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FHA says “no” to HVCC

hvccSince May 1st the Home Valuation Code of Conduct (HVCC) has caused chaos with real estate transactions. Talk to any Realtor or mortgage broker and you’ll hear stories about unqualified out-of-area appraisers killing deals with low values. On the other hand, appraisers will talk about cut-rate fees and impossibly fast turn-around times from appraisal management companies (AMCs), forcing many to leave the business.

While these issues are rather disturbing, they’ve only been isolated to loans being sold to Fannie Mae or Freddie Mac. One lender who decided to take a stand is the Department of Housing and Urban Development (HUD), who administers FHA loans. They adopted more of a wait-and-see attitude towards the HVCC and are now defending their position. FHA Commissioner David Stevens recently said that they have no plans to implement the HVCC, adding that he is well aware of the problems originators have with the code.

The FHA Push

With small down payments, lenient income standards for borrowers and the continued ability to bypass the HVCC, some are calling FHA loans the new subprime.

In Tucson, First Magnus Financial specialized in risky “Alt-A” mortgages, which didn’t require borrowers to verify their income. State and federal regulators cited the company for misleading borrowers, using unlicensed brokers, and other infractions. It shut down last summer and laid off its 5,500 employees. But in May, the FHA issued a group of former First Magnus executives a new license to make taxpayer-insured home loans. They have opened a company called StoneWater Mortgage in the same office building that First Magnus had occupied.

What’s more frightening – dealing with the HVCC or these originators taking advantage of borrowers the same way they did just a couple years ago?

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Written By

As the son of two music teachers, Ben spent his first 21 years trying to make a living with his slightly above average trumpet playing. After no return calls from Dizzy Gillespie and then a failed attempt at becoming a fly girl on "In Living Color," he switched gears and finally found his nichè in real estate. He's a Minnesota appraiser and also a Realtor with his better half, Stacia. Labeled “one to watch” from an anonymous source (thanks mom), Ben is smart, good looking, athletic and a rock star inside his own head. He also never passes up a chance to write his own bio. Find him online at twitter or selling Stillwater Real Estate.



  1. Matt Carter

    August 27, 2009 at 7:54 pm

    HUD (which is not a lender) isn’t requiring that HVCC be applied to FHA guaranteed loans. But appraisers say FHA loan originators often use the code anyway.

    HVCC has caused “a significant transfer” of appraisals ordered by mortgage brokers to appraisal management companies, The Appraisal Institute and three other trade groups representing appraisers wrote Secretary of Housing Shaun Donovan on July 1.

    While the code does not directly impose rules on FHA appraisal-ordering practices, many lenders are now applying the same standard to their entire business — including FHA backed loans, appraisers say.

    Another policy adopted more than a decade ago limits how much appraisal management companies can charge on FHA assignments, the groups said, so many experienced appraisers are turning down FHA assignments from appraisal management firms.

  2. Joe Loomer

    August 28, 2009 at 6:58 am

    The HVCC caused more of a tempest in a teapot here than any real upheaval. I’ve read the horror stories from other areas, and we always seek to protect our Buyer clients with Appraisal Contingency Exhibits, but the truth is we never saw the cataclysmic drops experienced elsewhere. Values merely flattened out.

    At the risk of calling appraisers a dirty name, I’d say you’d have to be a moron to screw up an appraisal in our area.

    That bit about StoneWater gives me the heebee jeebees.

    Navy Chief, Navy Pride

  3. Aria Kilpatrick - Austin TX

    August 28, 2009 at 11:19 am

    I think that we need educated, local appraisers to do our job. Let’s face it, the market value of a property (what someone is willing to pay for it in the current market) is written write on your contract! I can give you story after story about obvious mistakes, lacking additions for obvious features that comps don’t have, but in the end what a buyer is willing to pay is the market price, is it not?

    Why do lenders put so much weight in an appraisal by someone who is not even an expert in the area? Would we ever recommend hiring a Realtor® who is not an expert in the area?

    This issue needs some serious thought. To me, it seems like yet another way to deny loans because I’ve seen clean (and I mean CLEAN – 50/50 LTV & 800+ credit scores!) loans go through and take 6-8 weeks of back-breaking work to even get to a closing table.

  4. Ben Goheen

    August 29, 2009 at 11:01 pm

    Aria: I appraised a home for a purchase where the home was previously listed at $289,900 and didn’t sell after many months on the market. Then they immediately re-listed with a price of $299,900 and had an offer right away. When I asked the listing agent about the pricing he indicated that the higher number was to avoid having to do a short sale – well isn’t that convenient? When my appraisal came in in the mid $270’s he started raising hell and kept sending me comps from 5+ miles away, where the 5 comps I used were within 1.5 miles. The buyer was also calling me saying that she believed it was still a great value for the neighborhood. Go ahead – overpay by $25,000 but it’s not coming from the lender.

    The one good thing the HVCC has accomplished is stopping the calls from LO’s asking for comp checks. I received a call yesterday from an in-state LO who I’ve never heard of, asking me to do an FHA appraisal quickly. She wanted to know if I’d look at comps ahead of time and check to make sure it will hit the value she needs before going out there. When I told her that it’s considered an appraisal to do so, she said “this is an FHA loan so I can order it directly from you.” Very true, but without seeing the house I can’t tell you a value, or even a price range. It doesn’t need to be on a form to be an appraisal – once an appraiser gives you a number it’s an appraisal. Strange? Maybe, but those are the standards we adhere to. Just like every profession there are some people who ignore the rules and get away with it on a daily basis. It just makes all of us who comply look like a**holes for doing the right thing.

  5. Appraisers Says No To HVCC

    February 2, 2010 at 10:27 am


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