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The mess that Fannie/Freddie has created

March 12th, 2008 10:02 AM

Home Valuation Code of Conduct

The guest speaker at last night's meeting of the Real Estate Appraisers Association was John Brenan from the Appraisal Foundation. After his talk on changes in the AQB and discussion of current USPAP Q&A's, there was open discussion about Fannie and Freddie's Home Valuation Code of Conduct (HVCC) created in response to NY State AG Cuomo's investigation of First American, eAppraiseIT, and WAMU.

The new guidelines will be nationwide in effect with an effective date of January 1, 2009. Fannie and Freddie are saying that they will not accept loans that do not meet these guidelines. The main points are these:

1. Mortgage brokers and loan officers will not be allowed to choose appraisers for their loans.

2. Mortgage bankers may not have their staff appraisers prepare the initial appraisal on a loan. Staff appraisers may only do review appraisals.

3. Prohibits influencing or attempting to influence the development of an appraisal including asking for a predetermined value.

4. Prohibits the use of appraisals developed by any AMC (Appraisal Management Company) or appraisal group owned or controlled by the lender.

The full text of the Home Valuation Code of Conduct (HVCC) may be found here - http://www.oag.state.ny.us/press/2008/mar/Code%20Final%203-2.pdf

There is to be a 90 day period to solicit comments and input, which is purely voluntary on the part of Fannie/Freddie and non-binding. In other words, they are soliciting input but are under no obligation to act on it. The projected date of implementation is believed to be January 1, 2009.

Some of what is in the HVCC is needed reform and overdue. However, just a few of the problems I see with the HVCC are these:

1. There is no clear idea of how any of this is to be implemented.

2. If AMC's are the logical choice to distribute appraisals, (at this time, this looks like a stong possibility) who is to regulate the AMC's? At this time there is no regulation of AMC's.

3. How are independent fee appraisers to survive, without a means to solicit business? The appraisers I know, myself included, depend on the relationships that we have developed with loan officers, brokers and agents who send us business. Are we expected now to court the investors directly, a much more difficult prospect? Or are we all going to be forced to join an AMC to get on the distribution list.

4. If the AMC's are to distribute appraisal requests and the competing AMC's are to solicit business from the investors, what kind of an unregulated sales force driven entity would that create?

5. This was all intended to fix the possiblity of collusion between a lender and the lender owned AMC. This is in spite of the fact that eAppraiseIT was owned by First American, not WAMU. So that problem would still exist. You'd think that a solution to fix a problem would at least address the problem.

My feeling is that since there is no clear cut means of implementation of most of the HVCC, the 90 day comment period is our opportunity to challenge Fannie/Freddie and make sure that what emerges at the end is a workable solution for all the parties involved. Not just Cuomo, Fannie/Freddie and the AMC's.

Posted by William McKnight on March 12th, 2008 10:02 AMPost a Comment (0)

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My Answer to an LO who asked me if I checked the Declining Box on the URAR

March 14th, 2008 8:20 AM

Dear Loan Officer,

I met you briefly at the SAR meeting and I thought you said you worked for Chase, but perhaps I mis-heard. At any rate, when you mentioned that you were looking for appraisers that "don't check the box", I assume that you were talking about Stable Vs. Declining market check boxes on the URAR 1004.

Most lenders, CAR, NAR and FNMA have identified Sacramento, San Joaquin and Placer counties generally as "declining". Since none of these entities specifically defines what a declining market is, the burden of proof is on the appraiser to demonstrate stable or declining values based on historical, recent and current sales analysis.

Part of my job as an independent fee appraiser is to determine how the subject's neighborhood fits into the market. As we all know, each neighborhood is distinct and, while the market, county or zip code as a whole may be declining, the subject's neighborhood may at the moment or for a definable period be stable. If evidence exists that the subject's neighborhood is stable, then the Stable box can be checked as long as the appraiser fully supports that decision with market data, paired-sales data analysis and even graphing the data if necessary to show the period of stability.

If the subject's neighborhood is truly declining, then the Declining box must be checked, and that decision also must be fully supported by the same method of data analysis as noted above.

In any case, if the wrong (Stable or Declining) checkbox is marked, the lender's underwriter or reviewer will condition the appraisal or reject the appraised value based on their own underwriting guidelines, especially if no supporting data is in the report to justify why either box was checked.

I always base my decision on my own independent research of each subject neighborhood and fully support that decision in the report. I don't automatically check either box which, if wrong, could lead to a rejection of the appraisal or a review that could end up costing the borrower or delaying the loan.

I hope you don't mind that I took the time to respond to your question in a way that may clear up some of the confusion about Stable Vs. Declining markets and the appraiser's responsibility to accurately report and support market conditions.

Posted by William McKnight on March 14th, 2008 8:20 AMPost a Comment (0)

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