spent on collection, etc.)
22. Do you consider the AMC model to be a legitimate business model?
23. Number of years appraising:
24. Are you generally satisfied with appraising?
25. Are you making plans to leave the appraisal profession?
26. Do you expect to be appraising full time 5 years from now?
27. Are you satisfied overall with the level of compensation you earn, given the requirements and costs associated with being an appraiser?
28. Are you in favor of the HVCC as written?
29. Are you in favor of having Mortgage Brokers removed from the process?
30. Was/is the lack of appraiser independence (lender pressure) a serious issue in your practice?
31. Are you in favor of the increased licensing and education requirements imposed by the Appraiser Qualifications Board?
32. Are you in favor of FHA’s decision requiring their appraisers to be State Certified?
33. Do you use AVMs in your practice?
34. Are you in favor of Fannie’s new 1004MC form?
35. Do you include in your reports much of the information now required by the 1004MC?
36. Does the new 1004MC form take longer to complete?
37. Are you able to charge a higher fee for the new form?
38. Have you adopted any of the available technical solutions (third-party spreadsheet programs, database programs, etc.) to automate the statistical analysis for the 1004MC?
39. Is identity security with respect to your appraisal reports an important issue to you?
40. Is being able to be certain that your clients are receiving an unaltered version or “true copy” of the appraisal reports you send them an important issue to you?
41. Is the data mining of your reports an important issue to you?
42. Is being able to copyright or register ownership of the intellectual property contained in your appraisal reports an important issue to you?
43. Is being “forced” to submit your work through a third party entity and pay a fee, to maintain a client relationship, an important issue to you?
44. Do you have trainee appraisers?
45. Would you consider taking on trainees in the future?
46. Would more favorable state/federal regulations make you more inclined to take on trainees?
47. Do you carry E&O insurance?
48. Did we leave a good question out? If so, let us know below or email it to subsciption@workingre.com and we’ll have a look. If you have more to say on any of these topics, please visit out blog - www.orep.org/wordpress-2.7/wordpress/
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