HVCC: Bad Code or Badly Implemented Code?

By Robert Freedman, senior editor, REALTOR® Magazine

The Home Valuation Code of Conduct is getting a bad rap for causing what real estate professionals say is a rise in inaccurate appraisals, Alfred Pollard told a packed room of REALTORS® Friday in a risk management-regulatory issues joint forum at the 2009 NAR Conference & Expo in San Diego.

Mark Johnson, chief operating officer of appraisal management company LSI.

Mark Johnson, chief operating officer of appraisal management company LSI.

Pollard, the general counsel for the Federal Housing Finance Agency (FHFA), said HVCC was released at a time when the economy was in a massive contraction—what he called a systemic event—and that this broader picture has to be taken into consideration when talking about valuation trends. “Concerns [over valuations] might not be 100-percent tied to this code,” he said.

FHFA oversees Fannie Mae and Freddie Mac, which earlier this year adopted HVCC and applied it nationwide in an agreement with the New York attorney general. HVCC expires in late 2010 but the two secondary mortgage market companies can retain all or parts of HVCC going forward.

Nor is it fair to rap all appraisal management companies (AMCs) for handing out valuation assignments to inexperienced or out-of-market appraisers who are willing to work for reduced fees, Mark Johnson, COO of LSI, a big AMC, said at the forum.

Any AMC that lets appraisers work outside their area of geographic competency is violating appraisal standards under USPAP and they should be reported, he said. “I do believe there have been some bad actors,” he said.

The average travel distance of the 20,000 appraisers in his company’s database is eight to 12 miles, he said. Any appraiser who wants to travel more than 25 miles under his company’s policy must explain why and get an OK. “We don’t want guys driving 50 miles,” he said. “We want to get rid of that guy [who goes outside his area of geographic competency].”

Steve White of Keller Williams Realty in Santa Clarita, Calif., and chair of NAR’s Risk Management Committee, said real estate professionals are losing deals because valuations are coming in far below the price agreed upon by the buyer and seller and that the process for getting valuations reconsidered doesn’t work.

Valuations are taking so long that there is no time to get them reconsidered before the deal collapses. What’s more, when real estate professionals try to share comparables or familiarize out-of area appraisers with unique market issues, appraisers say they can’t talk to them.

Pollard and Johnson said there’s nothing in HVCC that prohibits real estate professionals from sharing comparable or other information with appraisers. “You can talk; you just can’t drive them to a value,” said Pollard.

Johnson gave out an e-mail address, nar@lsi-lps.com, that goes directly to him that REALTORS® can use for sending in complaints if they believe one of LSI’s appraisers hasn’t produced a competent valuation or is inappropriately restricting them from sharing information. “Send me the name of the guy and let’s root him out,” he said.

Robert Freedman

Robert Freedman is director of multimedia communications for the NATIONAL ASSOCIATION OF REALTORS®. He can be reached at rfreedman@realtors.org.

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