The National Association of Home Builders has joined the National Association of Realtors in the fight to roll back the Home Valuation Code of Conduct. Actually, I’m not sure they want to roll back the HVCC so much as they want to dictate the methodology that appraisers currently use to arrive at a value for a house. I’ll get back to that in a moment.
First, let’s take a look at what some of the influential parties have had to say over the past couple of days.
The NAHB offered these comments:
“Any home buyer can recognize the difference between a well-kept home and a distressed property that is damaged or not properly maintained,” said NAHB chairman Joe Robson. “So it only makes sense that an appraiser should be required to consider the overall condition of a property and the specific factors related to a foreclosure or distressed property sale when selecting and adjusting the value of comparables.”
The Federal Housing Finance Agency, Fannie and Freddie’s regulator, weighed in with a statement of support for the HVCC:
“The Enterprises have a strong interest in ensuring the soundness of the appraisal practices that lead to appraisal reports supporting the mortgage loans they purchase from lenders,” said FHFA director James Lockhart at the time the code was announced.
“The Code,” he added, “strikes a balance of assuring enhanced protections for appraisers while maintaining lender ability to address unprofessional appraisal practices and to perform quality controls on appraisals received.”
In response to the charge leveled earlier this week by the NAR’s Lawrence Yun that appraisals improperly using distressed sales as comps were causing contracts to fall out due to faulty valuations, the Director of the Appraisal Institute said:
“We take offense with the notion that an appraisal is only good if it happens to come in at the sales price,” Garber said. “That mentality helped cause the mortgage meltdown to begin with. The fact that the value reflected in the appraisal does not match the sales price is not the fault of the appraisal but a result of the market today.”
The NAR and NAHB are pulling out all of the stops on this one in order to influence Congress to intervene. A reasonable case can be made that the HVCC needs some tweaking. It’s a new protocol and like any new program isn’t perfect. However, the core of its reform — insulating the appraiser from the influence of interested parties in the real estate transaction — is a giant step forward and should not be diluted in any manner whatsoever.
Let’s not be misled with regard to the intent of the real estate industry. They want the appraisal process changed in a manner that will lessen or eliminate the use of foreclosure sales in determining the valuation of a property. The industry is attempting to write procedures that a supposedly independent third party would be required to follow in order to reach a conclusion as to value. An outcome that would be clearly unreasonable.
If you look past all of the industry huffing and puffing and the vested interests on both sides of the issue, you realize that at its heart this is really an issue that affects the consumer. Ensuring that consumer receives an estimate of what they are about to buy that is free from bias should be the goal. The only way to meet that goal is to eliminate the ability of parties who stand to profit from the transaction to influence the process. As it now stands, the NAHB and NAR are attempting to do the opposite.