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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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