HVCC and the Secondary Market

The Home Valuation Code of Conduct as talked about many times on this site and many others has brought many changes to the mortgage industry more so than any regulation in the valuation of real estate history. However one topic that has been mentioned very little or from what I have read not mentioned at all. Is the impact the HVCC is going to bring to the secondary market or MBS market over the next few months and years.

Currently there is no secondary market. The world has lost faith in U.S. real estate and has turned a blind eye to the GSE's Fannie and Freddie. Without the Treasury purchasing Mortgage Back Securities the entire economy would be in an even bigger disaster.

There are many reason the world has lost faith in the United States real estate. One obviously being the inflated values being put on homes and the market now being in a major slum.

One of the most vital pieces of the secondary market puzzle is the integrity of the collateral or the value. The accuracy in which a property is valued is the most important aspect of the security and without faith in the value the security has nothing. In the whole loan market the collateral is everything!!

So what will the HVCC do to the secondary market?

With the removal of pressure to "hit the numbers" on appraisals you are going to see lower appraisal values. This is not because the appraiser was throwing the value in the first place, but because there is a gray area on appraisals and typically most appraisers will go on the high end of the gray area to the "highest justifiable value" to make the deal work or appease the client. Now with no estimated value and that influenced removed you are going to see a lower value of about 3- 7% on appraisals across the board.

This will no doubt kill some deals however the deals that are made will be cleaner and will hold much better pricing.

These cleaner numbers will allow the mortgage banker to put more weight on the collateral for pricing when the loan is sold. This will not only allow more deal flow but also limit exposure to buy backs which will allow a more agressive stance to warehouse lines.

When the loans are sold the appraised value will more than likely be in line with the secondary market valuation whether BPO, Drive-By or AVM.

Once the world realizes the U.S. Real Estate market is trustworthy again your going to see the 1,000's of global investors on the sidelines start to invest in the U.S. Real estate again.

This is obviously going to take some time however the move is already slowly happening. You are seeing more and more companies proactively approaching the code as this was something long time coming and needed to be done.

Although I still do believe the code will be modified the spirit will remain the same and the world will once again believe in the United States real estate.