Fannie Mae has released an updated version of its Home Valuation Code of Conduct Frequently Asked Questions (FAQs) to provide appraisers and lenders with guidance on the implementation of HVCC regulations. The revised FAQs, which were released this month, include new and updated information on the issues of scope of coverage, selection of an appraiser and appraisal review.

Below is a listing of Fannie’s new and updated FAQs by section. To view the complete list of Fannie’s HVCC FAQs, visit www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/appcode/pdf/hvccfaqs.pdf.

Scope of Coverage

Q: Can you clarify the requirements around Section II of the Code requiring the borrower’s receipt of the appraisal?

A: The Code requires that a borrower be provided a copy of the appraisal no less than three days prior to the closing of the loan. The Code allows that the borrower may waive this three-day requirement. Situations where a borrower is unaware of his or her right to a copy of the appraisal prior to the three days and is then provided a waiver of that right at the closing table, would not be compliant with the intent of the Code. The time period of rescission in a refinancing situation does not constitute a valid three-day waiver period.
 
The Code does not specify what form the waiver must take or whether it be oral or written. In addition, the Code does not prohibit that a waiver, given in a timely manner, be recorded at some later point when the parties are available. Each lender must develop its own policies, procedures, and documentation. For example, a lender may obtain a waiver from a borrower through an email, phone call, or some other means, prior to the three-day period, and then have that waiver recorded in writing at the settlement table or at some other time.

The three-day period begins on the day of the receipt of the appraisal. For example, in a non-waiver situation, where a borrower received an appraisal on Monday, the closing could be held on Wednesday. Saturday is included for purposes of counting the three-day period. Sundays and legal holidays are not included for counting the three-day period.

Q: This new FAQ clarifies Section II of the Code. Lenders may have had different interpretations prior to the issuance of this FAQ. May lenders submit to Fannie Mae their pipeline loans that were originated in good faith compliance with their, possibly different, interpretation of Section II of the Code?

A: Yes; however, Fannie Mae expects that processes which comply with the clarification of Section II above will be implemented as soon as reasonably possible, but no later than September 1, 2009.

Q: The Code requires the lender to provide the borrower a copy of any appraisal report concerning the borrower’s subject property promptly upon completion. In this instance, what is meant by “completion”?

A: The word “completion” is meant to reflect when the lender has reviewed and accepted the appraisal to include any changes or corrections required.

Q: How is “closing” of the loan defined? Is closing the date the documents are executed or the date the funds are disbursed?

A: We define “closing” as the date the borrower executes the loan documents.

Q: Are processors, closers, secondary marketing employees, underwriters, etc. permitted to order appraisals if they do not receive commission or incentives to close loans, but they ultimately report up to a senior-level employee who is responsible for loan production?

A: The Code states that members of the lender’s loan production staff who are compensated on a commission basis or who report to any officer of the lender not independent of the loan production staff and process are not permitted to order appraisals or influence the selection of appraisers. Ideally, a Seller should establish complete separation of appraisal activities from loan production activities. At an absolute minimum, the degree of separation should be no less than one level up in the reporting structure. To mitigate any potential conflict of interest due to reporting relationships, Sellers should establish, maintain, and enforce written policies and procedures that are designed to reinforce independence.

Selection of an Appraiser

Q: Does the Code change any of Fannie Mae’s requirements regarding the role of the appraiser?

A: No. The Selling Guide requirements for the appraiser remain at their same high level. Fannie Mae requires the appraiser to provide complete and accurate reports; to report neighborhood and property conditions in factual and specific terms; to be impartial and specific in describing favorable or unfavorable factors; and to avoid the use of subjective, racial, or stereotypical terms, phrases, or comments in the appraisal report. The opinion of market value must represent the appraiser’s professional conclusion, based on market data, logical analysis, and judgment.

Additionally, it is important to note that when an appraiser signs Fannie Mae’s residential appraisal report form, the appraiser is also certifying the following:

“I have knowledge and experience in appraising this type of property in this market area.”

And

“I am aware of, and have access to, the necessary and appropriate public and private data sources, such as multiple listing services, tax assessment records, public land records, and other such data sources for the area in which the property is located.”

Q: Does the Code require or prohibit the use of foreclosure data by appraisers?

A: The Code does not speak to foreclosure data. It is up to the appraiser to determine if the data is applicable and appropriate or not.

Appraisal Review

Q: Who on the lender's staff, or on the staff of an authorized third party, may have communications with an appraiser to request a correction of objective factual errors in an appraisal report?

A: Communications with an appraiser regarding the corrections of objective factual errors in an appraisal report may be made by anyone on the staff of the lender, or on the staff of an authorized third party.

Q: Who on the lender's staff, or on the staff of an authorized third party, may have communications with an appraiser relating to or having an impact on valuation, including ordering or managing an appraisal assignment?

A: Anyone who is not part of loan production staff or who is not compensated on a commission basis upon successful completion of a loan or anyone who does not report, ultimately, to any officer of the lender not independent of the loan production staff or process, may have communications with an appraiser relating to or having an impact on valuation, including ordering or managing an appraisal assignment.

Q: Does the Code prohibit the appraiser from talking with the Realtor involved in the subject transaction? Can the Realtor provide comparable data and/or explain their pricing strategy to the appraiser?

A: The Code does not prohibit the appraiser from talking with the Realtor; Realtors can often be a source of data in the market in which the subject property is located. Any data provided by a third party must still be researched and verified independently by the appraiser. In addition, the appraiser is required to be provided a copy of the sales contract for a purchase money transaction.