Impact of the Home Valuation Code of Conduct on Appraisal and Mortgage Outcomes

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During the housing crisis, it came to be recognized that inflated home mortgage appraisals were widespread during the subprime boom. The New York State Attorney General’s office investigated this issue with respect to one particular lender and Fannie Mae and Freddie Mac. The investigation resulted in an agreement between the Attorney General’s office, the government-sponsored enterprises (GSEs), and the Federal Housing Finance Agency (the GSEs’ federal regulator) in 2008, in which the GSEs agreed to adopt the Home Valuation Code of Conduct (HVCC). Using unique data sets that contain both approved and nonapproved mortgage applications, this study provides an empirical examination of the impact of the HVCC on appraisal and mortgage outcomes. The results suggest that the HVCC has reduced the probability of inflated valuations and induced a significant increase in low appraisals. The HVCC also made it more difficult to obtain mortgages in the aftermath of the financial crisis.

In the wake of the financial crisis, regulators and policymakers questioned whether inherent conflicts of interests between lenders and appraisers compromised the accuracy of appraisals utilized before the housing crisis. In response, laws and regulations were enacted to address the conflict-of-interest issues in appraisals for residential mortgages. With significantly tightened regulations and the decline in housing prices in many areas, home valuations in some areas became undervalued and new mortgages became harder to obtain in the aftermath of the crisis.

HVCC impact study discussion - Image courtesy of Stuart Miles / FreeDigitalPhotos.netDespite the controversial role of appraisers before and during the most recent housing crisis, there is a dearth of empirical research about the effects of regulatory changes since the crisis on appraisal outcomes and the housing market overall. This study provides the first empirical examination of the impact of a major appraisal rule, the now-superseded Home Valuation Code of Conduct (HVCC), which was adopted in the middle of the housing crisis, on low appraisals and mortgage outcomes.

Impact of the Home Valuation Code of Conduct on Appraisal and Mortgage Outcomes Discussion Paper

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5 Responses

  1. Retired Appraiser Retired Appraiser says:

    Their Final Analysis: “The results suggest that the HVCC has reduced the probability of inflated valuations and induced a significant increase in low appraisals.”

    Well slap my ask and tickle my balls! Was that the ONLY result of HVCC? Not quite.

    I. HVCC also resulted in billions having poured back into the vaults of banks from the pockets of appraisers across the country (it’s primary mission actually). Those billions continue to flow.

    II. HVCC resulted in the highest migration of experienced (intelligent) appraisers from the profession in it’s entire history. The mass migration continues.

    Don’t insult our intelligence. The people that banks hire to write this jibberish are the same types of men that examine an egg for 3 hours to determine the most efficient way to crack it for an omelet. Unfortunately they also have no connection with reality.

    Nice try banks but we know BS when we read it. Save it for someone that actually gives a ship what you think about the impact of HVCC.

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  2. Retired Appraiser Retired Appraiser says:

    FACT: A simple blind rotation list would have achieved the same goal with superior results.

    Why was a blind rotation list never considered? Because it would not pour appraisal fees into the pockets of banks.

    Case closed Federal Reserve Bank Of Philly Cheese Steak

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  3. Retired Appraiser Retired Appraiser says:

    FACT II
    If funneling appraisers fees into bank vaults was not the primary goal of HVCC bank the banking lobby would have stopped fighting transparency of AMC/Appraisal fees on the HUD-1 settlement form years ago. The fact that they continue to fight it month after month and year after year is as good as a signed confession.

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  4. David says:

    Wow!!! It was the appraisers’ fault! I’m sure tire of re-hashing over the same old BS. After all we have the people who created the problem, solving it? Really. Congress can’t even manage a balanced budget…

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Impact of the Home Valuation Code of Conduct on Appraisal and Mortgage Outcomes

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