Financial Reform Legislation Calls for HVCC Replacement

The Home Valuation Code of Conduct (HVCC) instituted by Fannie Mae and Freddie Mac in May of last year has been a topic of heated debate and driven a wedge between industry players since it took form.

The GSEs say it has eliminated undue influence and conflicts of interest on appraisals, while Realtors and home builders argue the new rule has lead to lowball property valuations, botched sales, and higher appraisal fees.

The controversial HVCC is scheduled to sunset in November. The GSEs’ agreement with New York Attorney General Andrew Cuomo gave the appraisal policy a brief 18-month lifespan. But the sweeping financial reform legislation currently awaiting a final vote in Congress could terminate the GSEs’ appraisal edict two months early and establish new standards for property valuations.

As the language of the bill stands now, the most immediate task of the newly created Consumer Financial Protection Bureau would be to develop a new set of industry-wide appraisal rules with the intent of ensuring appraisers’ work is conducted independently and lenders and real estate agents cannot manipulate property valuations.

The legislation states that the Bureau must put forth new appraisal regulations within 60 days from enactment of the bill, defining specific practices that violate appraisal independence as it relates to mortgage lending services. These new rules would replace the GSEs HVCC guidelines.

Appraisal Institute President Leslie Sellers commented, “This is extremely important for consumers and mortgage lenders,” Sellers said. “With distressed sales prevalent in the market, it is critical that highly trained appraisers be actively involved in the mortgage market. In recent years, the inability to earn customary and reasonable fees has been a significant obstacle.”

In addition, the financial reform legislation would require appraisal management companies (AMCs) to register with state agencies. It earmarks funding for oversight and enforcement of the appraisal business and requires companies to separate AMC and appraisal fees on the HUD-1 settlement statement.

Lawmakers also penned language that states “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.”

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