Unintended Consequences of the FNMA/Cuomo Agreement:
Part 2 - A Call To Action!

AUTHOR: Scott A. Austin - owner of Austin Appraisal LLC - is a Certified Residential Real Poperty Appraiser. Scott specializes in Relocation Appraisal, Forensic/Review Appraisal, and Rehabilitation/ Investment Appraisal, and REO/Foreclosure Appraisal.

MIXED SIGNALS

One can see how, at first glance, the Cuomo/GSE agreement and "Code of Conduct" sounds good. One reason for its appealing language is that parts of it were cut-and-pasted verbatim from Title VII of H.R. 3915, a bill which has been lauded by appraisers (as well as the organizations that represent them). The difference is that H.R. 3915 (which has now been referred to the US Senate) has a good chance at becoming federal law. H.R. 3915 contains stiff penalties for each person who violates the law including, but not limited to, mortgage lenders and real estate agents.

The Home Valuation Code of Conduct (HVCC), on the other hand is not a federal or state law and, as such, has no penalties for the person who actually commits the offense. If any of the provisions related to improper influence of an appraiser could be enforced, then the HVCC's proponents might begin to have a case. But enforcement under this plan consists of an official at the accused lending institution taking a complaint from an in-house hotline and conducting an in-house investigation on persons in their own company.

If the officer of the company actually finds that someone in his company was guilty of "improper conduct", then that officer has the obligation to notify the "Independent Valuation Protection Institute" which has no authority to fine any person for any misconduct.

If laws are broken, then the in-house investigator also has the obligation to notify "any relevant regulatory bodies", of which there are none (with the possible exception of a very few states). It is not a federal crime to attempt to bribe, coerce, intimidate, extort or influence a real property appraiser into making an appraisal "work" for the lender.

Appraisers are not opposed to all the components of the HVCC. Having lenders agree to a system whereby appraisers are free from influence is admirable. But there is a big difference in a "code of conduct" and a signed certification. Appraisers place their livelihoods on the line every time they sign (and certify) an appraisal. This "code" holds no weight for the people who have, for years, decided who the good appraisers are based solely on how quickly their appraisals pass through the underwriting process.

A CALL TO ACTION - Click here to continue reading . . .

The agreement known as the Home Valuation Code of Conduct should be amended, before its implementation, in such a way that it no longer contains any verbiage which encourages lenders to utilize services of appraisal management companies (AMCs).

We, the residential appraisers, should call for the amendment of the HVCC for the following reasons:

The Home Valuation Code of Conduct as written (in effect) harms the very profession it is purported to protect. It effectively cuts the fees of appraisers, and will likely force the most honest appraisers out of the business.

• The HVCC will likely result in more unreliable appraisals being used by GSEs to determine the value of collateral for mortgage loans.

• The HVCC has no authority to penalize those who attempt to improperly influence appraisers.

• The HVCC does nothing to criminalize the improper influence of appraisers or the appraisal process.

• The HVCC could undermine legitimate, ongoing efforts in Congress to pass meaningful legislation which would criminalize the improper influence of appraisers.

• The HVCC gives shareholders in Fannie Mae and Freddie Mac false hope that collateral for mortgages is being properly valuated.

• The HVCC gives the U.S. taxpayers a false sense of security that its GSE's have taken all meaningful steps to address valuation concerns related to the current mortgage meltdown.

• The HVCC gives individuals taking out a conventional mortgage, a false sense of security, that their house is being properly appraised.

For all of the reasons mentioned above, we should immediately call on our appraisal organizations to rescind their prior endorsement of this agreement between AG Cuomo and the GSEs, and insist on an agreement which addresses these concerns before the unintended consequences of this plan cause further damage to mortgage industry and to the appraisers who serve the nations lenders.

Of specific concern to appraisers is Section IV of HVCC. This section restricts the lenders involvement in the appraisal ordering process to the extent that lenders will have little alternative but to order all appraisals through an AMC.

During the 90 day comment period, which began on March 3, 2008 appraisers have an opportunity to respond. The Appraisal Institute has encouraged feedback from its members by establishing an email address to which comments may be sent: appraisalcomments@appraisalinstitute.org . Members of other organizations should contact their respective organizations via published email addresses and comments to members of respective legislative committees are encouraged.  [Editor's Note: Also leave your comments on the Appraisal Scoop 90-Day Comment Petition!]

Reversing the momentum created on March 3rd will take an overwhelming flood of responses from appraisers at all levels of the profession. Organizations, state appraisal boards and individual appraisers must converge in a unified voice and urge Attorney General Andrew Cuomo and the GSEs to rethink the unintended consequences of the initial draft of the HVCC. We should urge adoption of a less radical version of the agreement before implementation occurs.

Scott A Austin, Certified Residential Real Property Appraiser

AUTHOR: Scott A. Austin  - Austin Appraisal LLC - is a Certified Residential Real Poperty Appraiser. Scott specializes in Relocation Appraisal, Forensic/Review Appraisal, and Rehabilitation/Investment Appraisal, and REO/Foreclosure Appraisal. Scott's articles on practical, technical and ethical aspects of the appraisal profession have been featured in several national publications.

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