HVCC: Great idea, awful results

Our fearless Federal Reserve chairman Ben Bernanke just enjoyed his semi-annual congressional beat-down today where he gives his testimony on the state of monetary policy.  He had to walk a very fine tightrope of saying inflation will remain tame, that the economy is steadying but still experiencing difficulty, and that he will leave his “quantitative easing” programs (translation: throw money at the problem until it goes away) in motion.

And he did just that.  And there was much rejoicing.  Yaaaaaaaay.

So, the low mortgage rates that we enjoy today dodged yet another bullet that could have ratcheted them back up into the 6’s overnight.  That makes me and my clients very happy campers.

There are, however, some things I am less than happy about… The big one right now is the new HVCC rules that are in effect.  For those who are unfamiliar with HVCC, it is a system by which brokers and bankers must order appraisals through an appraisal management company without ever speaking to the appraiser.  The intent behind this is to prevent fraud and collusion.  If the broker can’t talk to the ap­praiser, he can’t manipulate him into giving an artificially inflated figure and everyone stays honest.

Right?

Wrong.  Horribly, horribly wrong.

What has happened is that these management companies have gone out looking for the cheapest bidder to farm the work out to so they can keep as much money as they can for themselves.  Well, the cheap­est appraiser is often times not going to give you the top-quality work that a normal appraiser will give you.  Because of this, we are seeing house values coming in lower than they should.  And that is cost­ing the industry a lot of transactions that would otherwise work.  And THAT is contributing to the continued decline we are experiencing in home prices. 

For the real estate industry, it’s kind of like kicking the walker out from underneath an old person.  Only not nearly as funny.

The good news is that local home inventories are starting to level off.  That means that demand is start­ing to come back, and we can start to entertain the hope that home prices will start to come back as well.  But only time will tell.

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