Scores of home sellers and other home-buying stakeholders are operating under a new set of rules when it comes to the appraisal process. Since May 1, Freddie Mac has stopped purchasing mortgages from sellers that fail to adopt the Home Valuation Code of Conduct. A joint agreement between Fannie Mae and Freddie Mac and the New York state attorney general, the HVCC aims to boost independence and curb value inflation among appraisers.
Some mortgage groups have fought the measure, which was introduced in 2008 but didn’t take effect until this spring. Government officials claim the HVCC will provide greater protection for home buyers, investors and the market at large. The code remains a hot issue in the housing industry. It also impacts a lot of business. Freddie Mac and Fannie Mae purchase about 85 percent of all mortgages.
The HVCC has a host of lender requirements. The new code:
- Prohibits lenders and third parties from influencing or attempting to influence the development, result, or review of an appraisal report.
- Requires lenders to ensure that borrowers are provided a copy of the appraisal report no less than three business days prior to closing, unless the borrower waives the requirement. The lender may require the borrower to reimburse it for the cost of the appraisal, but the lender must provide a copy of the appraisal report to the borrower at no additional cost.
- Requires any third party specifically authorized to perform certain actions on behalf of the Seller to be in compliance with the Code.
- Requires lenders or third parties authorized by lenders to be responsible for selecting, retaining, and providing for payment of all compensation to appraisers. The Code does not allow any other third parties to perform these activities.
- Allows lenders to also use in-house staff appraisers to: 1) order appraisals; 2) conduct appraisal reviews and other quality control functions; 3) develop, deploy, or use internal automated valuation models; and 4) prepare appraisals in connection with transactions other than mortgage origination transactions, such as workouts, if the lender complies with the terms of the Code.
- Requires lenders to quality control test a randomly selected 10 percent (or other bona fide statistically significant percentage) sample of appraisal reports or valuations used by the lender, and report any adverse findings, including non-compliance of the Code, to Freddie Mac with respect to loans sold to us.
- Allows Sellers with an asset size of less than $250 million to be considered a small bank as defined in 12 U.S.C. Section 2908 and exempting them from the requirements in Section IV of the Code. Sellers that qualify for this exemption must represent and warrant that they have in place appropriate policies and procedures, as well as adequate controls to prevent undue appraiser influence.
To learn more about the HVCC and look at some of the other new lender requirements, visit this page on Freddie Mac’s website and be sure to tune into this webinar if you subscribe to Mortgage Daily.
This guest post was written by Brandon Laughridge of Mortgage Loan Place. MLP specializes in teach consumers about conventional home loans, fha loans, and va home loans. Visit MLP for tons of free guides and consumer oriented information.