What is the purpose of the HVCC?
Enacted May 1, 2009, the Home Valuation Code of Conduct (HVCC) is a set of rules for the mortgage lending and real estate appraisal industries. The intended purpose of the HVCC is to protect appraiser independence and prevent pressure from being applied to appraisers to produce a desired property value. Ultimately, these safeguards are intended to protect consumers. Even though there has been considerable debate about the unintended consequences of the HVCC, compliance is required for all loans backed by Fannie Mae or Freddie Mac.


What can I expect to change because of the HVCC?
Nothing will change in the actual appraisal reports we produce. We've always focused on ensuring accurate, independent valuations in our appraisal reports. It's the core value of our business. We'll continue to do that going forward and we're ready and qualified to make sure everything we do complies with the HVCC.

The process of ordering appraisals has changed, however. If you're a homeowner in need of an appraisal of your home, an attorney needing a property appraisal, or even if you work for a small community bank or credit union and will continue to communicate directly with appraisers, click here to order an appraisal now.

If you're a mortgage loan officer or a mortgage broker who isn't allowed to order appraisals directly from an individual appraiser and are seeking an HVCC-compliant appraisal ordering system or service, I recommend using the Mercury Network for ordering HVCC-compliant appraisals. I'm already registered on Mercury Network, and it's the fastest, most compliant and effective way to order appraisals from me or any appraiser without overhauling your entire appraisal ordering process.

Because I'm already a Mercury Network member, after you complete your own Mercury Network profile, you can add me to your appraiser panel, if you choose to. Mercury Network's Intelligent Selection System (ISS) enables you to order appraisals "blind", based on pre-set ordering criteria so you can be confident you're ordering appraisals with complete HVCC-compliance. You'll also appreciate Mercury Network's pre-populated status message and text box-driven communications which provide you with an audit trail for each transaction. To order using Mercury Network, click here.

Where did the HVCC come from?
The HVCC was born from an agreement between the New York State Attorney General, OFHEO, Fannie Mae and Freddie Mac. In 2007 New York Attorney General Andrew Cuomo filed suit against First American Corporation and its appraisal management subsidiary, eAppraiseIT, accusing them of enabling Washington Mutual to pressure appraisers to change values, as well as hand-pick which appraisers should be used for WaMu's appraisal reports.


Attorney General Cuomo then subpoenaed Fannie and Freddie in order to learn more about loans purchased from banks like WaMu and the valuation processes they used. One of the results of the investigation was the HVCC, which was agreed upon and approved by Fannie and Freddie. From May 1, 2009 forward, every loan eventually funded by Fannie and Freddie must be in compliance with the HVCC.

What are the specifics of the HVCC?
The HVCC specifically prohibits any party from coercing, suggesting, or influencing appraisers in any way to produce a specific or desired value for a residential property.

Only the lender or a party authorized by the lender can engage the appraiser and order an appraisal that will be backed by Fannie Mae or Freddie Mac. Mortgage brokers and real estate agents, without lender permission, are not allowed to engage appraisers or order appraisals. Also, internal loan production staff members or any other person who is compensated on a commission basis are not allowed to engage the appraiser or have any substantive communications with an appraiser.

A specific exception has been made for institutions which, because of their small size or limited staff, would be unable to establish absolute lines of independence. These smaller institutions are required to clearly demonstrate that they have implemented prudent safeguards to isolate its collateral evaluation process from influence or interference from it s loan production process.

All loans backed by Fannie Mae or Freddie Mac must abide by the HVCC. The code doesn't apply to FHA and VA insured loans, or to appraisals ordered for non-lending purposes.

Lenders are required to ensure that the borrower receives a copy of the appraisal report at least three days before the loan closing. The lender, not the appraiser, must provide the copy to the borrower, at no extra charge. This allows the buyer to read the report and decide whether to go forward with the purchase.

You can read the full HVCC on Freddie Mac's website by clicking here: http://www.freddiemac.com/singlefamily/pdf/122308_valuationcodeofconduct.pdf

Mortgage Brokers and Appraisals
On March 31, Fannie Mae and Freddie Mac released an update of answers to questions frequently asked (FAQ) about the HVCC, including whether or not a mortgage broker is allowed to order an appraisal directly from an appraiser. The answer is clearly "no" and that has not changed. However, within that same HVCC FAQ update, the question of "Web portals" was addressed. Within the context of appraisal management, Mercury Network falls within the Web portal category.


The 16th question and answer located in the Freddie Mac HVCC FAQ states:
Question: May a lender direct a broker to use a Web portal set up either by the lender, or by the lender's authorized agent, through which the broker inputs a request for an appraisal and then triggers the lender's system to order an appraisal?
Answer: Yes. A lender may direct a broker to use a Web portal in this manner.

More info from Wikipedia http://en.wikipedia.org/wiki/Home_valuation_code_of_conduct

The Home Valuation Code of Conduct (HVCC or the 'Code') is an American document that was created jointly by members of Freddie Mac, the Federal Housing Finance Agency (FHFA), and the New York State Attorney General.[1]

The document states that, effective May 1, 2009, Freddie Mac will no longer purchase mortgages from Sellers that do not adopt the Code with respect to single-family mortgages that are delivered to Freddie Mac.

Also, effective for single-family mortgages made after May 1, 2009, Freddie Mac Seller/Servicers must represent and warrant that the appraisal report is obtained in a manner consistent with the Code.

Certain types of mortgages are excluded from the Code, including: FHA/VA Mortgages, Section 184 Native American Mortgages, and Section 502 Guaranteed Rural Housing Mortgages.

The code has not been well accepted by the most experienced Real Estate Appraisers as the code eliminated constructive working relationships with lenders and brokers that had been in place and working well for decades in some instances, therefore forcing appraisers to work for Appraisal Management Companies that generally pay only 50% of the fee that was once paid to the appraisers.

HVCC is no longer in use it has been replaced by the Dodd Frank Financial Recovery Bill. Here is a link to Wikipedia with info on it as well as Freddie Mac and Fannie Mae links.

http://en.wikipedia.org/wiki/Dodd%E2%80%93Frank_Wall_Street_Reform_and_Consumer_Protection_Act

Freddie Mac FAQ:
http://www.freddiemac.com/singlefamily/hvcc_faq.html#16
Fannie Mae FAQ:
https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/appcode/

Dodd-Frank Financial Recovery Bill replaced HVCC, we have provided some info below on the new bill. (Taken from www.AppraisalNewscast.com)

14.7.1. Property Appraisal Requirements and Independence Standards.

14.7.1.1. Property Appraisal Requirements. Creditors providing higher-risk mortgages must obtain an appraisal before they extend mortgage credit. [§1471] The Act specifies appraisal requirements, including a physical property visit and a second appraisal in some circumstances. Creditors must provide the borrower with a free copy of the appraisal, and creditors cannot charge the borrower for the cost of the appraisal. Willful failure by a creditor to obtain an appraisal as required will result in liability for the creditor to the consumer of $2,000.

Regulations for these appraisal requirements will be jointly issued by the Fed, the OCC, the FDIC, the NCUA, the Federal Housing Finance Agency, and the Bureau. The agencies may exempt a class of loans from the appraisal requirements.

14.7.1.2. Appraisal Independence Requirements. Those with an interest in the underlying transaction of the appraisal may not bribe, coerce, extort, or otherwise inappropriately influence the appraiser. [§1472] Appraisers may not have a financial interest in the transaction involved in the appraisal. Those with an interest in the transaction may not mischaracterize the appraised value of the property.

14.7.1.2.1. Mandatory Reporting. Various entities, such as a mortgage lender or broker, involved in a real estate transaction involving an appraisal must report to the appropriate state licensing agency any violations by an appraiser of the Uniform Standards of Professional Appraisal Practice.

The Fed shall within 90 days of enactment of the Act provide interim final regulations defining violations of appraisal independence.

Apart from the Fed’s interim regulation, the Fed, the OCC, the FDIC, the NCUA, the Federal Housing Finance Agency and the Bureau will have the authority to issue rules and interpretive guidance regarding appraisal independence.

14.7.2. Appraisal Subcommittee of the FFIEC. The Financial Reform, Recovery, and Enforcement Act of 1989 (FIRREA) is amended to provide the Appraisal Subcommittee of the Federal Financial Institutions Examination Council (FFIEC) with a consumer protection mandate. [§1473] The Subcommittee will audit state appraiser regulatory activities.

14.7.2.1. Annual Report. The Subcommittee must send an annual report to Congress detailing its activities and disapproved actions and warnings taken in that year. The Subcommittee may also prescribe regulation in limited areas.

14.7.2.2. Regulations. The Subcommittee may issue limited regulations involving appraisal standards. [§1473(d)]

14.7.3 Supervision of Third Party Providers of Appraisal Management Services. The Fed, the OCC, the FDIC, the NCUA, the Federal Housing Finance Agency, and the Bureau shall jointly establish minimum requirements for states to apply for the registration of appraisal management companies. Mandated requirements include compliance with the Uniform Standards of Professional Appraisal Practice. States may impose additional requirements in addition to the federally mandated standards. States may not register any appraisal management company owned any person who has had an appraiser license or certificate refused, denied, cancelled, or revoked.

14.7.3.1. Supervision of State Oversight by the Appraisal Subcommittee. The Board of Governors, the OCC, the FDIC, the National Credit Union Administration Board, the Federal Housing Finance Agency, and the Bureau of Consumer Financial Protection will also issue regulations for reporting the activities of appraisal management companies to the Appraisal Subcommittee. The Appraisal Subcommittee will have the responsibility to monitor each state appraiser certifying and licensing agency to ensure that those agencies have policies and practices consistent with federal law that they process complaints on a reasonable basis, among other requirements.

14.7.3.1.1. Reporting Requirement. State agencies dealing with the registration of appraisal management companies are required to transmit reports on the issuance of licenses and certifications, as well as sanctions, to the Appraisal Subcommittee.

14.7.3.1.1. Registration Requirement. Three years after the regulations are published, an appraisal management company may not perform services in a federally related transaction without being registered in that state or subject to oversight by a Federal financial institutions regulatory agency. The Appraisal Subcommittee may extend the three year period by an additional 12 months.

14.7.4. National Appraisal Complaint Hotline. The Appraisal Subcommittee must also establish a national hotline to receive complaints of non-compliance with appraisal standards 6 months after the date of enactment, if such a hotline does not exist at that time. [§1473(p)]

14.7.5. Quality Controls for Automated Valuation Models. Automated valuation standards must adhere to quality control standards designed to protect against the manipulation of data, avoid conflicts of interests, require random sample testing, and any other requirement determined by the agencies drafting the standards. [§1473(q)] These standards will be regulated by the Board of Governors, the OCC, the FDIC, the National Credit Union Administration Board, the Federal Housing Finance Agency, and the Bureau of Consumer Financial Protection.

14.7.6. Broker Price Opinions. Broker price opinions may not be used as the primary basis in determining the value of a piece of property in regards to a mortgage loan secured by that property. [§1473(r)]

14.7.7. Comptroller General Study on Appraisal Process. The Comptroller General is required to study the effectiveness and impact of appraisal methods and other aspects of the appraisal process due no later than 12 months after the date of enactment of the Act. A preliminary report to the House Financial Services Committee and Senate Banking Committee is due 90 days after enactment. [§1476]