Taking the "Havoc" out of HVCC
Can you order your appraisal with AccuComp and be HVCC/Dodd-Frank Act COMPLIANT ?
The passage in July 2010 and enacting of the Dodd-Frank Act (Public Law 111 - 203) is the successor to the HVCC. While the HVCC has reached its "Sunset" the language of the Dodd-Frank Act remains very similar. Therefore, while the term HVCC may be retired it is still in play (for the most part) by a different name insofar as Real Estate Appraisals are concerned. We will keep you updated if, when and how the interpretations of the Dodd-Frank Act are found to differ from the HVCC as well as other characterizations of Dodd-Frank in relation to appraisals. You may still hear the term "HVCC" when referring to Dodd-Frank.
As a lender (or Appraisal Management Company AKA: AMC), paying an appraisal fee that is less than "customary and reasonable" can (and likely will) result in a heavy fine from the U.S government. This penalty, per Dodd-Frank, is substantial. Up to $10,000/day per violation. The next (and most important) question would be what is "customary and reasonable"? The short answer is "who knows" at this point. The long answer is the United States Congress states in Dodd-Frank “Lenders and their agents shall compensate fee appraisers at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.” The statute is absent discussion concerning actual costs in terms of a dollar amount.
SO...Who's in Charge Here?
The only thing certain at this point is the U.S. Congress stated evidence for such fees may be established by objective third-party information, such as government agency fee schedules, academic studies, and independent private sector surveys. Fees paid by AMCs are NOT to be used as the measuring stick, much to the dismay of some AMC companies. The temporary overseer of Dodd-Frank is the Federal Reserve and they have allowed prior fees paid by the AMC to be the fee guideline. Since this is in direct violation of the wording in the law itself, this will likely change soon. Some lenders are instructing the AMC pay a higher and more reasonable fee now to reduce the risk of getting caught up in any later "aftermath" of Dodd-Frank violations. The typical appraiser believes a fair fee to compensate for time, experience and education should be paid. A few (not all) AMCs seem to think anything over a "buck" is God's plenty and they keep the rest. Okay, perhaps that was a bit facetious. In any event, as is typical with a government plan, the Act is in effect while full definitions are still in the air. The final authority will not likely be the Federal Reserve but, rather, the Bureau of Consumer Financial Protection headed by Richard Cordray.
In the meanwhile, 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/Dodd-Frank Act-compliant appraisal ordering system or service, you might try using the Mercury Network for ordering Dodd-Frank Act-compliant appraisals or a reliable AMC. Since I am registered on Mercury Network, and with most AMC services. Although you can't "request" any certain appraiser trust knowing that I only am registered with the finest. Either way you’re still 100% compliant with the new Dodd-Frank Act, HVCC, FHA, GLB, Fed interagency, and HUD appraisal rules. With Mercury you get true two-way connection, instant ordering, automatic status updates, and even custom review rules — drastically reducing underwriting issues since errors and omissions are addressed before the report leaves our office.
Because I'm already a Mercury Network member, after you complete your own Mercury Network profile, you can add me (Richard Zaikovsky/AccuComp Appraisers) to your appraiser panel, if you choose to. Mercury Network's Intelligent Selection System (ISS) enables you to order appraisals "blind", based on pre-set ordering criteria so you can be confident you're ordering appraisals with complete Dodd-Frank Act-compliance. You'll also appreciate Mercury Network's pre-populated status message and text box-driven communications which provide you with an audit trail for each transaction. To order using Mercury Network, click here.
Mortgage Brokers and Appraisals
On March 31, 2010 FNMA (Fannie Mae) and FHLMC (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.
(**Direct ordering exception, at this time, would be USDA loans. They MAY be still ordered direct from an FHA approved appraiser, which I am.)
Question #28 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.
Now For Some History on HVCC (Havoc)
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.
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 was made for institutions which, because of their small size or limited staff, would be unable to establish absolute lines of independence. These smaller institutions were required to clearly demonstrate that they had implemented prudent safeguards to isolate its collateral evaluation process from influence or interference from its loan production process. (This language is not present in the Dodd-Frank Act and appears to no longer be an effective exception.)
All loans backed by Fannie Mae or Freddie Mac must have abided by the HVCC (now by Dodd-Frank). The code doesn't apply 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
Freddie Mac FAQ: http://www.freddiemac.com/singlefamily/hvcc_faq.html#16
Fannie Mae FAQ: