The Home Valuation Code of Conduct (HVCC) – What Is It and What is the Impact on Buying or Selling a Home?

 

Fannie Mae and Freddie Mac have adopted the Home Valuation Code of Conduct (“the Code”) for all conventional, single-family loans originated on or after May 1, 2009, that are delivered to them.  The Code does not apply to multi-family home loans or loans insured by a federal agency such as FHA or VA loans. So far, only Fannie Mae and Freddie Mac have adopted this Code.

Highlights of the Code: 

·        Appraisers must be certified by the state where the property that is being appraised is located.

·        It also provides that the home buyer must be provided with a copy of the appraisal report not less than 3 days prior to closing.  The borrower may waive this right.

·        The Code prohibits a lender from ordering a second appraisal when the lender is trying to influence the outcome of the new appraisal.  

Currently many lenders and title insurance underwriters own appraisal management companies. This is legal under the Real Estate Settlement Procedures Act (RESPA) so long as the lenders and title insurance underwriters disclose their ownership relationship within 24 hours of the referral.  The Code also permits this practice. Also, the home buyer does not have to use those companies.  As a result of this new Code, there could be a number of national appraisal companies that evolve who do not understand the local market. This could affect the home industry negatively by further depressing home prices because there is a fear that a national appraisal company would value homes based upon a process determined by Fannie Mae or Freddie Mac and that the valuation process would not accurately reflect local home values.     As a result, this would affect the buyer’s loan if the home does not appraise at the selling price. This means if the buyer wants to purchase the home, the buyer would have to make up the difference out of his own pocket between the appraisal price and the home value price or ask the seller for a price reduction.  This could cause the deal to fall apart.  We will have to wait and see if the Code has a negative impact or not on the housing market.

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