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CAMB Marketplace and Myths and Realities of the HVCC

March 27th, 2009 9:34 AM

Dennis and Went to the East Bay CAMB Marketplace event at Crow Canyon Country Club yesterday. It was pretty well attended. We saw lots of old faces now in new places. Several that had gone from wholesale to retail. Our question of the day revolved around the HVCC. "What has your company done to prepare?" Surprisingly little has been done by lenders to prepare for this. I think part of the problem is the huge amount of speculation and flat out dis-information. Lets face it, the HVCC is one of the most poorly written documents I've seen in a long time. And it impacts so many people, all the way from the consumer to the investor on the secondary market. But, we have to live with it. I don't think the NAMB lawsuit is going to stop it. Maybe it will slow it, but it won't stop it. The best we can do as industry participants is educate ourselves about it. To that end, I'm reposting a portion of a document created by the Appraisal Instute about Myths and Realities of the HVCC.

MYTHS AND REALITIES OF THE HVCC

Myth: The HVCC requires lenders to use Appraisal Management Companies.

Reality: Use of appraisal management companies is not required under the Home Valuation Code of Conduct (HVCC). Lenders may engage appraisers directly without the use of third parties.

Myth: Mortgage sellers cannot achieve compliance without outsourcing the appraisal function.

Reality: Sellers may achieve compliance by establishing meaningful risk management practices, including separation between risk management (appraisal) and loan production. The Code requires that loan production staff not be involved in ordering the appraisal. This separation is currently required under existing federal bank regulation.

Myth: "Loan Correspondents" or "correspondent lenders" are the same as mortgage brokers and they too cannot order appraisals.

Reality: Unlike mortgage brokers, loan correspondents fund loans in their own name and, therefore, have "skin in the game." They are allowed to order appraisals on loans sold to Fannie Mae and Freddie Mac like other sellers that fund loans in their own name or with their own funds. Mortgage brokers no longer will be able to engage real estate appraisers directly.

Myth: Sellers cannot maintain the appraisal function internally (as an in-house operation), without loan production involvement.

Reality: There are several ways in which sellers may staff appraisal functions internally without outsourcing the function to a third party, so long as they maintain separation between risk management functions and loan production staff. To achieve compliance the appraisal function should report to an individual or department outside of loan production. Some examples of eligible individuals or entities within institutions include, but are not limited to, the following:

the risk management department,
the credit department,
the consumer lending department (with no loan production responsibilities),
the compliance office, or
the chief executive office.

For many institutions, the HVCC will not require any changes. However, whether the appraisal function is a fully staffed appraisal department or an individual assigned with the appraisal responsibility, the function can be maintained internally where the reporting line is to someone other than loan production (e.g., any of the entities listed above). Sellers also should make sure that their policies are in compliance with any applicable federal bank regulatory policies by contacting their appropriate bank regulatory agency.

Myth: Loan Production staff is prohibited from communicating with appraisers.

Reality: Loan production staff may communicate with the appraisers, but they cannot be involved in selecting, retaining, recommending or influencing the selection of any appraiser for a particular appraisal assignment. Further, loan production staff cannot have any "substantive communications with an appraiser or appraisal management company relating to or having an impact on valuation, including ordering or managing an appraisal assignment."

Myth: Use of third party vendors ensures the use of competent appraisers.

Reality: Lenders traditionally have been responsible for ensuring the competency of the appraisers and reliability of the appraisals they use for credit decisions. However, the competency of an appraiser is not measured by scoring compliance with seller servicer guidelines. Processing appraisal orders is a separate function that does not specifically include a review of competency. The function of competency review is best performed by individuals with significant education in appraisal standards and theory. In fact, here at Apple Appraisal, Inc., we think that implementation of the HVCC could make appraisals MORE unreliable. With AMCs popping up all over, forming new relationships with appraisers and trying to grind the appraiser down on thier fees, the appraiser will only naturally not put as much work and effort into the appraisal. Lastly, with so many new appraisers over the past few years and the poor nature of training in the appraisal industry, just try giving an appraiser an assignment with no estimated value. Values will be all over the place on a given appraisal, especially the more complex ones.

That's enough for now, back to work. More later.

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Posted by Apple Appraisal, Inc on March 27th, 2009 9:34 AMPost a Comment (0)

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