CUNA Comment Letter
Home Valuation Code of Conduct
October 8, 2008
Mr. James B. Lockhart, III
Federal Housing Finance Agency
1700 G Street, NW
Washington, DC 20552
RE: Freddie Mac/Fannie Mae Home Valuation Code of Conduct
Dear Director Lockhart:
The Credit Union National Association (CUNA) is very concerned with regard to the new Home Valuation Code of Conduct (Code), which will apply to all loans originated after January 1, 2009 that are purchased by Freddie Mac and Fannie Mae. CUNA requests that the effective date be postponed so that the Federal Housing Finance Agency (FHFA), as conservator for both Freddie Mac and Fannie Mae, can take the opportunity to review the Code in light of concerns that CUNA and others have with regard to certain provisions and to solicit additional input from credit unions and other mortgage lenders. CUNA represents approximately 90 percent of our nations 8,200 state and federal credit unions, which serve approximately 91 million members.
The Code is a result of an agreement earlier this year between the New York Attorney General, the Office of Federal Housing Enterprise Oversight, Freddie Mac and Fannie Mae (hereinafter referred to as the Agreement). The Agreement requires Freddie Mac and Fannie Mae to buy loans only from financial institutions that meet new standards designed to ensure independent and reliable appraisals. The significant provisions of the Code include: (i) requiring lenders to maintain a telephone and email hotline to address appraisal complaints; (ii) prohibiting mortgage brokers from selecting appraisers; (iii) prohibiting lenders from using in-house staff appraisers to conduct initial appraisals; (iv) prohibiting lenders from using appraisal management companies that they own or control; and (v) requiring lenders to test a random sample of appraisals.
On April 30, 2008, CUNA submitted comment letters to both Freddie Mac and Fannie that expressed support for the goal of ensuring independent and reliable appraisals. However, the letter expressed concerns with a number of specific provisions in the Code.
The most significant concern is the requirement to establish a telephone hotline and email address to receive complaints regarding the possible improper influencing of the appraisal process, along with the requirement to disclose this information to borrowers and appraisers and to investigate any complaints that are received. This will impose significant new burdens for credit unions and other small lenders. These burdens will include developing new disclosures, new procedures, and will require additional staff training to both implement this new system and to investigate any complaints that are received.
As a result, these new requirements will impose significant, additional costs for lenders, including credit unions. This would include hiring and training additional staff or imposing significant new responsibilities on current staff. As not-for-profit financial institutions, credit unions will have no choice but to pass these significant, additional costs on to their members, which will further increase the cost of mortgage credit. This will be especially unfortunate during the current mortgage crisis in which both the cost and availability of mortgage loans have been adversely impacted.
CUNAs comment letter also requested clarification of the provisions in the Code in which the lenders loan staff, or others who are connected with the loan staff or compensated based on the successful completion of the loan, will not be permitted to be involved in the selection of the appraiser or communicate with the appraiser. CUNA also requested clarification of the provisions in the Code that prohibit lenders from using in-house appraisals or using an appraiser who is affiliated with the lender or with an entity owned by or which owns the lender. The Agreement allows Freddie Mac and Fannie Mae to provide exceptions for lenders with assets of $250 million or less, and we request that this be specifically included in the Code. Attached is a copy of CUNAs comment letter to Fannie Mae, which provides additional information about these and other concerns and is equivalent to the letter we also submitted to Freddie Mac.
We urge the FHFA, as conservator for Freddie Mac and Fannie Mae, to carefully review the Agreement and the Code and to make the revisions necessary to address our concerns, which would include eliminating the provisions requiring financial institutions to establish the telephone hotline and email address to receive and investigate complaints as they pertain to the appraisal process. We believe such a review would be very appropriate for FHFA, given its unique role as the conservator for Freddie Mac and Fannie Mae.
The Housing and Economic Recovery Act of 2008, signed by President Bush on July 30, 2008, is intended to address a number of problems that have arisen as a result of the current mortgage crises. One of those is the effects on the mortgage market and the economy that have arisen as a result of the systemic problems at both Freddie Mac and Fannie Mae. The FHFA can address these issues by reviewing all aspects of Freddie Mac and Fannie Mae operations and to take all steps necessary to facilitate the ability of lenders to sell loans to them. This is especially critical during the current credit crises in which mortgage lending has been sharply curtailed. We believe reviewing the Code and the Agreement and removing unnecessary burdens, such as the telephone hotline and email address requirements, will help achieve this goal.
We also believe the FHFA needs to address a number of other concerns that have arisen. One of which is whether the industry has had sufficient opportunity to provide input on how the Code and Agreement will affect financial institution operations. Freddie Mac and Fannie Mae have become significant mortgage loan providers, both of which together accounted for a record high 75% of new mortgage financing in 2007. This growing role in the mortgage market demonstrates that any new requirements, such as those included in the new Code, will become an industry-wide standard that will apply throughout the mortgage lending industry.
The impact, therefore, will be similar to a new regulatory requirement issued by a federal agency with jurisdiction over mortgage lending, such as those issued by the federal financial institution regulators and the Department of Housing and Urban Development. For this reason, we believe it is imperative that the FHFA review and revise the Code to address the concerns of CUNA and others and to consider reissuing it in the Federal Register with a comment period of at least sixty days. This will, of course, necessitate postponing the current January 1, 2009 implementation date in order to ensure that the FHFA has sufficient time to review comments and to make any necessary changes.
We also agree with others who have questioned the need for the Code and Agreement as they apply to financial institutions, which are already subject to substantial regulatory requirements with regard to the appraisal process. To the extent the FHFA believes additional safeguards are needed for consumers, we suggest the FHFA discuss these issues with the industry and the other federal financial institution regulators to determine the extent to which current appraisal requirements can address these concerns.
This approach will not only benefit the industry, but will also benefit Freddie Mac and Fannie Mae. For example, under the agreement, Freddie Mac and Fannie Mae will commit $24 million to form the Independent Valuation Protection Institute, which will implement the new appraisal standards. We believe these funds can be put to better use, especially given the current precarious financial condition of both Freddie Mac and Fannie Mae.
We appreciate your attention to this matter and would welcome the opportunity to meet with you further to discuss our concerns. You or your staff may contact Senior Vice President and Deputy General Counsel Mary Dunn or me at (202) 638-5777 with any questions and to schedule a meeting to discuss these issues.
Jeffrey P. Bloch
Senior Assistant General Counsel