HVCC “APPRAISER INDEPENDENCE” SAFEGUARDS

A) Actual, Intended or Implied Appraiser / Appraisal influence (inclusive of but not limited to) via:

As it relates to:

B) Examples - “Express or Implied” (included but limited to):

· Withholding or Threatening:

- To Withhold Timely Payment or Partial Payment for Appraisal Report

- To Withhold Future Business from Appraiser

· Threat or Actual Demotion or Termination of Appraiser

· Promise of Future Business, Promotion, or Increased Compensation

· Conditioning Appraisal Orders or Appraiser Fee, Salary or Bonus - on value opinion, value estimate or final value conclusion – or, on a preliminary value estimate request

· Requesting Estimated, Predetermined, or Desired Valuation Prior to Report Completion

· Providing Appraiser Estimated, Anticipated, Encouraged, or Desired Subject Value

· Providing Appraiser Target Loan Amount - (sales contract MAY be provided on Purchase Money transactions)

· Providing Appraiser, Appraisal Company or Appraisal Management Company Stock or other Financial or “Non-Financial” Benefits

· Approved Appraiser List Removal or Inclusion on Exclusionary List used by ANY Entity - without prompt written notice and evidence of: illegal conduct, USPAP violation, State licensing standards violation, substandard performance, or substandard/improper/unprofessional behavior or other substantive reason for removal. This prohibition does not preclude the management of Appraiser lists for bona-fide administrative reasons based on written, management approved policies)

· Second/Subsequent Valuation – ordering, obtaining, paying for, or using a secondary appraisal or AVM unless there is a “reasonable” basis supported by loan file documentation to validate the initial appraisal was flawed or tainted – unless – done pursuant to documented, pre-established, bona-fide pre/post funding review or QC process or UW guideline – so long as the Lender adheres to a policy:

- of selecting the most reliable appraisal rather than the appraisal that states the highest value

- that avoids any act or practice that impairs or attempts to impair an Appraiser’s independence, objectivity or impartiality

- that does not violate law or regulation including, but not limited to, TILA, Reg Z or USPAP

· Post-Appraisal Completion Exception - The Lender, or third-party acting on behalf of the Lender, may request an Appraiser to provide additional information/explanation about the basis for an evaluation or to correct factual errors in a report

HVCC: WHO, WHEN & WHAT

A) HVCC Safeguards apply to any:

· Lender employee, officer, director

· Lender agent

· Any other acting as third party JV partner

· Independent contractor

· Appraisal Management Company

· Appraisal Company

· Any other partner acting on behalf of Lender

B) Investors Adopting HVCC:

FANNIE:

· Originated on/after May 1, 2009 (“origination date”= application date)

· Will “not apply to loans sold to Fannie on/after May 1, that were originated prior to May 1”

FREDDIE:

· Freddie is less clear: “will no longer purchase loans that do not adopt the code on/after May 1”; (implication is that loans should be compliant in advance of May 1 sale date.)

· Sellers must rep and warrant HVCC compliance for all loans with application dates on/after May 1

Applicable to:

· 1- 4 unit single family homes

Not Applicable to:

· Multi–Family Loans

· Government Insured/Guaranteed Loans (FHA/VA Mortgages)

· Native American Mortgages (Freddie – Section 184)

· Guaranteed Rural Housing Mortgages (Freddie – Section 502)

· Federal Home Loan Banks

· Agency investments in mortgage related / private-labeled securities

Notes:

· NAMB filed a lawsuit against the code on 2/23/2009 contesting the equity of the Code as it relates to Brokers vs. Lenders, their employees, or their affiliates related to the associated competitive restrictions the Code imposes on Brokers.

· We have spoken (off the record) to certain Investors who plan to apply code requirements to all loans they underwrite/ purchase to maintain consistency of operations and overall objectivity; (Most have no idea how they will enforce this relative to FHA where case numbers/appraisers are known to origination personnel.)

Best Execution Recommendation

· Implement an HVCC process in place ASAP for all loans so that May 1^st requirements are met beyond a reasonable doubt on all loans.

LENDER REQUIREMENTS

A) Borrower:

· Must provide an Appraisal Copy or any other associated report

· Immediately upon completion BUT NO LESS THAN 3 BUSINESS DAYS PRIOR TO CLOSING

· Free of charge copy; OK to charge for actual appraisal

· 3 DAY RULE WAIVER - The borrower can “waive” the three-day requirement – but the code does not specifically lay out the form or documentation required. Our experience with “waivers” indicates it is not a best practice; too many, too often appear to be a fraudulent or pressure tactic. Waivers should be reserved for “emergency” situations where there is genuine consensus by the borrower.

B) Appraiser Engagement

Lender/Correspondent Lender/Appraisal Management Company (acting as authorized agent) Responsibilities

· Selection, Retention and Compensation of Appraiser – do NOT accept ANY appraisal completed by an Appraiser selected, retained or compensated in any manner by any other third-party (Realtor, Mortgage Broker, Consumer)

· Lender may accept an appraisal prepared by an Appraiser for a different Lender - including where a mortgage broker facilitated the application - but NOT the appraisal – provided to the Lender:

- obtains written assurance the other Lenders appraisal is HVCC compliant

- determines the appraisal conforms to its requirements and is otherwise acceptable

· Absolute Lines of Independence

“Prohibited Personnel”

- All members of the loan production staff

- Any person who is compensated/commissioned on loan production or process

- Any person, not independent of the loan production staff or process, who reports to, or ultimately to, the Chief Compliance Officer, General Counsel or any Officer

“Forbidden Activities” on appraisal assignments or Appraiser list approval/inclusion-exclusion process:

- Appraiser Selection or Influence on Selection

- Appraiser Retention or Influence on Retention

- Appraiser Recommendation or Influence on Recommendation

- ANY Substantive Appraiser or Appraisal Management Company Communication – relating to or having any impact on valuation, including ordering or managing appraisal assignments with ANY Appraiser

· If Absolute Lines of Independence CAN NOT be Achieved - due to Lender’s small size and limited staff, Lender must clearly demonstrate/document a prudent appraisal process that safeguards and isolates collateral evaluation process from influence or interference from loan production staff

· Appraiser Selection – Personnel Requirement for Lender Employee or Retained Appraisal Management Company or Appraisal Company

Anyone tasked with appraiser selection for an approved panel/list of Appraisers – or appraisal review(s) must be:

- Appropriately trained and qualified in the area of real-estate appraisals

- Wholly independent of the loan production staff and process in the case of a Lender employee

· In House Staff Appraisers – Assuming compliance to all HVCC provisions, Lender may use in-house Staff Appraisers to order appraisals, conduct appraisal reviews or pre/post-fund QC, deploy AVM models, or prepare appraisals with transactions other than mortgage-origination transactions (i.e. loan workouts)

LENDER PREVENTION OF INFLUENCE

A) HVCCC prohibits underwriting a loan using an appraisal prepared by an Appraiser employed by:

- The Lender

- A Lender Affiliate

- An Entity Owned in Whole or in Part by Lender

- An Entity that Owns, in Whole or in Part, the Lender

1) Or, by an Appraiser employed, engaged as an Independent Contractor or otherwise retained by any appraisal company or Appraisal Management Company affiliated with, or that owns or is owned, in whole or in part by the Lender or Lender Affiliate

2) Or, by an entity affiliated with, or that owns or is owned, in whole or in part, another entity engaged by the Lender to provide other settlement services (RESPA 12 U.S.C. – 2601) for the same transaction

· Exceptions and Conditions to “Improper Affiliations”

- APPRAISER INDEPENDENCE: The Appraiser in the affiliate company reports to a function of the Lender Independent of Sales and Loan Production

- SALES and PRODUCTION STAFF ISOLATION: The Lenders Sales and Loan Production employees have NO involvement in appraisal operations functions and play NO role in, or the influence of, the selection, retention, recommendation of any Appraiser for any appraisal assignment – or the inclusion or exclusion of Appraisers on the Lenders approved list or panel

- NON-COMMUNICATION: Lender sales and production employees are NOT allowed to have substantive communications with Appraisers, Appraisal Management Companies, appraisal company relating to or having impact on valuation – or, to be provided information about which Appraiser has been given a particular appraisal assignment before completion of that assignment

- NON-INFLUENCE: Lender, Appraisal Company or Appraisal Management Company do NOT provide Appraiser ANY estimated value, target value or loan amount applied for (except sales contract on Purchase Money transactions)

- COMPENSATION: Appraiser compensation is not dependent in any way on appraisal value or loan closing

- DOCUMENTED POLICY & PROCEDURE: Lender, Appraisal Company or Appraisal Management Company has written policy and procedure implementing HVCC including, but not limited to:

1. Adequate Training

2. Disciplinary Rules, Reporting & Mechanism for Violators

- ANNUAL AUDIT: by external auditor or subject to federal or state examination; unless prohibited by law, the results of ANY adverse, irregular or negative findings are to be reported to Fannie Mae/Freddie Mac – whether or not the examination was conducted expressly for HVCC compliance

- INDEPENDENT VALUATION PROTECTION INSTITUTE: once established, will review, refer and report results on complaints regarding HVCC non-compliance to Fannie Mae/Freddie Mac and make available to other related parties

HVCC: ADDITIONAL CODE PROVISIONS & LENDER RESPONSIBILITIES

A) The Independent Valuation Protection Institute – will be formed; Lender will provide information to Appraisers and Borrowers about the Institutes services which are expected to include:

- Telephone Complaint Hotline

- E-Mail Complaint Hotline

- HVCC Complaint Review from Appraisers, Individuals or other Entities

- Complaint Reporting to Appropriate Agencies

- Publication and Promotion of Best Practices for Independent Valuation

B) Appraisal Quality Control Testing – The Lender agrees that it shall:

- QC test by use of retroactive or additional appraisal reports (or other appropriate method)

- (via) Randomly selected 10% (or other bona fide statistically significant %) of appraisals or valuations used by the Lender including AVM’s, Desktop Valuations, BPO’s

- Provide Fannie Mae or Freddie Mac a report on any adverse, negative or irregular findings of QC Testing

- Provide Fannie Mae or Freddie Mac any findings indicating non-compliance with any Code Provisions

C) Appraisal Misconduct Referrals and Reports – Any Lender that has a reasonable basis to believe an Appraiser or Appraisal Management Company is violating applicable law or engaging in unethical conduct shall promptly refer the matter to the applicable State Appraiser Certifier & Licensing Agency or other relevant regulatory bodies

D) Reps and Warrants:

A Lender shall certify, warrant and represent that the appraisal report was obtained in a manner in compliance with this Code of Conduct. If the Enterprise determines, on its own or from a referral made by the Institute, that a Lender is in breach of a material aspect of this Code of Conduct – or in violation of a provision of the Code by a complaint referred from the Institute - the Enterprise will enforce all applicable rights and remedies including suspension or termination of the Lender’s eligibility to sell loans to the Enterprise if the Lender fails to remediate.

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