UNDERSTANDING THE HOME VALUATION CODE OF CONDUCT
July 27, 2009
Misinformation has been circulated about the content of the Code and some have tried to cite the Code as the source of unrelated market dislocations. FHFA believes that the Code is serving the intended purpose and will continue its oversight role both as to the implementation of the Code by the Enterprises and its market impact. Some key items that the public should know:
Communications with appraisers– Contrary to some suggestions, the Code provides for communications with appraisers about errors, additional needed information and unprofessional conduct. Quality control personnel may communicate with appraisers and other lender personnel, outside of the loan origination function. The real bar is on communications that seek to influence the appraiser to adopt a set valuation, which is prohibited.
Low appraisals— Contrary to some suggestions, the Code does not lead to lower appraisals for property. The Code insulates appraisers from pressures that led to higher or lower appraisals and should now lead to more accurate valuations. This is in everyone’s interest. Declining home prices began long before the deployment of the Code and relate to many other factors. Current efforts at mortgage market stabilization are a central focus at FHFA and the Enterprises, but that needs to be achieved by keeping borrowers in their homes, not urging appraisers to improperly overvalue homes.
Appraisal management company (AMC) role— Contrary to some suggestion, the Code does not favor the use of AMCs over independent or in-house appraisers. Significantly, for the first time, the Code places the same requirements for appraiser independence on AMCs as the limits placed on lenders. Lender use of AMCs was increasing prior to the Code and one of the key goals and results of the Code was to strengthen appraiser protections when engaged by AMCs.
Unqualified or out-of-area appraisers– The Uniform Standards of Professional Appraisal Practice (USPAP) requires that an appraiser be competent and knowledgeable of the local market to perform an appraisal. In addition, in reinforcing USPAP, the Enterprise appraisal guides require appraisers to have knowledge of the local market. The use of unqualified in-state or out-of-state appraisers, unfamiliar with local conditions, should be reported to state appraiser licensing agencies.
Increased costs at closing— Closing costs have risen in some instances, but that has not been a function of the Code. Lenders have tightened underwriting standards, often requiring additional comparables by appraisers and even requiring second appraisals. Market investors have focused on reducing fraud and sought greater assurances about valuations. Appraisers have been working hard to meet these requests.
Turnaround times for appraisals— The Code may initially have slowed appraisal time as it was being implemented. However, there are other reasons for turnaround time changes; these include increased demands by lenders, the efficiency of a particular lender’s underwriting process and the workload of appraisers. The Code’s appraiser independence standards are critical for accurate valuations, a lesson learned in the current market crisis. Assuring a good appraisal is in the borrower’s interest. As the market adjusts to new underwriting standards, including those for appraisals, more efficiency will reduce turnaround times.
Transferring an appraisal – Contrary to some suggestions, appraisals are transferrable between lenders under the Code. Transferring an appraisal may obviate the consumer’s need to pay for a new appraisal should the first lender deny the loan. Whether a lender decides to transfer or accept an appraisal, however, is up to the lender, and is not related to the Code. Lender discretion in this area predated the Code.
