FHFA to Modify HVCC Enforcement. When Can An Originator Question An Appraiser?
The Federal Housing Finance Agency opened yet another
chapter in the ongoing tale of home appraisals, their role in the housing
bubble, and in the recovery.
In a letter
addressed to Andrew M. Cuomo, the New York State Attorney General today, Edward J. DeMarco,
acting director of the agency announced a change in the administration of the
Home Valuation Code of Conduct (HVCC.
The code was implemented in May, 2009 in an attempt to
insulate appraisers from undue pressure and conflicts of interest which many
appraisers and others in the real estate market felt had been rampant during
the housing boom of 2005-2007. HVCC was
intended to promote professional appraisals free from inappropriate pressure
from lenders, borrowers, or brokers which remained a factor even when the
market went into a rapid decline.
The Code set forward specific prohibitions on lender
behavior which could be construed as pressuring an appraiser in order to
obtain
a favorable value and sets up mechanisms to separate the underwriting
process
from the appraisal commissioning process.
DeMarco said that both Fannie Mae and Freddie Mac have found that
appraisal
quality has improved since the Code's implementation.
Cuomo was particularly aggressive in pursuing mortgage fraud
and other illegal housing-related activities and, as a result of actions
brought by the AG's office, Freddie Mac and Fannie Mae signed an HVCC Cooperation Agreement,
approved by FHFA, in December, 2008. The
Agreement established HVCC as the standard for all mortgages purchased by the government
sponsored enterprises nationwide and required the enterprises to set up and
fund an Independent Valuation Protection Institute to enforce provisions of the
code.
In today's letter, DeMarco informed the Attorney General
that Fannie Mae and Freddie Mac, both of which are operating under a federal
conservatorship, will no longer be funding the Independent Valuation Protection Institute.
DeMarco said, "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.
The need for a complaint process is being addressed in a way that we
believe is more practical than with the Institute."
He cited "the billions of dollars in taxpayer funds the
Enterprises have drawn since entering conservatorships" and said he
cannot, as conservator, justify the Enterprises funding the Institute. Therefore, he said, he has determined that
they will not proceed with that portion of the Cooperation Agreements.
In lieu of the Institute, DeMarco has directed the
Enterprises to provide a targeted complaint process for violations of HVCC. Freddie and Fannie will use a
standardized complaint form and process to facilitate submission of the form
through an Internet-based process. The
Enterprises will act on matters received, will refer cases to state regulatory
agencies where appropriate, identify practices suggestive of fraud or
non-compliance with the Code and provide a summary of results to FHFA and Cuomo's
office. The process will be in place in a matter of weeks.
New York's Attorney General has a reputation as a, shall we
say, aggressive and tenacious law enforcement officer. It will be interesting to see his reaction to
FHFA's unilateral change to the Agreements.
IF YOU ARE A LOAN ORIGINATOR AND BELIEVE YOU HAVE REASON TO SPEAK DIRECTLY TO AN APPRAISER ABOUT THEIR WORK. THERE ARE SPECIFIC CIRCUMSTANCES THAT DO NOT VIOLATE REGULATION.
From Reg Z:
226.36 Prohibited acts or practices in connection with credit secured by a consumer's principal dwelling.
(b) Misrepresentation of value of consumer's dwelling--(1) Coercion of appraiser.
In connection with a consumer credit transaction secured by a consumer's principal dwelling, no creditor or mortgage broker, and no affiliate of a creditor or mortgage broker shall directly or indirectly coerce, influence, or otherwise encourage an appraiser to misstate or misrepresent the value of such dwelling.
(i) Examples of actions that violate this paragraph (b)(1) include:
(A) Implying to an appraiser that current or future retention of the appraiser depends on the amount at which the appraiser values a consumer's principal dwelling;
(B) Excluding an appraiser from consideration for future engagement because the appraiser reports a value of a consumer's principal dwelling that does not meet or exceed a minimum threshold;
(C) Telling an appraiser a minimum reported value of a consumer's principal dwelling that is needed to approve the loan;
(D) Failing to compensate an appraiser because the appraiser does not value a consumer's principal dwelling at or above a certain amount; and
(E) Conditioning an appraiser's compensation on loan consummation.
(ii) Examples of actions that do not violate this paragraph (b)(1) include:
(A) Asking an appraiser to consider additional information about a consumer's principal dwelling or about comparable properties;
(B) Requesting that an appraiser provide additional information about the basis for a valuation;
(C) Requesting that an appraiser correct factual errors in a valuation;
(D) Obtaining multiple appraisals of a consumer's principal dwelling, so long as the creditor adheres to a policy of selecting the most reliable appraisal, rather than the appraisal that states the highest value;
(E) Withholding compensation from an appraiser for breach of contract or substandard performance of services as provided by contract; and
(F) Taking action permitted or required by applicable federal or state statute, regulation, or agency guidance.