CUNA Regulatory Comment Call
April 8, 2008
Freddie Mac and Fannie Mae Request Comment on New Home Valuation Code of Conduct
- On March 3, 2008, the Office of Federal Housing Enterprise Oversight (OFHEO), the New York Attorney General, Fannie Mae, and Freddie Mac entered into agreements that require Fannie Mae and Freddie Mac to buy loans only from financial institutions that meet new standards designed to ensure independent and reliable appraisals.
- These agreements establish the New Home Valuation Protection Code (Code). The significant provisions of the Code include: (i) prohibiting mortgage brokers from selecting appraisers; (ii) prohibiting lenders from using in-house staff appraisers to conduct initial appraisals; and (iii) prohibiting lenders from using appraisal management companies that they own or control.
- Freddie Mac and Fannie Mae are requesting comments on the implementation of the Code. These comments are due by April 30, 2008. Please submit your comments to CUNA by April 22, 2008.
Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Senior Vice President and Deputy General Counsel Mary Dunn at firstname.lastname@example.org and to Senior Assistant General Counsel Jeff Bloch at email@example.com; or mail them to Mary and Jeff c/o CUNAs Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. You may also contact us at 800-356-9655, ext. 6732, if you would like a copy of the Code. You may also access it here.
New York Attorney General Andrew Cuomo and OFHEO recently announced that Freddie Mac and Fannie Mae have agreed to buy and guarantee mortgage loans only from lenders that follow new appraisal standards. These standards are designed to ensure that appraisals are independent and accurate and not subject to undue influence.
Freddie Mac and Fannie Mae have also agreed to fund the Independent Valuation Protection Institute (Institute), which will be a newly-formed independent entity that will operate a consumer complaint telephone hotline that will address appraisal problems. The Institute will also monitor and implement the Code, which incorporates these new appraisal standards.
DESCRIPTION OF THE CODE
Here are the key provisions that are outlined in the Code:
- Lenders and brokers will be prohibited from influencing appraisals through coercion, inducements, or otherwise, including the threat to withhold future business. This will not limit the right to request additional information from appraisers or requesting that errors be corrected.
- Lenders must provide the borrower, free of charge, with a copy of the appraisal no later than three days before the closing date of the loan, unless this requirement is waived by the borrower. Although a copy of the appraisal must be provided free of charge, this does not limit the ability of the lender to charge the borrower for the cost of the appraisal.
- Lenders, and not brokers or real estate agents, will be responsible for selecting and paying for the appraisals. Lenders may designate other third parties to perform these tasks.
- 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. The staff will also not be permitted to work with others who select and communicate with the appraiser. Smaller lenders may be exempted from these requirements, provided they implement appropriate safeguards to ensure independence between the appraiser and the loan staff. Those who select the appraiser must be trained appropriately.
- Lenders will not be permitted to use in-house appraisals or use an appraiser who is affiliated with the lender or with an entity that is owned by or which owns the lender. There is an exception for appraisal management companies owned by the lender if the ownership interest is 20% or less, as long as they act independently of the lender. Freddie Mac and Fannie Mae will also be permitted to provide exceptions for financial institutions with assets of $250 million or less. Lenders may continue to use in-house staff to order appraisals, review appraisals, use automated valuation models, and prepare appraisals for other purposes, such as loan workouts.
- Lenders must establish a telephone hotline and email address to receive complaints regarding the possible improper influencing of the appraisal process. This will be overseen by an independent officer of the lender. Information about the hotline and email address must be provided to each borrower and appraiser. Lenders must investigate complaints within 72 hours upon receipt of the complaint and then, within 60 days, provide a report to the Institute, as well as the relevant regulator, as to whether there has been improper conduct. The lender must maintain this information in the strictest confidence and must not retaliate against anyone who files a complaint.
- Lenders must perform quality control tests of a randomly selected percentage of the appraisals and report the results to the Institute and the relevant regulator.
- Lenders who suspect that appraisers are violating the law or engaging in unethical conduct must report such matters to the Institute and to the applicable State agency.
- Lenders must certify that the appraisal report was conducted in a manner consistent with the Code.
- These new standards will apply to loans originated after January 1, 2009.
QUESTIONS TO CONSIDER REGARDING THE IMPLEMENTATION OF THE CODE
- What difficulties will you have in implementing the Code? Are any of the provisions overly burdensome or
inconsistent with your current practices?
- Are you concerned that the requirements under the Code will become an industry-wide standard and, therefore,
will apply to all loans, regardless of whether they are sold to Freddie Mac and Fannie Mac? To what extent,
if any, should the federal lending regulations be changed to reflect the provisions of the Code?
- Other comments?
Eric Richard General Counsel (202) 508-6742 firstname.lastname@example.org |
Mary Mitchell Dunn SVP & Deputy General Counsel (202) 508-6736 email@example.com
Jeffrey Bloch Assistant General Counsel (202) 508-6732 firstname.lastname@example.org
Lilly Thomas Assistant General Counsel (202) 508-6733 email@example.com
Luke Martone Senior Regulatory Counsel (202) 508-6743 firstname.lastname@example.org