Today is the official start of a new policy at Fannie Maeand Freddie Mac, to only buy loans that were appraised under the Home Valuation Code of Conduct. The HVCC was the outgrowth of a lawsuit filed by New York Sate Attorney General Andrew Cuomo against Washington Mutual and was designed to “improve the reliability of home appraisals,” according to FHFA, Fannie and Freddie’s regulator.
But don’t talk to an appraiser or a mortgage broker about it, or you’ll get an earful. Most of them claim it was crammed down the collective throat of Fannie and Freddie by the very powerful Mr. Cuomo, and that it puts good solid appraisers out of business, complicates the loan process for mortgage brokers, and inevitably hurts consumers.
“One of the biggest stories here is that my appraiser, I've been using for twelve years, he just got his business ripped out from him,” says Craig Strent of Apex Home Loans in Bethesda, MD.
The HVCC requires a firewall between appraisers and those who produce loans, i.e. mortgage lenders and brokers, and that ends up being Appraisal Management Companies, middlemen essentially, that order up independent appraisals. So the appraisal fee, which would have gone wholly to the appraiser, now gets split between the AMC and the appraiser. That’s sending a lot of good appraisers right out of the business.
“Yesterday, Thursday, appraisers may have had 50 or 60 clients that they could deal with, so if they were getting undue pressure from somebody they could just tell that client no, I'm not doing any more work for you,” says Jim Amorin, of the Appraisal Institute. “Today the number of players in the field have been drastically reduced to generally these appraisal management companies, so the pressure that's going to be brought to bear on appraisers we fear is going to be as strong if not stronger than it was before, the whole thing the code of conduct was trying to address.”
Another concern is that the AMC’s may hire appraisers who don’t know the particular neighborhood where the house is, and may use the lowest bidders, again, putting good local appraisers, who know their market best, out of business.
But the biggest issue is something Dana, a mortgage broker, cites in a blast to the RealtyCheck:
Based on Attorney General Cuomo’s website, the appraisal fraud in the mortgage industry was due to the practices used by some of the country’s largest banks pressuring appraisers to artificially inflate the value of homes.
Why is it that some of the largest banks in the country are allowed to have partial ownership in the Appraisal Management Companies ?? Isn’t this once again the fox watching the hen house??
Interestingly, as I wrote earlier, the HVCC arose out of a 2007 lawsuit against First American Corp. and its subsidiary, eAppraiseIT, whose largest client was Washington Mutual. It charged eAppriaseIT with conspiring with WaMu to “inflate real estate appraisals.”
If the whole idea is to get the appraisal system out of the banking/lending system, then why is it that First American Corp., still has joint venture appraisal management companies with: JP Morgan Chase (Quantrix), Citigroup (Finiti), Wells Fargo (Rels), making First American one of the largest Appraisal Management Companies in the nation? Oh, and there’s currently a class action lawsuit against Rels, claiming it rigged the appraisal process for Wells Fargo.
A press release from Attorney General Cuomo’s office, from March of 2008, states: Lenders will be prohibited from using “in-house” staff appraisers to conduct initial appraisals and Lenders will be prohibited from using appraisal management companies that they own or control.
I contacted Fannie Mae, Attorney General Cuomo’s office and the FHFA for comment, but nobody wanted to talk. FHFA Director James Lockhart gave me a statement, which, interestingly, hammers home the need to rid the system of fraudulent appraisals, but never actually, in words, directly supports the HVCC.