The Home Valuation Code of Conduct (HVCC) was introduced in 2009 as a response to widespread abuses during the 2008 housing crisis, where inflated appraisals contributed to the housing bubble. It created a “firewall” between loan officers and appraisers to ensure appraisals reflected true market values. The HVCC prohibited lenders and mortgage brokers from directly selecting or pressuring appraisers to alter home values, thereby reducing conflicts of interest.
Origins and Purpose of the HVCC
During the housing bubble, some lenders influenced appraisers to overvalue properties to approve larger loans, generating higher fees and commissions. To combat this, then-New York Attorney General Andrew Cuomo negotiated the HVCC agreement with government-sponsored enterprises Fannie Mae and Freddie Mac and their regulator, the FHFA. The main goal was to remove lenders’ influence over appraiser selection for loans destined for sale to these entities.
How HVCC Changed the Appraisal Process
Before HVCC, loan officers often used appraisers who would provide favorable valuations. The HVCC required lenders to use independent third parties, called Appraisal Management Companies (AMCs), to assign appraisals randomly among licensed appraisers without lender interference. This process ensured appraisals were impartial and based on accurate market data.
Transition to Federal Law
Although the HVCC itself was temporary, ending in 2010, its core protections were codified under the Dodd-Frank Wall Street Reform and Consumer Protection Act via the Appraisal Independence Requirements (AIR). These regulations, part of Regulation Z under the Truth in Lending Act, extended appraiser independence protections nationwide for nearly all mortgage loans.
Key Protections Ensured by HVCC and AIR
- No hand-picking appraisers: Loan officers can’t select appraisers likely to inflate value.
- Limited communication: Lenders can’t discuss value estimates with appraisers, only factual corrections.
- No coercion or bribery: Intimidation of appraisers to change valuations is prohibited.
- Fair fees: Appraisers must receive customary, reasonable compensation.
- Borrower transparency: Homebuyers receive appraisal reports before closing, fostering informed decisions.
Common Misunderstandings
- Can you challenge a low appraisal? Yes. While direct pressure on appraisers is banned, borrowers can ask lenders for a Reconsideration of Value if there are factual errors.
- Do AMCs increase costs? AMCs charge a fee often passed to borrowers, but their independence is critical for unbiased valuations and market stability.
Additional Resources
For an overview of federal protections, see the Consumer Financial Protection Bureau’s guide on Appraisal Independence Requirements.
Understanding the HVCC’s legacy helps homebuyers recognize the safeguards in place for fair home valuations, which remain fundamental to a stable housing market and responsible lending practices. Learn more about related mortgage terms such as Mortgage Broker and Consumer Financial Protection Bureau (CFPB).
