Source: REALTOR.ORG/realtormag

Since it took effect May 1, 2009, the Home Valuation Code of Conduct (HVCC) has generated significant commentary among real estate professionals, appraisers, and lenders—as well as plenty of uncertainty over exactly what the agreement does and does not allow. The HVCC is a set of guidelines to curb inaccurate appraisals developed by New York Attorney General Andrew Cuomo and the two secondary mortgage market companies Fannie Mae and Freddie Mac, with support from their regulator, the Federal Housing Finance Agency.

In general, the guidelines seek to ensure an arm's length relationship between the lender making a loan and the appraiser who assigns a value to the house. It also sets forth a process for addressing incidences in which appraisal misconduct is suspected. The following are some questions and answers about the new appraisal guidelines:

1. Only a third-party appraisal management company (AMC) can select an appraiser. The lender itself cannot do so.
False
The lender can select the appraiser, but, if it does, it must use staff who are separate from the lender's loan production division. An exception to this restriction is made for small lenders and others for whom such a separation is difficult. In these cases, the lender must "clearly demonstrate that it has prudent safeguards to isolate its collateral evaluation process from influence or interference from its loan production process," according to the HVCC guidelines.

2. It's OK for the lender to contact the appraiser with additional information or point out potential errors.
True
The guidelines say, "Nothing in this section shall be construed as prohibiting the lender (or any third party acting on behalf of the lender) from requesting that an appraiser (i) provide additional information or explanation about the basis for a valuation, or (ii) correct objective factual errors in an appraisal report."

3. It's OK for a real estate professional, as a third-party independent contractor, to provide additional information to an appraiser or point out factual errors.
True
Nothing in HVCC prohibits a real estate professional from offering up information that an appraiser might have missed or from pointing out errors.

4. It's OK for mortgage brokers to select appraisers.
False
The guidelines make clear mortgage brokers are not to select appraisers. In addition, NAR's pamphlet on HVCC myths and facts , says mortgage brokers' contact is limited to the appraisal management company that selected the appraiser, and that's only if it gets permission from the lender.

5. A lender can accept an appraisal report commissioned by another lender.
True
But the other lender must show that it abides by the HVCC guidelines and has applied those guidelines to the appraisal in question. If a mortgage broker was involved in the original loan, it must be clear that the mortgage broker didn't select the appraiser. In practice, however, the portability issue is proving to be a problem in some cases because the original lender isn't willing to provide a statement saying that the appraisal was in compliance with HVCC.

6 . In underwriting a loan, the underwriter can't use an appraisal if the appraiser was selected by the lender (or the appraisal management company that acts on the lender's behalf).
False
The underwriter can use the appraisal, but several safeguards must be met. Among them, it must be clear that the lender staff that commissioned the appraisal is independent of the lender's production staff.

7 . Transactions that previously didn't involve an appraisal now must include one.
False
There is no language in the guidelines setting forth when a property valuation is required. As NAR's myths and facts pamphlet puts it, "Nothing in the HVCC requires a lender to obtain a property valuation."

8 . Use of automated valuation models is strictly prohibited; all appraisals must be conducted by appraisers using onsite requirements outlined in the guidelines.
False
The guidelines apply only to how appraisers are selected, not how the appraisals themselves are conducted. "Nothing in this Code of Conduct shall be construed to … use any particular method for property valuation (such as an appraisal or automated valuation model) in connection with any mortgage loan or mortgage financing transaction."

9. Borrowers must pay appraisers directly.
False
Lenders or the appraisal management companies that represent them pay appraisers; borrowers do not pay appraisers.

10. Appraisers are required to ensure borrowers are in receipt of the appraisal report no later than three days prior to the closing of the loan.
False
It's true that borrowers are entitled to receipt of the report no later than three days prior to the closing, but meeting that timeframe is the responsibility of lenders, not appraisers.