My New Blog

UPDATE: Since I first made this particular blog post, the President and CEO of a small community bank sent me an email, to which I absolutely feel terrible about.  Here is what he said:

"Read your blog concerning the HVCC. Your rant about banks loving the downward spiral in home prices and being glad they don’t have to make loans is wrong, ridiculous and offensive. “Bank gets appraisal and is ecstatic because they don't have to give the loan now, but still made $300 on the appraisal fee.” Do you understand that we can’t stay in business if we don’t do business, and that a key part of our business is making loans? To suggest we’re glad when we can find an excuse to not make a loan, and to suggest we lack integrity and want to nickel and dime folks for fees on loans we don’t expect to make is inane. You should know better."

I quoted some of his email, because he is right, and I feel bad about painting the whole "banking" industry in one broad stroke, when in fact, there are many banks out there that do care about how they do business, have ethics, and strive hard to keep a good reputation and create/keep good customers.  In an effort to convey to the reader the frustration the industry, and espeically me as an Appraiser, is feeling, I over illustrated the process.

With hat in hands, and my apologies to him, his bank, and all other banks and lenders that are not responsible for the current distasteful situation, I have reworded and added some things to my original blog.  This is done in hopes to better define the difference between some very large banks that own the largest AMC's- that are in large part responsible for the meltdown this country has suffered-and the other banks that have been honest, forthwright and upstanding, like his bank.

Finally to make it clear.  The banks and lenders that have to abide by the HVCC are ones in which plan on selling the loan to Fannie Mae and Freddie Mac.  The HVCC only applies to Fannie and Freddie funded loans.  Many banks and lenders do their own lending and keep the loans in house.  In addition, banks and lenders that do sell their loans to Fannie Mae and Freddie Mae are not all "the villains".  In fact, most of them are frustrated with the whole process just as much as the rest of us.   

Some AMC's also deserve the benefit of the doubt.  The ones that do their best to compensate the Appraiser fairly, not gouge the borrower, are willing to allow enough time for the Appraiser to do a competant job on the assignment, and that genuinely care about providing a good product to their clients get a thumbs up from me.  I work for a few of them and have enjoyed the relationships I have with these type of AMC's.

Been a long time since I blogged, since business is really slow lately I have the time.  I have only the HVCC to thank.

On May 1, 2008 the HVCC (Home Valuation Code of Conduct) became mandatory.  If you don't know what that means (no it is not heating and air conditioning- that is HVAC) please click here.  Essentially it says that a mortgage broker cannot order an appraisal directly from an appraiser anymore.  This has wiped out my major clentele, and has severly hamstrung my opportunity to run a business in the free enterprise system. 

Bottom line, appraisers hate it, mortgage brokers hate it, borrowers hate it, and some banks that own their own AMC love it.  Why?  Here is how an appraisal is ordered now a days (please note that this is a scenario in which a lender or broker that has to comply with the HVCC goes through.  And is meant as tongue in cheek to relay the frustration everyone is having.  There are many banks and lenders that do their own funding that don't have to do this, and are just as upset about being grouped into the large category as "the banks" because they have not, and are not, responsible for the negative stigmatizm that the connotation of the word "bank" currently brings out):

1- mortgage broker submits loan application to lender

2- lender either finds a middle man (AMC- Appraisal Management Company) to find an appraiser, or creates their own AMC (which may be a great added profit center for them.

3- lender tells broker the appraisal will cost $550 (varies, but usually more than what appraisals cost if ordered directly from the appraiser).

3- broker calls borrower and tells them they need $550 for the appraisal.

4- borrower asks if their house will appraise for as much as they need it to, and if the broker does not use that particular lender can they use that same appraisal with a different lender.

5- broker tells borrower that he/she is sorry.  He/she does not know if it will appraise for the needed value.  If it doesn't, the borrower is out the money.  Additionally, if they switch lenders, the borrower will need to cough up $550 more to order another appraisal because the appraisal cannot be portable.

6- borrower gets angry, swears for awhile, and coughs up the $550.

7- broker sends money to lender.  Lender orders appraisal through AMC.

8- AMC starts calling appraisers within the vicinity of the house being appraised and asks the following "we have an appraisal order for such and such address.  How much do you charge, and how fast can you get it done?".

9- Appraiser says, "hold on let me look up the property".  "OK, I see that it is a standard, non difficult assignment.  The cost will be $350 and I need 4 business days to set the inspection, inspect the property, and type up the report.  So you can have it in 4 business days."

10- AMC (usually someone hired by the AMC that is located in India and cannot speak very good english) says: "ok, we'll get back to you, good bye".

11- AMC calls the next appraiser, and the next, and the next.  You get the idea.  Finally the AMC finds an appraiser that will do the appraisal for $225 and do it within 2 days.

12- AMC assigns the appraisal to the cheapest, quickest (read- not the most competant or professional) appraiser.

13- Appraiser finishes appraisal and value is $100k below what is needed.  Comps are all foreclosures or bank owned properties, or properties that aren't really comparable.

14- Bank gets appraisal and is ecstatic because they don't have to give the loan now, but still made $300 on the appraisal fee.  They promptly let the broker know that the appraisal came in too low, but if the broker wants to dispute the appraisal, the broker can cough up another $300 for an appraisal review.

14- Broker coughs up another $300 for the review.  Lender orders a review with the AMC.  AMC goes through the process of calling appraisers again.  Finally finds one that will do it for $100.  The appraiser reviewer breezes over the appraisal and puts his/her stamp of approval on it (because they are not getting paid enough to actually do an in depth review of the original appraisal). 

15- AMC is ecstatic again because they don't have to loan the money and made another $200.

16- Broker finds another lender and the process starts over again.  The borrower ends up paying over $1000 for appraisals they can't use. 

17- The borrower can't refi. and quits making payments.  The house is foreclosed on.  The market continues to spriral downward.

That was kinda long, but summarizes what generally happens (keep in mind that sarcasm is being used to make the emotional point that the way things currently are is frustrating to Appraisers, Mortgage Brokers, and some lenders and banks).  The kicker to this is that most of the major lenders (who have to comply with the HVCC) own their own AMC's.  So it is a whole new profit center for them.  They are so excited (tongue in cheek).  Not only have they gotten free money from the bailouts, they are making more money now on the backs of appraisers and potential borrowers, in the form of appraisal fees.  However, competant appraisers are dropping the profession like vomit on a shirt, because they can't pay the bills anymore at the cut rates AMC's are expecting to pay.  The borrowers are spending more money,they ususally don't have, for appraisals that aren't always very good.  Mortgage Brokers are dropping and leaving the business just like the appraisers because they can't get a loan closed.  And several local and national banks that do their own lending and that do not have to comply with the HVCC are frustrated about getting a bad wrap and being blamed for something they are not responsible for, but are accused because they are a "bank".

Bottom line, I don't like it.  It is not only hurting appraisers, but it is costing the public billions.  Someday I will have to figure out what the cost of this is in the form of economic loss to the states.  Hopefully the state senators and congressman will crunch some numbers and realize that this is hurting their voters and local economies big time.

NOTE:  I am slow because I am refusing to accept cut rate fees.  I don't feel like I can do a legitimate and fair job for the fees being offered by the major AMC's.  Hopefully other appraisers are doing the same thing.  And hopefully, we as the public can somehow band together to put an end to the HVCC.  It was well intentioned, but terrible, terrible execution.  Furthermore, don't lump in the good banks from the banks that are actually responsible for this mess.  The good banks, and from my experience they are usually local, smaller banks, that do their own in house lending and care about their relationships with their customers, as well as their appraisers, and are visably just as upset.