The Impact of the Home Valuation Code of Conduct on Appraisal and Mortgage Outcomes
Research Department, Federal Reserve Bank of Philadelphia
Download Document| Date Published | July 2015 |
| Version | |
| Primary Author | Lei Ding, Leonard Nakamura |
| Other Authors | |
| Theme | Loan Origination, Servicing Foreclosure and Forbearance |
| Country |
Abstract
The accuracy of appraisals came into scrutiny during the housing crisis, and a set of policies and regulations was adopted to address the conflict-of-interest issues in the appraisal practices. In response to an investigation by the New York State Attorney General's office, the Home Valuation Code of Conduct (HVCC) was agreed to by Fannie Mae, Freddie Mac, and the Federal Housing Finance Agency. Using unique data sets that contain both approved and unapproved 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 led to a reduction in the probability of inflated valuations, although valuations remained inflated on average, and induced a significant increase in the incidence of low appraisals. The well-intentioned HVCC rule made it more difficult to obtain mortgages to purchase homes during the housing price crash, possibly exacerbating the fall in prices.