In Defense of the HVCC

Though some see the Code as nothing but trouble, supporters say misunderstandings abound.

January 1, 2010

Is the Home Valuation Code of Conduct getting a bad rap for causing what real estate professionals say is a rise in inaccurate appraisals? Alfred Pollard and Mark Johnson think so.

In San Diego for the 2009 REALTORS® Conference & Expo, Pollard, the general counsel for the Federal Housing Finance Agency, said in a presentation that the HVCC was released at a time when the economy was in a massive contraction and that this broader picture has to be taken into consideration when talking about valuation trends. "Concerns [over valuations] might not be 100 percent tied to this code," he said.

The FHFA oversees Fannie Mae and Freddie Mac, which earlier this year adopted the HVCC to curb inaccurate appraisals and applied it nationwide in an agreement with the New York attorney general. The HVCC expires late this year, but the two secondary mortgage market companies can retain all or parts of the HVCC going forward.

The HVCC has been a lightning rod for criticism since it was released in early 2009. Practitioners say lenders are relying on appraisal management companies, which send inexperienced or out-of-market appraisers, and that appraisers are resisting good-faith input by practitioners on comparables and other market information. The result is appraisals coming in significantly under agreed-upon prices. (See "Trouble with the HVCC," REALTOR® Magazine, Sept. 2009, page 24.)

Johnson, the chief operating officer of LSI, a large AMC, said at the same session that it’s not fair to suggest that all AMCs are handing out valuation assignments to inexperienced or out-of-market appraisers who are willing to work for reduced fees.

Johnson said any AMC that lets appraisers work outside their area of geographic competency is violating appraisal standards under the Uniform Standards of Professional Appraisal Practice and should be reported. "I do believe there have been some bad actors," he said.

The average distance traveled by the 20,000 appraisers in LSI’s database is eight to 12 miles, he said. Any LSI appraiser who wants to travel more than 25 miles must get an OK. "We don’t want guys driving 50 miles," he said. "We want to get rid of that guy [who goes outside his area of geographic competency]."

Steve White, CRS®, GRI, of Keller Williams VIP Properties in Northridge, Calif., and chair of NAR’s Risk Management and License Law Forum, raised another issue, saying the process for appealing valuations doesn’t work.

Valuations are taking so long that there is no time to get them reconsidered before the deal collapses, he said. What’s more, when real estate professionals try to share comparables or familiarize out-of-area appraisers with unique market issues, appraisers say they can’t talk to them.

Yet, there’s nothing in the HVCC that prohibits real estate professionals from sharing comparables or other information with appraisers. "You can talk; you just can’t drive them to a value," said Pollard.

Johnson gave out an e-mail address——that REALTORS® can use to send in complaints if they believe one of LSI’s appraisers hasn’t produced a competent valuation or is inappropriately restricting them from sharing information. "Send me the name of the guy, and let’s root him out," he said.

Robert Freedman

Robert Freedman is the former director of multimedia communications at NAR.