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Federal Reserve replaces HVCC

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The Federal Reserve issued an interim final rule seeking to establish real estate appraiser independence and replacing the Home Valuation Code of Conduct. When President Obama signed the Dodd-Frank bill into law in July, regulators had 90 days to write new rules replacing the HVCC. The new rules released Monday by the Fed are optional until April 1, 2011. For the next 60 days the Federal Reserve will be taking comments over the new rule found here. The Federal Housing Finance Agency implemented HVCC in May 2009 in an attempt to improve the independence of appraisers by prohibiting lenders and third parties from influencing appraisals. It was a controversial regulation, leading to an increase in demand for appraisal management companies (AMCs) and complaints from independent appraisers claiming their income was cut by as much as 50%. Fannie Mae issued its HVCC replacement last week along with Freddie Mac for mortgage companies seeking to sell loans to the government-sponsored enterprises. The Dodd-Frank Act did not expressly prohibit the use of in-house appraisers or AMCs, leaving it open to interpretation until a new rule was drafted. But the Fed's interim final rule clarifies that an employment relationship or affiliation between the appraiser and the mortgage lender is not a conflict of interest. So, while the Fed did clear the use of AMCs, these companies cannot have a financial interest in the property. Also under the Fed's interim final rule, a lender must pay independent appraisers and AMCs fees that are "reasonable and customary in the geographic market where the property is located." Lenders must take into account the type of property, the scope of work and use the rates established by third-party information such as the Veteran's Administration. Lenders are prohibited from extending credit based on appraisals they know are faulty beforehand. The new rule also requires lenders to report misconduct from appraisers. Write to Jon Prior.

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