3-09 HVCC & Appraisal Policy Update

March 31, 2009 - "News You Can Use"

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Implementing the Home Valuation Code of Conduct (HVCC) Changes in Your Business

With the HVCC effective date of 5/01/09, many of our clients are concerned about its impact, particularly as it relates to production staff involvement in appraisal procurement. We have made a complete update to all of our policies and procedures related to valuation and appraisal ordering practices. It is important to note that these changes are not just required by HVCC (which applies specifically to FNMA/FHLMC loans). Truth-in-Lending (TILA) revisions, Uniform Standards of Professional Appraisal Practice (USPAP), and state lending laws either currently, or in the near future, also require these changes.

Because of this, we have developed a system that can be applied to all production and deals with all areas of HVCC, predatory lending laws and state lending laws.

Production Use of non-AVM Value Estimates
HVCC Appraisal Ordering Process
Appraiser Approval Process
Appraisal Quality Control
Underwriting Review of Appraisals

Background

In 2008, the New York Attorney General entered into an agreement with FNMA and FHLMC to change the role of third party originators (mortgage brokers) in the appraisal process. The Home Valuation Code of Conduct (HVCC) agreement bars FHLMC and FNMA from purchasing loans with appraisals ordered by mortgage brokers, among other things. Until the HVCC, brokers controlled the property valuation (appraisal) process. The HVCC attempts to eliminate the abusive practices perpetrated by third party originators that resulted in inflated appraisals and loans based on questionable collateral. The abusive practices involve pressuring appraisers to provide a pre-determined value through coercion.

Under HVCC, loans intended for sale to FHLMC and FNMA may not have broker ordered appraisals. In addition, it prevents other practices that tend to corrupt the legitimate valuation of real property.

Process	Limitation
Multiple Appraisals	If the lender obtains 2 appraisals, the lender may not use the higher value.
Ordering Appraisals	May not suggest a property value on the appraisal request
Appraiser Approval Process	Lenders may not “black-list” appraisers without written notice. Must have written appraiser approval and review process in place
Borrower Appraisal Copy	Borrower must receive a copy of the appraisal – signed acknowledgement
Appraiser Conflict of Interest	May not own any portion, or be an employee, of lender, settlement service firm

HVCC only applies to FNMA and FHLMC loans, not FHA/VA or other sources. Until HVCC, brokers could hold themselves out to the public as having some influence over valuation. This process makes it clear that the mortgage broker has no role in valuation.

Beyond HVCC

The changes to the mortgage valuation process required by the Home Valuation Code of Conduct (HVCC) have drawn the most attention from the mortgage industry. However, these changes are also required, in some form, by changes to Regulation Z, the Truth-in-Lending Act (TIL), and state predatory lending laws. In fact, while some programs don’t have an active restriction on appraisal sourcing most, like FHA, have adopted requirements that make the lender responsible for ensuring there is no appraisal tampering.

Appraisal Management Service - Not a Complete Solution

Many lenders and brokers believe that an appraisal management service solves the compliance problem. Unfortunately, while it does provide an arm’s length appraisal ordering service, it does not manage the other problems in the mortgage process:

How does an individual loan originator establish value for pre-qualification purposes? What are the permissible means for obtaining value estimates when a transaction’s feasibility is pending property valuation?
In ordering appraisals from an Appraisal Management Service, how are how are problems with incorrect appraisal, billing, or contact coordination appropriately handled?
How are approved/disapproved appraisers managed internally?
How do lenders quality control an appraisal ordering process they don’t control?
How does third party management allow the lender to ensure the borrower receives a copy of the appraisal three days prior to closing?

Effect on Industry Procedures

We have suggested a policy that allows the company to maintain control of an independent appraisal ordering process, but provides the disconnection of all production personnel from substantive interaction with valuation service providers.

In addition the policy we recommend doesn’t leave the originator or sales person without any process by which he or she can obtain any confirmation of a value estimate for the purposes of structuring a new transaction.

The updates for the modules are available on the download page

Quality Control, Policies and Procedures Modules Affected:

Origination Process – Estimating value without appraisers, Pre-Qualification without Value Acknowledgement Form, Originator Acknowledgement

Processing – Random Selection, No Communication of Value on Request Form, Checking Approved Appraiser for Outside investor, Appraisal Copy Delivery Process

Underwriting – Appraiser Approval Process, Random Appraiser Selection Process, Appraiser Denial Process, Appraisal Review Process, Multiple Appraisal Policy

Closing – Appraisal Copy Process

Admin-Operations – Appraiser/Vendor Approval Process, Random Appraiser Selection Process, Appraisal Payment Process, Identity of Interest verification

Quality Control – Appraisal Review Process, 10% Random Selection, Appraiser Approval, Random Appraiser Assignment

PLEASE NOTE - UPDATED RESPA/GFE PROCESS IS IN PROGRESS. Although implementation of the 2010 GFE doesn't take place until 1/1/2010, companies are expected to train and give employees the opportunity to learn the new systems and forms in place prior to this date.

Mortgage Management Systems

3-31-2009 Get your Module Updates Here

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