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Former Board Chair of Tennessee Real Estate Appraiser Commission Speaks Out About the New HVCC

What It Really Means for the Consumer

In his Johnson City, Tenn. office surrounded by golf photos and memorabilia, veteran real estate appraiser John Bullington isn't talking tee-times. Instead the avid golfer is shouting "Fore!" over some new legislation called The HVCC or Home Valuation Code of Conduct that went into effect May 1, 2009. The appraisal reform agreement of New York Attorney General Andrew Cuomo requires institutions that deliver loans to Fannie Mae and Freddie Mac to adopt the HVCC. Bullington says the HVCC may have been well intended but unfortunately while trying to "clean up" what appeared to be a New York-based problem, it has backfired and appraisers nationwide are taking the hit.

The HVCC mandates an arms length separation between the people ordering the appraisals and those actually performing them. That's where Bullington, a past chairman of the Tennessee Real Estate Appraiser Commission, says middlemen have gotten in the mix. He says these "opportunists" have taken the form of certain Appraisal Management Companies (known as AMCs).

"This guy does not have to be a certified appraiser but he usually takes a large percentage off the top," says Bullington. "Furthermore since many of these new AMCs are from outside the market, the appraisals could come in with misleading values," he adds.

Bullington cites the June 18 testimony of National Association of Mortgage Brokers (NAMB) President Marc Savitt before the House Financial Services Subcommittee on Oversight and Investigations. Savitt said that the HVCC does not provide appraisal independence. "AMCs are entirely unregulated under federal law, and there are currently only three states with laws providing for any type of AMC oversight. By requiring the vast majority of all appraisals to be run through AMCs, the HVCC renders virtually all of the protections included in Regulation Z of the Truth-in-Lending Act ('TILA'), the Financial Institutions Reform Recovery and Enforcement Act ('FIRREA'), H.R. 1728, and various state laws inoperable. This is simply because AMCs are not subject to the requirements set forth in these statutes and regulations." For Savitt's full testimony click here: http://www.house.gov/apps/list/hearing/financialsvcs_dem/savitt.pdf.

Who ultimately pays? The consumer. Cases have been documented across the country of lag times (now averaging two weeks longer) in appraisals since the new law went into effect and fees have increased significantly. According to NAMB, consumers are now paying an estimated additional $711.95 per transaction. Appraisers aren't the only ones concerned. Bullington says lenders, mortgage brokers, real estate agents and homebuyers should all take note.

Meanwhile AMCs are appearing everywhere and Bullington is warning lenders that they do not have to use them. Recently, he received a copy of a letter sent to an East Tennessee bank written by a representative of an AMC. He waves the letter noting, "This appraisal management company is telling lenders that they must use them and that is incorrect." He cites an "HVCC Myths and Realities" fact sheet issued by the Appraisal Institute that says that "mortgage sellers may achieve compliance by establishing meaningful risk management practices, including separation between risk management (appraisal) and loan production."

"There are approximately 1,894 appraisers in Tennessee and most of them are honest. However, the people who operate these AMCs do not have to be licensed, certified or regulated. Who is to say that they will have competent appraisers or that they will know anything about the local market?"

Bullington adds that Appraisal Management Companies can operate legitimately but they must have competent appraisers on board. He is not alone in his quest to have the HVCC repealed. Numerous bloggers are writing about the issue and an online petition (www.HVCCpetition.com) to repeal the matter already had over 38,000 signatures as of June 24. Bullington says, "The petition comments show that AMCs are using out of town appraisers who have no knowledge of the subject's market. They are missing the mark by hundreds of thousands of dollars costing lending institutions good loans or causing lenders to exceed their loan to value ratio."

John Bullington is a certified general appraiser in Tennessee, North Carolina and Virginia. Mr. Bullington was appointed to the Tennessee Real Estate Appraiser Commission by Governor Sundquist for a three-year term and re-appointed by Governor Bredesen for an additional term spanning 2002-2008. Mr. Bullington is a general associate member of the Appraisal Institute. He was also a past member of the State Regulatory Advisory Group of the Appraisal Foundation and a Tenn. Representative to ARROW, a regulatory body governing the practices of appraisers for the United States.

Bullington advises that interested parties first contact their Congressman since this is now a matter of federal law and also contact their state regulatory agencies for information on how their state is dealing with the issue.