HVCC cranking it up a notch.

Implementation of the “Home Valuation Code of Conduct" (HVCC) has gotten off to an uneven if not shaky start since May 1st with NEW and FUTURE issues likely to focus more attention on alternative solutions. And, with FHA requiring HVCC appraisals starting January 1, 2010, nearly 97% of all loans in 2010 will have to comply with HVCC appraisal requirements. If you’re not already on board, read on and get caught up on what HVCC is, and how it is impacting the industry.


A Quick Review of HVCC:

Both FNMA and FHLMC currently require collateral valuation representations and warranties that appraisals have been ordered and delivered under HVCC compliance. Here is a summary of the HVCC’s seven core requirements:

1. Appraisals must be independently ordered and delivered without ANY influence or direct contact with the appraiser. This virtually necessitates use of a third party as an intermediary in the ordering and delivery process.

2. Third parties (such as Appraisal Management Companies or AMC’s) must also be in full compliance with HVCC. The most critical requirement is that appraiser selection must be made by a random draw from a pool of locally knowledgeable, appropriately licensed appraisers.

3. Appraisals are to be made portable (re-usable) from lender to lender with written assurances as to HVCC compliance in procurement.

4. Borrower MUST receive a copy of the appraisal not later than 3 days prior to close.

5. Legacy or “in-house appraiser panels" that meet HVCC operating guidelines are allowed, but the provisions of HVCC must be fully applied, including verifying the level of independence from the origination.

6. The appraisal’s requestor (initiator, processor, closer) may not have any financial conflict of interest either through direct compensation or indirectly through related reporting relationships.

7. Lenders must adopt significantly increased QC requirements to verify compliance with HVCC to include all of the following: annual audits to the code, written policies and procedures, vendor management audits, and QC testing of 10% of the appraisals.

For a more comprehensive summary and description of HVCC offered by FHLMC click here:
http://www.freddiemac.com/singlefamily/pdf/hvcc_746.pdf

So, as of November 1, we’ll be six months in. How is HVCC doing?

Most would offer that this has been a rough transition on arguably the single most critical element to underwriting a loan – collateral valuation. Further, existing and future issues loom large on the horizon and threaten to complicate the landscape:

1. Appraisal quality today: Appraisal Management Companies (the current defacto source for independence) responded to HVCC by forcing lower fees to appraisers to account for their increased portion of the management pie, but the result has backfired:

Overall qualifications of appraiser panels and the quality of the appraisals have diminished. Forced lower fees have proven hazardous to the end quality of the appraisal, and originators are just now fighting back by rethinking their AMC’s.

2. Effective October 1, FHA is now requiring all appraisals be completed not just by licensed appraisers but by HUD CERTIFIED appraisers. This has reduced the pool of qualified appraisers dramatically with some AMC panels caught short of HUD certified appraisers.

3. Some lenders have chosen to independently build HVCC compliance (management) departments to achieve “separate, arms length, HVCC conforming” appraisals. Here too, the jury is out as this choice puts increased warranty risk on the lender in the event of any poor implementation -- regardless of the level of true independence achieved. Increasingly, those lenders who had started down this path are rethinking it, and are beginning to migrate out to protect themselves from the persistent warranty risk.

4. What about appraisal “portability”? Under HVCC, the consumer is insulated from multiple appraisal charges by requiring re-use of a previously completed appraisal if created in accordance with HVCC. To date, lenders have lagged behind in the adoption of this provision of HVCC, yet standards are emerging that allow written “certifications of HVCC compliance,” which will increase portability.

5. Effective January 1, all FHA appraisals will also have to comply with the HVCC. FHA has additional requirements regarding the appraiser’s level of local market knowledge and experience.

6. FNMA has near term plans to require submission of an original first generation digital copy of the appraisal for up-front Quality Control and assessment into a central database. FNMA will use it to score appraised values by creating an independent QC repository and benchmarking.

Clearly the entire market, lenders, the GSE’s and brokers, is still in the process of responding and adjusting to HVCC as evidenced by the slow adoption of the code.

For more insights and answers on HVCC, refer to FNMA’s FAQ’s at https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/appcode/pdf/hvccfaqs.pdf

In coming months, as greater clarification allows and standards are presented, Informative Research will continue with ongoing HVCC education and access to best practice coverage of the appraisal management process.

Look too, for our own recently announced appraisal service solution: The Appraisal Concierge specifically addresses current HVCC problems with a different business model that retains high quality appraisers.

For more information on HVCC and Informative Research’s new Appraisal Concierge Service go to www.informativeresearch.com/appraisals