The financial regulatory reform bill signed into law the week could result in more accurate home valuations, higher appraisal costs, faster closings, more completed transactions and maybe even higher prices, according to critics of a controversial quasi-governmental regulation that the legislation eliminated.
Enacted a year ago last May, Fannie Mae and Freddie Mac enacted the Home Valuation Code of Conduct (HVCC), meant to reduce mortgage fraud and collusion. However, instead the HVCC generally caused chaos, increased costs and delays in the closing process.
The bill eliminated the HVCC and creates a new Bureau of Consumer Financial Protection that takes over from the HVCC and that is charged with carryingout the first modernization of real estate appraisal regulations in more than 20 years.
“This bill will mean good news for consumers because they should see more reliable home appraisals,” said Appraisal Institute President Leslie Sellers. “It will encourage the use of highly trained and competent real estate appraisers and will provide much-needed resources for oversight and enforcement.”
Critics of the HVCC said the regulation forced lenders to use appraisal management companies that charged less and lacked the manpower to provide timely appraisals, often using appraisers from outside the local marketplace who were unfamiliar with market conditions.
A study by the National Association of Realtors released a year ago found that more than three quarters of Realtors reported the time to get an appraisal increased after the HVCC took effect, ,most said the waiting tine increased more than eight days. More than a third said they lost sales as a result.
Eighty-five percent of appraisers and 55 percent of Realtors reported a decline in appraisal quality.
Many also have charged the HVCC with encouraging appraisers to issue valuations on the conservative side. ” The HVCC has distanced the appraiser from both the buyer, buyer’s agent, and loan originator, while at the same time reducing the amount of money an appraiser can expect to earn per appraisal by as much as 50%, and appraisers today are now more conservative than ever before,” said Phoenix Realtor Steve Belt last year.
In New York City, the Real Deal blog reports many New York brokers and appraisers say HVCC has wreaked havoc on the city’s residential real estate landscape because it’s resulted in a great number of lowball appraisals, often determined by appraisers with limited experience in the New York market.
Low appraisals aren’t necessarily good news for buyers. When appraisals come in under the purchase price, buyers must come up with the cash to make up the difference or lose the home. Today many buyers already are stretching to make down payments and closing costs, which must be paid out of pocket.
Ironically, during its short life, the HVCC did not reduce appraisal fraud. Incidents of mortgage fraud and misrepresentation increased by 7 percent from 2008 to 2009, according to the Mortgage Asset Research Institute.