July 1, 2009

The HVCC Wal-Mart Effect

The River of Denial

Protecting The Consumer To Death

One of the many protective measures that have evolved from the housing downturn is the HVCC – Home Valuation Code of Conduct. It was developed to protect consumers purchasing or refinancing homes by eliminating fraud and inflated appraisals. An effort looked upon by some as little more than closing the barn door after the horses got out.

In a nutshell, mortgage brokers may no longer communicate with appraisers. The communication with appraisers is done strictly with the lender/bank though an “appraisal management company”. This new code may sound great in theory but the ramifications since May 1, 2009 have already started to be felt.

Gone are the days when mortgage brokers can choose an appraiser on the basis of experience, professionalism or quality of their work. Appraisals are now awarded to whoever will work for the cheapest and fastest.

Here’s how it works: A consumer goes to a bank to get a loan. The bank collects $390 for an appraisal. Yes, the price for an appraisal has now gone up because the bank pays an “appraisal management company” about half of the $390 and the appraiser gets the rest. The best, most qualified appraisers can’t afford to work at such a discount. The consumer has no idea that they’re appraiser is probably less experienced, working at a discount and has often been hired just because they’re the cheapest and the fastest appraiser on the list.

Wait, there’s more. If you’re a consumer in the process of getting a loan with “Bank A” and your mortgage broker finds a better program or you are turned down for a loan with “Bank A” your appraisal is owned by “Bank A” and not transferrable. You’ve just thrown 390 bucks into the wind. Another appraisal has to be ordered for your second lender.

This is affecting the consumers trying to refinance their homes, too. In the past mortgage brokers could contact an appraiser and get an estimate on whether a home would be close to the appraisal price before spending money on a full appraisal. Now, a consumer that would like to refinance will have to go through the appraisal process and pay for it regardless of the outcome of the appraisal.

What was meant to protect the home buyers and refinancing home owners is now hurting them by costing them more and dragging out the time to fund loans. It also means rate lock extensions or longer rate locks which results in higher interest rates.

There were and still are good, honest and reputable appraisers that didn’t rip anybody off during the housing boom. They’re now being punished and driven out of the business by a system full of flaws including lack of transparency. Instead of being rewarded for years of experience and professional conduct appraisers are being undermined by the Wal-Mart effect caused by HVCC.

In the end those who are affected the most are consumers who are shelling out more money for less service and the local, small business owners which include independent appraisers and mortgage brokers who are being micro-managed out of business.

It’s quite obvious that there were considerable problems with the way that appraisals were done during the boom but the way that the system is functioning right now just isn’t working.

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Real Life in Bonita Springs is a project by Chris Griffith dedicated to writing useful blog posts for consumers about the Bonita Springs, Florida area.  Find out what it is really like to live in Bonita Springs, Florida by reading about our fair city. You’ll get the latest in local real estate information, Bonita Springs real estate market reports and a little bit of humor.  If you have topic ideas, feel free to request a story about the idea, after all, this site is just for you.

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