Chicago Relocation

A More Detailed Look at the Home Valuation Code of Conduct

July 2, 2009

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 My colleague here at Rubloff, Ross Nemzin, has shared his thoughts on the upcoming HVCC – One of four major changes coming to the relocation financing world in the next few months.  Ross, who is earning a degree in real estate while working at Rubloff, can be reached at  

As described in an earlier post, a number of new federal requirements in the housing industry will be enacted within the next few months.  One of those requirements, the Home Valuation Code of Conduct, has already been formally implemented.  In a broad sense, the HVCC is designed to ensure and improve the independence and accuracy of appraisals and provide increased protections for homebuyers, investors, and the housing market.  The HVCC has nine sections that each deal with a specific part of the new act.


The first section of the HVCC establishes controls and safeguards to ensure appraiser independence.  The main point is that all appraisers must be licensed or certified by the state in which the property to be appraised is located.  The other major aspect of section one is that nobody shall influence any part of the appraisal process in any way.  Section two requires lenders to provide customers with a copy of their appraisal or property valuation report no less than three days prior to the closing of the loan.  The customer does have the right to waive this requirement.


The third section of the HVCC involves appraiser engagement and selection.  Specifically, the lender must select, retain, and provide for payment of all compensation to the appraiser.  The third section forbids any influence in the selection of an appraiser for a particular assignment, including any communication that may have an impact on valuation.  Finally, any employee in charge of selecting appraisers must be trained, qualified, and completely independent of the loan production staff and process.


The next two sections focus further on the independence of appraisers.  The fourth section prevents improper influences on appraisers by describing specific instances in which an appraisal report cannot be used due to its impartiality.  Section five creates the Independent Valuation Protection Institute (as approved by the parties) which compels the lender to provide information to appraisers and borrowers regarding the availability of the Institute’s services, including a telephone hotline and email address and the publication and promotion of the best practices for independent valuation. 


The sixth section requires lenders to test the quality of appraisals and provide Fannie Mae or Freddie Mac with any irregular results.  In section seven, a lender is required to alert the applicable State office to any known violation of laws or unethical conduct by an appraiser or appraisal company.  Section eight forces a lender to certify that the appraisal report was acquired in compliance with the HVCC and lays out punishments for violations.  The ninth and final section deals with the scope of the HVCC and its affect on property valuation prior to its enactment.


So, what does all this legal jargon actually mean?  Well, first of all, Freddie and Fannie will only purchase loans that were appraised in compliance with the new Code.  In addition, many lenders are up in arms about the independent selection of appraisers, citing the fact that the HVCC has resulted in appraisers performing appraisals in areas they are not familiar with, the forced use of appraisers with less experience, and much lower appraisals.  Appraisers unfamiliar with an area are more likely to undervalue a home, which can destroy a deal if a seller is unwilling to list the home for that low of a price.  Further, there is an increased cost for the appraisal because the appraisal fee is now split between the appraiser and the appraisal management company.  The HVCC has greatly altered many aspects of a real estate transaction, often with overwhelming effects.



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