The Pitfalls of HVCC

Written By: Bonnie Wilt-Hild, Op-Ed Writer

Over the past year or so we have all implemented policies concerning the Home Valuation Code of Conduct which the agencies implemented in April, 2009 with the Federal Housing Administration following suit shortly after. Per the rule, lenders are now required to utilize third party management companies for the purposes of ordering appraisals on all mortgage transactions in order to eliminate the potential for lender influence over appraisers and hopefully cut back on instances of appraisal fraud. Now the big question, has it worked.

I will begin by saying that I agree that the use of third party management companies has eliminated in most cases, lender influence over appraisers, so much so that in many instances lenders no longer have any type of working relationships with appraisers which is not a good thing for the borrowers. With more and more frequency, I find myself conditioning for corrections on appraisals for everything from inconsistent adjustments, square footage variances as well deviation from FHA standards just to have the third party management company come back and say the appraiser refuses to correct things or provide further explanation. In one particular instance, an appraisal completed for a 203k was so screwed up, I could not continue underwriting the case.

In that particular instance the appraiser refused to provide the “as-is” value, indicated that everything from floor coverings to exterior walls were in poor condition and neglected to complete the operating income (it was a 4 unit property). After several attempts at working with the management company to explain the principals of 203k lending and that it was a HUD requirement that the appraiser provide this information and of course determine the final value and condition of the property considering the rehabilitation, the third party management company agreed to allow me to contact the appraiser to explain why I needed this stuff. Once I finally reached the appraiser and tried to explain what I needed from an underwriting standpoint, he went off me, told me I was not allowed to talk to him and hung up on me.

End result, the deal fell apart because I could not complete underwriting and I was ready to jump out of a window after explaining over and over why I needed this stuff from an underwriting standpoint.

The above example is not the only instance in which I have encountered not only difficulty in working with the appraisers to obtain an accurate appraisal report and in some instances I can only describe the appraiser that we are dealing with as belligerent, hanging his hat on the fact that we can’t talk to them and they don’t have to do anything they don’t want to including providing accurate appraisal reports. I spend more time working up the FHA DE Analysis of Appraisal to indicate appraisal errors than I do actually underwriting the appraisal and the other side of the phenomenon is more frightening, that’s right, there is also a painful flip side. What could be worse you are thinking and the answer is the concept of HVCC with a work around.

HVCC workaround’s developed just as quickly as HVCC itself was implemented. Basically, there is really no set rule as to who can open and operate a third party management company for the sake of managing HVCC requirements so several appraisers band together under the umbrella of a newly opened HVCC company.

They then begin to solicit all of the lenders and brokers that has previously done business with, letting them know which of the favorite appraisers are on staff and everyone is meeting HVCC requirements and nothing has changed for them. An example you ask? No Problem.

Had an FHA cash out refinance transaction with an appraisal indicating the appraised value of the subject property at $95,000. The appraiser provided 3 comparable sales that were clearly in excellent condition however, indicated that they were inferior to the subject property allowing for a 10,000 condition adjustment for the subject. The appraisal by the way was complete in as is condition no repairs required.

When I got to the photo’s of the subject it was clearly obvious that the roof was buckling, gutters and down spouts were falling off, the back porch was completely detached from the dwelling and the front steps were crumbling. The place should have been condemned in my opinion but their appraiser stated that it was in such good condition that it warranted an upward adjustment of $10,000 because it was superior to the comparable sales which were obviously newly renovated and honestly sold for around $70,000. So I suspended the case and requested multiple conditions as well as explanations from the appraiser and received in place of an explanation a revised appraisal reducing the value to $90,000 which still stated that the property was in excellent condition.

Sorry people we all know that value was influenced by the broker who clearly had a relationship with the appraiser regardless of HVCC.

The debate over the usefulness of HVCC is still going but I will say based on my observation over the most recent year it has created more problems than solutions. Lenders are now forced to work with appraisers who are not only unwilling to work with them even to the extent of providing accurate reports, so to that extent even the least talented appraisers are performing appraisals without any repercussion for sloppy or inaccurate work and underwriters are forced to pick up their slack. On the flip side, several lenders and brokers are getting around the rule entirely by working with third party management companies with which they have prior relationships and appraisal reports that aren’t worth the paper they are written on are still being completed.

The end result is simply more aggravation for the borrowers. I have appraisers taking forever and a day to complete reports and borrower’s locks are expiring. I have incomplete or inaccurate reports which I can’t get fixed because the appraisers scream they don’t have to talk to me and if those two conditions don’t exist then I have a fraudulent appraisal from an appraiser who as a working relationship (and of course owns the third party management company) with various brokers or lenders and honestly all I wonder is can anyone say rooster method. Have a great week and think TAS.

About The Author

Bonnie Wilt-Hild - As an op-ed writer, Bonnie holds mortgage underwriting position as the Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans".


Opinion-Editorial (Op-Ed) Disclaimer For NAMU® Library Articles: The views and opinions expressed in the NAMU® Library articles are those of the authors and do not necessarily reflect any official NAMU® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMU®. Nothing contained in this articles should be considered legal advice.