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Home Valuation Code of Conduct: HVCC

Back on May 1, 2009 Fannie Mae and Freddie Mac adopted the HVCC for all loans they bought from that point forward.  The intended purpose was to place a level of integrity into appraisals which have come under much investigation since the mortgage market crashed.  Mortgage Lenders and Brokers were under government scrutiny for some of the practices which laid the groundwork to the events that followed, the mortgage market meltdown, so as a result the Government Sponsored Entities(GSE’s) decided to use the HVCC as a vehicle to create a firewall between appraisers and loan originators.

What has resulted is an industry which is in a state of change and confusion.  Appraisal Management Companies(AMC’s) have sprung up as a middleman to create that buffer with many unforeseen consequences.  The first and most immediate result is an increase of the price of appraisals from what I’ve heard is said to be upwards of $100 per appraisal to the borrower.  Secondly, many appraisals have not reflected true sales and market conditions and thus have acted to distort the values of many properties sold thru the market since the codes inception because in many cases appraisers are sent by Appraisal Management Companies to areas which they are not familiar with.  Some markets have more of a uniqueness which is not apparent to an out of area appraiser and requires a local view.  And finally its impact might be felt for years to come because many of your best appraisers who have worked years to not only build their reputations but their client bases have become shut out or at the very least forfeited almost half of their income while the Appraisal Management Companies have basically come in and helped themselves to the profits by asking appraisers to reduce their costs and increasing the cost to the borrower.  As a little side note, isn’t it interesting that the very banks who were complicit in forcing the government to create this legislation are not prohibited from having an ownership stake in these companies?  Don’t you think there should be some good buffering?  Obviously that is not a concern, for now.


The separation that is desired by the government is created by not allowing the loan originator to select as well as have any contact with an appraiser regarding the potential value of a subject property.  Prior to the HVCC, it was possible to talk to appraisers about potential values which was a help because if as a loan originator I don’t have the ability to use a realistic value for a person wanting to get a loan, then it makes it a lot harder to present an objective picture which would include the all important loan-to-value and see if it makes sense to do the loan at all.  In the long run that will cost the consumer money and time in useless appraisals and potential escrow fees.  What they are trying to accomplish is the elimination of any potential for collusion.  As far as I’m concerned it is a step in the right direction but probably not the best alternative.  FHA loans are still not subject to HVCC appraisal restrictions as of this writing.  The other important part of the code is the requirement that a borrower be provided a copy of the appraisal no less than three days prior to the closing of a loan.  The typical mode of delivery is email for a borrower to receive their appraisal so you will be seeing more requirements to have an active email account so if you don’t have one, pick one up.


So far the affect that has been felt in the Real Estate markets is to reduce the number of closings as appraisals are not coming in for value which basically puts the seller in a compromising position and in many cases voids the deal.  Is this code accomplishing the objectives they are intended for?  Time will tell, just don’t ask a Realtor for their opinion about HVCC.


Following are a few questions and answers most commonly addressed.


Q & A;


Q.  Which loans are affected by the HVCC?

A.  Fannie Mae and Freddie Mac loans originated after May 1, 2009.  Origination date means the date of the credit application and this coed does not apply to multifamily loans or those guaranteed by a federal agency such as FHA.


Q.  Are the requirements of the Fannie Mae appraiser any different?

A.  No, they are at the same high level of using good logic, impartiality, and rationale to arrive at the value conclusions.  That must be the appraisers’ professional conclusion.


Q.  Can an appraisal be transferred to a different lender

A.  Yes.  As long as the appraisal is from a lender that complies with the HVCC.


Q.  Is there a cost to do the appraisal and is the borrower required to pay for the appraisal?

A.  Yes.


Q.  Does the Code prohibit a loan originator from talking with an appraiser?

A.  No as long as the subject of value is not addressed.


Q.  Is a lender specifically prohibited from ordering a second appraisal?

A.  No.  A lender is only prohibited from ordering a “second appraisal” for the purpose of “value shopping”.  One case that is pretty common is for properties that have been flipped in a short period of time and the investors want a second opinion.


Q.  Can a payment be provided directly to an AMC by the borrower?

A.  Yes but the borrower cannot pay the appraiser directly.


Q.  Does a lender have to use an AMC to order its appraisals?

A.  No.


Q.  If an AMC is partially or wholly owned by a lender, can they order appraisals?

A.  Yes as long as the AMC meets the criteria of Section EV.B of the code.


Q.  How is the appraisal copy to get to the borrower?

A.  The code doesn’t have any specific delivery method but it is the responsibility of lender to insure timing is met.


Q.  Is there a waiver for the three day requirement?

A.  Each lender is responsible for documenting that procedure.