If you have not already heard, as of Friday May 1st 2009, as one industry expert put it, “the complete lending landscape just changed!” To bring that back in from a more macroscopic statement, the way that appraisal are performed for certain types of real estate has changed. Welcome to the new world “after: the introduction of the Home Valuation Code of Conduct (HVCC). The HVCC pertains to mortgage loans (originated from May 1st onward) that are intended for sale to either Fannie Mae or Freddie Mac.
SO REMIND ME AGAIN ABOUT THE HVCC?
Last week’s article went over the Good, Bad and the Ugly of the Home Valuation Code of Conduct, and before I continue I wanted to remind folks of a few things about the HVCC.
According to the Federal Housing Finance Agency (FHFA), the HVCC builds on existing Fannie Mae and Freddie Mac seller-service guidelines to “increase the reliability of appraisals” for loans sold to the both these agencies.
To make a long story short, the changes being implemented through the HVCC are really intended to protect everyone and are for the greater good (yes – “the greater good”) by setting requirements so that the individuals and organizations requesting the appraisals have no influence on the outcome of the actual appraisal itself. Thus, the HVCC:
* Requires lenders to make sure that the borrowers get a copy of the appraisal reports (for free) at least 3 business days before the actual closing;
* Prohibits lenders and any other third parties from influencing (or trying to influence) appraisals;
* Requires lenders to now test a randomly selected 10% of appraisals and then to report any problems that they find to either Fannie Mae or Freddie Mac. Note that this may force lenders to buy loans back from Fannie/Freddie;
* Allows lenders to have in-house appraisers. However, the in-house appraisers need to be completely independent of the sales staff. In addition, the compensation of these appraisers can not depend on their estimates of value or on actual loan closings;
* Requires lenders to report appraisal misconduct to state agencies;
* Etc. and so forth.
In a nut shell, the HVCC sets guidelines to prevent real estate appraisers from being intimidated, bribed or otherwise influenced in their developing their valuation on a particular property. As you can imagine, there has been a lot of resistance on the HVCC throughout the industry; Real Estate Brokers, Agents, Lenders, Appraisers, investors, and even the end consumer are all going to be affected in one way or another.
WHAT KINDS OF PROPERTIES DOES THIS APPLY TO?
Now, as far as the types of real estate properties that this pertains to, we would need to take a closer look at what both Freddie and Fannie to say.
For Fannie, the HVCC only pertains to conventional, single-family loans and NOT to multifamily loans, or to loans insured or guaranteed by a federal agency. For Freddie, the HVCC also only pertains to single-family mortgages as well (no big surprise there).
NOW THAT I KNOW THE INTENT, WHERE CAN I GET SPECIFICS?
To start out with, a copy of the HVCC can be found on the Fannie Mae web site. To download a copy, simply go to:
and then click on the link for “Home Valuation Code of Conduct”
Along with any new code or regulations comes the issues with interpretation of such. Specifically, exactly what does the code mean and what can (and can not) be done. To help along with that, the various agencies have put out Frequently Asked Questions on the HVCC. At the above link for Fannie Mae, you have access to not only to the 6-page code itself, but also Fannie Mae has put together a nice list of Frequently Asked Questions and a replay of a recorded webinar on the topic.
Some of the more interesting outputs from the FAQs include:
* The Code does NOT specifically prohibit communication by a real estate agent with an appraiser;
* The Code DOES prohibit an appraiser from collecting payment for the appraisal directly from the borrower;
* The Code ONLY applies to Appraisals and does not apply to other valuation methods (i.e. automated valuation models (AVMs), broker price opinions (BPOs), tax assessments, etc.); and
* The Code prohibits mortgage brokers from ordering appraisal services, but brokers may initiate the appraisal process on a lender’s behalf in accordance with arrangements made by the lender.
Interesting to see how this all plays out, what tweaks are made over the coming months, and how this will impact not only the end user, but also anyone in the business or industry as well.