Of all the serious flaws in HVCC that stand to hurt consumers, Realtors, appraisers and lenders, Richard fails to address even one of the primary deal breakers that make HVCC a non-starter in its current form. When given the opportunity to name specific recommendations, Richard gives three specific examples:

• Recommendation for change in verbiage regarding “partial payment”
• Requests change in verbiage so that “licensed and trained” employees are required as opposed to “appropriately trained and qualified” employees
• Requests change in HVCC guideline that lenders may not use appraisal company that they have a 20% or more stake in so that lenders must have 0% stake in any company they use

Fair enough, three sensible suggestions until you consider that he has failed to address any of the real issues on the table that stand to detrimentally affect consumers and real estate professionals including those he represents, Realtors. While Realtors stand a very real chance to be hurt by HVCC in its current form, Richard’s comments to the GSE’s fail to even touch on the most pressing issues within HVCC but instead waste an opportunity by nit picking verbiage. One might characterize these oversights as a clear lack of leadership in representing the best interests of consumers and Realtors.

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LETTER SENT TO FREDDIE MAC AND FANNIE MAE:

April 30, 2008

Home Valuation Code of Conduct Response
Attn: Ray Romano, Senior Vice President, Credit Risk Oversight Freddie Mac
1551 Park Run Drive, Mail Stop D2Z
McLean, VA 22102-3110

Dear Mr. Romano:

On behalf of the 1.2 million members of the National Association of REALTORS®, I am writing to provide comments on the implementation of the Home Valuation Protection Code. NAR has approximately 30,000 appraiser members from across the country and approximately 750 retain our Residential Accredited Appraiser (RAA) and General Accredited Appraiser (GAA) designations.

NAR supports the independence of appraisers and the integrity of the appraisal process. We applaud the New York State Attorney General Andrew M. Cuomo and both government sponsored enterprises (GSE), Fannie Mae and Freddie Mac, for their efforts to address appraisal fraud in the mortgage industry. While the agreement addresses appraisal fraud, we have concerns with the implementation of the proposed “New Home Valuation Protection Code” through the newly created “Independent Valuation Protection Institute.”

The agreement signed between the New York State Attorney General and Fannie Mae and Freddie Mac expires in 28 months. The newly created Independent Valuation Protection Institute will be funded by both GSEs for 5 years. The agreement is silent on how the GSEs will operate with respect to appraisals after the agreement expires. There is no indication from any party involved in the negotiations that the agreement will continue after 28 months, if one or both of the GSEs will return to pre-agreement appraisal requirements, or if a third option will be explored. It is also unclear how the Independent Valuation Protection Institute will be funded after 5 years or if more than the $5 million allocated by the GSEs is required to fund its operations.

NAR recommends the Independent Valuation Protection Institute be affiliated with an already existing appraisal organization. This will help to ensure that the code is implemented in such a way that it adds value to the appraisal process rather than becoming a duplicative layer of bureaucracy. If properly implemented the code will compliment, rather than duplicate or contradict, already existing appraisal codes such as the Uniform Standards of Professional Appraisal Practice (USPAP). Further, the Independent Valuation Protection Institute will be better positioned to work in conjunction with appraisal organizations and state regulatory agencies to ensure the independence of appraisers and the integrity of the appraisal process.

There is concern that GSEs will increase their reliance on automated valuation. While this would appear to address appraiser influence in a transparent way, a deeper look at automated valuations generally reveals they are not able to consider qualitative factors with the same level of reliability that professional licensed and certified appraisers produce. Professional appraisal organizations and licensed and certified appraisers should work closely with the GSEs to ensure the highest quality appraisals remain the preferred method of valuation for residential real estate transactions.

The agreement reached between the New York State Attorney General and the GSEs, including the valuation code, does not address the costs of the real estate transaction. Appraisers will now have to consider their obligations to USPAP and the Appraisal Foundation and the additional burden of ensuring the Code, in conjunction with the institute, is being adhered to. This may also be an issue for lenders. The creation of a new set of standards to follow and a new oversight organization may lead to increasing cost of the real estate transaction. The GSEs and the institute should work to ensure this agreement is implemented without increasing costs of the real estate transaction.

Several items in the Home Valuation Code of Conduct should be clarified. NAR recommends the following modifications to the Code:

• Section I. 1) should include the term “partial payment” and should read “withholding or threatening to withhold a timely payment, or partial payment, for an appraisal report;”.

• Section V states that any employee of the lender be “appropriately trained and qualified in the area of real estate and appraisals.” The word qualified is not defined and does not necessarily mean that the employee must be a licensed appraiser. If the employee is not licensed, then the individual may be operating under the broad scope of “appraiser” without liability to be disciplined while acting like an appraiser. The employee should be licensed and certified by the state in which the property to be appraised is located. The same requirement should hold for employees of appraisal management companies as well.

• Section VI states that lenders or affiliates of lenders cannot use an appraisal report obtained by or through an appraisal management company that is owned by the lender or affiliate of the lender and that this prohibition does not apply where the lender has an ownership interest in the appraisal management company of 20 percent or less. Lenders should be prohibited from using an appraisal report from any appraisal management company where the lender or the lender’s affiliate maintains an ownership stake. Allowing lenders to obtain appraisal reports from appraisal management companies where the lender has a stake in ownership does not meet the spirit of this agreement and does not uphold the independence of the appraisal process.

Thank you for the opportunity to present the views of the National Association of REALTORS®. These comments are also being provided to Freddie Mac and the U.S. Office of Federal Housing Enterprise Oversight. If you have any questions or comments regarding this letter, please contact our Regulatory Policy Representative Jerry Nagy at 202.383.1233 or jnagy@realtors.org.

Sincerely,

Richard F. Gaylord, CIPS, CRB, CRS, GRI
2008 President, National Association of REALTORS®

The Cuomo/GSE Appraisal Deal April 30, 2008

New York State Attorney General Andrew M. Cuomo, Fannie Mae and Freddie Mac (government sponsored enterprises) reached an agreement on March 3, 2008, to change appraiser selection criteria that will help eliminate conflicts of interest on mortgage appraisals. The agreement has the support of the Office of Federal Housing Enterprise Oversight (OFHEO). There are three main components to the agreement:

• Establishment of the New Home Valuation Protection Code
• Banks will be required to adhere to the Code
• Formation of the Independent Valuation Protection Institute

The requirements will have a significant impact on appraisal practices by lenders as they will have to comply with the new requirements agreed-to by the government sponsored enterprises (GSE) if the lenders sell mortgages to the GSEs. The parties have agreed to get comment and concurrence from the federal banking regulators and HUD, as they move to implement the Agreement and the new Code of Conduct. The GSEs have agreed to implement the new Code beginning January 1, 2009. During 2008, the GSEs will get comments from market participants, and changes to the Code are possible.

Home Valuation Protection Code
A Home Valuation Protection code will be implemented establishing standards on solicitation, selection, compensation, conflicts of interest and corporate independence. Mortgage brokers are prohibited from selecting appraisers. Lenders will not use “in house” staff appraisers to conduct initial appraisals and will not use appraisal companies owned or managed by the lender. The code entitles the borrower to one copy of an appraisal report, free of charge, within 3 days of the closing of the loan.

Banks Will Adhere to the Code
Starting January 1, 2009, GSEs will no longer purchase mortgages from lenders that utilize internal appraisers for appraisal reports. Lenders will be required to represent and warrant that the appraisal report was obtained in a manner consistent with the New Home Valuation Protection Code.

Independent Valuation Protection Institute
A clearinghouse of appraiser information will be created, with a separate board of directors, to monitor complaints from appraisers and consumers. All lenders will be required to provide post-purchase copies of appraisal documents to the clearinghouse. Lenders will establish a telephone hotline and E-mail address to receive complaints from appraisers and users of appraisal services on the improper influence or attempted improper influence of appraisers. The Institute will be headed by a Board of Directors with members having no financial connection with Fannie Mae, Freddie Mac, or lenders with whom the GSEs engage.

Frequently Asked Questions
Does this agreement concern only mortgages in New York State?
No, this agreement applies to mortgages across the country. After January 1, 2009, the GSEs will not purchase single-family loans from mortgage originators in any state that do not agree to adopt the Home Valuation Protection Code.

Does this agreement apply to all lenders?
GSEs may exclude lenders that meet the definition of “small bank” according to 12 USC§ 2908 and which the GSE determines would suffer hardships from the provisions of paragraph VI, subsections 1-4 of the Home Valuation Protection Code. However, excluded lenders must otherwise comply with the other provisions of the Code and meet appropriate standards of appraiser independence.

Who is responsible for applying the new Valuation Protection Code?
The government sponsored enterprises will apply the new code to lenders selling mortgages on the secondary mortgage market.

Will appraisers have to help fund the Independent Valuation Protection Institute?
No, the institute will be funded by the GSEs. Fannie Mae and Freddie Mac will each contribute $12 million over five years beginning in 2009.

What does this agreement mean for the independent appraiser?
Independent appraisers and appraisal companies not owned or managed by lenders or settlement companies must continue to meet appropriate standards of appraiser independence, including following Uniform Standards of Professional Appraisal Practice (USPAP) and maintaining relevant state certifications.

What does this agreement mean for REALTORS® ?
Individual REALTORS® cannot serve as a third party between a lender and appraiser. This includes selection, retention, and compensation of an appraiser.

Broker REALTORS® that offer services as a lender or affiliated lender and appraiser services must comply fully with the Home Valuation Protection Code if there is an expectation that their loans will be purchased by Fannie Mae or Freddie Mac after January 1, 2009.

Is NAR going to provide comments and recommendations on the agreement?
Yes, NAR will provide comments and recommendations to OFHEO on the Code and its implementation. NAR will comment on the creation of Independent Valuation Protection Institute; which should likely be affiliated with the Appraisal Foundation. Finally, NAR will comment on the impact this agreement will have on its members and the overall real estate industry.

Can lenders continue to own appraisal management companies (AMC)?
Yes, lenders can continue to own AMCs. According to the agreement, if a lender chooses to obtain appraisal reports from an AMC that is owned by the lender, or an affiliate of the lender, the lender must: 1) maintain 20 percent or less ownership in the AMC, 2) have no involvement of day-to-day business operations of the AMC, 3) the AMC is operated independently, and 4) the lender has no role in the selection of the appraiser.

Is this agreement federal law?
No. This is an agreement signed by two government-sponsored corporations, Fannie Mae and Freddie Mac, and the New York State Attorney General, Andrew Cuomo. The federal regulator of Fannie Mae and Freddie Mac, the Office of Federal Housing Enterprise Oversight (OFHEO) also signed the agreement. No legislation was passed or signed into law with respect to this agreement.

Are real estate agents prohibited from communicating with appraisers?
No. There is only one portion of the code that applies directly to real estate agents. Part III states that third parties, including real estate agents, cannot select the appraiser or compensate the appraiser. A third party, including real estate agents, can still ask appraisers for additional information, provide additional information to an appraiser, or ask for corrections of factual errors.

Can lenders work only through appraisal management companies?
No, lenders that utilize in-house appraisers can still order appraisals as long as they are independent of the loan production staff and do not ultimately report to an officer who manages loan production.

To: Our colleagues
Re: Thank you for speaking up about the HVCC
From: David Biggers, Chairman, a la mode, inc.

Prior to the April 30th deadline for commentary on the proposed HVCC regulations, I wrote you asking for your help in alerting our government officials and the private sector to the damages which would be brought onto the real estate industry if the HVCC was implemented as written.

Amazingly, more than 31,000 of you responded within 48 hours. That exceeded our projections by tens of thousands. Frankly, I would have been pleased if 5,000 of you spoke up. But 31,000 in such a short time is absolutely unprecedented, and it’s gotten the attention of the people in D.C. and New York involved in the HVCC’s drafting and implementation.

The response spanned all sectors of the industry. Over 17,000 appraisers, more than 10,000 mortgage brokers, and more than 3,000 real estate agents signed up and forwarded comments on to the powers that be. Over 500 lenders even added their voices, as did hundreds of attorneys, homeowners, title agents, and more. Plus, nearly 12,000 of you added your own comments to our pre-written appeal to reconsider the regulations.

And rest assured, we delivered your words. By the April 30th deadline, we printed and delivered to OFHEO, Fannie, Freddie, and the New York Attorney General’s office a massive shipment of 127,169 pages of letters.

It’s a good thing that we printed and physically mailed them, because the e-mail servers at OFHEO and Freddie Mac almost immediately began blocking your messages. To Fannie Mae’s credit, they initially blocked the e-mails, but then proactively called us, worked out a solution, and subsequently accepted all of your letters. We’re going to assume based on Fannie Mae’s professionalism that they will pass the comments on to OFHEO as promised. To make it easier for them to incorporate your ideas, and to contact you if needed, we also delivered a CD to each entity with all of your suggestions and contact information in convenient database format.

You can read more details of the HVCC protest, and the full text of the critique that our law firm in D.C. sent (along with other letters submitted to OFHEO), in our AppraisalPress newspaper website at http://www.appraisalpress.com/news/hvcc. Look it over and tell us what you think.

But, I don’t want this “thank you” letter to mislead you – while it’s nice to see such response to our call to action, the fight to stop the HVCC is far from over. You’ll be seeing more from us in the coming days, because we now need to help you get the word directly to your members of Congress, in written form, by phone, and ultimately in face to face visits, as Congress comes home over Memorial Day weekend. You will receive an alert shortly with information on when and how to contact your members of Congress. There will be local media opportunities as well, as we outline the local economic impacts and provide you with key talking points to get their attention.

The bottom line is that solutions are clearly needed in response to the problems which have plagued the mortgage industry, but the HVCC is the wrong regulation, done the wrong way, at the wrong time.

Thank you for reading our bulletins and newspaper, for speaking up, and for the kind words you’ve sent our way in this fight. With your help, we’ll continue to do our best to protect our industry and our nation’s homebuyers at the same time.

Dave Biggers
Chairman
a la mode, inc.

If the GSEs implement the Code as currently drafted, it will cause a major
disruption in the lending community due to a serious interruption in appraisal services.
Such a disruption ultimately will increase consumers’ closing costs and their ability to
obtain financing in a timely manner, or at all.

Hat tip to Rick Grant.

The underlying story is how well this story has flown under the radar. A handful of appraisers, agents, and mortgage brokers I have spoken with were either unaware or vaguely aware of the HVCC and its implications. Unlike legislation moving through the Senate and House, the HVCC has received very limited coverage. While we are acutely aware that with less then 36 hours until the feedback deadline meaning a petition may be a bit late, we are also aware that you miss every shot you don’t take, that is why we ask you to join us in signing the Petition to Reconsider HVCC.

History:

After an investigation by New York Attorney General, Andrew Cuomo into Fannie Mae and Freddie Mac Appraisal practices, the agencies (with the Office of Federal Housing Enterprise Oversight (OFHEO)) agreed adopt new changes to how appraisals are processed in the mortgage industry in exchange for an end to the investigation. The centerpiece of the agreement is the HVCC, which contains many positive and common sense initiatives to help clean up the industry, but also contains significant negative changes to the how brokers and agents are able to work with appraisers and how appraisers are able to operate, hurting consumers, mortgage brokers, agents, and appraisers.

What it means for Brokers:

1. Brokers (or anybody compensated on a commission basis upon the successful completion of a loan) may not choose appraisers to be used for loans they originate and may not engage in any communication with appraisers. Choosing appraisers and all communication with appraisers is delegated to lenders. This means that brokers are not only not allowed to choose appraisers based on quality of work and professionalism, but ultimately lose control of an integral part of the loan origination process, possibly increasing loan funding times and increasing costs to the consumers in the form of longer rate locks and the need to order new appraisals if there is a change of lender.

2. Since appraisals are made in the lender’s name and not the broker’s, if the broker chooses a new lender for the deal, a completely new appraisal will need to be ordered. This increased consumer costs and the time involved in the transaction.

3. All relationships with appraisers are rendered meaningless overnight.

4. Brokers lose control over transactions and are put at disadvantage as power is shifted toward and biased towards large institutions.

What it means to Appraisers:

1. Must use AMC’s (appraisal management companies), meaning independent appraisers are forced to join and AMC and give 40% or more of their income to the AMC. You read that correctly, this will deprive independent appraisers of nearly 50% of their income in most cases (this could likely mean many experienced appraisers will leave the industry altogether). AMC’s are not regulated, by the way.

2. Unfairly targets appraisers, does not affect AVM’s (Automated Valuation Models) and BPO’s (Broker Price Opinions). This not only hurts appraisers as Lenders may prefer unregulated and unrestricted alternatives that are not included in the HVCC and in a manner which is in contrast with the stated purpose of HVCC.

3. Disallows appraisers from engaging in ANY communication with mortgage brokers, loan officers, agents, or others that may receive a commission upon funding of a deal. This means appraisers are not allowed to talk to their clients, a restriction no placed on any other industry to date. This means all the client relationships they have built are rendered meaningless overnight, an unprecedented act against any industry segment to date.

What it means to Consumers:

1. Higher Costs: If there is a need to change lenders or brokers as a new appraisal will be necessary.

2. Increased time to fund loans as brokers lose control of choosing and managing appraisals and may necessitate longer rate locks or extensions of existing locks. In the case that a new lender or broker is chosen, a new appraisal will be necessitated, increasing time to funding.

3. Decrease incentive to change lenders or brokers if they are not getting the service they deserve due to increased costs and time involved.

Fannie Mae Agreement

Freddie Mac Agreement