The Home Valuation Code of Conduct and FHA Appraiser Independence Mandates ensure that realtors and brokers do not aid in the selection or compensation of appraisers. Realtors and real estate agents can still ask appraisers for additional information, provide additional information to an appraiser, or ask for corrections of factual errors. Appraiser independence will apply to FHA loans as of February 15, 2010.

2. Understand Market Value
Market value is the most probable price a property should bring in an open and competitive market. Factors that contribute to market value have nothing to do with the cost of improvements in the property but rather the market response to those improvements. For example, a remodeled kitchen may have cost the homeowner $20,000 but buyers in the marketplace are only willing to spend $10,000 more for properties with upgraded kitchens. Many of your clients may choose to appeal the appraisal once they receive their copy and they should also know that factual errors may be addressed but will not always lead to a higher market value. The most common complaints are inaccurate square footage, subjective adjustments of sales comparables, bedroom/bathroom count, or using short sales or foreclosures in the report. The educated and informed realtor should always explain each of these concepts to their clients.

1.Come to the Inspection Armed with Data
The single most important way for realtors to participate in the appraisal process is to meet the appraisers at the time of inspection armed with data. Data should be in the form of publicly listed closed or pending sales that are within ninety days. Listings, older comparables, and superior properties will be considered in the appraiser’s analysis but will most likely not be included in the report due to lender guidelines.

Realtors can also add a clause to the sales contract that states:
“Buyer shall have all the rights and provisions manifested by the Appraisal Contingency provided that the appraiser the buyer’s lender selects has competency in the market area and has completed appraisal reports in the immediate submarket within the past year.”
As many lenders will utilize a radius search to find appraisers for assignments, unique market areas that require specific competency will have a higher incidence of errors in the appraisal report. By adding a clause to the sales contract, realtors help promote quality appraisals for their clients.

As Dione Spiteri, US Appraisal Group’s Director explains, “The new FHA regulations are comparable to those administered by the government-sponsored enterprises (GSE’s) which exist to reinforce appraiser independence with the Home Valuation Code of Conduct (HVCC).  As we continue our dedication to being fully informed and in compliance, we managed to meet and exceed compliance of the new rules in a very short period of time.  We have worked these items into our processes, transcending even the minimal requirements declared in the new regulations.  For example, we employ the highest ratio of staff appraisers in the industry and only Certified Appraisers are part of the review process.”

Since its establishment in 2003, US Appraisal Group has demonstrated the highest quality appraisals, while doing so with the utmost integrity.  Working with only the best real estate appraisers worldwide, US Appraisal Group values the trust bestowed by its clients and will always remain 100% FHA & HVCC compliant.

For more information regarding FHA compliance and US Appraisal Group, please contact info@usappraisalgroup.com.

US Appraisal Group, Inc. is an appraisal solutions firm that works with the best real estate appraisers worldwide for commercial and residential client needs. Each client receives a complimentary analysis to determine the optimal way to handle their needs and a customized solution is then built which helps clients be more efficient, save time and resources, and consolidate appraisal orders to one source. US Appraisal Group’s appraisers are the best in their respective markets and always produce quality reports that include sound analyses and well-documented reasoning. As a result, working with US has been known to dramatically increase public confidence in the appraisal profession. 

© 2010 US Appraisal Group, Inc. All rights reserved.

3. The FHA website has not been updated with appraisers that are actually certified to do their appraisals.

2. Appraisers still report value pressure from appraisal management companies.

1. Freddie claims HVCC improved appraisal quality because 15% more have come closer to the automated valuation model used as a check.

And…5 things that might ease those fears:

5. Pressure from mortgage brokers has been essentially eliminated.

4. Geographic competence is being discussed and highlighted because of so many complaints.

3. AMC fees will be honestly reported starting the first of the year for FHA transactions.

2. Comp checks and estimated values have disappeared.

1. States are starting to regulate appraisal management companies.

Happy Halloween!

The Home Valuation Code of Conduct was designed to set forth guidelines that govern appraisal-related activity for loans sold to Fannie Mae and Freddie Mac. In an effort to reduce the risks associated with the appraisal process, most of the stipulations focused on ensuring objectivity in ordering real estate appraisals. Here are four questions you should ask yourself about how your company is handling HVCC.

1. How do you know if your organization chose the right solution for HVCC compliance?

The key to effective workflow management is utilizing a system that addresses your unique needs so you can deliver impeccable service to your clients. At any time, extensive proof of compliance may be required. For an in-house management solution, this could include: external audits, copies of written HVCC compliance policies, quality control procedures, organizational charts, and employee roles and responsibilities. Working with an AMC is an instant way to provide compliance on loans that are critical to your core business.

For example, Flagstar Bank requires that you can either use an AMC exclusively OR provide:

• Audited company financial statements indicating a net worth of equal to or greater than $1,000,000
• Organizational chart that indicates who will be ordering appraisals
• Copy of appraisal ordering employee’s job responsibilities and job description
• Copy of company’s most recent articles of organization
• List of other lenders with which you are an approved HVCC correspondent
• Copy of written HVCC policies and procedures
• Proof of an external audit trail
• Copy of Appraisal Quality Control procedures

The key disclosure written throughout the requirements is that these are all absolved if you are using an AMC exclusively.

2. What if you want to keep your existing appraiser relationships?

Some AMCs offer a hybrid option where appraisal workflow is managed utilizing your existing appraiser fee panel. US Appraisal Group, an AMC available in Encompass, will re-qualify and import your approved panel of appraisers and rotate assignments. This arrangement can preserve your local appraiser relationships while providing instant compliance.

Several banking clients have found that having an AMC manage their existing fee panel can actually lead to better appraisal quality and lower costs. Because AMCs manage appraisers as their core competency, they are able to offer additional benefits, not to mention saving bankers an immense amount of time that could be used to generate revenue.

3. What if we went with an AMC and are unhappy with the service and quality levels?

Management companies have been criticized for putting quality last and shifting the cost of the appraisal to lenders and borrowers. But it is the lender, not the management company, that determines the appraisal fee. Management companies can adopt “lean” business models such as the one used by US Appraisal Group, where the appraisers can be compensated around market rates. When contracting services with a management company, several lenders have negotiated nationwide pricing, which allows the management company to recuperate costs in some market areas but forces a loss in others. When the fees are negotiated at lower rates, it is most advantageous for the management company to work with low-cost appraisers, who are sometimes less experienced than higher-priced appraisers in the same market area.

How can lenders resolve this issue?
Engage management companies that pay market rates to appraisers or charge a management fee instead of forcing appraisers to agree to a fee-split arrangement. Most of the time, this can be done without any significant additional cost to the lender. With this structure, appraisers are compensated at fair market rates and are more likely to provide quality appraisals that meet guidelines.

4. What if we are committed to managing the process in-house?

Following are some guidelines for ensuring in-house compliance:

• Can you prove that your entire loan production staff and anyone monetarily incentivized by the loan process does not identify, select, retain, communicate or compensate the appraiser?
• Are your in-house staff members independent of the loan process “appropriately trained and qualified in the area of real-estate appraisals?”
• Do you verify appraisal licensure and conduct ongoing audits for licensing and E&O insurance?
• Do you have written policies and procedures addressing each element of the Code and including disciplinary policy for selection, instruction, communication and compensation of each appraisal assignment?
• Can you prove that appraiser removals from your approved list are done with written notice and well-documented reasoning?
• Do you ensure timely appraiser payment regardless of the file outcome?
• Can you prove the borrower receives a free copy of appraisal within three business days of closing?
• Are you reviewing appraisals for USPAP compliance and storing the review with the finished appraisal and engagement letter?
• Can you prove that no estimate of the subject property’s value, proposed loan amount, or proposed loan-to-value ratio, was provided or communicated to the appraiser?
• Can you guarantee that additional appraisals on the same subject are only ordered if the original appraisal had errors or omissions that are adequately documented as per your written policies and procedures?
• Are you randomly selecting 10% of your appraisal files for objective quality control and objectivity testing?
• Are appraiser disciplinary matters documented and communicated to licensing agencies or other relevant regulatory bodies?
• Can you represent and warrant the process on every applicable loan?

Unsure which solution is best for you? Get a complimentary needs’ analysis

All Encompass users are being offered a complimentary needs’ analysis of their current appraisal solution with no obligation from US Appraisal Group. Our analysts will profile your existing appraisal solution to determine areas of non-compliance or areas where a more efficient system could be utilized. The data is then analyzed based on hundreds of other lenders and presented to you in a format that can be used by your management team to make immediate decisions about this critical area of your business. All the analysis is done with no obligation to work with US Appraisal Group or any other management company as sometimes the best solution is to handle the process in-house. USAG can also provide recommendations of ways to best leverage Encompass’ tools and services to ensure solid compliance and peace of mind.

Phone (888) 580-USAG for your complimentary needs analysis today! Or visit us online at usappraisalgroup.com/your-needs.

2. Although some management companies pay market rates to the appraisers, the three largest do not engage in this industry-promoting practice.
There are a handful of appraisal management companies, US Appraisal Group included, that pay market rates to their appraisers. The reason you don’t hear about them is because the three largest AMCs that handle close to half the mortgage transactions in the country, have adopted a 40% fee-split model, where the typical appraisal fee for a full appraisal is between $150-$200. The truth is that management companies can operate and be profitable with a full-fee model but it’s not in the best interest of the bank to do so if they happen to own the AMC.

3. Appraisers are selected based on geographical competence, not necessarily where they live.
A downtown Chicago leasing agent’s suburban address has no affect on his ability to accurately lease downtown office space. The same is true for appraisers. Where the appraiser primarily works, not necessarily lives, is the determining factor for market competency. Appraisers are typically selected based on their primary market area with a secondary coverage area assigned in rare cases.

4. Getting quality reports is not difficult.
Again, following the full-fee model, finding appraisers that can provide reports of impeccable quality is not difficult. Most appraisers are competent, educated, and ethical. As with any industry, there are good and bad players, but most appraisers just want to do a good job and, for some, working for management companies provides value protection that they would not have otherwise.

5. HVCC is not the cause of consumer’s problems.
Consumers should be blaming the housing market. HVCC was intended to “promote independence in the appraisal process and, thus, help ensure that appraisers and the appraisal process may be relied upon as part of sound underwriting for financial institutions.” While convenient to blame, HVCC is not the cause of low home values and the restrictions of financing.

Long Delivery Times – appraisal transactions are taking 4-5 days longer on average
This is the most significant aftermath as well as the most frustrating for lenders and homeowners. The extra layers of quality control, review, and administrative management, coupled with appraisers that are operating at full capacity, has increased the amount of time needed to secure a credible report.

Elimination of Comp Checks

Contacting appraisers directly for “unofficial” value opinions or sending an estimate of value with the appraisal order is not permitted under HVCC. Per the Uniform Standards of Professional Appraisal Practice (USPAP), appraisers can not communicate a value or range of values without sufficient documentation to support their conclusion. They are also not permitted to accept an appraisal assignment that was sent based on a pre-determined value. Communicating a value or range of values for an appraiser IS doing an appraisal. Now that most management companies are protecting appraisers from “comp checks”, appraisers are no longer inclined to satisfy these types of requests.

Appraisal costs have increased

While appraisers have absorbed some of the appraisal costs in a reduced management company fee, the additional costs are being passed on to borrowers. For example, the market fee for an appraisal in Chicago is $300 but will cost $350 through a management company. The borrowers can take some comfort in knowing that the $50 increase helps to protect appraisers from value pressure.

Of course, a handful of management companies, US Appraisal Group included, have taken the opportunity to set a new standard through a full-fee model for appraisers. Although appraisers are incredibly busy, it will always incentivize them to retain their full fee rather than work at a reduced rate. Order by order, we will dramatically increase public confidence in appraisal management.

What does this agreement mean for Realtors?
Individual realtors and licensed real estate agents cannot serve as the third party between a lender and appraiser. This includes selection, retention, and compensation of an appraiser. A third party, including realtors and real estate agents, can still ask appraisers for additional information, provide additional information to an appraiser, or ask for corrections of factual errors. Realtors that offer services as a lender must comply fully with the HVCC for all loans that will be purchased by Fannie Mae or Freddie Mac after May 1, 2009.

HVCC removes broker, realtor, buyer, and seller control over the appraisal process. Brokers will not be able to order appraisals directly from appraisers; realtors, buyers and sellers will not be able to order appraisals for their lender in order to secure financing. Lenders and banks will be the only authorized parties to order appraisals directly from appraisers or through Appraisal Management Companies. Otherwise know as AMC’s, these third-party companies have been hired to ensure appraiser independence and alleviate pressure on appraisers to appraise properties at certain values.
*HVCC does not apply to FHA, multi-family properties, or appraisals for non-lending purposes. For example: list price determination, market value estimate, divorce settlement, estate valuation, or tax appeal.

How can Realtors ensure their Clients get Quality Appraisals?
Some realtors are suggesting that all realtors protect themselves from lenders engaging appraisers outside of the immediate market area by adding an additional clause to the sales contract that states:
“Buyer shall have all the rights and provisions manifested by the Appraisal Contingency provided that the appraiser the buyer’s lender selects has competency in the market area and has completed appraisal reports in the immediate submarket within the past year.”

As many lenders will utilize a radius search to find appraisers for assignments, unique market areas that require specific competency will have a higher incidence of errors in the appraisal report. This can often be alleviated if the appraiser lives in the same county as the subject property. Many AMC’s will choose the lowest cost appraiser that can meet aggressive turn-times instead of focusing on the quality of the report and the market competency of the appraiser. By adding a clause to the sales contract, realtors help promote quality appraisals for their clients, while still complying with the Code.

About the author
Dione Spiteri is the Director of US Appraisal Group, which she founded in 2003 to offer the first customizable management solution for real estate appraisals to lenders, attorneys, relocation companies, and corporations. She is experienced in the valuation of all types of real estate, including detached properties, condominiums, and vacant land, as well as income producing properties such as apartment complexes, retail and industrial buildings, and hotel investment properties. Dione is a member of the Entrepreneur’s Organization, the National Association of Independent Fee Appraisers, the Chicago Association of Realtors, the Employee Relocation Council, and is a Regional Representative for the Chicago Chapter of the Appraisal Institute.

The government announced its plan in late February to look under the hoods of the nation’s largest financial institutions to gauge their ability to withstand losses.

The results are now in: Ten of the nation’s 19 largest banks will need to raise a total of $74.6 billion in capital. In addition, the government estimated that losses could total $599 billion this year and next.

In the table below, see which banks stand to lose the most if the economy weakens further — and how much capital each is required to raise during the next six months.

First Published: May 7, 2009: 5:42 PM ET

The Home Valuation Code of Conduct was established by Fannie Mae, Freddie Mac and the Federal Housing Finance Agency (formerly OFHEO). In short, the HVCC sets forth a series of guidelines that govern appraisal-related activity among mortgage companies for loans that are sold to Fannie Mae and Freddie Mac, in an effort to reduce the risks associated with the appraisal process. Most of the HVCC’s stipulations are focused around ensuring objectivity in ordering real estate appraisals by brokers and correspondent lenders. Fannie Mae and Freddie Mac will not accept loans on or after May 1, 2009 that do not adhere to the Home Valuation Code of Conduct.

“The new Home Valuation Code of Conduct regulations which go into effect on May 1, 2009, require mortgage origination firms to ensure appraiser independence in the appraisal ordering process,” says US Appraisal Group’s Director, Dione N Spiteri. “Following May 1, any originators without compliant systems in place will be unable to sell loans to Fannie Mae or Freddie Mac.”

Ellie Mae’s network of Encompass users includes mortgage banker, broker and lender clients, who together originate more than 50 percent of the nation’s third-party origination loan volume, and 25 percent of the nation’s mortgages each year.

About US Appraisal Group, Inc.
US Appraisal Group is a leading provider of residential and commercial real estate appraisals and valuation products, AVMs, and BPOs software and services for the mortgage industry and non-lenders, offering customized appraisal solutions built with seamless technology. The company’s key offerings include commercial appraisal management, residential appraisal management, panel management, appraisal reviews, authorized resell of AVM products, and evaluation services. US Appraisal Group was founded in 2003 and is based in Chicago, Illinois. To learn more about US Appraisal Group, visit www.usappraisalgroup.com or call 888-580-USAG.

1. US Appraisal Group has written Policies and Procedures for HVCC.
2. Each report subject to the Code includes a Certificate of Compliance.
3. All orders are placed through a secure platform which ensures no communication between the lender and appraisers.
4. No estimate of value is provided to the appraisers.
5. The lender is unaware of the appraiser’s identity until the time of delivery.
6. Appraiser selection is performed at the sole discretion of US Appraisal Group and is based on performance metrics and geographical competency.

US Appraisal Group has extensively trained all staff to ensure HVCC compliance and is continually monitoring the licensing and the quality of appraisers, panel management and systems. Advanced technology is used to place orders and maintain security and data privacy standards.

All appraisals ordered through US Appraisal Group will certify that the appraisal report was ordered, assigned, processed, reviewed and completed in accordance with independent appraisal safeguards to prevent improper influences on appraisers in full compliance with HVCC. The certificate of compliance is provided with the appraisal report and included in the loan file.

For more information regarding HVCC compliance and US Appraisal Group, please contact Dione Spiteri at dns@usappraisalgroup.com.

About US Appraisal Group, Inc.: Established in 2003, US Appraisal Group is an appraisal solutions firm that works with the best real estate appraisers worldwide for commercial and residential client needs. Each client receives a complimentary analysis to determine the optimal way to handle their needs and a customized solution is built which helps clients be more efficient, save time and resources, and consolidate appraisal orders to one source. US Appraisal Group’s appraisers are the best in their respective markets and always produce quality reports that include sound analyses and well-documented reasoning. As a result, working with US has been known to dramatically increase public confidence in the appraisal profession.