The appraisal industry is continuing to come to grips with the new Home Value Code of Conduct. The comment period has ended and many have responded. Some are now telling me that the HVCC is dead and will never be implemented, though I'm not sure the GSEs have been informed.
I'll be in San Diego much of next week at the 2008 Predictive Methods Conference where the HVCC will be the subject of the keynote panel. I expect to have a much better grasp of the real situation early next week as a distinguished panel of experts will tear into the issue, including representatives from OFHEO, Fannie, Freddie and the industry.
Regardless of the fate of the HVCC, no one can deny that there are fundamental problems in this part of the business. While some, such as Jeff Schurman, executive director of the Title/Appraisal Vendor Management Association (TAVMA), suggest that we'd be fine if we could just find a way to enforce the laws we already have on the books, others feel that technology can be a solution.
Case in point, Robert Palmer, founder and CEO of Irvine, Calif.-based ValuationLogic and a certified appraiser with almost 25 years in the business. Palmer believes that stronger automated appraisal review capabilities are critical to reviving the distressed housing market.
"The HVCC (Home Value Code of Conduct) puts the focus squarely on the appraiser and the relationship between the person ordering the appraisal and the appraiser," Palmer said. "This does not resolve the lender’s responsibility to review the appraisal for adequacy and the value conclusion."
As loan underwriters work to determine whether they have a quality appraisal and, if so, whether the characteristics of the subject property match the lenders collateral guidelines, Palmer says they are using Valuation Logic. By returning to a time when this logic was routinely applied to new loan applications, Palmer says the industry could resolve the problems arising in the recent years from the inadequate due diligence process used to review appraisals. But he says it doesn't take an appraiser to do the job if underwriters are properly trained and have the right technology.
Palmer has a number of competitors who also agree that technology is a vital part of the appraisal management process, including Veros Real Estate Services, FNC, and PCVMurcor. Most agree that the more technology employed the less likely appraisers are to be subjected to pressure from originators.
"Historically, the review process provided the checks-and-balances necessary to provide for prudent lending decisions," said Palmer. "Appraisers who consistently pushed values, misrepresented items or were incompetent were rapidly identified and further work was not accepted. The appraiser had the ability to push back against undue pressure because all parties to the transaction knew that it didn't matter what the appraiser represented if the reviewer did not concur."
Palmer's company offers CollateralLogic Automated Appraisal Review, a product that can be customized to automatically evaluate each appraisal in less than two minutes and scores the individual variances from the customer’s guidelines. Palmer says new customers can go live on his system in 20 minutes and have full access to all rules immediately. Changes to a rule setting can be completed in minutes. No promises that cleaning up the current industry mess will happen as quickly.