Fannie Mae Updates HVCC FAQs
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.
One of the complaints i have been hearing from local realtors is alot of the appraisals are being done from appraisers in from Dallas and Houston. This might help.
Professional Affiliation among Freddie Mac's New Appraisal “Best Practices”
Among Freddie Mac’s newly revised guidelines for mortgage lenders is an emphasis on the use of qualified and experienced real estate appraisers, including language that advocates hiring professionally affiliated valuation professionals. According to revised Freddie Mac guidelines, “Sellers should consider membership in a professional appraisal organization as a qualification criterion.” Such language is seen as a victory by professional appraisal organizations, who for years have been asking for greater emphasis on the qualifications of appraisers and policies that promote the use of highly qualified and experienced appraisers. “We applaud Freddie Mac for addressing this important requirement that will have a positive effect on millions of home buyers and sellers,” said Jim Amorin, MAI, SRA, president of the Appraisal Institute.
Amorin said the recognition of professionally designated appraisers has been a missing component in mortgage reform, particularly as banks look to mitigate their lending risks. “These new guidelines are the right long-term solution for consumers and appraisers and will instill confidence in the safety and soundness of the mortgage lending process,” he said. Freddie’s revised guidelines are similar to the regulations already employed by Fannie Mae. According to Fannie’s guidelines, “Professional appraisal designations can be helpful in evaluating an appraiser’s qualifications, particularly when the designation is from a nationally recognized organization that has formal experience, education and ethics requirements that are strongly administered.” In addition to promoting professionally affiliated appraisers, Freddie’s revised guidelines also require that an appraiser must be “familiar with the local market" in which the properties they are valuing are located; must choose "appropriate comparable sales"; and must certify those comparables as the "most similar" to the property being appraised. Freddie Mac issued the appraisal bulletin to lenders last week amid industry criticism that the Home Valuation Code of Conduct has had unintended consequences for the home buying and selling process.
To access Freddie Mac’s newly revised guidelines, visit www.freddiemac.com/sell/guide/bulletins/pdf/bll0918.pdf
Legislation (H.R. 3044) that would impose an 18-month moratorium on the Home Valuation Code of Conduct was introduced in the House of Representatives last week in an effort to lift new requirements temporarily for valuations and the way appraisals are ordered.
The bill’s cosponsors – Reps. Travis Childers, D-Miss., and Gary Miller, R-Calif., both serve on the House Financial Services Committee, where the bill has been referred. According to Ben Lincoln, legislative director at Childers’ Washington, D.C. office, Childers introduced the bill after local appraisers contacted his office saying the Code negatively impacts their business. Furthermore, he said, it affects consumers due to the Code’s inference that an appraisal management company is required in mortgage transactions. Such a requirement is one of the myths exposed in the Appraisal Institute’s recent comment on the HVCC, available at www.appraisalinstitute.org/newsadvocacy/downloads/HVCC_myths.pdf.
Richard Maloy, MAI, SRA, chair of the Appraisal Institute’s Government Relations Committee, which is reviewing the legislation, said: “We applaud the appraiser independence provisions of the HVCC, yet we are concerned with the unintended consequences relating to lenders and management companies and their role in the ordering process. We are working with Congress, the bank regulatory agencies, and other interested parties to advance comprehensive reforms to strengthen our system of mortgage finance.”
Maloy added, “We want our members to know that the Government Relations Committee is actively engaged in seeking long term solutions that protect the integrity of the appraisal profession while ensuring the economic livelihood of our members. It’s our goal to bring balance back into the system.”
Bill Garber, Director of Government and External Relations, noted the concerns regarding the business practices of many appraisal management companies, which have existed before the implementation of the HVCC. “We have testified before Congress twice this year that, too often, appraisers are being hired not for their competency and qualifications, but for their turnaround time and price. Today, many communities are facing material changes in market conditions and these conditions make for complex appraisal assignments which should be prepared by only the most qualified appraisers,” commented Garber.
By focusing on a broad structural solution, the Appraisal Institute believes the concerns expressed by many appraisers, consumer groups, real estate agents, and builders relating to AMCs can be addressed by requiring the use of qualified appraisers – those with the experience and training necessary for complex assignments. Consumers, real estate agents, builders, and others can help mitigate potential valuation related problems by demanding and using qualified appraisers.
In advocating for appraiser independence the Appraisal Institute has consistently called for use of designated and qualified appraisal professionals. Suggesting that consumers should demand that their lender utilize the services of the most qualified professional is part of that broader strategy. “While real estate agents, builders, and others should not select or compensate the appraiser, they too can demand lenders hire only qualified appraisers, such as those that have earned a professional appraisal designation from the Appraisal Institute or one of the other nationally recognized professional appraisal organizations,” said Garber.
Tightness in the mortgage-finance sector has propelled the Federal Housing Administration's share of the home-loan market to 63 percent so far in 2009 – a record high – compared to 24 percent in the fiscal year ended September 30. Department of Housing and Urban Development Inspector General Kenneth Donohue said the spike in volume is overwhelming the agency, and could erode the integrity of Ginnie Mae mortgage bonds. Donohue’s statements came in a June 18 hearing in front of the Committee on House Financial Services Subcommittee on Oversight and Investigations,
The volume of single-family mortgage loans insured by FHA, which is overseen by HUD, more than tripled to $180 billion in 2008, Donohue said. FHA has historically been most vulnerable to fraud and exploitation when loan volume is high, he added.
Donohue said the rise of mortgage fraud among FHA lenders has depleted FHA’s mortgage insurance fund, which has fallen to $12.9 billion, or two percent of all insured assets as of September 30, from $21 billion, or 6.4 percent of assets a year earlier. Under some economic projections, that ratio could fall below the statutory requirement of two percent, requiring taxpayer assistance or an increase in premiums, he said.
This information was taken from the EDC website.
Sitting in his Seattle office and composing his list of best U.S. places to avoid a recession, Mark Hovind, president of JobBit.com, found something odd about Texas. While the rest of the country zigged economically, Texas zagged, he found. Hovind's research then led him to list Tyler as one of the most recession-proof cities not only in the state, but in the nation. In an article published earlier this month for Newgeography.com, he placed Tyler seventh nationally and second in Texas for its recession resistance. In Texas, it ranked behind only the McAllen-Edinburg-Mission area in terms of 12 months of positive job grown. "Tyler is doing very well," Hovind said in a telephone interview Thursday. Tom Mullins, Tyler Economic Development Council president and CEO, said medical, education, government and retail sectors of the area's economy have kept the nation's economic woes from gouging too deeply here.
After steady increases in the downed economy, unemployment in the Tyler area fell to 6.4 percent in April from the previous month's 6.6 percent. January posted the highest unemployment of the past decade at 6.8 percent. April 2007 saw the decade's lowest unemployment at 3.8 percent. Hovind said he learned, after extensive research, that education and health has kept Tyler out of economic hot water. "If it weren't for education and health, Tyler would be losing jobs," he said, adding that those sectors have added about 2,000 jobs since 1990. He said the city has grown "97 percent of the time" since 1990. "Tyler is growing, and it is still growing," Hovind said. "That's an amazing statistic. "You've been relatively recession proof for quite some time."
Here is some information on the new HVCC guidelines
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Myths and Realities
The Home Valuation Code of Conduct (HVCC) is scheduled to take effect May 1, 2009. As of that date, institutions that deliver loans to Fannie Mae or Freddie Mac must represent and warrant that the appraisals obtained adhere to the requirements found in the HVCC regarding appraisal management, ordering and review by lenders. For more information on the HVCC, visit the following websites:
Fannie Mae (HVCC and Frequently Asked Questions)
https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/appcode/
Freddie Mac (HVCC and Frequently Asked Questions)
http://www.freddiemac.com/singlefamily/hvcc_faq.html
Federal Housing Finance Agency
http://www.fhfa.gov/webfiles/277/HVCC122308.pdf The release of the Home Valuation Code of Conduct has raised many questions on the part of lenders, appraisers, and others involved in mortgage lending activities. Lenders that sell loans to Fannie Mae or Freddie Mac are likely reviewing their internal appraisal operations, and some may have to retool or restructure their operations to achieve compliance.
Unfortunately, there is confusion and misinformation in the marketplace regarding HVCC compliance and appraisal policies in general, particularly in regard to use of third party vendor management firms. To help bring clarity to these issues, the information below is intended to identify some of the myths we have identified and state the reality. There will likely be additional questions on this issue in the coming weeks and months. For further information, please contact: insidethebeltway@appraisalinstitute.org.
Myth: The HVCC requires lenders to use Appraisal Management Companies. Reality
the risk management department,
the credit department,
the consumer lending department (with no loan production responsibilities),
the compliance office, or
the chief executive office.
For many institutions, the HVCC will not require any changes. However, whether the appraisal function is a fully staffed appraisal department or an individual assigned with the appraisal responsibility, the function can be maintained internally where the reporting line is to someone other than loan production (e.g., any of the entities listed above). Sellers also should make sure that their policies are in compliance with any applicable federal bank regulatory policies by contacting their appropriate bank regulatory agency.
Myth: Loan Production staff is prohibited from communicating with appraisers. Reality:
Reality:
Further, institutions should consider any potential reductions in quality that might result from outsourcing the appraisal function. To this point, federal bank regulatory agencies recently reminded institutions to consider an appraiser’s competency for any given appraisal assignment.
Myth: The licensing of an appraiser ensures his or her competency. Reality:
"A lender must not assume—simply based on the fact that an appraiser is state-licensed or state-certified—that the appraiser is qualified and knowledgeable about a market area or is aware of the appropriate market data sources for the area and will be able to obtain access to them. If an appraiser is not knowledgeable about a particular location, is not experienced in appraising a particular type of property, or is not familiar with (or does not have access to) the appropriate data sources, a lender should not give the appraiser assignments in that market area or for that particular type of property."
"Professional appraisal designations can be helpful to the lender in evaluating an appraiser’s qualifications, particularly when the designation is from a nationally recognized organization that has formal experience, education, and ethics requirements that are strongly administered. If the lender considers an appraisal designation in its evaluation, it should be familiar with the appraisal organization’s specific requirements to ensure that the designation is evaluated appropriately."
Final Note:
The new addendum called the 1004 mc is now required on all 1004 appraisals. All of the our appraisers have attended a class on the 1004 mc, some of us have attended two classes. If you have any questions, please contact us.
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