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Home Valuation Code of Conduct Frequently Asked Questions (FAQs)
Scope of Coverage
Q1.
What loans are affected by the new Home Valuation Code of Conduct?
Fannie Mae has agreed to adopt the Home Valuation Code of Conduct (“the Code”) for all conventional, single-family loans originated on or after May 1, 2009, that are delivered to Fannie Mae. For purposes of the Code, origination date means the date of the application. The Code will not apply to multifamily loans, or to loans insured or guaranteed by a federal agency; the Code only applies to 1- to 4-unit single-family loans sold to Fannie Mae. The Code will not apply to loans sold to Fannie Mae on or after May 1, 2009 that were originated prior to May 1, 2009.
Q2.
What are the professional requirements for an appraiser under the Code?
The Code requires that an appraiser must be licensed or certified by the state in which the property to be appraised is located.
Q3.
Does the Code allow an appraiser to update an appraisal for another lender?
Yes. The Code does not prevent an appraiser from performing an update of an appraisal for another lender.
Q4.
Does the Code apply outside of New York State?
Yes. There is no geographic limitation.
Q5.
Who besides Fannie Mae has agreed to adopt the Code? Are the Federal Home Loan Banks participating? The FHA?
As of this date, only Fannie Mae and Freddie Mac have agreed to adopt the Code.
Q6.
After May 1, 2009, is it permissible for Fannie Mae to purchase private label securities backed by mortgage loans that do not meet the requirement of the Code?
Yes. The Code applies only to 1- to 4-unit single-family loans sold to Fannie Mae by mortgage originators. It does not extend to Fannie Mae’s investments in mortgage-related securities.
Q7.
Does the Code require lenders to obtain appraisals where they were under no such requirement pursuant to the Fannie Mae Selling Guide?
No, nothing in the Code requires a lender to obtain a property valuation, or to use any particular method for property valuation. Nor does the Code affect the acceptable scope of work for an appraiser in connection with a particular assignment.
Q8.
How does Section I.B.(8) impact how lenders may remove appraisers from a list of qualified appraisers?
Section I.B.(8) addresses the removal of an appraiser from a list of qualified appraisers in connection with influencing or attempting to influence the outcome of an appraisal. Any such removal would be subject to the requirements of the process outlined in that section. However, Section I.B.(8) does not preclude the management of appraiser lists for bona fide administrative reasons based on written, management-approved policies. Also, Section IV.B.(6) provides for lenders to have written policies and procedures implementing the Code including rules on appraiser independence, and to have mechanisms in place to report and discipline anyone who violates these policies and procedures.
Q9.
Does Section I.B.(9) specifically prohibit a lender from ordering a second appraisal?
No. Section I.B.(9) only prohibits a lender from ordering a second appraisal when they are attempting to influence the outcome of the first appraisal and are now “value-shopping.” As a risk control measure for certain loan products, it may be common for a lender to order more than one appraisal, and this subsection does not prohibit that practice.
Q10.
Does the Code specifically prohibit communication with an appraiser by a real estate agent?
No.
Q11.
Does Section II of the Code require the lender to provide the appraisal free of charge?
No. The Code requires the lender to provide, free of charge, a “copy” of any appraisal report completed in association with a specific loan. The lender may require the borrower to reimburse the lender for the cost of the appraisal.
Q12.
What is the time frame for providing the “copy” of the appraisal?
The lender can provide the copy promptly upon completion of the appraisal, but no less than three business days prior to closing. The lender may use any means to provide the copy, including but not limited to via mail, e-mail (electronic message), overnight delivery, etc., as long as the borrower receives the copy no less than three business days prior to closing.
Q13.
Does the Code prohibit an appraiser from collecting payment for the appraisal directly from the borrower?
Yes, for loans to be delivered to Fannie Mae. The Code requires the lender or any third party specifically authorized by the lender to select, retain, and provide for all compensation to the appraiser.
Q14.
Who should be considered the “loan production staff” for purposes of achieving appraiser independence?
The term “loan production staff” is not defined in the Code. However, the FAQs prepared by federal agencies on the agencies’ appraisal regulations specify as follows:
“The loan production staff consists of those responsible for generating loan volume or approving loans, as well as their subordinates. This would include an employee whose compensation is based on loan volume or the closing of a loan transaction. Employees responsible for the credit administration function or credit risk management are not considered loan production staff.”
Q15.
What is the definition of a “correspondent” lender?
A “correspondent” is a third-party entity that may originate and underwrite the mortgage. The correspondent closes the mortgage in its own name with its own funds, and sells it to the lender. The mortgage is sold to Fannie Mae by the lender.
Q16.
Does the Code prohibit the use of automated valuation models?
No, the Code does not place any restrictions on the use of automated valuation models or any other valuation product.
Q17.
May lenders rely on appraisals ordered by settlement service firms?
Yes. Settlement service firms may order appraisals if they comply with the Code, Sections IV.C.(1) and (2).
Selection of an Appraiser
Q18.
When selecting an appraiser, may lenders use a pre-approved appraiser list or panel?
Yes. Lenders may use a pre-approved list or panel to select a residential appraiser, provided that (1) any employees of the lender tasked with selecting appraisers for the list are independent of the loan production staff; and (2) the loan production staff is not involved in selecting appraisers off the list for particular appraisal assignments.
Q19.
May a servicer use an affiliate company to order appraisals for borrower-initiated private mortgage insurance cancellation based on current value?
Yes. The Code does not apply to appraisals for cancelling mortgage insurance based on current value. The Code is specific to “a mortgage financing transaction,” and cancellation of mortgage insurance is not “a mortgage financing transaction.” The Fannie Mae Servicing Guide states that “To determine the current appraised value of the property, the servicer must select an appraiser, order a new appraisal (which must be based on an inspection of both the interior and exterior of the property and be prepared in accordance with our appraisal standards for new mortgage originations).”
Q20.
Some lenders have proprietary automated origination systems that include a process for ordering appraisals. How does the Code impact those systems?
The lender must review its systems to ensure that the selection of appraiser process is in compliance with the provisions of the Code.
In-House Appraisers
Q21.
May in-house appraisers prepare appraisal reports?
Yes, in-house appraisers may prepare appraisal reports if the conditions of Section IVB. are met.
Q22.
May a lender’s in-house appraiser adjust the value on an appraisal during an appraisal review as part of a pre-funding or post-funding quality control process?
Yes, a lender may use an appraisal that has been adjusted by an in-house appraiser during a review process. The Code does not prohibit the underwriting of an appraisal by a lender’s underwriting staff. The Code does not prohibit a lender’s due diligence in originating a loan.
Q23.
May a correspondent lender use in-house appraisers?
Yes, a correspondent lender may use in-house appraisers if they meet the criteria in Section IV.B. of the Code.
Q24.
Are any institutions excluded from these restrictions on the use of in-house appraisers?
Yes, the Agreement signed by Fannie Mae permits Fannie Mae to exclude “small banks,” if they would suffer hardship due to those restrictions. An institution qualifies as a “small bank” if it has aggregate assets of not more than $250,000,000 and meets the other criteria set forth in 12 U.S.C. Section 2908. Institutions excluded from the in-house appraiser restrictions must comply with the other provisions of the Code and must meet all appropriate standards of appraiser independence.
Appraisal Management Companies
Q25.
Is a lender required to use an appraisal management company for ordering appraisals?
No. A lender may order appraisals directly from an individual appraiser.
Q26.
May an appraisal management company affiliated with, or that owns or is owned in whole or in part by the lender or a lender-affiliate, order appraisals?
Yes, an appraisal management company affiliated with, or that owns or is owned in whole or in part by the lender or a lender-affiliate, may order appraisals if the appraisal management company meets the criteria of Section IV.B. of the Code.
Q27.
When a lender uses an appraisal management company, the appraisal management company is responsible for retaining and paying the appraiser. Is it likewise permissible for a mortgage broker to use an appraisal management company, since the mortgage broker does not technically retain or pay the appraiser?
No. The Code prohibits lenders from relying on an appraisal where the broker had a role in selecting, retaining, or compensating the appraiser.
Q28.
May a mortgage broker provide the lender with an approved appraiser list for the lender to use when ordering appraisals for that particular broker?
No.
Portability of the Appraisal
Q29.
May an appraisal be transferred to a lender from a correspondent lender and, if so, under what circumstances?
Yes, a lender may accept an appraisal from a correspondent lender that complies with the Code.
Q30.
A mortgage broker submits a loan to lender A, which orders an appraisal. The broker later decides to submit the loan to lender B because it is offering better terms, or for another reason. May the appraisal obtained by lender A be used by lender B (assuming the mortgage broker has no control over or involvement in the assignment)?
Yes, a lender may accept an appraisal from a different lender that complies with the requirements of the Code and in particular Section III.A. in connection with the loan being originated. Lender A must be named as client on the appraisal report.
Q31.
Lender A (an approved Fannie Mae Seller/Servicer) originates and closes a loan in its name, but sells it to lender B (another Fannie Mae approved Seller/Servicer), which in turn sells that loan to Fannie Mae. Is lender B under any obligation to obtain a new appraisal?
No. Lender B may buy a closed loan from Lender A and sell the loan to Fannie Mae without a new appraisal if Lender B can represent and warrant that any appraisal conducted in connection with the loan conforms to the Code.
Mortgage Brokers
Q32.
May a lender accept an appraisal prepared by an appraiser that was ordered by a mortgage broker?
No. The Code does not allow a lender to accept an appraisal prepared by an appraiser that was ordered by a mortgage broker as noted in Section IIIA. of the Code.
Q33.
May a mortgage broker order an appraisal directly from an appraisal management company that was specifically authorized by the lender?
No. The Code prohibits brokers from ordering appraisal services.
Q34.
Does the Code permit a mortgage broker to select an appraiser from the lender’s list of approved appraisers, if the lender is responsible for the relationship with the appraiser, including compensation?
No. The Code prohibits lenders from relying on an appraisal where the broker had a role in selecting, retaining, or compensating the appraiser.
Quality Control
Q35. Does the quality control requirement as noted in Section VI of the Code apply to all valuations completed by a lender or just those loans originated and sold to Fannie Mae?
The quality control requirement only applies to those loans that were originated and sold to Fannie Mae. It is important to note that our current quality control requirements, as noted in the Selling Guide, Part I, Section 301.01, Quality Assurance System, will satisfy the requirement of Section VI.
Q36.
Does the Code require a lender to report appraisers to the applicable State certifying and licensing agency?
Yes, if a lender has reason to believe an appraiser is violating applicable laws or otherwise engaging in unethical conduct, they shall promptly refer the matter to the applicable board or agency.
Independent Valuation Protection Institute (IVPI)
Q37.
What is the status of the IVPI?
The structure of the IVPI has not yet been determined and the IVPI has not yet been established. Therefore, the provisions in the Code regarding the IVPI are not yet effective.
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Click here for our fact sheet on how OASIS ensures compliance within Federal and the new GSE requirements Supporting Documentation:
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