New Blog from Blue Appraisals

As you've probably heard, Senator Elizabeth Dole (R-NC) proposed an amendment to the Senate Housing bill sponsored by Senate Banking Committee Chairman Dodd (D-CT) and Senator Shelby (R-AL). Thousands of you contacted your Senators urging them to support her amendment requiring OFHEO to issue a federal regulation establishing appraisal standards superseding the HVCC. Last Thursday she withdrew her amendment in exchange for a public dialogue on the Senate floor between Senators Dodd and Shelby regarding the importance of addressing the issues raised by the HVCC and securing involvement of all relevant federal agencies in drafting appropriate standards to safeguard the appraisal process. So while the amendment was withdrawn, Senator Dole has been successful in bringing attention to the HVCC in the Senate and putting it under further scrutiny. Your voices are not going unnoticed, and as we learn more of the specifics we'll keep you informed.

What now?  Keep raising the red flag with your Senators and Congressmen about the consequences of the HVCC and the potential devastating economic impact on your state.  Every senator needs to be educated about the HVCC and the House of Representatives hasn't yet had the opportunity to weigh in.  In fact, it's vital that you give the Members of Congress the ammo that they need to convince the House and Senate that the HVCC must be revised before causing irreparable harm. To get started, go to http://www.alamode.com/action now.

NEW YORK, NY (March 3, 2008) – Attorney General Andrew M. Cuomo today announced that the nation’s two largest purchasers of home loans, Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), have entered into cooperation agreements requiring them to only buy loans from banks that meet new standards designed to ensure independent and reliable appraisals.
 
The agreements, among the New York Attorney General, Fannie Mae, Freddie Mac and their federal regulator, the Office of Federal Housing Enterprise Oversight (OFHEO), also create an independent organization to implement and monitor the new appraisal standards. Senator Charles Schumer, Chair of the Senate Banking Committee’s Housing Subcommittee, praised the agreement and the reforms which he has supported.

“With this agreement, Fannie Mae and Freddie Mac have become leaders in transforming the mortgage industry,” said Cuomo. “Now national banks have a clear choice: immediately adopt the new code and clean up appraisal fraud in the mortgage industry or stop doing business with Fannie Mae and Freddie Mac – it is that simple.”

Fannie Mae and Freddie Mac, which purchase roughly 60 percent of all home loans originated in the United States, have agreed to the following:

• Establishment of the “New Home Valuation Protection Code,” (the “Code”), which creates requirements governing appraisal selection, solicitation, compensation, conflicts of interest and corporate independence, among other reforms. (Full Code Attached). Under the new Code:

• Mortgage Brokers will be prohibited from selecting appraisers;

• 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.

• Banks will be required to adhere to Code. Beginning January 1, 2009, Fannie Mae and Freddie Mac will require that lenders represent and warrant that appraisals related to mortgage loans originated on or after January 1, 2009 conform to the code or they will not be purchased.

• Formation of the “Independent Valuation Protection Institute,” (the “Institute”), a new organization which will implement and monitor the Code. The Institute, which will be funded with $24 million from Fannie Mae and Freddie Mac, will also:

• Establish a complaint hotline for consumers nationwide to call if they believe the appraisal process has been tainted or if they have been harmed by appraisal fraud.

• Serve as a contact for appraisers themselves if they believe their independence has been compromised. These complaints will be handled confidentially to protect appraisers from retaliation. The Institute will mediate complaints, or can forward them to the appropriate federal or state law enforcement agency or regulator.

• Report publicly on its activities to the New York Attorney General and OFHEA on a bi-annual basis.

• Appoint a Board of Directors which must be approved by both the New York Attorney General and OFHEO.

“Today’s agreement with Fannie Mae and Freddie Mac begins to set right what had gone so horribly wrong in the mortgage industry – rampant appraisal fraud,” said Cuomo. “The integrity of our mortgage system depends on independent appraisals. Again and again our industry-wide investigation found that banks were putting pressure on appraisers to drive up the value of loans just to make a quick buck. We believe the new standards, and the new independent monitor agreed to today, can begin to erase this problem from the industry. I want to particularly thank Senator Schumer for all of his help in readying this important agreement today.”

"This settlement represents one of the first major blows against the types of predatory lending that were so prevalent in the mortgage business of the last few years. Appraisal fraud has left millions of Americans unable to afford their homes and has created a drag on the American economy. This agreement will reduce the conflicts of interest and economic incentives that made appraisal abuse and fraud so easy and attractive to lenders," Senator Schumer said.

"Accurate, independent appraisals are very important to ensuring the safety and soundness of Fannie Mae and Freddie Mac and the mortgage market," said OFHEO Director James Lockhart. “OFHEO is committed to working closely with fellow regulators, the Attorney General, Fannie Mae, Freddie Mac, appraisers, lenders and other market participants to assure that the roll-out of the new code builds upon best practices, recognizes constructive comments to identify further refinements, and avoids unintended consequences."  

“We are pleased to work with regulators to do our part to ensure sound, accurate, independent and reliable appraisals,” Fannie Mae General Counsel Beth Wilkinson said. “As the nation’s leading purchaser of mortgage loans in the secondary market, Fannie Mae shares the interests of consumers in the integrity of the home valuation process, which is an important part of a well functioning market.”

"Accurate appraisals are fundamental to Freddie Mac's effective credit risk management - as evidenced by our leadership in quality control programs and assistance with criminal prosecutions of mortgage fraud.  The Code of Conduct announced today enhances the independence and accuracy of the appraisal process.  And it builds on our company's long-standing efforts to fight mortgage fraud by providing strong new protections for homebuyers, mortgage investors and the housing market. In addition, we look forward to working with the New York Attorney General, OFHEO, Fannie Mae and other mortgage market participants in launching the Independent Valuation Protection Institute.  By funding the Institute, we are advancing the development and adoption of best practices in the appraisal process, " said Freddie Mac Executive Vice President and General Counsel Robert Bostrom.

For more than a year, the Attorney General’s office has conducted an industry-wide investigation into mortgage fraud. On November 7, 2007, Cuomo announced he had issued Martin Act subpoenas to Fannie Mae and Freddie Mac seeking information on the mortgage loans the companies purchased from banks, including Washington Mutual, the nation’s largest savings and loan. The subpoenas also sought information on the due diligence practices of Fannie Mae and Freddie Mac, and their valuations of appraisals.

The subpoenas came on the heels of the filing of a lawsuit by the Attorney General against First American and its subsidiary eAppraiseIt. The lawsuit, announced on November 1, 2007, detailed a scheme in numerous e-mails showing First American and eAppraiseIT caved to pressure from Washington Mutual to use appraisers who provided inflated appraisals on homes. E-mails also show that executives at First American and eAppraiseIT knew their behavior was illegal, but intentionally broke the law to secure future business with Washington Mutual. Between April 2006 and October 2007, eAppraiseIT provided over 250,000 appraisals for Washington Mutual.  The lawsuit is still pending, and the industry-wide investigation into mortgage fraud continues.

Fannie announced it will not permit the cancellation of mortgage insurance coverage based on property values provided by automated valuation models (AVMs).

Fannie issued the clarification in response to several inquires on the matter.

"A borrower is allowed to request cancellation of borrower-purchased mortgage insurance coverage for any conventional mortgage, regardless of closing date, when that loan reaches a specified loan-to-value ratio", according to the statement. But Fannie Mae requires that value be established by a current appraisal based on an interior and exterior property inspection.

However, an AVM relies on public record information to determine estimated value without any assessment of the current condition of the property.

That’s why Fannie Mae will not permit the cancellation of mortgage insurance coverage based on the estimated value provided by an AVM. The company said "an appraisal completed by a qualified appraiser is the most appropriate standard and most reliable indicator for determining property value", according to the statement.

This announcement also requires lenders to use appraisals based on an interior and exterior inspection, (no driveby's), on all manually underwritten mortgages.

Happy Holidays All!!!  Can you believe that it is December 18th already!?!  Time really flies!!   We physically moved the office over the snowy weekend!  Five inches of snow, sleet, and ice were not going to stop us!   The office is technically set up, after only 6 hrs w/ tech support on a Monday - Wow!! 

One or our appraiser's Krystof, has crossed to the dark side and became certified!   CONGRATULATIONS KRYSTOF!!   Krystof really works hard for Blue Appraisals and YOU!  He is timely, accurate, professional and really represents us all to perfection!  Thanks Krystof!

I really need to take this time to say a huge THANK YOU to all of our appraisers and all of YOU, our clients!   We make a great team and without your partnerships we would be....  well let's just say....   well let's just not say!!!   Seriously thank you for your continued business and efforts in 2007 and we look forward to a prosperous 2008 for all of US!!  

Please feel free to enter any questions on the blog - we are wanting this to be a Q&A forum for you as well.... we are all in this fog together - let's help each other clear the way!!