A bill recently approved by the federal House Financial Services Committee may signal the end of Freddie and Fannie’s much-reviled Home Valuation Code of Conduct (HVCC). The numerous critics of the HVCC (brokers, agents, appraisers, sellers and buyers) claim it does not live up to its purpose of controlling collusion between brokers and appraisers in setting prices.
The appraisal management companies currently in charge of assigning appraisers to value properties are assigning appraisers outside their geographic areas of competence. When appraisal values come in low, buyers and sellers (and their brokers and agents) squabble over what is to be done with the lower value, often delaying or even canceling a deal.
If passed, the bill would establish a new Consumer Financial Protection Agency which would have the authority to replace the existing code with a more functional set of rules. Should the bill fail to pass, there are still alternatives to the HVCC on the table, among them an 18-month moratorium of the existing rules.
first tuesday take: The HVCC couldn’t have come at a worse time, and there are few people out there that disagree. We’ve written previously about the slipshod nature of that code in our July 2009 first tuesday article, The Home Valuation Code of Conduct, and we echo here what we wrote there. The constricting nature of the HVCC merely worsens a housing market already chock full of roadblocks like reluctant lenders, underwater properties and a dearth of buyers.
The bill that would abolish the HVCC is still a long way from being passed, but it is a heartening sign that despite some significant challenges and some rather large missteps, Congress is responding to the industry’s feedback in a productive manner. Hopefully, this correction will come in time to aid the slowly, if not too distantly, burgeoning recovery.
Re: “Home valuation code could undergo major revamp” from the Los Angeles Times
My children let’s not quibble. Several of the Federal Reserve governors’ seats largely sat vacant for years because no one wanted to take ownership of its own Fed Policy over the past 5-7 years, or longer. My non-believers, we know everything turns on Fed Policy. Do not kid yourselves.
The Mafia bankers only corrupted the system as much as their private and public sector chain of command allowed them to including the FED RESERVE. We also know too much competition is ruinous and banks were allowed to cross state lines to compete. Remember? Apparently, they just wanted the fee and did not properly qualify the borrower; the mafia banks and Fed Reserve looked only to the collateral, loosening credit standards or throwing them out the window all together along with other banking regulation. The Fed’s Policy condoned this behavior or at least did not regulate it to the extent necessary. The mess speaks for itself.
Another flawed Fed Policy: Interest rates do at least two things. They price the rent on money and measure its risk. The Fed apparently has failed in this regard because your money according to them is not worth much hence their unwillingness to price it with a slightly higher interest rate to gain the appropriate rent on money, and the risky loans were artificially priced as not being risky with artificially low interest rates, too. They still are, but with values way down, maybe there is less risk (although, see job risk to sustain this level—your American jobs are overseas). The agency who rates the paper apparently said everything is “A” paper. That’s convenient. Has the Fed changed any of these policies or is it business as usual? We have not even touched on borrower and loan arranger fraud yet.
If we were to compile all of our lists together we might be able to start to say that we are getting our arms around the problems. Maybe not. Most of your concerns are in the ball park though. In 2005 the Fed Reserve lowered interest rates at the height of inflation. Should they have raised interest rates then during the height of hyper inflation? It appears everybody is in the streets taking swings at each other when it really turns on failed Fed Policy? Why? Need hyper inflation for a global agenda? Also, does government collect more tax payer taxes on hyper-inflated dollars? At the expense of you and me? Is it a house of cards?
We have not touched base on the off shoring of jobs that would other wise pay mortgages, fica, futa, other payroll taxes, SDI, UI, and health care premiums to name a few? Is that U.S. job that is now transferring to say India or Mexico supporting a U.S. health care premium? Mortgage? Payroll tax? Utility? Ballgame? Government would love for the diversion that you engaged in above to smoke screen the problem, pitting you against each other. The fact is Fed Reserve policy failed us in the height of inflation during 2005, too. This is all the hyper inflationary fall out. A crash landing if you will. If we were willing to forgo the excesses of real estate inflation, meaning live with a little less, we would not be rolling around in the streets today. Life is a marathon, not a sprint. We are seeing that these excesses can be ruinous.
Until the Fed Reserve establishes Fed Policy showing the currency is actually valuable and properly measures risk in its interest rate policy, it is business as usual.
Jesus H.,
What do you expect, D. Stephan lives in Sausalito!
I think they share the zip code with the City of Berkeley. His comments and positions are typical of Kool-Aid drinkers and Mr. Faber probably belives that government creates wealth too.
Barney Frank & Chris Dodd were the main perpetrators, but this whole fiasco got started back in the Clinton and Bush years. We really need to start from a clean slate, and stop the government intrusion & manipulation, which helps to sustain the constant Boom and Busts Cycles in California Real Estate.
Reducing the size of governent with mandated Balanced Budgets would be a good start.
In the 80’s and 90’s the only adjustible loans were based on the 11th District Cost of Funds Index plus a small margin. Very few of those loans went into default. Then various government agencies started to OK loans that were based on the LIBOR RATE, TREASURY BILL RATE, and the PRIME RAte. These Indexes move up very quickly trapping borrowers in unaffordable loans. The 11th District Cost of Funds moved up very slowly and never caused a real forclosure problem. The government regulations caused these forclosure problems
First, this HVCC most go. Why is it needed when appraisers are already required to act properly under their licensing.
Plenty of blame to go around. Starts with Wall Street selling loans to investors and looking for originators to make loans at the highest rates…birthing the sub prime market. Originators had no exposure as they made loans and immediately sold them to wall street who sold them to investors. Originators received high up front fees, and nice commissions from wall street, wall street received nice fees from investors and investors thought they were getting a great above market return on their investment. Banks made big loans available to sub prime lenders to make this happen. Next were the mortgage brokers. “Liar Loans” were popular and many counseled borrowers as to what to “state” to get the property they wanted and brokers collected big fees. Then the appraisers….there were many and they had all the business they could get if they brought in the values needed. It was easy to do as prices were increasing but some put what was necessary to maintain the relationship with the broker who was giving them tons of business.
Now, legitimate appraisers who worked many years in establishing their business relationships by providing quality work were immediately in line with low quality low talent appraisers willing to work at much lower rates as they don’t do much. They also now get less than they did before as the middleman takes their cut. Of course the consumer suffers as they pay higher appraisal fees (remember, less to the appraiser actually doing the work) and values come in much lower than they typically should as there is no vested interest in the appraiser getting the most accurate value but the easiest value….who is going to contest it….we can’t.
Get rid of this business busting (appraisers) consumer gouging (higher fees) home owner devaluating (lower appraised values effect everyone) economic fiasco now.
D Stephen Faber (if that is your real name) you are full of it. I’m a real estate broker with a law degree too, and I know a load of crap when I read it. Brother, it’s coming out your ears.
You are repeating the statist, leftist party line, and not a word of it is true. The government forced, threatened, cajoled, mandated, and ordered banks to make foolish loans based on lax government standards enacted for political reasons, not the normal, prudent standards most banks previously followed. The result is the current disaster. Get your facts straight and stop making an ass of yourself.
Sorry R Cadway, but you are way off the mark. As a real estate broker with a law degree I can assure you that the greedy lenders/bankers/investmentbrokers were/are the problem- not the government. Even the bank/broker regulators wouldn’t have qualified as villans here as the fraud was very well concealed. There was no government conspiracy that advocated the removal of credit qualification as a condition of home purchase. The mechanism to promote the fraud was the “securitization” of the loans in large packages that were sold by the loan originators to others. The originators were able to collect fees and knew that they wouldn’t suffer the risk of the borrower’s inevitable default. The fraud was perpetuated by rating agencies that presumed that all loans were adequately qualified without doing their job- to study the underlying asset/credit and rate accordingly. The agencies just collected more fees and didn’t bother with the work. It was never the RE broker’s job to clear the home buyer’s credit and given the legal presumptions of the foundation of a contract- a price at which a willing buyer and willing seller will agree, how can the appraiser be faulted?
The government is pointing the finger at appraisers, agents, and lenders for the financial meltdown.
It is non-sense. Althought there was some fraud, the real problem was the intentional removal of the regulation of loans.
Wake up people! It was the governments fault, and likely intentional, and they should be held accountable. Don’t blame others to distract from the real cause.