Coester, Brian
(Brian Coester is CEO of Coester Appraisal Group, an appraisal management company in Rockville, Md. He has been with Coester Appraisal Group for eight years. He also worked as a field appraiser with Timothy D. Coester and Associates.He is an occasional contributor to MBA NewsLink.)
Fasten your seatbelts, kids. It’s going to be a bumpy ride.
The Home Valuation Code of Conduct was the first to upset the apple cart. The entire appraisal industry flipped upside down and the loan officer and appraiser relationship was forever changed. There was once fellowship and collaboration--perhaps a bit too much collaboration in some cases--but that’s been replaced by a decided lack of camaraderie.
That was 2009. Now, almost two years later, the Dodd-Frank Act has replaced the HVCC. While the loan officer appraiser relationship remains disconnected, not everything is unchanged. There’s a lot that lenders need to know about Dodd-Frank and what it means to their industry.
First, remember that the Dodd-Frank Act is different from the HVCC and as a mortgage lender you need to ensure your company is in compliance with the new code. Below are some tips to keep in mind when creating the best practices that will help your company avoid appraisal-related Dodd-Frank violations.
This is Not the HVCC
HVCC was a regulation put in place in New York and adopted by Fannie Mae to prevent a full investigation into its lending and collateral valuation practices. Dodd-Frank is a federal law that encompass all consumer credit transactions in which a principal dwelling is used as collateral. This applies to FHA, VA, jumbo, Fannie Mae and portfolio loans--and everything else in between.
Before Dodd-Frank, lots of banks that porfolioed their loans didn’t need to be in compliance with HVCC because they weren’t selling to Fannie or Freddie Mac. They weren’t doing FHA loans. This is no longer the case. Federal law is one-size-fits-all. All mortgage lenders need to abide by the regulations regardless of who is purchasing or servicing the loan. It doesn’t matter if they portfolio their loans. Think of it this way: if the loan involves an owner occupying homeowner, it needs to follow the new regulations. Period.
Appraisal Compliance and Appraiser Independence is a Hot Topic
Pay attention. The federal government isn’t kidding around. Once and for all, they have made it very clear: they do not want any influence on the appraisal process. The law has even gotten specific, stating in no uncertain terms what “independence” means. It’s not just direct financial connection. The feds specify that there be "no indirect financial interest" either. Lenders that err on the conservative side will keep the appraisal and valuation function a totally separate and different function of the company in its entirety. Overkill, you say? Not when you’re dealing with federal law.
Your In-House Process is Probably Not Going to Work
Keeping your appraisal process in house might end up costing you. I'm not saying just this because I’m an owner of an appraisal management company. The federal government has made it very clear they want no "indirect financial interest" from a lender on the appraisal process. This implies that the appraisal function needs to be separate from the day-to-day mortgage process. How else could you protect against indirect financial interest? A processor or appraisal desk that is set-up to handle appraisal orders would need to function as a completely separate entity. That means an organization that is self-sustaining, much like a separate company.
Big Brother Will Be Watching
Make no mistake. Someone will be checking on you. Maybe not this year, maybe not even next year. But it will happen. Soon the investors--Fannie Mae and FHA--will be asking lenders for their appraisal compliance plans, processes and overviews. And they’re probably not going to take your word for it, either. You’ll have to provide documentation and compliance assurance.
It’s very important that whether you choose to keep the process in-house or use a third party vendor, you need to get details on all of any processes--with documentation--all upfront, so you know and understand not only exactly what you should do at any given moment, but also what you’re receiving as a service.
There Will Be Blood
Watch your step. As is often the case when new regulations are enforced, FHA, Fannie Mae and investors will be looking to make an example out of someone. Stay above the line. Make sure all gray areas are clearly above board--key word being clearly. As a general rule, if you wouldn’t want your investor, FHA or your mother to know about something, don’t do it. It’s as simple as that. The fines associated with violations up to $20,000 per day and that’s just the beginning. Remember any violation is essentially a violation of federal and state law. Walking the line does not tend go over well with state regulators. Stay well in the clear of violations.
Save the Comedy for Your Stage Act
Compliance is no joking matter. You’d be wise to take the new regulations very seriously. Appraisal compliance is now a recognized part of state and federal law (although it’s been law since the 1980s, it’s only now getting serious recognition). The regulators, investors and mortgage community as a whole are fed up, in more ways than one, with people trying to influence collateral values in any way, shape or form. The collateral is the only physical object they can take “to the bank” and because of this, it’s one piece of the puzzle whose protection they are going to work extra hard to ensure.
The bottom line is that you need to stay on your toes. Keep apprised of what’s going on. Communicate with your current service providers. Stay aboveboard. Your company’s compliance manager should not only be fully aware of the regulations, but also know exactly what your current service provider is doing that enables you and your company to be in compliance with current regulations.
Despite the warnings, strain and focus on these changes, believe it or not, the current appraisal regulations are not that bad. If a lender is sure it’s not putting any undue influence or pressure on the folks involved with appraisals and it is able to trust the appraisers they use to do their jobs, they will have nothing to worry about. When lenders try to keep too much under their control, they often intentionally or inadvertently attempt to adjust the regulations to fit their strategies. And that’s when most issues arise.
(The views presented do not necessarily reflect the views or policies of the Mortgage Bankers Association, nor does it connote an endorsement of any one product or service. MBA NewsLink welcomes your articles; inquiries/submissions should be sent to Mike Sorohan, editor, at msorohan@mortgagebankers.org
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