Industry professionals are fuming mad at this latest revision of the Code of Conduct
New York Attorney General Andrew Cuomo stroke a deal with government sponsored enterprises Fannie Mae and Freddie Mac almost two months ago. What resulted was the Home Valuation Code of Conduct (HVCC) – with the main goal of deterring appraisers from giving out figures closer to predetermined values that in reality, are way below the actual appraised rate.
In the Freddie Mac Fact Sheet, here’s an edit version of the lender requirements from the code:
Prohibits lenders and third parties from influencing the result or review of an appraisal report
Requires lenders to ensure that borrowers are provided a copy of the appraisal report no less than three business days prior to closing, unless the borrower waives the requirement.
Requires any third party specifically authorized to perform certain actions on behalf of the Seller to be in compliance with the Code.
Requires lenders or third parties authorized by lenders to be responsible for selecting, retaining, and providing for payment of all compensation to appraisers
A lender may accept an appraisal report prepared by an appraiser for a different lender provided that the lender obtains written assurances from the other lender that it has adopted the Code and determines that such appraisal conforms to appraisal requirements and is otherwise acceptable.
But the revision was not well received and a number of groups (obviously, appraisers) are protesting against it. One problem is it that only appraisal management companies are allowed to perform the appraisal. They charge the customer higher fees upfront instead of asking for the payment during the closing.
And there’s more problem. The National Association of Mortgage Brokers mentions in its open letter stating, “AMCs are assigning appraisers from a different municipality, county, or even state to appraise the target house, therefore unfamiliar with the neighborhood and unable to produce an accurate appraisal. i. Because of this, the HVCC is forcing appraisers to be in direct violation of the Uniform Standards of Professional Appraisal Practice (USPAP) for jurisdictional competence.”
The Seattle-Post Intelligencer has a more direct accusation when it interviewed Mercer Island appraiser Richard Hagar. It reports, “(He) cited cases of appraisers inappropriately using foreclosures as comparable sales and using comparable sales for unsuitable neighborhoods; appraisal management company employees claiming, wrongly, that they’re not required to follow federal guidelines; and companies illegally using review appraisers that are based not only out of the area, but out of the country, in the Philippines.”
The thousands of business process outsourcing workers in the Philippines have brought an estimated $4 billion in earnings in the country last year. It trails behind India in the number of BPO jobs. America has relied too much in bringing back office jobs across the shores for effective cost cutting. But the dissatisfaction among Americans is only felt when clients discover that they’re redirected more than 7,000 miles and would have to put up with fake American accents (but could respond to their queries immediately and correctly, in fairness).
The issue however is focused on appraisal reliability. This is not a computer hardware malfunction that a call center agent can assist a client in a matter of five minutes. The difference with other outsourced product queries is that properties cannot be treated generically. Remember how real estate ads on TV were lambasted for not taking a local approach? This is the same issue that the HVCC has. By allowing unregulated companies to conduct insufficient appraisals and passing on the review to someone who has very limited, if not absolutely no exposure to the area, borrowers are not receiving due service.
Not that we have anything against outsourcing especially in a country with skilled, talented workers. However in this issue, we understand where the NAMB stands.