Home Valuation Code of Conduct

The Home Valuation Code of Conduct (HVCC) is a document designed to enhance the accuracy of appraisals and intended to keep appraisers from being unduly influenced by mortgage lenders. The rationale for the HVCC was that some lenders were coercing appraisers to inflate their estimates to make sure that a home loan was approved. The HVCC states that Freddie Mac will no longer buy mortgages from sellers that do not adopt a particular code with respect to single-family mortgages delivered to them. The HVCC also requires sellers to warrant that an appraisal report has been obtained in an approved way. Certain mortgages are exempt from the HVCC, such as Section 502 Guaranteed Rural Housing and FHA/VA Mortgages. If you are a buyer, seller, or lender that has questions about appraisals or the Home Valuation Code of Conduct in connection with a property transaction, the Boston real estate attorneys at Pulgini & Norton may be able to counsel and represent you.

Under the revised HVCC, lenders and third parties are not permitted to influence or try to influence the content of an appraisal report or the appraisal methods used. This means that the loan production should be absolutely independent from the appraisal function, whether the appraiser is in-house or an outside party. The loan production staff includes anyone who is responsible for generating or approving loans and their subordinates. It does not include credit administration or credit risk management staff. The loan production staff may not be involved in choosing an appraiser or substantively communicating about the value with the chosen appraiser.

Lenders are supposed to ensure that borrowers are given a copy of the report three days before closing, unless the borrower specifically waives the requirement. Lenders may ask for reimbursement for the cost of the appraisal, as long as they do not charge the borrower for a copy of the appraisal report.

The HVCC also requires third parties authorized by the seller to comply with its terms. Lenders or their authorized representatives must choose, retain, and pay for the appraiser. When originating a loan, the lender may accept a report prepared by an appraiser for another lender, but only if the lender receives written assurances that the other lender adopted the HVCC, and the appraisal conformed to the HVCC appraisal requirements.

If a lender uses an appraisal report created by an appraiser who works in-house, the loan needs to meet specific conditions. For example, the appraiser will need to report to someone inside the lender's office who is independent of sales and loan production. The appraiser's compensation must not depend on what the value is finally estimated to be or the closing of the particular loan.

The lender is supposed to have an external auditor review its appraisal functions or subject itself to federal or state regulatory examination. If negative findings are made, the lender needs to report these to Freddie Mac. The lender is also required to test 10% of its appraisal reports randomly for quality control. Again, any adverse findings need to be reported to Freddie Mac with regard to any loans sold to it.

Sellers should be aware of the Home Valuation Code of Conduct, which may cause delays and uncertainty in closings. As a lender, you should consult a Boston real estate lawyer to make sure that the appraisals that you use meet the standards set by the HVCC. At Pulgini & Norton, our property transaction attorneys represent buyers, sellers, associations, and lenders in Somerville, New Bedford, and Lowell, as well as other Massachusetts cities. Contact Pulgini & Norton at 781-843-2200 or through our online form for a free consultation.