Home Valuation Code of Conduct (HVCC)
HVCC got you down. Need to comply but have no idea how to do it. No need to panic. Noel Luciano has been on top of this issue since it was announced back in March 2008. The final version released in late December 2008 varies somewhat from the original version but the basic goals and requirements are still the same.
The primary reason the Code has been adopted is to help reinforce the independence of the appraiser. In plain language, the code requires a firewall between the loan production staff of the lender and the appraiser. Fannie Mae, Freddie Mac, FHFA, and the New York Attorney General agreed to implement the Code beginning May 1, 2009.
The Code is not statutory or regulatory. It is not law. It is simply a business agreement that applies only to loans that will be delivered to Fannie Mae or Freddie Mac. The Code does not apply to FHA or VA loans.
The code basically states that Fannie/Freddie will not buy loans originated after May 1, 2009 which are not HVCC compliant.
HVCC compliance can be achieved internally through the lender creation of an appraisal selection department that is separate from the loan production staff. See later comments for a definition of loan production staff. This department is responsible for the selection of qualified appraisers and insuring the appraiser selection process complies with the Code. This is not an onerous process and is likely the best solution for most lenders.
The Code specifically identifies Mortgage Brokers as being ineligible to select the appraiser. The most likely candidate tasked with appraiser selection would be the wholesaler. The wholesaler has a choice of creating an approved appraiser list (similar to what we were doing twenty years ago) or utilizing the services of an Appraisal Management Company (AMC). (See our tab on AMC's for more info.)
With respect to the appraiser and the selection of the appraiser, HVCC says:
No employee, director, officer, or agent of the lender, or any other third party acting as joint venture partner, independent contractor, appraisal management company, or partner on behalf of the lender, shall attempt to influence or attempt to influence the development, reporting, result, or review of an appraisal through thru coercion, extortion, collusion, compensation, instruction, inducement, intimidation, bribery or in any other manner including but not limited to:
•Withholding or threatening to withhold payment.
•Withholding or threatening to withhold future business.
•Implying or promising additional future business or compensation.
•Ordering an appraisal conditioned upon a conclusion or a preliminary estimate.
•Requesting that an appraiser provide an estimated, predetermined or desired value.
•Providing an appraiser with an anticipated, estimated, encouraged or desired value (sales contract OK).
•Allowing the removal of an appraiser without prior written notice including written evidence of the appraiser's illegal conduct or violation of the Uniform Standards of Professional Appraisal Practice (USPAP).
•Ordering a second appraisal unless there is reasonable evidence the initial appraisal was flawed or tainted.
•Any other act that attempts to impair an appraiser's independence.
The goal of the above statements is to insure that no person applies any pressure on the appraiser to report a value other than the fair market value opinion developed and reported by the appraiser.
HVCC says the lender shall be responsible for selecting, retaining and compensating the appraiser. Mortgage Brokers, borrowers and Realtors are specifically excluded from the list of individuals who may select, retain and compensate an appraiser.
HVCC goes on to say; All members of the lender's "loan production staff" shall be forbidden from:
•Selecting, retaining, recommending or influencing the selection of any appraiser for a specific assignment or the inclusion on a list or panel of appraisers.
•Communication with the appraiser.
•Working in the same organizational unit as any person who is involved in the selection of the appraiser.
"Loan production staff" is defined by the Code as any person: (i) Who is compensated on a commission based on the successful completion of a loan or (ii) who reports to any officer of the lender other than the Chief Compliance Officer, General Counsel, or any other officer who is not independent of the loan production staff and process.
An employee of the lender tasked with selecting appraisers must be appropriately trained and qualified in the area of real estate and appraisals and must be wholly independent of the loan production staff and process.
And finally, HVCC says the lender shall certify, warrant and represent that the appraisal report was obtained in a manner consistent with this Code of Conduct.
The above comments are the basic tenants of the Code of Conduct.