What Is Home Valuation Code of Conduct?

A Home Valuation Code of Conduct (HVCC or the ‘Code’) is a code of conduct established for appraisals performed when a loan is to be supported by the Federal Home Loan Mortgage Corporation (Freddie Mac) or Federal National Mortgage Associations (Fannie Mae).

It was formed jointly by Freddie Mac members, the Federal Housing Finance Agency (FHFA) and the New York State Attorney General.

The code seeks to eliminate conflicts of interest, mortgage fraud and other forms of misconduct in the mortgage industry. It also aims to ensure that borrowers, home-buyers and secondary investors in the mortgage market receive independent and unbiased property valuations. It is valuable for single-family mortgage loans (government-insured loans are exempted) that were granted on or after January 1st 2009.

Does the code cover all types of mortgages?

No. The following mortgages are excluded from the loan:

  • FHA/VA Mortgages
  • Section 184 Native American Mortgages
  • Section 502 Guaranteed Rural Housing Mortgages

What does the code of conduct entail?

It simply disallows a lender or its representative from influencing the work of an appraiser in any way. However, it does not prevent the lender (or a third party acting on its behalf) from requesting the following from an appraiser:

  1. Provide additional explanation or information for the basis of their valuation
  2. The right objective factual errors in an appraisal report

When underwriting a loan, a lender is prohibited from using any appraisal report written by an appraiser under the employ of the lender, an partner or any entity that is owned partly or wholly by the lender.

Any lender preparing a loan that is to be developed and handed to Freddie Mac or Fannie Mae shall verify, guarantee and represent that the appraisal was obtained in a manner according to the Code of Conduct.

Who are Freddie Mac and Fannie Mae?

Freddie Mac and Fannie Mae were created by Congress. They play a vital part in country’s housing finance system, ensuring there is liquidity, affordability and stability in the mortgage marketplace.

Fannie Mae (Federal National Mortgage Associations) was commissioned in 1938 to make sure there is an affordable and reliable supply of mortgage capital throughout the country. It is currently a company owned by shareholders and operating under a congressional licence.

Freddie Mac (Federal Home Loan Mortgage Corporation) was commissioned in 1970 as a private organisation to similarly assist and ensure and affordable and reliable supply of mortgage capital all over the country. Like the Fannie Mae, the Freddie Mac is a shareholder-owned company overseen by a congressional charter.

Is it true the HVCC appraisal process was recently revised?

Not exactly recently, but in 2009 a few changes were made to the Code of Conduct. Some of the new revisions include making the appraisal process more independent and transparent. The Code also urges lenders to use highly proficient appraisers based on quality, not price. The complete report of the Code of Conduct is available online.

I plan to put my property on the market next week, how will the Code of Conduct affect my home?

Although the Home Valuation Code of Conduct is a good idea as it seeks to maintain an impartial valuation of properties prior to lending, there are indications that the revised appraisal process affects several homeowners.

All traditional lenders who sell mortgages to Freddie Mac or Fannie May must do so in line with the Home Valuation Code of Conduct. While it is still mainly unverified, some homeowners believe that the latest appraisal process results in lower valuations for their homes.

What exactly is an appraisal fee?

An appraisal fee funds the cost of having a professional appraiser assess the value your home and its estimated price in the open market. The fee is subject to change and varies from $400 – $600 in most markets, but it costs more to appraise in unique properties and remote areas. It is almost impossible to obtain a mortgage loan or refinance your home without a genuine appraisal.

Appraisal fees should be revealed to you from the on-set with your loan estimate, but the exact fee amount may be unknown until the assessment is begun.

Why does my lender need an appraisal?

It is not necessarily the job of a lender to visit and examine homes with you, neither are they specialists on your local real estate market. In some situations, lender may even operate miles away from your location and your loan may be sold off to global investors.

Lenders owe it to their investors to deliver returns when due, so your loan must be backed by a security (your property) that is worth more than your mortgage loan. An appraisal therefore tells them if the property you are buying is a financially suitable collateral against the loan.

What does an appraiser do?

The work of an appraiser is to estimate the worth of a property. In order to do this, they must visit the property and look around- in many cases they enter it to check the interiors and general conditions. The appraisers confirm the square footage and other important characteristics such as:

  • Has the bathroom or kitchen been redesigned?
  • What materials are the floors made with, and are they in good condition?
  • Are there currently any safety or health issues?

The appraiser then compares the property to other properties in the same neighbourhood. Some things the look at include number of bathrooms and bedrooms, finished square footage and so on. However, they do not enter the homes they compare.

After visitation, the appraiser prepares a comprehensive report of your property, suggesting an appropriate value in the open market. You are entitled get a copy of that report. Ensure you study it carefully.

What happens if the appraisal is too low or too much?

Remember, the purpose of the valuation is to justify the amount you are seeking to borrow from the mortgage lender. If the value of your property is too low, it could ruin the deal or increase your interest rates. On the other hand, if the property is higher than the selling price, there’s no problem unless you are the seller and are requesting for too little.

If you want the complete report of the latest Home Value Code of Conduct, please send us an email: info@propertycashbuyers.com

Published on 1st June 2017

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