The industry has had a year to operate within HVCC guidelines and the benefits of it pretty clearly depend on just whom you ask.
May 1, 2009 marked the implementation of another regulation on the mortgage industry when Fannie Mae and Freddie Mac adopted the Home Valuation Code of Conduct (HVCC) as a result of an agreement between their regulator, the Federal Housing Finance Agency (FHFA), and the New York State Attorney General. One of many initiatives aimed at improving loan quality in the wake of the subprime market meltdown (and we’re finding quality problems weren’t limited to the subprime market) HVCC’s intent was to ensure appraiser independence in the valuation process, thereby improving appraisal quality. Doing so, it was reasoned, would better serve lenders because they would get more accurate valuations on which to base their loan decisions. And borrowers as well would be protected from obligating themselves on loan amounts based on inflated property values.
So is HVCC working? Well, who are you asking? Basically you have four different players in the origination process impacted by HVCC- the lender (and we’ll include Fannie and Freddie in this category to keep it simpler), the appraiser, the originator and the borrower. Let’s take it one step at a time.
Lenders, at least publicly, seem to be content HVCC is working. Remember here the originator was the popular choice of many as the culprit responsible for a lot of the problems in the industry (that is an entirely different debate to be saved for another day). And eliminating contact between the originator and the appraiser eliminates the likelihood that the originator will influence the appraiser’s opinion of value. No matter your role in the business, I think we can all agree that is a good thing. Originators are not trained to appraise real estate. Additionally, this separation basically eliminates for lenders another front for attack from regulators on appraisal quality. There are statistics out supporting the position that appraisal quality is up, appraisal fraud is down and better loans are being made today as a result of HVCC. Arguments for the success of HVCC from lenders abound. But talk to appraisers, originators and consumers and you’ll likely get a very different view. And not surprisingly, those views won’t all be the same. So is HVCC working for them? Well, it depends. We’ll dissect their views a little bit next time.