Goodbye, Home Valuation Code of Conduct

Legislation will overhaul appraisal rules

By Matt Carter, Friday, July 16, 2010.

Inman News

Appraisers are welcoming Thursday’s passage of legislation that makes sweeping changes to the nation’s financial regulatory system, saying the bill includes the first modernization of real estate appraisal regulations in more than 20 years.

HR 4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act, includes appraisal independence requirements and provides grant funding for state oversight and enforcement of those regulations.

The bill creates a new Bureau of Consumer Financial Protection that’s charged — among many things — with drafting new interim final regulations that specifically define acts or practices that violate the bill’s appraisal independence requirements.

The regulations are to be drafted within 90 days of the bill’s signing, superseding the Home Valuation Code of Conduct, rules adopted by Fannie Mae and Freddie Mac in May 2009.

Realtors have complained that the code, which was intended to protect appraisers from coercion by lenders, has resulted in lenders relying more on appraisal management companies (AMCs) that may employ appraisers with little experience in the markets in which they are asked to provide valuations, paying them less than experienced local appraisers.

Fannie and Freddie on June 30 put lenders on notice that they must use appraisers with local experience who can access records on recent sales in markets where they are being asked to provide valuations.

The appraisal independence requirements of HR 4173 provide that AMCs register with state agencies, and stipulate that lenders and AMCs pay “reasonable and customary” fees to appraisers. Violators will be subject to penalties under the Truth in Lending Act.

The new law allows lenders to establish what’s “reasonable and customary” by citing “objective third-party information, such as government agency fee schedules, academic studies, and independent private-sector surveys.” But fee studies can’t include assignments ordered by AMCs.

The Appraisal Institute, a group representing appraisers, says that language will encourage the use of “highly trained and competent appraisers.”

“We encourage AMCs to justify the legitimate services they are providing to lenders by charging for those services, rather than penalizing highly trained and competent appraisers” by offering subpar wages, Appraisal Institute President Leslie Sellers said in a press release.

The banking and lending industry is wary of many of the bill’s other provisions, saying they will create more costs and tighten the availability of credit to consumers.

After the House passed the bill on June 30, the Mortgage Bankers Association issued a statement saying the bill would change mortgage lending, increasing costs and creating new regulatory burdens that would affect consumers and lenders.

Lenders’ concerns about the bill include risk retention provisions for loan originators and the lack of strong federal preemption of state consumer protection laws, preserving the rights of states to pass even stronger measures.

According to one analysis by attorneys at K&L Gates, the bill “essentially mandate(s) that all flavors of mortgage loans besides ‘plain vanilla’ will disappear from the menu.”

For consumers who want something besides staid 30-year fixed-rate loans and other loans viewed as less risky? “Sorry, the government has determined that it may be hazardous to your health,” K&L Gates attorneys Kristie Kully and Lawrence Platt wrote.

Although the lending industry won some concessions in the long fight over financial regulatory reform, “the extent to which makers and holders of non-plain vanilla mortgages are targeted for punishment through enhanced monetary damages, defenses to foreclosure, and risk retention requirements,” came as a surprise, Kully and Platt said.

“Only time will tell whether the mortgage finance industry will assume the risks and expand the menu of mortgage options.”

Commenting on Thursday’s Senate passage of HR 4173 in a 60-39 vote, the American Bankers Association said the group was “very disappointed” with bill, calling it “overloaded with new rules and restrictions on traditional banks that did not cause the financial crisis. The result will be over 5,000 pages of new regulations on traditional banks and years of uncertainty as to what the massive new rules will mean.”

On that point, the National Community Reinvestment Reinvestment Coalition did not disagree.

The proof of the bill’s worth “will come not from what is written in the bill, but how the regulators interpret the bill, write the rules and then enforce them,” said John Taylor, NCRC’s president and CEO, in a statement. The bill leaves “too much to study, and (up to) the discretion of the existing regulators.”

NCRC welcomed beefed-up reporting requirements under the Home Mortgage Disclosure Act that will require lenders to include more details on loan terms and conditions and borrower characteristics to regulators. That information can be used to determine whether lenders are discriminating against minority borrowers or underserving some communities.

The bill also creates a default and foreclosure database that NCRC said will “serve as an early warning system” allowing regulators to take action when data shows a spike in foreclosures

Regulators will also have access to a database of individual loan records for homeowners participating in the Home Affordable Modification Program (HAMP) program, which NCRC said will increase industry accountability for loan modifications.

The National Association of Realtors largely stayed on the sidelines of the battle over financial reform, after lawmakers made it clear last year that the Consumer Financial Protection Agency they envisioned would not have authority over real estate agents and brokers, or other businesses that bill customers after services are provided, such as doctors and lawyers.

Speaking on a panel at Inman News’ Real Estate Connect San Francisco Thursday, NAR CEO Dale Stinton said the group was focused on the Obama administration’s next project: determining the fate of Fannie Mae and Freddie Mac, and the future of the secondary mortgage market.

“On the consumer side, we try to pick our fights, and that wasn’t our fight,” Stinton said, noting that the U.S. Chamber of Commerce was an advocate for businesses during the debate.

Stinton said that 25 years ago, a previous NAR CEO made a public appeal for the government to implement spending reductions to tackle the national deficit. NAR “paid the price for 10 years for putting our nose where it didn’t belong,” Stinton said.

Appearing onstage at Connect with Stinton, ForeclosureRadar.com founder and CEO Sean O’Toole said that loose lending standards and mortgage products like pay-option adjustable-rate mortgages with low interest rates artificially inflated home prices during the boom by allowing people to buy more home than they could really afford.

But the root of the problem was the loose lending standards employed by lenders because they were able to pass risk along to secondary market investors — not the loan products themselves, O’Toole said.

“I’m not sure subprime lending isn’t OK … we’re going to lose a lot of good products that could expand homeownership, ” O’Toole said.

“I think all of these products could be on the market” if lenders were partners with borrowers in a home, sharing the risk. One way to do that would be to bar deficiency judgements against borrowers who default on their mortgage, O’Toole said.

The American Land Title Association was pleased that the HR 4173 does not place title insurance under the jurisdiction of the Bureau of Consumer Financial Protection, as originally proposed by the Obama administration.

The bill does create a new Federal Insurance Office within the Treasury Department, which will have the authority to determine when state insurance regulations are inconsistent with international agreements relating to prudential measures for insurance or reinsurance, ALTA said.

So after to listening to FHA Commissioner Dave Stevens yesterday and agreeing/disagreeing with what he had to report (FHA’s Dave Stevens Talks. WE created the mess. THEY’ll clean it up. Oboy), the TBWS rant this morning was entitle ‘FHA – The Toothless Dog?’ Now Brian & Frank have been known to embellish a bit sometimes in the interest of entertaining reportage but they are usually factually accurate and thought provoking. This morning they asked the 7 questions on the new FHA FAQ on AMC’s/Reasonable & Customary/Turnaround Times. You all know, of course, that the FHA has adopted certain of those lovely practices we have all come to know and love as HVCC. So they felt it was necessary to answer your questions about how that impacts your business with FHA. Fascinating.

The problem is in the way FHA chose to answer your questions and that makes for the entertainment value which, according to Frank & Brian, essentially boils down to -’Don’t bother the FHA with that’. So when they ended the broadcast they put up a disclaimer that ‘while the questions were verbatim from the FHA, the answers were a distillation of what the FHA’s answer is.’ Gotcha! I thought. You boys were just poking fun at the FHA for maybe giving some less that comprehensive answers.

WRONG! Go to the website and check it out for yourself. While the answers are all longer and more obfuscative, the bottom line to almost every one is – ‘Don’t bother the FHA’. For example –

• What is a reasonable and customary fee?

• Where do I complain when a lender wants to pay less than what is reasonable and customary?

• Where do I complain if the AMC asks for unethical or inappropriate fees or services?

• There are 4 more FAQ’s you could ask the FHA but the answer to all are about the same –
  • Is reasonable & customary an objective number? We don’t know – don’t bother the FHA.
  • What if the lender always assigns to the lowest bidder regardless of competence? None of our business – don’t bother the FHA.
  • What if there’s a big disparity between the fee the appraiser reports and the HUD-1? That’s an optional reporting thing – don’t bother the FHA.
  • What if the lender requires a quick turnaround? The FHA doesn’t set those standards – don’t bother the FHA.
    

This would be quite laughable if it weren’t true. So congratulations out there – contrary to earlier reports that the FHA was not going to jump into bed on the HVCC deal, they have and you get to deal with it. Problems with HVCC? Well, there may be a few but don’t bother the FHA. Seems everybody knows there’s problems with HVCC but nobody wants to tackle it head-on or try to straighten it out. Certainly not the FHA.

Ahhhh yes. Transparency, hope and change. Bend over, we’re from the government and we’re here to help.

Let me say at the outset, I sat through the whole friggin thing and didn’t note any opportunities – unless you count aggravation as an opportunity.  No shortage of risks, however.

NAR did a great job staging this – they had a panel in place that included spokesholes from FHFA, FHA, Fannie Mae, Freddie Mac and an AMC. Oh, and they had two Realtors sitting in for balance. In my humble opinion, if I had a load of the bullshit they were peddling today, I would have the healthiest, greenest lawn in Southern California.

Alfred Pollard, General Counsel for the Federal Housing Finance Agency; Jacqueline Doty, Directory of Collateral Policy for Freddie Mac; and Mark Johnson,  COO for LSI (and Appraisal Management Co), started the process with brief statements on why the program was started (to combat fraud) and how well it’s working.  As Mr. Pollard stated – ‘we have experience a systemic event for the financial markets, primary and secondary lenders, Realtors, institutional lenders and appraisers – all of those industries are on the table as we determine what comes next.’

It was interesting to note that the one entity that he left out, the one he happens to work for, wasn’t included as being on the table – THE GOVERNMENT.  The one institution central to the whole fiasco is the only one not up for evaluation and found wanting. In fact, these sanctimonious bastards are now sitting in judgement of the reat of us and determining how they can keep us from running amok again. Ain’t that special.

Our Realtor panelists, Steve White, owner of two large Keller-Williams offices in LA; and Penny Triplet, a Realtor and appraiser from Ohio, stated the litany of complaints that you are all familiar with. Delays, incompetence, bad appraisers, out of area appraisers, higher costs to customers, lost transactions, lack of portability – you name it, they brought it up.

The government people claimed to be listening but the were just dancing. Time and again they quoited passages from the 6 page HVCC document – well this is how it’s supposed to work; well, this is what it says; well that’s another of those myths; well this is how you’re supposed to work through that. Basically they acknowledged that ‘there might be a few bad actors in the group but this HVCC has solved a lot of problems and is a wonderful thing.’

Oh, and if you thought it was scheduled to expire in June of 2010 – think again, It’s in place until next November and there ain’t nothing you or (NAR President) Charles MacMillan or anybody else can do about it. Your opportunity is to learn how to work with it because it’s here to stay.  Even after the current HVCC expires, some form of the bureaucracy that has been set up to administer it will continue because, like any government program, once born it never dies.

As if the moderator knew the Q & A might get testy, she decided that rather than  take questions from the floor, she would just take questions submitted in writing. That lasted about 15 minutes until she could no longer ignore the line of Realtors standing quietly at the microphones waiting to ask questions.

Still no straight answers were forthcoming. Realtors were advised to report bad appraisers – that is if you can figure out who they work for or if the AMC or the lender cares enough to return your call (after 18 months, the office for reporting bad appraisers still hasn’t quite been set up but it’s coming soon). Realtors are allowed to talk to appraisers and even give them comps, of course provided the appraiser even bothers to call you or come out to your city or doesn’t report you for applying undue influence by giving them accurate comps. If you get a bad appraiser you can request a do-over, of course it will be done by the same guy whom is now pissed off and never mind that the delay might cost you the deal. If it’s so bad your buyer switches to another lender of course the appraisal should be portable (like you’d want to port that crap) unless the new lender doesn’t want to accept it or it’s from an appraiser that’s not accredited by their AMC, in which case your client will get to buy a new one and hope it’s better than the old one. You’ve got an appraiser from 200 miles away? Or even from another state? Jeez, that’s not supposed to happen because the HVCC says it’s not so it can’t be. That’s just anecdotal information.  The Freddie Mac rep said complaints to her office are waaaay down since HVCC. Complaints from appraisers that is. Turns out they don’t take complaints from Realtors unfortunately.

One Realtor summed it up perfectly – ‘The government appears to think the problem in under control. Realtors think the problem is out of control. How do we get the two sides together?

If todays panel is any indication, we don’t. Hang on kiddies – it’s gonna get worse before it gets better. We’re from the government and we’re here to help you.

On October 10, The California Association of Realtors in it’s 526th session, brought forward a number of ‘Action Items’ that will result in forward progress and, in some cases,  calls on C.A.R. to sponsor and/or support legislative action.

C.A.R.’s legislative agenda contains several ways to address issues. The call to ‘SPONSOR‘ legislation is our highest level of action requiring a significant commitment of time and resources to accomplishing our goal. This generally means drafting a bill, finding a legislator to carry it on our behalf, and involves significant efforts by our lobbyists and members to ensure the success of the resulting bill. After a year where C.A.R. played a very successful defensive game, we are again going on the offensive in 2010 on behalf or Realtors® and our clients.

Additional levels of legislative involvement include ‘SUPPORTING’ a bill that has been drafted by others, ‘OPPOSING’ a bill, taking a ‘NEUTRAL’ stance, taking a ‘WATCH’ status on a bill, ‘SUPPORTING OR OPPOSING PENDING AMENDMENT’ or just deciding a bill is not real estate related.

From the Legislative Committee:

AA#1 calls on C.A.R. to ‘SPONSOR‘ legislation to subject Appraisal Management Companies to increased regulatory control by the Office of Real Estate Appraisers (OREA). They currently appear to operate outside of any regulatory control. Further, while the stated goal was to keep appraisers and lenders at arms length (the purported cause of the housing meltdown, according to NY AG Cuomo), in fact most of the largest AMC’s are owned by lenders. The HVCC accord between Cuomo and Fannie & Freddie is wreaking havoc on the industry, delaying or canceling sales and increasing costs for homebuyers and has interjected another level of bureaucracy  and inefficiency into the process..

AA#2 calls on C.A.R. to ‘SPONSOR‘ legislation to require lenders to accept a ‘portable’ appraisal at the request of the borrower. If your customer obtains an appraisal from one lender but wants to shop the loan, or want to switch to or from a lender mandated lender, they don’t have to keep dropping $450 for another appraisal.

AA#3 calls on C.A.R. to ‘SUPPORT‘ legislation setting up a program to use electronic scanning technology to filter title records for unconstitutional transfer restrictions and redact the illegal covenants in a way that does not destroy the original and does not add prohibitive costs to the process. A bill currently in process ignores the advancement of modern technology, would require all pages to be scanned visually for these covenants, and then would remove the offending passage permanently at some undefined cost to the customer. This is revisionist history applied to the housing market saying, in effect, no those restrictive covenants never existed. Yes they did and we’ve come a long way toward addressing the issues – let’s not forget where we came from and who fought for those changes on homeowners behalf.

AA#4 calls on C.A.R. to ‘SPONSOR‘ legislation to apply the so-called ‘poison pill’ of business and professional code section 10226.5 to ‘loans’ from DRE to other special funds.  This provision, which has existed for years, triggers an automatic roll-back of DRE fees to 1982 levels if the state ‘takes‘ or ‘borrows‘ money from the DRE reserve. This year the state came up with a new euphemism for this theft calling it simply a ‘loan‘ from one department to another. So we have to come up with a new response to their creative pilferage.

AA#5 calls on C.A.R. to ‘SPONSOR‘ legislation to redraft the existing ‘advance fee’ statute contained in SB94. While we support SB94, the language defining ‘advance fees’ could be construed to apply to all manners of receiving or even contracting for payment before a service is performed. Under the current wording, even a listing agreement could be interpreted as running afoul of the law as it contracts for payment in advance of services being performed.

All of these activities come with a cost – your basic cost of political survival. When your dues billing statement comes out next month, please be sure to include your investment of $49 in the Realtor Action Fund. We’re either at the table on these issues or we’ll be on the menu. A seat at the table costs money.

]]> http://gadblog.srcar.org/2009/10/12/c-a-r-2010-legislative-agenda-takes-shape/feed/ 0 http://gadblog.srcar.org/2009/08/31/nar-states-position-on-hvccfhapetitions/ http://gadblog.srcar.org/2009/08/31/nar-states-position-on-hvccfhapetitions/#comments Mon, 31 Aug 2009 19:59:49 +0000 Gene Wunderlich http://gadblog.srcar.org/?p=971 The National Association of Realtors clarifies its position on the HVCC & petitions – is working a bi-partisan bill to place an 18 month moratorium on the process.

Many of our members have had questions lately about NAR’s position on the HVCC and on the petitions circulating around the internet. Given the unintended consequences the HVCC ruling has fostered, this sounded like an effort NAR might get behind. Well,  NAR has heard those questions and in this brief position paper outlines a program the Realtor Party is working on to address the problem.

Many of our state and local association partners have been asked to sign an electronic petition to New York Attorney General Andrew Cuomo, Fannie Mae, Freddie Mac, and the Federal Housing Finance Agency (FHFA) requesting a permanent reversal of the Housing Value Code of Conduct.

NAR is not providing any direction regarding these petitions.  While the petition signatures may help raise the profile of the issue, NAR remains concerned about the accuracy of some of the petition claims.  NAR  worked with Congressmen Travis Childers (D-MS) and Gary Miller (R-CA) to craft HR 3044, a bill to place an 18 month moratorium on the implementation of the HVCC.  The bill currently has 54 co-sponsors and NAR is actively seeking additional co-sponsors for the legislation.

HR 3044 TO PLACE 18-MONTH MORATORIUM ON HVCC

California Congressman Gary Miller has introduced H.R. 3044, which would place an 18-month moratorium on the recently imposed Home Valuation Code of Conduct (HVCC).  The HVCC was worked out through an agreement between Fannie Mae, Freddie Mac and the New York Attorney General’s Office (NYAG) in response to an investigation by the NYAG into Fannie and Freddie.

The purpose of the HVCC was to try and insolate the appraisal process from undue influences.  The HVCC attempted to do this by placing tight controls and restrictions on the ordering of the appraiser, as well as purposes for communicating with the appraiser during the process.  However, the implementation of the HVCC, which came about by neither regulation nor Congressional statute, has resulted in appraisals that cost more, take longer to perform, and are inaccurate.  C.A.R. has heard from members throughout the state of similar difficulties with the HVCC and its negative impact on the California real estate transaction.  C.A.R. is supporting H.R. 3044, and is asking California’s Congressional Delegation to sign onto the bill as a cosponsor.

More info:
https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/appcode/pdf/hvccfaqs.pdf