Home Valuation Code of Conduct Brings Changes to the Appraisal Process

The Home Valuation Code of Conduct (HVCC) will change the way appraisals are ordered and how residential transactions that utilize financing are processed.

The HVCC was created as part of a settlement that requires Freddie Mac and Fannie Mae to change their policies and procedures for all loans purchased. These companies will not be able to purchase mortgages from sellers who are not in compliance with the Code after the pending implementation date of May 1, 2009.

The lawsuit was filed when home prices were being inflated and foreclosure rates were starting to rise. Freddie Mac states on their Web site that the HVCC will, “enhance the independence and accuracy of the appraisal process, and provide added protections for homebuyers, mortgage investors and the housing market.”

Mortgage brokers traditionally order the appraisal required on a mortgage transaction. The HVCC now requires the appraisal to be ordered by the lender or a third party authorized by the lender.

This will impact mortgage brokers, since according to the National Association of Mortgage Brokers, brokers currently account for over half of the mortgages originated in the United States. The HVCC will not allow brokers to select, recommend, or influence the selection of any appraiser. Brokers are also not allowed to have substantive communication with the appraiser or have any influence on valuation.

Another provision required under the HVCC requires the lender to provide a copy of the appraisal to the borrower. Currently, a lender is required to provide the borrower with a copy of the appraisal upon request. After the implementation date of the HVCC, borrowers need to be provided with a copy of the appraisal at no additional cost at least three days prior to the loan closing.

Lenders must also randomly select 10 percent of appraisal reports for a required quality control test. The appraisal reports include automated valuation models, broker’s price opinions, or any other valuation. Any unusual findings or negative information by the lender needs to be provided to Freddie Mac or Fannie Mae.

Praedo Institute has been offering mortgage and real estate education to industry professionals since 2003. Online courses are available to fulfill pre-licensing and continuing education requirements. Education courses were first offered in Utah, but Praedo Institute has now expanded to assist industry participants to comply with education requirements for multiple states. Praedo Institute works closely with industry and state regulators to educate individuals of any changes or updates.