UPDATE - Minimum Requirements for Appraisal Management Companies - Rule in the Works

UPDATE! 03/24/2014- Link to proposed rule is available at the end of this post.

During their regular monthly board meeting on March 20, 2014 the National Credit Union Administration proposed an interagency rule to implement minimum requirements for state oversight of appraisal management companies. Six other federal agencies are expected to join in support of the proposal. These include the Federal Reserve, CFPB, Treasury Department, FDIC; Federal Housing Finance Agency and Office of the Comptroller of the Currency.

The text of the proposed rule will not be available until all the agencies approve the language, but the NCUA Board Action Memorandum states:

The minimum requirements in the proposed rule would apply to States that elect to establish an appraiser certifying and licensing agency with the authority to register and supervise AMCs (participating States). Under the proposed rule, participating States would have to require that AMCs: (1) register in the State and be subject to its supervision; (2) use only State-certified or licensed appraisers are used for Federally related transactions (real estate-related financial transactions overseen by a Federal financial institution regulatory agency that require appraiser services); (3) require that appraisals comply with the Uniform Standards of Professional Appraisal Practice; (4) ensure selection of a competent and independent appraiser; and (5)establish and comply with processes and controls reasonably designed to ensure that appraisals comply with the appraisal independence standards in the Truth in Lending Act.

The proposed rule would direct AMCs that are subsidiaries of banks and regulated by a Federal financial institution regulatory agency to meet the same minimum requirements, although such AMCs would not be required to register with a State.

We'll keep our eyes open, and post the proposed rule as soon as we see it published.

UPDATE! The proposed Interagency Rule is available at THIS LINK.

Consumer Financial Protection Bureau: Two Appraisal Related Proposed Rules

This week, the Consumer Financial Protection Bureau (CFPB) issued notice of two proposed rules affecting appraisals and consumer access to appraisal reports. Follow the links for the full text and to submit a comment to the CFPB.

First:

The Bureau of Consumer Financial Protection (Bureau) is proposing to amend Regulation B, which implements the Equal Credit Opportunity Act (ECOA), and the official interpretation to the regulation, which interprets the requirements of Regulation B. The proposed revisions to Regulation B would implement an ECOA amendment concerning appraisals that was enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). In general, the proposed revisions to Regulation B would require creditors to provide free copies of all written appraisals and valuations developed in connection with an application for a loan to be secured by a first lien on a dwelling. The proposal also would require creditors to notify applicants in writing of the right to receive a copy of each written appraisal or valuation at no additional cost. 

Click HERE for Proposed Rule

Submit a Comment on Proposed Rule

Second:

The Board, Bureau, FDIC, FHFA, NCUA, and OCC (collectively, the Agencies) are proposing to amend Regulation Z, which implements the Truth in Lending Act (TILA), and the official interpretation to the regulation. The proposed revisions to Regulation Z would implement a new TILA provision requiring appraisals for “higher-risk mortgages” that was added to TILA as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. For mortgages with an annual percentage rate that exceeds the average prime offer rate by a specified percentage, the proposed rule would require creditors to obtain an appraisal or appraisals meeting certain specified standards, provide applicants with a notification regarding the use of the appraisals, and give applicants a copy of the written appraisals used.

Click HERE for Proposed Rule

Submit a Comment on Proposed Rule

Fannie Mae Announcement! - More of the Same

In a breathtaking SELLING POLICY UPDATE, Fannie Mae announces:

"Selling Notice: New Appraiser Independence Requirements Being Developed"

Fannie Mae has issued the following Notice (the entire text of the Notice is included in this e-mail):

Fannie Mae is working with the Federal Housing Finance Agency (FHFA) to develop and adopt appraiser independence requirements that will replace the Home Valuation Code of Conduct (HVCC). Until the revised requirements are released, the existing HVCC provisions in the Fannie Mae Selling Guide continue to apply. Updated requirements are expected to be substantially similar to the current provisions.

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, HVCC will sunset when interim final regulations are released to implement the appraisal independence-related provisions of the Act, which is expected to occur on or about October 21, 2010.

Fannie Mae is committed to supporting strong appraiser independence requirements. The revised requirements will maintain the spirit and intent of HVCC, and continue to provide important protections for mortgage investors, home buyers, and the housing market.

The revised appraiser independence requirements will be based on Fannie Mae's experience under the HVCC and will continue to support the integrity of the appraisal process. As part of the process to develop the revised requirements, Fannie Mae has received input from key industry participants.

Fannie Mae expects to announce the revised appraiser independence requirements in an upcoming Selling Guide announcement.

No surprise in this release. About a month ago, in a post providing my view of H.R. 4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act, this prediction was made:

Modifications to the TILA include the appraisal independence standards, portability of appraisals, customary and reasonable appraisal fees and sunset of the HVCC. Although it may appear as though appraisers will benefit from this section of the new law, it’s a bit early to get our hopes up. In all likelihood, the new rules for selection and retention of appraisers will look much like the HVCC.

Let's see if my low expectations for the balance of the "reforms" are on target.

IT'S OFFICIAL! - IVPI is Vaporware

According to a story posted on RealEstateRama, in a letter from FHFA Acting Director Edward J. DeMarco to New York Attorney General Andrew Cuomo, Fannie Mae and Freddie Mac, now in conservatorship, will not be funding the Independent Valuation Protection Institute (IVPI).

Back in December, Appraiser Active said:

If you were inclined to give Freddie Mac (and Fannie Mae) the benefit of the doubt, our suggestion is to avoid holding your breath waiting for the IVPI. Why don't these folks come clean and admit wishful thinking will not make it happen?

Instead,we get this:

“As conservator of Fannie Mae and Freddie Mac, our priority is to keep the Enterprises focused on the important role they play in supporting the mortgage market,” said DeMarco. “The need for a complaint process is being addressed in a way that we believe is more practical than with the Institute.”


Fannie Mae and Freddie Mac will deploy a complaint process to address suspected code violations including a mechanism for providing pertinent information to state and federal regulatory and enforcement departments. The process will be put in place within the next few weeks.

Press Release and Letter HERE.

In my opinion, it's LATE, it's LAME, not in compliance with the agreement signed among the New York Attorney General, Fannie Mae and Freddie Mac, fails to address the role of Appraisal Management Companies and DOES NOT provide a means for appraisers to complain about non-compliant tactics and actions by AMCs.

IVPI = VAPORWARE

FHFA - Lame Support for HVCC

On Wednesday, July 22, 2009, the Federal Housing Finance Agency (FHFA), released a NOTICE with the title "Strengthening Appraiser Independence and Improving the Valuation Process - Update on Enterprise Implementation of Home Valuation Code of Conduct".

Apparently the release is in response to the drubbing the HVCC has been receiving from nearly every segment of the real estate industry. It's a lame response that glosses over many of the legitimate concerns expressed about the HVCC and the manner of implementation. The FHFA conveniently absolves the GSEs of any responsibility and pats them on the back for their recent actions in issuing alerts to mortgage lenders advocating the use of qualified and experienced real estate appraisers. Appraiser Active is not buying it.

Where was the GSE concern about qualified and experienced appraisers prior to May 1, 2009? As is often mentioned in defense of the HVCC, Fannie Mae, Freddie Mac, the OCC, the FED, the Comptroller of Currency, the FDIC and the NCUA and the OTS all have standards for appraisals, appraisers and maintaining appraiser independence. Who has been asleep at the switch for all these years? Have any heads rolled? We must have missed that.

Completely ignored in the HVCC and any communication from the FHFA, Fannie Mae, Freddie Mac or the New York Attorney General since the announcement of the agreement is any discussion of penalties for the alleged wrongdoers (WAMU, eAppraiseIT) that prompted the investigation and lawsuit. What's up with that?

There is much more to be said. Unfortunately, it's Friday and I've got to get an appraisal out the door TODAY.

Check back for an update to this post.

HVCC Update - NAR President Charles McMillan

On July 21, 2009, Charles McMillan, president of the National Association of Realtors®, provided an update to members via podcast. A couple of topics were covered, but first on the list was the Home Valuation Code of Conduct (HVCC). Correcting the negative effects of the HVCC are high on the list of NAR priorities.

Earlier this month, I blogged about my meetings with the New York Attorney General’s office and Federal Housing Finance Agency Director James Lockhart.

Since that time, we surveyed members about this issue, and more than 30,000 of you responded. The results tell us that the problems are worse than we thought. Out-of-town appraisers are being used much more frequently; consumers are paying higher costs; and, REALTORS are losing sales.

During the July 4th recess, we asked our federal political coordinators to ask their members of Congress to sign onto a bill that would place a moratorium on the HVCC for 18 months. So far, 22 members of Congress have co-sponsored H.R. 3304. During the August recess, we will ask the FPCs to to do another strong push.

In the meantime, we will be having a special webinar for all State Association Executives on July 27th at 2:00 p.m. Eastern time. We also will be giving AEs a letter that they can ask their own state Attorneys General to sign and send along to the New York Attorney General. It, too, asks for a moratorium on the HVCC.

NAR will continue to press Congress and Regulators on this issue. For the latest information, just go to Realtor.org/HVCC.

Links to the podcast and HVCC information from NAR is available right HERE.

Another effort to seek a moratorium on the HVCC is being initiated by the Washington Association of Realtors®. WAR president, Greg Wright, is working with the state Attorney General to generate support from other states in a direct appeal to Attorney General Andrew Cuomo. They're looking for help is securing signatures from other state Attorneys General on the letter, or generating similar letters from other states. Contact information for WAR leaders and staff available HERE.

In related news, H.R. 3044 has 37 co-sponsors. This is up from just 30 yesterday! Congress will be in recess soon. It might be time to pay a visit to your member of Congress and let them know the detrimental effects of the HVCC and how important a moratorium is to you and your business.

UPDATE - July 28, 2009 - H.R. 3044 has 46 co-sponsors!

Ken Harney on the HVCC

Once again, syndicated columnist, Ken Harney, gives consumers the details about how well-intentioned initiatives have negative consequences. His column in today's Washington Post, (and papers across the nation) illustrates the realities of the poorly crafted Home Valuation Code of Conduct (HVCC).

Lowball Appraisals Spark Uproar

It's by far the hottest controversy in real estate this summer, and it could directly affect the value of your house -- probably negatively -- by tens of thousands of dollars.

The issue involves lowballed appraisals and the new rules guiding appraisers in both price-depressed and rebounding markets. Consider these snapshots:

In San Diego, Steve Doyle, division president for Brookfield Homes, is trying to close out the final 20 houses of a 120-unit single-family subdivision. Prices range from $340,000 to $350,000. But recently there's been a major hitch: Appraisers assigned by banks are coming in with valuations of $60,000 or more under Doyle's selling prices. The appraisers, who Doyle says are inexperienced, unfamiliar with local market trends or both, are using distressed sales -- foreclosures and short sales of existing houses -- as their "comparables." Some of the distressed properties are in poor condition, and all of them offer fewer amenities, Doyle says.

and

But when the bank sent in an appraiser with little local knowledge, he chose as comparables two short-sale properties that had both closed in the mid-$140,000 range and one inheritance sale around $155,000. The last property was "in horrible condition," Skeens said. "I'd call it dog meat." The deal-paralyzing appraised value that came in for the slam-dunk refi: $149,000.

and

Complaints about lowballed appraisals -- from builders, real estate agents, consumers and mortgage companies -- have erupted since May 1, when government-backed Fannie Mae and Freddie Mac put their new appraisal rules into effect nationwide. Critics charge that the new system fosters the use of appraisers willing to work for low fees -- sometimes 50 percent below previous standards -- and who are willing to conduct home appraisals far outside their typical areas of activity.

and

Under the code, appraisers are now routinely assigned by appraisal management companies rather than local mortgage companies or loan officers. The management companies pocket as much as 40 percent to 50 percent of the appraisal fee paid by the consumer.

Two congressmen -- Travis W. Childers (D-Miss.) and Gary G. Miller (R-Calif.) -- have introduced legislation calling for an 18-month moratorium on the appraisal code. In identical letters to Cuomo and to James B. Lockhart III, the top regulator of Fannie Mae and Freddie Mac, the National Association of Realtors also requested a moratorium and complained that the code is raising consumer costs, distorting property values and killing sales.

Asked for comment, Lockhart said through a spokesperson that his agency is "monitoring" the situation, and considers "the views of market participants important."

Well, Mr. Lockhart, "market participants" and warned you about the consequences of the HVCC. For months, "market participants" and Congress have been alerting you to pay attention to the very real problems with the 'agreement". It's time to act on the information.

In addition to the disaster that is the HVCC, there is mounting evidence that the source of pressure on appraisers (what the HVCC was supposed to prevent) has shifted from loan originators to Appraisal Management Companies. Here in the Sunshine State there is also evidence of banks violating appraiser independence standards and pressuring appraisers to lower value estimates.

Stay tuned.

NAMB - HVCC Call to Action

The National Association of Mortgage Brokers (NAMB) has distributed a Call to Action concerning the Home Valuation Code of Conduct (HVCC).

June 9, 2009

HVCC CALL TO ACTION

To: All Mortgage Brokers, Real Estate Agents, Appraisers, Lenders, Home Builders, Title Agents, and Consumers

From: Marc Savitt, President- National Association of Mortgage Brokers

After more than a year of exhaustive negotiations with Fannie Mae, Freddie Mac, James Lockhart, Director of FHFA (GSE Regulator), and NY Attorney General Andrew Cuomo, NAMB believes the time has come for your individual voice to be heard.

In order for this “Call to Action” to be effective, we ask that you fully participate, encourage others to join the action and continue calling and emailing everyday, until advised to stop by NAMB. This will NOT be a one day action!

We have received hundreds of e-mails through the hvcc@namb.org e-mail address outlining specific cases where the HVCC has created delays and additional costs to consumers. NAMB has categorized and compiled a report of the examples received, which was sent to FHFA Director James Lockhart. Please use your own examples in your conversations with legislators, regulators, or their staff. Also, please visit the NAMB HVCC Resource Center for additional information and documents on the HVCC.

Who will you be contacting?

• NY Attorney General Andrew Cuomo’s Office: (212) 416-8000, Internet Complaint
• Federal Housing Finance Agency (FHFA): (866) 796-5595, director@fhfa.gov
• Fannie Mae: (202) 752-7000, headquarters@fanniemae.com
• Freddie Mac: (703) 903-2000, Internet Complaint
• Senators, Representatives and Governors: Click here for contact information.

Also, please contact your local TV and Newspaper outlets.

Below are talking points and background information to assist in your conversations. Please remember we are all professionals and should conduct ourselves accordingly in any communication with the above parties. For the most successful and influential calls, it is important to concisely quantify how the HVCC is affecting your consumer and your business.

Talking Points:

1) NAMB conservatively estimates (breakdown below) that the HVCC is costing consumers over 2.8 BILLION dollars a year in extra fees, created by long delays (extended lock-in fees) and higher appraisal costs.

2) Unregulated Appraisal Management Companies (AMCs), who have been the subject of several misconduct investigations, are the centerpiece of the HVCC. The original Cuomo investigation involved a federally chartered bank and an AMC.

3) AMCs are driving honest appraisers and mortgage brokers from business, eliminating competition, increasing costs to consumers and reducing state revenue. The HVCC is causing significant delays in real estate transactions, hurting real estate agents, title companies and other third parties reliant on turnaround time.

4) HVCC does nothing to reduce fraud, as it legitimizes the same failed model, which was the subject of Attorney General Cuomo’s investigation.

5) No Portability! Consumers are “trapped” with a specific lender. If a better deal becomes available with a different lender, the consumer is forced to pay for another appraisal.

Read the entire Call to Action HERE

HVCC Costing Borrowers MORE

UPDATE - MAY 16, 2009

As usual, Washington Post columnist Ken Harney, author of the popular The Nation's Housing column, cuts to the net effect of the Home Valuation Code of Conduct (HVCC).

New appraisal rules costing more for mortgages, refinancing

WASHINGTON — How about this scenario the next time you refinance or apply for a new mortgage: The real estate appraisal that used to cost $325 now costs $450, even though the appraiser doing the work is only getting $175 or $200.

Plus, your appraisal-related charges may now be subject to add-on fees you have never heard of: $50 to $100 in "no show" penalties if you get stuck in traffic and miss your appointment with the appraiser, or an extra $50 to $150 tacked on if the property is worth more than $500,000.

and.....

Worse yet, the person now conducting your appraisal may be new to the field — willing to work for a cut-rate fee — and may not be as familiar with local value trends and pricing adjustments as an appraiser with more experience. If your mortgage application is denied by one lender, you could be forced to pay for a second full appraisal since the new lender may not accept the first.

and.....

After signing up with one management company, he (an appraiser) says two consumers commented to him, "Wow, you really charge a lot."

They were each being hit with $550 appraisal fees, while Facchini was getting just $250 from the management company. As he sees it, that leaves $300 of "slush" somewhere in the process — some going to the management company, but the rest probably "flowing to the lender for doing absolutely nothing."

Read the story HERE (St. Petersburg Times)

or HERE (Washington Post)

Appraiser Active has been sounding the alarm about the negative effects of the HVCC for months. Now that consumers are getting hit where it hurts, their wallets, will Fannie, Freddie, the Federal Housing Finance Agency and New York Attorney General come to their senses, be responsible, and take action to at least delay the implementation of the HVCC until they get it right?

UPDATE - MAY 16, 2009

A related article has been published on TBO.COM confirming Appraisal Managment Companies are assigning appraisals to individuals quite some distance from the property to be appraised.

Lenders, instead of contacting appraisers directly, now must deal with nationally approved firms. Crowley says: "An appraisal was supposed to be done in Tampa. It was sent to a person in Panama City. We had an appraisal in Parrish and a Miami appraiser was assigned to that."

For you non-Floridians, Panama City is 390 miles from Tampa!!

View Larger Map

and Miami is 246 miles from Parrish!


View Larger Map

HVCC - Countdown

Today is April 29, 2009 and we're just two days away from the effective date of the Home Valuation Code of Conduct (HVCC). There are quite few different points of view being expressed by folks about to be affected by the agreement between the Attorney General of New York and the Federal Housing Finance Agency (FHFA), Fannie Mae and Freddie Mac.

The National Association of Mortgage Brokers (NAMB) is not taking the assault lightly and has ramped up their efforts. THIS ACTION ALERT went out to their members recently

Stop the HVCC! We Still Need Your Help! CRITICAL - Take Action Now!
April 24, 2009

Dear NAMB Member:

In addition to what NAMB is doing to save your business, ask yourself, "What can I do to help save it?"

You can pick up the phone and act! It is undeniable that the implementation of the Home Valuation Code of Conduct ("HVCC") will have severe consequences. The deadline is just days away. Regrettably, many of you have not yet contacted your legislators, and time is running out!

THANK YOU to everyone who has contacted their Senator and/or Representatives. You are being heard! NAMB has spoken with several legislators as a result of your calls regarding the HVCC, but we still need your help! Key Republican and Democrat Congressmen have shown their support for NAMB's cause, but we need to keep the momentum going. We can not stop now!

Please contact your Senators and Representatives TODAY, and urge them to stop or delay the implementation of the final rule promulgated by the FHFA, which implements the controversial HVCC. Congressmen Gary Miller (R-CA-42) and Travis Childers (D-MS-1) are taking the lead in this fight. Please ask your legislator to contact their offices today. Every call counts! We are asking you to keep calling until notified otherwise.

FULL TEXT

The National Association of Realtors (NAR) is also seeking a one year delay in the implementation of the agreement. This was sent to their Board of Directors this week, in advance of the May meeting of the Board.

NAR: Delay Cuomo-GSE Appraisal Agreement

The Home Valuation Code of Conduct that Fannie Mae and Freddie Mac agreed to with New York Attorney General Andrew Cuomo should be delayed until May 1, 2010, NAR President Charles McMillan says in letters to the heads of the two secondary mortgage market companies. More guidance is needed, including on enforcement responsibility, and appraisers and others impacted by the changes need time to prepare.

The agreement, approved in December 2008 to reduce the potential for inaccurate appraisals, is expected to have an impact beyond New York state because of the nationwide influence of Fannie and Freddie. For more info contact Jerome Nagy, 202/383-1233.

The Appraisal Institute (AI) does not appear to be fighting the implementation. Instead, their efforts are directed towards preparing their members to compete within the new paradigm, dispelling the myths swirling around the agreement, and educating their membership. Today's Appraisal News Online says:

HVCC Effective Friday; FAQs, Telebriefing, Myths Document among Resources Available

Despite legal maneuvers and rumors of intervention and delay, the Home Valuation Code of Conduct is scheduled for implementation this Friday, May 1, 2009. According to the Code and Fannie Mae and Freddie Mac, mortgage loans originated by lenders from there on out and after must comply with the Code in order to be eligible for sale to the GSEs. Leading up to the implementation date, the Appraisal Institute has drawn appraisers' attention to a variety of resources, including recent FAQs from Fannie and Freddie; a "Myths and Realities" document the organization drafted; and promotion of its May 6 telebriefing on the HVCC with the American Bankers Association.

FULL TEXT

The AI also provides a link to their Home Valuation Code of Conduct - Myths and Realities document HERE.

Appraiser Active has a favorite:

Myth: Use of third party vendors ensures the use of competent appraisers.

Reality: Lenders traditionally have been responsible for ensuring the competency of the appraisers and reliability of the appraisals they use for credit decisions. However, the competency of an appraiser is not measured by scoring compliance with seller servicer guidelines. Processing appraisal orders is a separate function that does not specifically include a review of competency. The function of competency review is best performed by individuals with significant education in appraisal standards and theory.

Further, institutions should consider any potential reductions in quality that might result from outsourcing the appraisal function. To this point, federal bank regulatory agencies recently reminded institutions to consider an appraiser’s competency for any given appraisal assignment.

There's three options for you. Please take one, or ALL, and do something!

They meant for the acronym HVCC to be pronounced "havoc" right?

HVCC Update

Appraiser Active has provided quite a bit of information about the impending May 1, 2009 implementation of the Home Valuation Code of Conduct (HVCC). Most recent was the post describing the NAR effort to urge a one year delay of its effective date.

As of today, there has been no word from Fannie, Freddie or Attorney General Cuomo in response to the NAR letters.

However, we hear there are at least at TWO members of Congress are passing around a letter on the Hill that will also ask for a delay. It sound like NOW would be a good time to contact YOUR member of Congress to ask them to support the delay.

Use this LINK to locate your US Representative and Senators. Use your Zip+4. The contact information for each is provided along with a link to their webpage. At this stage of the game, it's best to a telephone call, fax or email to make your points.

Use whatever you like, the points made the NAR Letters or these suggestions:

• One of the pillars necessary for implementation of the HVCC is the Independent Valuation Protection Institute. Without the IVPI there is no enforcement mechanism, hotline, or means of verifying compliance. Delaying implementation would allow creation of the IVPI or establishing an alternative framework


• Many state legislatures are in the process of enacting laws to regulate Appraisal Management Companies. In other states, the regulatory agencies are in the process of promulgating rules and procedures to deal with Appraisal Management Companies. Delaying implementation would allow these states to finalize their actions


• To this day, the fact that the HVCC resulted from improper influence on appraiser independence by a Federally regulated lender and a rogue Appraisal Management Company cannot be reconciled with the apparent endorsement of unregulated Appraisal Management Companies as the “protector” of appraiser independence by the HVCC. Delay would allow a reconciliation of this glaring conflict. (See Story on New York AG Complaint and link to suit HERE)


• Fannie Mae has adopted policies that protect the brokerage fees from downward negotiation in certain transactions (short sales). Delay of implementation would permit efforts to protect appraiser’s fees from downward negotiation by Appraisal Management Companies. At the very least, it would allow time to arrange for full and transparent disclosure of valuation related fees in closing documents (AMC fee, Appraisal Fee, etc)

They meant for the acronym HVCC to be pronounced "havoc" right?

NAR Seeks One Year Delay in HVCC

In letters to Michael J. Williams, President and Chief Executive Officer of Fannie Mae, and John A. Koskinen, Interim Chief Executive Officer of Freddie Mac, National Association of Realtors President, Charles McMillan urges a one year delay in the implementation of the Home Valuation Code of Conduct (HVCC).

Freddie Letter

Fannie Letter

McMillan notes that "There are many benefits for consumers and real estate practitioners to delaying the effective date of the HVCC until May 1, 2010. Stakeholders across the country will be granted sufficient time to prepare for changes to the appraisal process brought forth by the HVCC. He asks that the implementation be delayed to allow for several outstanding issues to be addressed.

These include:

• Lack of Guidance
• State Regulating AMCs
• HVCC does not Apply to FHA
• HVCC May Increase the Cost of Real Estate Transaction
• Lenders are not Prepared for HVCC
• No Clear Enforcement Agency
• IVPI is not Yet Functioning

With respect to the Independent Value Protection Institute, President McMillan states: "The Independent Valuation Protection Institute (IVPI) was announced as part of the HVCC to receive complaints from appraisers and users of appraisal services on the improper influence or attempted improper influence of appraisers. In the original agreement between the GSEs and the New York State Attorney General, Andrew Cuomo, $5 million was to be paid by Fannie Mae and Freddie Mac to fund the first 5 years of the Institute’s existence. The final agreement includes the IVPI but makes no mention of funding. It’s not clear whether the GSEs will provide the upfront funding and long-term funding was never addressed in the HVCC.

In our comments provided on April 30, 2008, we recommended the Independent Valuation Protection Institute be affiliated with an already existing appraisal organization. This will help to ensure that the code is implemented to add value to the appraisal process rather than becoming a duplicative layer of bureaucracy. Under the final agreement of the HVCC, the lender, rather than the IVPI, is responsible for establishing a telephone hotline to receive complaints from appraisers, individuals, or any entity concerned with the improper influencing of appraisers or the appraisal process. Lenders report any improper activity to the IVPI and the state regulating agency. If properly implemented, the code will complement, rather than duplicate or contradict, already existing appraisal codes such as the Uniform Standards of Professional Appraisal Practice (USPAP). Further, the IVPI will be better positioned to work with appraisal organizations and state regulatory agencies to ensure the independence of appraisers and the integrity of the appraisal process.

Readers of Appraiser Active have heard all the reasons cited in the NAR letter. Kudos to the National Association of Realtors and President Charles McMillan for stepping into the fray.

Your letters to Congress, the FHFA and the decision makers and Fannie and Freddie may help the cause.

They meant for the acronym HVCC to be pronounced "havoc" right?

Lenders Not Yet Ready for HVCC

UPDATE#1 - Fannie HVCC FAQs Below

UPDATE #2 - Freddie HVCC FAQs Added Below

........no kidding, and few if any are ready for the May 1, 2009 deadline.

From HousingWire.com:

Survey: Lenders Not Yet Ready for HVCC

It’s not garnering as much press as it perhaps should, but new appraisal guidelines set forth in the Home Valuation Code of Conduct are set to go into effect on May 1 — and a recent study suggests that while U.S. mortgage lenders are confident their systems will be ready, few say they have actually completed system upgrades designed to ensure compliance.

That’s the finding from a recent survey distributed to more than 1,000 key industry personnel by mortgage technology company FNC, Inc. — the company’s client base includes major mortgage banks as well as regional and community banking outfits.

As the result of legal action almost a year ago, New York Attorney General Andrew Cuomo announced an agreement with Fannie Mae, Freddie Mac, and the Federal Housing Finance Agency (formerly OFHEO) to establish a Home Valuation Protection Program. The program demands significant changes to the real estate appraisal process for residential mortgage transactions and includes the Code of Conduct.

FULL STORY



Since the National Association of Mortgage Brokers (NAMB) has withdrawn their lawsuit against against Federal Housing Finance Agency (FHFA) Director James B. Lockhart over the Home Valuation Code of Conduct (HVCC), there are rumors of some groups seeking a delay in the implementation scheduled for May 1, 2009.



For a number of reasons, I agree with a delay in the implementation of the Home Valuation Code of Conduct. There are just too many unsettled procedural matters with the HVCC

• One of the pillars necessary for implementation of the HVCC is the Independent Valuation Protection Institute. Without the IVPI there is no enforcement mechanism, hotline, or means of verifying compliance. Delaying implementation would allow creation of the IVPI or establishing an alternative framework
• Many state legislatures are in the process of enacting laws to regulate Appraisal Management Companies. In other states, the regulatory agencies are in the process of promulgating rules and procedures to deal with Appraisal Management Companies. Delaying implementation would allow these states to finalize their actions
• To this day, the fact that the HVCC resulted from improper influence on appraiser independence by a Federally regulated lender and a rogue Appraisal Management Company cannot be reconciled with the apparent endorsement of unregulated Appraisal Management Companies as the “protector” of appraiser independence by the HVCC. Delay would allow a reconciliation of this glaring conflict. (See Story on New York AG Complaint and link to suit HERE)
• Fannie Mae has adopted policies that protect the brokerage fees from downward negotiation in certain transactions (short sales). Delay of implementation would permit efforts to protect appraiser’s fees from downward negotiation by Appraisal Management Companies. At the very least, it would allow time to arrange for full and transparent disclosure of valuation related fees in closing documents (AMC fee, Appraisal Fee, etc)

There’s more, but it should be clear that a delay would benefit real estate brokers, appraisers, mortgage brokers and consumers.

UPDATE #1 - Fannie believes they're ready. Fannie HVCC FAQs

My favorite:

Independent Valuation Protection Institute (IVPI)

Q55. What is the status of the IVPI?

The structure of the IVPI has not yet been determined and the IVPI has not yet been established. Therefore, the provisions in the Code regarding the IVPI are not yet effective.

Appraiser Active Question #1

Given the financial condition of Fannie Mae and Freddie Mac, when is the IVPI expected to be funded?

Appraiser Active Question #2

When is the IVPI expected to be created?

Update #2 - Freddie believes they're ready. Freddie HVCC FAQs

NAMB Withdraws from Suit Against FHFA

NAMB's Strategic Withdrawal of Legal Action Against FHFA

McLean, Virginia, April 2, 2009 – In February 2009, the National Association of Mortgage Brokers (NAMB) filed suit against the Federal Housing Finance Administration (FHFA) to block implementation of the Home Valuation Code of Conduct (HVCC), which will inhibit competition among mortgage originators and increase the cost of mortgages to consumers. NAMB’s suit asserted that the HVCC constituted a "de facto" rulemaking that did not comply with the requirements of the Administrative Procedures Act (APA), which sets out the procedures a federal agency must follow when issuing a regulation.

Today, NAMB has withdrawn its lawsuit against the FHFA. NAMB invoked this strategic maneuver to assess means by which we can refute the FHFA’s claim that no court may review their decisions while the GSE's are in conservatorship. NAMB believes the FHFA's claim that there are no legal limits on the arbitrary and unilateral use of their conservatorship power is unprecedented and will prove detrimental to consumers.

"This issue goes beyond the bounds of this particular case," said NAMB President, Marc Savitt, CRMS, "All companies, investors, and trade groups should understand there may not be a court, any court, able to hear their case while FHFA is utilizing their conservatorship powers."

NAMB strongly opposes FHFA’s position that it does not need to comply with the APA and other laws. NAMB has withdrawn its lawsuit against FHFA, without prejudice, as it assesses various means to challenge FHFA’s extraordinary claim. Those options include filing suit again with revised and expanded arguments directed at FHFA’s new claim.

Press Release HERE

In other communication with NAMB members, the applicable Federal Legislation was described as HR 3221

Click the link, read it and weep.

HVCC - NAMB Lawsuit Update

Appraisers, real estate brokers and mortgage brokers have been anxious to hear the status of the lawsuit filed by the National Association of Mortgage Brokers (NAMB) against Federal Housing Finance Agency (FHFA) Director James B. Lockhart over the Home Valuation Code of Conduct (HVCC). In an email to members and supporters, NAMB President, Marc Savitt, says:

As you know, on February 23, 2009, NAMB filed a lawsuit against the Federal Housing Finance Agency (FHFA) over the controversial HVCC included in agreements between New York Attorney General Andrew Cuomo, Fannie Mae and Freddie Mac (GSEs), and their regulator, the FHFA.


This week, the litigation took a major step forward as NAMB filed its initial brief outlining why the HVCC is unlawful and should be disallowed. The 45 page document was supported by numerous affidavits, exhibits, and other materials which demonstrated the grave problems created by the HVCC. NAMB is asking the U.S. district Court for the District of Columbia to take any one of several actions that would invalidate the HVCC. As expected, the court declined to rule immediately that the HVCC should be withdrawn without first permitting FHFA to present its arguments, and thus the court has denied NAMB’s request for an immediate Temporary Restraining Order. However, in doing so, the court expressly reserved judgment on the merits of NAMB’s position, which the court has yet to address.


What does this mean?


The District Court may block implementation of the HVCC through an immediate Temporary Restraining Order (TRO), a Temporary Injunction, or a Permanent Injunction. A TRO is rarely granted—it requires a showing that a party faces immediate and irreparable harm if a TRO is not granted and, when granted, typically is in effect only for a matter of days. Because the District Court did not find that there would be immediate and irreparable harm done to appraisers or mortgage brokers within the next few days if a TRO was not granted, the court ruled that a TRO was not appropriate.


That decision does NOT mean that the District Court denied NAMB’s claim. To the contrary, the litigation is now proceeding to the next stage, when NAMB will have an opportunity to present its case to the court, which will then make a ruling.


NAMB has requested an expedited hearing process given the close proximity of the HVCC effective date. NAMB continues to seek both a temporary injunction and permanent injunction blocking implementation of the HVCC, and is seeking resolution of the matter in the coming weeks.

Savitt continues: "Despite the initial good news, there is much more to be done! NAMB is so grateful for your support thus far, but we still need your help! Please continue to circulate the donation letters to appraisers.

As information becomes available, we'll make sure to pass it on. Don't be shy about making a contribution to the NAMB effort by using the link above.

h/t to Dana Bain at Premiere Mortgage Services Inc.

More information at FHA Appraisers.com in their NEWSLETTER

President of Appraisal Institute to Testify on the Hill

UPDATED- May 15, 2009 (TAVMA Responds - See Link Below)

From the Appraisal Institute:

NOTE: The testimony is TODAY, March 11, 2009

MEMO

To: All Members

From: Frederick H. Grubbe, CEO

Date: March 10, 2009

Subject: Jim Amorin to Testify Tomorrow Before the House Committee on Financial Services' Subcommittee

Jim Amorin, MAI, SRA, President of the Appraisal Institute, will testify tomorrow afternoon before the House Committee on Financial Services' Subcommittee on Financial Institutions and Consumer Credit at the Subcommittee's hearing on mortgage lending reform. The hearing will stream live tomorrow, March 11, at 2:30 p.m. ET via the House Committee on Financial Services' Web site

(www.house.gov/apps/list/hearing/financialsvcs_dem/hr0311092.shtml).

During his testimony, President Amorin will stress the importance of appraiser independence and address what our organization perceives to be weaknesses in the mortgage lending process. Included in the points he will make are the following:

• The need for mortgage reform legislation that addresses the inappropriate pressuring of appraisers and the need for providing greater accountability and enforcement options for federal and state appraiser regulators.


• The recommendation for an immediate review of the new loan modification guidelines (Home Affordable Modification) released by the Treasury Department last week, in order to ensure that consumers and neighborhoods are being protected and that proper valuation is being utilized, including questioning the allowances of Broker Price Opinions being used in lieu of appraisals.


• The need to regulate appraisal management companies and encourage lenders to use the best qualified appraisers available to mitigate financial institutions' risk and protect the investment of both lenders and consumers.

If you are unable to tune into the hearing, a transcript of President Amorin's testimony will be made available in tomorrow's issue of Appraiser News Online.

NOTE: The testimony is available NOW in PDF format right HERE

The Appraisal Institute 550 W. Van Buren St., Suite 1000, Chicago, IL 60607 T 312-335-4140 F 312-335-4258/4222

UPDATE!!

Three panels of speakers, a total of 15, testified before the committee today. At least two should be of interest to appraisers, real estate brokers and borrowers:

Charles McMillan, President of the National Association of Realtors

Mark Savitt, President of the National Association of Mortgage Brokers

Both addressed the HVCC and the need for regulation of AMCs.

UPDATE!! May 15, 2009 - The Title/Appraisal Vendor Management Association (TAVMA) responds by questioning the truthfulness of the Professional Appraisal Associations offering testimony - HERE

Brace For Change

We have posted a number of times about the Home Valuation Code of Conduct (HVCC). With the May 1, 2009 implementation date getting ever closer, this drastic change is starting to get some attention.

From the Contra Costa Times:

Appraisers brace for industry change


By David Morrill Staff Writer
Posted: 03/06/2009 04:19:54 PM PST

An accurate appraisal equals piece of mind. At least that's what it should be in a perfect world. Simply stated, the appraiser should be the sole objective party in a real estate transaction.But sometimes ideals and reality aren't one in the same.

Pete Rosselli of Martinez and his family have been a part of the appraisal industry for almost 20 years, and he says that an appraiser who says they've never felt outside pressures "to hit values" are not being honest. "If you've been in it as long as I have, we've all seen it and all experienced it," Rosselli said.

On May 1, a new code of conduct, the HVCC (Home Valuation Code of Conduct) is scheduled to be implemented with the intent that it will isolate the appraisal process of loans purchased by Fannie Mae and Freddie Mac from bias. Loan production personnel, including mortgage brokers, will no longer be able to order the appraisal or influence the choice of appraiser.

FULL STORY

Although the spin of the article is largely positive, there will be a major negative effects to small business real estate appraisers, small business real estate brokers and consumers. Many, if not most appraisal assignments will be channelled through Appraisal Management Companies (AMC), ostensibly to isolate the appraiser from pressure. Considering the fact that the investigation prompting the agreement that resulted in the HVCC was initiated by an AMC caught trying to influence appraisers to "hit the correct number", isn't it amazing one of the consequences of the "solution" to be implemented will be direct that more appraisals will be assigned through these unregulated AMCs?

For instance, take a look at the Complaint filed by New York Attorney General Andrew Cuomo against First American.

LINK

Page 9, Paragraph 24. "Despite their claims of independence from their lender clients, First American and eAppraiseIT violate federal and state independence requirements with regard to appraisals performed for WaMu, and in doing so deceive borrowers and investors who rely on their proclaimed independence.

Page 11, Paragraph 29. "Almost immediately after WaMu retained eAppraiseIT to provide appraisals in early Summer 2006, WaMu’s loan production staff began complaining that the appraisal values provided by eAppraiseIT’s appraisers were too low. It was clear, and eAppraiseIT well understood, that WaMu’s dissatisfaction was largely due to the fact that eAppraiseIT’s staff and fee appraisers were not "hitting value,” that is, were appraising homes at a value too low to permit loans to close.

Page 13, Paragraph 37. "In February 2007, WaMu directed eAppraiseIT to stop using its usual panels of staff and fee appraisers to perform WaMu appraisals. Instead, WaMu’s loan origination staff demanded that eAppraiseIT use a Proven Panel of appraisers selected by the loan origination staff, who were chosen because they provided high values.

Page 14, Paragraph 41. "In February 2007, eAppraiseIT simply capitulated to WaMu’s demands. In an email on February 22, 2007, eAppraiseIT’s President told senior executives at First American “we have agreed to roll over and just do it.” He explained that “we were willing to live with the change if they would back us up with the appraisers and tell them that simply because they are rated as Gold Preferred does not mean that they can grab all the fees. They agreed.” In other words, for the right price in fees, eAppraiseIT was wwilling to go along with the Proven Panel.

These are just a few choice bits from the complaint. Please take a minute to read all of the alleged wrondoings by the AMC and WAMU. You should start to develop an opinion about the wisdom of channelling appraisal assignments through AMCs.

Because AMCs broker appraisal assignments, lenders will see higher costs for their appraisals. Of course, that higher cost will be passed on to consumers. It's unlikely these borrowers will see any benefit of the increased expense. Data shows that AMCs have a record of assigning appraisals using criteria other than the competency of the appraiser as a priority.

Many Americans, appraisers and other real estate professionals included, are interested in change. However, is this the change we want or need?

Use this LINK to read some prior posts about the HVCC.

NAMB Files Lawsuit Over Controversial HVCC

Back in January we discussed the Home Valuation Code of Conduct (HVCC) in THIS POST. Additional information about opposition to the HVCC from Federal Bank Regulators was provided HERE.

Now, we provide this release from the National Association of Mortgage Brokers:

The Home Valuation Code of Conduct Severely Limits Market Competition

McLean, VA – The National Association of Mortgage Brokers (NAMB), with the support of Baker & Hostetler LLP, filed a lawsuit today with the United States District Court for the District of Columbia against the Federal Housing Finance Agency (FHFA) Director James B. Lockhart over the controversial Home Valuation Code of Conduct (HVCC) included in the appraisal agreements between the FHFA, Fannie Mae and Freddie Mac (GSEs), and New York Attorney General Andrew Cuomo.

“The HVCC does nothing but drive up costs for consumers and push small businesses out of the market,” said NAMB President, Marc Savitt. “The HVCC will drastically reduce the ability of mortgage brokers to provide consumers with an efficient and cost-effective means of obtaining a mortgage.”

FULL STORY

Copy of the suit - CLICK HERE (23 pages, pdf)

THANKS to the National Association of Mortgage Brokers for stepping up to the plate and taking action!

Litigation is expensive. You can make a contribution to their efforts to fight the Home Valuation Code of Conduct by visiting their website and making a CONTRIBUTION.

It's time to Regulate Appraisal Management Companies

Appraisal Management Companies typically administer a network of certified and licensed appraisers to fulfill real estate appraisal assignments on behalf of mortgage lending institutions. They often recruit, qualify and verify licensure for their panel of appraisers.

One major problem with Appraisal Management Companies is they are completely outside the regulatory loop controlling real estate appraisers and protecting the public. No state or Federal agency is tasked with the regulation of Appraisal Management Companies. In fact, there is a documented case of Florida Appraisal Management Company owned and operated by an individual that surrendered his Certified Residential Appraiser credential for permanent revocation to avoid prosecution for several complaints. This individual, in fact, was the subject of at least 10 complaints by consumers, lending institutions and other appraisers. His discipline prior to the surrender for permanent revocation included fines, probation, completion of education and a period of suspension.

Appraisers, appraisal associations, the Florida Real Estate Appraisal Board and the Florida Association of Realtors believes the failure to regulate Appraisal Management Companies is a danger to the public. Their concern is heightened by the pending implementation of the Home Valuation Code of Conduct discussed in a prior post.

Thankfully, the Florida Association of Realtors has stepped up to the plate and stated their support of an effort to establish regulations for Appraisal Management Companies. During their January 26, 2009 meeting, the Board of Directors of the Florida Association of Realtors passed a motion to support the registration and regulation of Appraisal Management Companies operating in Florida. Draft legislation has been written by a concerned group of appraisers consisting of members of the Appraisal Institute, the National Association of Independent Fee Appraisers and the Florida Association of Realtors. The Florida Real Estate Appraisal Board supports the concept as well.

The Florida Chapters of the Appraisal Institute will take the lead in securing sponsors in the Florida House and Senate. We will do our best to keep you apprised of the progress.

Home Valuation Code of Conduct

The Federal Housing Finance Agency (FHFA) has announced the "final" Revised Version of the Home Valuation Code of Conduct (HVCC).

The Code is based on an agreement between the Enterprises, the New York State Attorney General Andrew Cuomo and FHFA to improve the reliability of home appraisals.

The "agreement" was originally between Fannie Mae, Freddie Mac, the Office of Federal Housing Enterprise Oversight and Cuomo. The New York Attorney General made a big splash is THIS ANNOUNCEMENT. The settlement was prompted by an investigation of mortgage and valuation fraud initiated by the New York Attorney General in response to allegations of shady dealings between an Appraisal Management Company, Washington Mutual and a group of appraisers doing contract work for the Appraisal Management Company.

"The integrity of our mortgage system depends on independent appraisers," said Cuomo. "Washington Mutual compromised the fairness of this system by illegally pressuring appraisers to provide inflated values. Every company that buys loans from Washington Mutual must be sure that the loans they purchased are not corrupted by this systemic fraud."

The lawsuit filed last week details a scheme in numerous e-mails showing First American and eAppraiseIT caved to pressure from Washington Mutual to use appraisers who provided inflated appraisals on homes.

E-mails also show that executives at First American and eAppraiseIT knew their behavior was illegal, but intentionally broke the law to secure future business with Washington Mutual. Between April 2006 and October 2007, eAppraiseIT provided over 250,000 appraisals for Washington Mutual.

Due to many problems with the original HVCC, the failure of WAMU, Fannie, Freddie and a myriad of other reasons, the agreement was revised after a comment period. However, it's far from perfect and, if implemented, will have a significant effect on your brokerage business and the relationships you have built.

Here's one take:

An Appraisal Upheaval

by Kenneth Harney

When you apply for a mortgage to buy or refinance a house, should you be concerned that your appraiser is being paid much less than the $300 to $600 you're charged, perhaps half?

Should you know who pockets the rest, or that cut-rate fees are too low to attract the most experienced appraisers?

Should you care that the appraiser might be pushed to come up with a number so quickly -- almost overnight in some cases -- that he or she doesn't have the time to do a proper inspection and accurate evaluation of comparable properties, pending sales contracts and local market trends?

This agreement is not good for consumers, real estate brokers or appraisers. Why?

• Appraisal assignments will be funnelled through an Appraisal Management Company (AMC). Regardless of the definition and explanation at the link above, the reality is many AMCs have established a priority system that looks like this:

COST

SPEED

COMPETENCY

QUALITY

• The HUD-1, Closing Statement, will contain a charge for Appraisal Fee on Line #804. It will not indicate that the fee is the amount paid to an anonymous AMC and that only a fraction of that fee is paid to the appraiser. Doesn't RESPA require transparency by requiring that consumers receive disclosures at various times in the transaction and outlaws kickbacks that increase the cost of settlement services?
• Not one state in the United States Regulates the activities of Appraisal Management Companies.

Here in Florida, a group of professional appraisal associations, appraisers and others is working to protect the public by initiating legislation to regulate the actions of Appraisal Management Companies. Watch this space for more information once the bill is filed. To protect your business and the relationships you have built with related professions, your support is necessary.