During the past several months there has been quite a lot of confusion about what is and what is not true about the Home Valuation Code of Conduct. We as appraisers have been confused ourselves. Some of the past updates we have posted may have been incorrect based on the current clarifications published by the Appraisal Institute, Fannie Mae and others. Many lenders have established appraisal management companies for the purpose of complying with what was perceived as correct. I have attached below an article from the appraisal institute that outlines some of the myths and concerns hopefully to clarify what is true and what is not. I hope this will be of help in understanding the guidelines of the HVCC.
Myths and Realities
The Home Valuation Code of Conduct (HVCC) is scheduled to take effect May 1, 2009. As of that date, institutions that deliver loans to Fannie Mae or Freddie Mac must represent and warrant that the appraisals obtained adhere to the requirements found in the HVCC regarding appraisal management, ordering and review by lenders. For more information on the HVCC, visit the following websites:
Fannie Mae (HVCC and Frequently Asked Questions)
Freddie Mac (HVCC and Frequently Asked Questions)
Federal Housing Finance Agency
http://www.fhfa.gov/webfiles/277/HVCC122308.pdf The release of the Home Valuation Code of Conduct has raised many questions on the part of lenders, appraisers, and others involved in mortgage lending activities. Lenders that sell loans to Fannie Mae or Freddie Mac are likely reviewing their internal appraisal operations, and some may have to retool or restructure their operations to achieve compliance.
Unfortunately, there is confusion and misinformation in the marketplace regarding HVCC compliance and appraisal policies in general, particularly in regard to use of third party vendor management firms. To help bring clarity to these issues, the information below is intended to identify some of the myths we have identified and state the reality. There will likely be additional questions on this issue in the coming weeks and months. For further information, please contact: firstname.lastname@example.org.
Myth: The HVCC requires lenders to use Appraisal Management Companies. Reality
the risk management department,
the credit department,
the consumer lending department (with no loan production responsibilities),
the compliance office, or
the chief executive office.
For many institutions, the HVCC will not require any changes. However, whether the appraisal function is a fully staffed appraisal department or an individual assigned with the appraisal responsibility, the function can be maintained internally where the reporting line is to someone other than loan production (e.g., any of the entities listed above). Sellers also should make sure that their policies are in compliance with any applicable federal bank regulatory policies by contacting their appropriate bank regulatory agency.
Myth: Loan Production staff is prohibited from communicating with appraisers. Reality:
Further, institutions should consider any potential reductions in quality that might result from outsourcing the appraisal function. To this point, federal bank regulatory agencies recently reminded institutions to consider an appraiser’s competency for any given appraisal assignment.
Myth: The licensing of an appraiser ensures his or her competency. Reality:
"A lender must not assume—simply based on the fact that an appraiser is state-licensed or state-certified—that the appraiser is qualified and knowledgeable about a market area or is aware of the appropriate market data sources for the area and will be able to obtain access to them. If an appraiser is not knowledgeable about a particular location, is not experienced in appraising a particular type of property, or is not familiar with (or does not have access to) the appropriate data sources, a lender should not give the appraiser assignments in that market area or for that particular type of property."
"Professional appraisal designations can be helpful to the lender in evaluating an appraiser’s qualifications, particularly when the designation is from a nationally recognized organization that has formal experience, education, and ethics requirements that are strongly administered. If the lender considers an appraisal designation in its evaluation, it should be familiar with the appraisal organization’s specific requirements to ensure that the designation is evaluated appropriately."