HVCC – Single largest hurdle to US home price recovery…

Having received the e-mail below from David Biggers earlier today and, tired of watching transactions fall through because they can't get appraised, sometimes at pricing below 2000 valuations, I decided to weigh-in on the issue. The solution offered by this administration to the largest Ponzi scheme ever perpetrated against the US tax payer, is to pay hundreds of millions of dollars (and thats the conservative number) to those that personally benefited the most in the good times and who are clearly the ones responsible for the market failure but, (and here's the real genius) to increase regulations on the already massively regulated real estate appraisal industry to the point of forcing lenders to use appraiser with no working knowledge of the market they are appraising - to ensure valuation integrity in the industry - WHAT???! I believe that David is probably correct on this one, rather than avoiding impropriety, the outsourcing of appraisals to distant and disconnected appraisal companies, in dissimilar markets, simply serves to diminish the integrity of the valuations offered and is definitely costing consumers millions, possibly billions of dollars per year in aggregate. While I understand the reasons why the current administration felt they needed to pass "some kind of legislation", this "knee jerk reaction" is yet another decision made by legislators who have consistently failed to consult the industry experts, at the street level, on their chosen course of action. Certainly there have been abuses of localized appraisal companies working with localized mortgage professionals, but this course of action is to "throw out the baby with the bath water". Now that prices have dropped so low, the only thing this legislation is likely to do, is depress pricing further or, at very least, ensure even more extended recovery times. Though the appraisal community needs to operate to protect mortgage lenders, to say that they should not be allowed to receive information or data from loan officers, or for that matter the agents themselves, is ridiculous. Perhaps next we should past regulation that the Buyer Agent in a transaction shouldn't read the Selling Agent's listing, for fear she/he might be swayed to not represent the buyer appropriately! I encourage all real estate agents/brokers/appraisers, and mortgage professionals to become involved in educating our legislators concerning these issues, so we can create an environment where those that have invested in the American Dream are not required to suffer, yet again, because of the incompetence of the few. Let's put crooks in jail, instead of paying them millions of dollars in tax payer money. Let's stop penalizing home owners, so Capital Hill can "appear to be doing something to help". Let's not forget that the true worth of a property is impossible to define without knowing what a buyer is wiling, and able to pay for it. The mistake we made was simply to stop considering the "able to pay" part of that equation. Ignoring the "willing to pay" piece has problems all its own. Here is that letter:

To: Our colleagues in the real estate industry From: David Biggers, Chairman, a la mode, inc. RE: Reversing the damage done by the HVCC As many of you are aware, we’ve always been at the forefront of lobbying for and protecting the interests of the profession. That’s why, a little over a year ago, we began the complex and expensive process of trying to educate everyone we could about the little-known dangers of the proposed “HVCC”, or Home Valuation Code of Conduct. Unfortunately, as the economic meltdown and our presidential election garnered all the attention in Washington this past year, the HVCC transitioned quietly from a mere proposal into concrete national policy altering the core aspects of virtually all real estate transactions, with devastating effects. Today, the complications of the HVCC are killing real estate deals in every corner of the country, forcing buyers to pay more in closing costs while receiving less service, eliminating the positive aspects of the business relationships that REALTORS®, mortgage brokers, and appraisers have nurtured for decades, and shifting market value decisions to unfettered and often clueless appraisal management companies located thousands of miles away. Worse, your transactions, in your town, are many times being derailed by night shift hourly workers parading as “appraisal reviewers” in call centers half a world away. That’s not appraisal independence – that’s appraisal insanity, and it’s hurting every one of us. Our friends at NAMB, the National Association of Mortgage Brokers, are seemingly more aware of that than anyone. They agreed with us from the beginning that the HVCC is not just an appraisal issue and indeed is a threat to the livelihood of thousands of independent small businesses run by their members. That’s why we’re happy to pass on this call to action from NAMB and to encourage you to follow through with the phone calls, e-mails, letters, and visits to everyone you can reach. Getting the reversal of the HVCC back into the national spotlight is achievable if we each take the time to make a difference. A few minutes is all that’s required, but it could literally save the entire real estate industry from the specter of ill-conceived national policy interfering with inherently local real estate practices and relationships. None of us can afford to let that take root. Please read NAMB’s call to action below, and help us all save our industry from this dangerous federal bureaucratic meddling. HVCC CALL TO ACTION To: All Mortgage Brokers, Real Estate Agents, Appraisers, Lenders, Home Builders, Title Agents, and Consumers From: Marc Savitt, President- National Association of Mortgage Brokers After more than a year of exhaustive negotiations with Fannie Mae, Freddie Mac, James Lockhart, Director of FHFA (GSE Regulator), and NY Attorney General Andrew Cuomo, NAMB believes the time has come for your individual voice to be heard. In order for this “Call to Action” to be effective, we ask that you fully participate, encourage others to join the action and continue calling and emailing every day, until advised to stop by NAMB. This will NOT be a one day action! We have received hundreds of e-mails through the hvcc@namb.org e-mail address outlining specific cases where the HVCC has created delays and additional costs to consumers. NAMB has categorized and compiled a report of the examples received, which was sent to FHFA Director James Lockhart. Please use your own examples in your conversations with legislators, regulators, or their staff. Also, please visit the NAMB HVCC Resource Center for additional information and documents on the HVCC. Who will you be contacting? NY Attorney General Andrew Cuomo’s Office: (212) 416-8000, Internet Complaint Federal Housing Finance Agency (FHFA): (866) 796-5595, director@fhfa.gov Fannie Mae: (202) 752-7000, headquarters@fanniemae.com Freddie Mac: (703) 903-2000, Internet Complaint Senators, Representatives and Governors: Click here for contact information. Also, please contact your local TV and Newspaper outlets. Below are talking points and background information to assist in your conversations. Please remember we are all professionals and should conduct ourselves accordingly in any communication with the above parties. For the most successful and influential calls, it is important to concisely quantify how the HVCC is affecting your consumer and your business. Talking Points: 1. NAMB conservatively estimates (breakdown below) that the HVCC is costing consumers over 2.8 BILLION dollars a year in extra fees, created by long delays (extended lock-in fees) and higher appraisal costs. 2. Unregulated Appraisal Management Companies (AMCs), who have been the subject of several misconduct investigations, are the centerpiece of the HVCC. The original Cuomo investigation involved a federally chartered bank and an AMC. 3. AMCs are driving honest appraisers and mortgage brokers from business, eliminating competition, increasing costs to consumers and reducing state revenue. The HVCC is causing significant delays in real estate transactions, hurting real estate agents, title companies and other third parties reliant on turnaround time. 4. HVCC does nothing to reduce fraud, as it legitimizes the same failed model, which was the subject of Attorney General Cuomo's investigation. 5. No Portability! Consumers are "trapped" with a specific lender. If a better deal becomes available with a different lender, the consumer is forced to pay for another appraisal. Background: I. Lack of Portability A. Lenders are not allowing borrowers to transfer appraisals, regardless of the reason. B. Forces the borrower to pay for another appraisal and wait for a new appraiser to be assigned and complete it, increasing the total cost and time needed for obtaining a home. Delays in turnaround times also cause the borrower to miss rate lock deadlines and possibly face penalties charged by the lender. C. In a poll conducted by NAMB, 75.8% of respondents said that 0% of their appraisals are portable since the enactment of the HVCC. II. Lack of Quality A. 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. B. Because AMCs pay appraisers such low fees, those assigned appraisers willing to do the work are often inexperienced and fail to adequately appraise the home. III. Increased Cost of Appraisals A. The minimum increase we have seen in direct consumer cost is $150 per appraisal. That, coupled with the drastically increased appraisal turnaround times that impose extended lock periods at an average expense of $561.95 per loan, is now costing consumers an estimated additional $711.95 per transaction. B. $150.00 - minimum increase per appraisal $561.95 - average loan amount of $224,778 at .25% for extended lock period $711.95 - average total increase per transaction x 3,870,552* - 2007 HMDA report of residential real estate loans originated $2,755,639,496 - $2.8BILLION in increased fees to consumers! IV. Articles Illustrating the Effects of the HVCC A. The Appraisal Bubble – The Center for Public Integrity B. The Cure is Worse than the Disease – AppraisalPress C. Appraisals Roil Real Estate Deals – The Wall Street Journal i. Feel free to forward these articles and/or reference them in your conversations.