Understanding HVCC And How It Affects You – Part Two

In our last post, we talked about a common real estate scam wherein Realtors, Loan Officers and Appraisers would collude together to convince a home buyer that the house they were purchasing was worth more than it actually is.  In today’s post, we’re going to talk about the changes that were made in 2009 to put an end to this scheme.

There were two major changes that came about in 2009 regarding appraisals and the appraisal process.  One is known as AIC, or Appraiser Independence Certification, and the other is known as HVCC, referencing the Home Valuation Code of Conduct.  Both of these serve the same major ideal:

The Appraiser on a mortgage transaction needs to be completely independent.  This seemingly simple sentence does have an impact on you in the home buying process. 

The way that this idea manifests is through prohibiting communication.  The intention is to maintain “appraiser independence” throughout the entire valuation process.  We talked about a common scheme in the last post, but even without a scheme involved, the argument being made was that there is an implied pressure on the appraisers to bring in higher values.  The argument was that so long as a Loan Officer has the ability to choose who he orders appraisals from, then individual appraisers would have a constant implied pressure to bring in good values, because if they didn’t, then Loan Officers would naturally migrate to different appraisers who did bring in higher values.

So, the idea of AIC was manifested in the rules of the HVCC.  Beginning in 2009, all direct communication with the appraisal from the Loan Officer became prohibited behavior, carrying steep fines and the potential of license censure, and all communication other than the scheduling of property inspections with the appraiser from the Realtor also became prohibited behavior!  They went on to say that neither the Loan Officer, the Realtor, or the buyer are allowed to choose who the appraiser actually is!

So, how do you order an appraisal if no one is allowed to choose who to order it from and then no one is allowed to talk to them afterwards?

Well, overnight, a new industry emerged, known as AMCs, or appraisal management companies.  In our next post, we will talk about how these work and how this will affect you in buying your next home!