Appraisal Scope

Effective May 1, 2009, Freddie Mac & Fannie Mae will no longer purchase mortgages from Sellers that do not adopt the Code with respect to one to four unit single-family mortgages that are delivered to Freddie Mac or Fannie Mae.

Also, effective for single-family mortgages with loan application dates on or after May 1, 2009, Freddie Mac & Fannie Mae Seller/Servicers must represent and warrant that the appraisal report is obtained in a manner consistent with the Code.

For months we have been discussing the HVCC and its ramifications to the loan process for consumers, brokers, and appraisers. This final version of HVCC or “The Code” is now out and there are some substantial changes to the prior version. Here are what seem to be the most significant changes, which quite honestly reduce its effectiveness in meeting its original intent of providing a true barrier from appraiser to lender or appraiser to broker:

• Allowing lender use of appraisal reports prepared by settlement services providers, in-house appraisers, and affiliates as long as certain conditions are met.
• Allowing lenders, in connection with the loan being originated, to accept an appraisal prepared for a different lender that has adopted “The Code,” including when a mortgage broker facilitated the mortgage application but did not order the appraisal.  So brokers can switch gears and take a loan package elsewhere and use the appraisal developed by the first lender.
• Removing requirements that lenders maintain a toll-free telephone number and e-mail address to receive complaints regarding appraiser independence.
• Removing requirements that lenders provide reports of suspected appraisal misconduct to the Independent Valuation Protection Institute.
• Excluding “small banks,” if they would suffer hardship due to those restrictions. An institution qualifies as a “small bank” if it has aggregate assets of not more than $250,000,000 and meets the other criteria set forth in 12 U.S.C. Section 2908. Institutions excluded from the in-house appraiser restrictions must comply with the other provisions of the Code and must meet all appropriate standards of appraiser independence.
• Allowing lenders to order appraisals direct (and may use a pre-approved list or panel to select a residential appraiser, provided that there is complete separation from the loan production side of the business, and the appraisers are not selected by the brokers), without the use of an AMC while independent mortgage brokers are not allowed to order appraisals, even through a double blind system or AMC.

For many of our clients, this last bullet is critical to understand. And for many of our clients, there are a couple of other key components:

• No C.O.D! Appraisers may not collect the fees for an appraisal; it must be paid by the lender, although the lender may require the borrower to reimburse the lender for those fees.
• No specific value can be conditioned, desired, or estimated as part of ordering or pre-ordering an appraisal. So orders that come in as: “we need $500,000 to make this work,” or “if value is not $650,000 please cancel the appraisal,” are in violation of the code. This means no comp checks. Inevitably this part of the code will cost consumers more as Fannie and Freddie believe that such comments were meant to coerce the appraiser into meeting the value, whereas we never felt that pressure. We simply told clients that a value wasn’t there, saving the consumer an unnecessary fee.

Here is a link to the revised code as well as FAQs from Fannie and Freddie.

http://www.freddiemac.com/singlefamily/hvcc_faq.html

http://www.freddiemac.com/singlefamily/pdf/122308_valuationcodeofconduct.pdf

https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/appcode/pdf/hvccfaqs.pdf

If you are a real estate agent or mortgage broker and would like a complimentary workshop for your office on “The Code” in its latest version, please contact Kim or Jan.