The newly drafted Home Valuation Code of Conduct (HVCC) was scheduled to
take effect on May 1, 2009. The code places multiple appraisal related requirements on lenders who choose to sell loans to Fannie Mae and Freddie Mac. If it takes effect,  the relationship between licensed appraisers and lenders will change dramatically. All loans originated after that date will need appraisals made under the new Home Valuation Code of Conduct. Lenders may no longer hire or pay appraisers directly. Fannie Mae & Freddie Mac backed loans will then require appraisals ordered through an Appraisal Management Company by a non-commissioned employee of the lender / mortgage broker.

The new Code specifically prohibits lenders from accepting appraisal reports completed by an appraiser selected, retained or compensated in any manner by mortgage brokers and real estate agents. James Lockhart, director of the new Federal Housing Finance Agency (FHFA), told the House Financial Service Committee that implementing the HVCC agreement has "taken us longer than we expected". Lockhart told the committee that the January 1 implementation deadline may be delayed one to three months and that potential changes to the agreement are still being worked out. There was no word as to what those changes may be.

Director Lockhart's statement on the HVCC postponement from Sept. 25, 2008
"We have been working with the attorney general on those appraisal standards and we are very near finalizing them and we hope within the next couple weeks to put them out. They have been modified somewhat. I think they still really show that we strongly support the independence. And because it has taken us longer than we expected to do it, we would expect to actually not have the January 1st implementation date. We expect to slip that a month or two, or maybe three. But we expect to have the appraisal standards out very shortly." 

II. The lender shall ensure that the borrower is provided, free of charge, a copy of any appraisal report concerning the borrower subject property immediately upon completion, and in any event no less than three days prior to the closing of the loan. The borrower may waive this three-day requirement. The lender may require the borrower to reimburse the lender for the cost of the appraisal.

III. The lender or any third-party specifically authorized by the lender (including, but not limited to, appraisal management companies and correspondent lenders) shall be responsible for selecting, retaining, and providing for payment of all compensation to the appraiser. The lender will not accept any appraisal report completed by an appraiser selected, retained, or compensated in any manner by any other third-party (including mortgage brokers and real estate agents).

IV. All members of the lender loan production staff, as well as any person (i) who is compensated on a commission basis upon the successful completion of a loan or (ii) who reports, ultimately, to any officer of the lender other than either the Chief Compliance Officer, General Counsel, or any officer who is not independent of the loan production staff and process, shall be forbidden from: (1) selecting, retaining, recommending, or influencing the selection of any appraiser for a particular appraisal assignment or for inclusion on a list or panel of appraisers approved to perform appraisals for the lender; (2) any communications with an appraiser, including ordering or managing an appraisal assignment; and (3) working together in the same organizational unit, or being directly supervised by the same manager, as any person who is involved in the selection, retention, recommendation of, or communication with any appraiser. If absolute lines of independence cannot be achieved as a result of the originator small size and limited staff, the lender must be able to clearly demonstrate that it has prudent safeguards to isolate its collateral evaluation process from influence or interference from its loan production process.

V. Any employee of the lender (or if the lender retains an appraisal management company, any employee of that company) tasked with selecting appraisers for an approved panel or substantive appraisal review must be (1) appropriately trained and qualified in the area of real estate and appraisals, and (2) in the case of an employee of the lender, wholly independent of the loan production staff and process.

VI. In underwriting a loan, the lender shall not utilize any appraisal report prepared by an appraiser employed by:

(1) the lender;

(2) an affiliate of the lender;

(3) an entity that is owned, in whole or in part, by the lender;

(4) an entity that owns, in whole or in part, the lender

(5) a real estate "settlement services" provider, as that term is defined in the Real Estate Settlement Procedures Act, 12 U.S.C.§ 2601 et seq.;

(6) an entity that is owned, in whole or in part, by a "settlement services" provider.

The lender also shall not use any appraisal report obtained by or through an appraisal management company that is owned by the lender or an affiliate of the lender, provided that the foregoing prohibitions do not apply where the lender has an ownership interest in the appraisal management company of 20% or less and where (i) the lender has no involvement in the day-to-day business operations of the appraisal management company, (ii) the appraisal management company is operated independently, and (iii) the lender plays no role in the selection of individual appraisers or any panel of approved appraisers used by the appraisal management company.

Notwithstanding these prohibitions, the lender may use in-house staff appraisers to (i) order appraisals, (ii) conduct appraisal reviews or other quality control, whether pre-funding or post-funding, (iii) develop, deploy, or use internal automated valuation models, or (iv) prepare appraisals in connection with transactions other than mortgage origination transactions (e.g. loan workouts).