The Home Valuation Code of Conduct, HVCC, was enacted on May 1, 2009, by the Fannie Mae and Freddie Mac Foundations and the Attorney General of New York. The HVCC is intended to prevent individuals and organizations from having any influence on the requested appraisal itself.
One way the HVCC limits the inflationary practices of appraisals is by requiring the lender to provide the borrower with free copies of the appraisal within three business days.
Lenders are now required to randomly select 10% of appraisals, test them, and report any misconduct to Fannie Mae or Freddie Mac. Estimates of in-home appraisers should not be the basis of their compensation, and the appraisers should be independent of the sales staff of the lenders. State agencies are notified when infraction occurs in the appraisal process.
The HVCC affects 1-4 Family loans bought by Fannie Mae and Freddie Mac. It does not affect FHA, VA, or jumbo loans. Private assignments are also unaffected, such as divorce appraisals, bankruptcy appraisals, tax grievances and tax appraisals. The HVCC applies only to appraisals, so automated valuation models, broker prices options, and tax assessments remain unaffected.
There are many myths about the rules and regulations of the HVCC, and these facts may clear up some confusion. For instance, the HVCC does not specifically prohibit communication between the appraiser and the real estate agent; however, the appraiser is prohibited from accepting payment directly from the borrower– third parties are approved by the lender to select, retain, and provide payment for compensation to the appraiser.
The HVCC does not require the use of AMCs, Appraisal Management Companies. Appraisals may be ordered by lenders from individual appraisers. As long as mortgage brokers are selecting, retaining, or providing payment of compensation to the appraisers, they are allowed to use specific AMCs directed by lenders that use a group of authorized AMCs.
Under the code, lenders are prohibited from accepting appraisals that were ordered by mortgage brokers. Mortgage brokers are not allowed to provide lenders with a list of approved appraisers for the lender to use when ordering appraisals.
The HVCC affects the whole Home Valuation industry, not just the end user and places restrictions on every department. Fannie Mae and Freddie Mac are currently the only organizations to have implemented regulations such as these; however, other government groups such as the FDIC, NCUA, and the Federal Reserve have pending polices that will increase liability to both lenders and investors.
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