About The HVCC

Obama Signs Financial Regulatory Reform Bill

President Obama signed the historic financial regulatory reform bill into law July 21, ushering in a dramatic rewrite of the rules governing financial service providers and products and ending a nearly year-long struggle to enact meaningful reforms.

"These reforms represent the strongest consumer financial protections in history," Obama said in his prepared remarks, released by the White House before the signing ceremony. "These protections will be enforced by a new consumer watchdog with just one job: looking out for people – not big banks, not lenders, not investment houses – in the financial system. Now, that's not just good for consumers; that's good for the economy."

Federal regulators will now implement the 2,300-page bill, which passed the House on June 30 and the Senate on July 15. The new rules will regulate complex derivatives, set up controls to identify and shut down troubled financial companies, and establish an independent consumer bureau within the Federal Reserve to protect borrowers against abuses in mortgage, credit card and other types of lending.

While the Dodd-Frank Wall Street Reform and Consumer Protection Act is notable for its reforms to Wall Street and government regulatory oversight, the Appraisal Institute applauded the legislation’s inclusion of the first modernization of real estate appraisal regulations in more than 20 years.

“This bill will mean good news for consumers because they should see more reliable home appraisals,” said Appraisal Institute President Leslie Sellers, MAI, SRA. “It will encourage the use of highly trained and competent real estate appraisers and will provide much-needed resources for oversight and enforcement.”

Sellers noted that in addition to authorizing grant funding for state oversight and enforcement, H.R. 4173 will require that “reasonable and customary” fees be paid to appraisers to reflect what an appraiser would typically earn for an assignment absent the involvement of an appraisal management company. AMCs that violate “customary and reasonable” requirements will be subject to severe penalties under the Truth in Lending Act.

H.R. 4173 also provides provisions to sunset the controversial Home Valuation Code of Conduct by directing for the establishment of a federal appraisal independence standard. The HVCC, which took effect in May 2009, has been largely criticized by many real estate professionals.

Among its other key appraisal provisions, H.R. 4173 also will do the following:

Require AMCs to register with state agencies.
Enhance appraiser competency provisions, including clarification regarding consideration of professional appraisal designations.
Provide financial resources for oversight and enforcement of appraisal rules.
Separate AMC and appraisal fees on the HUD-1 Statement.

The Washington Post reported July 15 that federal agencies have been hard at work for weeks in anticipation of the reform bill’s passage. The Treasury Department has already assigned dozens of employees to carry out various provisions, such as the creation of the consumer protection bureau, while agencies such as the Securities and Exchange Commission, the Federal Deposit Insurance Corp., and the Federal Reserve, have been holding daily meetings to plan how they will carry out their new responsibilities.

Due to the legislation’s size, H.R. 4173 will be rolled out in stages. As noted by the Post, the first step will be to set up a new Federal Insurance Office to allow the government the authority to seize large-scale failing financial firms. Within three months of that, the new Financial Services Oversight Council must hold its first meeting and within three months of that, new rules providing shareholders with more of a say on executive pay must have taken effect.

Within the first year of its enactment, the Post has reported that the legislation calls for the Fed to have the consumer protection bureau up and running while the Office of Thrift Supervision -- one of several bank regulators that failed to preempt the financial meltdown -- must be abolished.

The Post has also detailed that 18 months after taking effect, the reform bill requires that new rules be issued to restrict the proprietary trading that financial companies can do with their own accounts while within two years, regulators must have simpler mortgage disclosure forms proposed as an alternative to the current versions.

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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, click here for ordering HVCC-compliant appraisals. It is the fastest, most compliant and effective way to order appraisals without overhauling your entire appraisal ordering process.

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.

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