A number of leading real estate and lending trade associations are seeking an 18-month HVCC suspension — which no doubt will be followed by another suspension and another suspension so that the consumer protections in HVCC are never implemented. Of course, if we get rid of HVCC entirely then rules that would ban lender conflicts of interest would also be thrown out.

Now, however, several appraisal groups have come out with a proposal which would keep HVCC while getting rid of the elements which are actually causing problems.

As you read the letter below you can see what the appraisers are getting at: In the same way that HMOs add to medical costs so do appraisal management companies (AMCs). Essentially the appraisers want to dump the AMCs, their hidden fees and their absurd rules.

The full letter is below:

July 1, 2009

The Honorable Shaun Donovan
Secretary
Department of Housing and Urban Development
451 7th Street, SW
Washington, DC 20410

Re: Mortgagee Letter 97-46

Dear Secretary Donovan:

On behalf of the more than 35,000 members of our respective professional appraisal organizations, please accept our congratulations on your appointment as Secretary of the Department of Housing and Urban Development. We are confident that your service will prove valuable as our nation works through the challenging times we face.

As you know, real estate appraisers play an important role in the mortgage finance system. Appraisers are independent third-party professionals who deliver unbiased opinions on the market value of real estate held as collateral for mortgage loans. Recent changes in appraisal requirements stemming from an agreement between Fannie Mae and Freddie Mac and the New York Attorney General (i.e., the Home Valuation Code of Conduct) have so greatly worsened a flaw in past guidance received from the Federal Housing Administration (FHA) [i.e., Mortgagee Letter 97-46] that we believe it requires your immediate attention.

Mortgagee Letter 97-46 revised the Department’s policy governing appraisal fees and the use of third-party entities providing appraisal services. In earlier guidance (Mortgagee Letter 97-22), FHA stated that it no longer would establish maximum dollar limits on appraisal fees, but would limit the fee that could be charged to a mortgagor to the amount actually paid to the appraiser when a third-party appraisal management firm was used.

Yet, later in Mortgagee Letter 97-46, HUD states:

“[T]he Department will allow the mortgagor to pay a fee for the appraisal which may encompass fees for services performed by an appraisal management firm as well as fees for the appraisal itself. However, the total of these fees is limited to the customary and reasonable fee for an appraisal in the market area where the appraisal is performed.–

Given the rapidly growing reliance by residential mortgage lenders on appraisal management companies (AMCs) to provide appraisal services, the restriction on total appraisal fees to “no more than– the customary fee for an appraisal has driven down the fees paid to large numbers of appraisers to well below what has been customary and reasonable in given market areas. This has become a problem of enormous proportions because the Home Valuation Code of Conduct (HVCC) has caused a significant transfer of appraisal orders from mortgage brokers to AMCs. Mortgagee Letter 97-46′s pricing restriction is causing many experienced and qualified appraisers decline FHA appraisal assignments ordered by AMCs because of their below market appraisal fees., adding unnecessary and substantial risk to the FHA program. While the HVCC does not directly impose rules upon FHA appraisal ordering practices, many lenders are now applying the same standard to their entire appraisal ordering practices.

Further, regarding HUD-1 reporting, the Mortgagee Letter makes no distinction, as we believe it should, between the fee paid to the individual who performs the appraisal (in compliance with the Uniform Standards of Professional Appraisal Practice) with fees charged for the administration of the appraisal process (the AMC charges). Traditionally, appraisal administration functions of lenders/banks were paid for through overhead costs (i.e., loan processing charges, interest rates, etc.) and reported on the appropriate line of the HUD-1. However, with lenders increasingly outsourcing these functions to AMCs, the costs are being passed through the Appraisal line of the HUD-1 statement. This leaves consumers with the mistaken impression that they are paying the customary fee for the highest level of service from an appraiser who has substantial experience in performing appraisals in their geographic area when, in fact, the consumer is receiving a much lower level of service — often from appraisers who do not know the local market — in many cases. This is not transparent and should be remedied as soon as possible.

The procedure is compounded by a common practice among AMCs to instruct the appraiser not to have any conversation with the homeowner about the actual fee paid to the appraiser. HUD has a rule requiring that the lender pay the appraiser. Some AMCs managing FHA appraisals reportedly have instructed appraisers to collect a fee at the door (despite this being a violation of the HVCC and HUD regulations), keep a part of the fee, and send the remainder to the appraisal management company. In at least one instance that we are aware of, an appraiser blatantly was instructed to commit fraud by submitting an invoice with the appraiser’s name, firm name, date and address, while leaving the amount of the fee blank, which the management company intended to fill in and submit to the lender.

The consequences of this are dire for FHA, mortgagors, and terrible for the mortgage process. With Mortgagee Letter 97-46, many highly qualified and experienced appraisers are declining to perform assignments for AMCs. In many instances, those companies are being forced to use appraisers from distant locations with less experience and training, or more pointedly: those who will work for less. Using less experienced and less qualified appraisers to perform FHA assignments is not a good business practice and is not good public policy.

We know that it was not the intent of these directives to create these issues, and we respectfully would like to request that you review this policy and take immediate action to rescind Mortgagee Letter 97-46. Further, we would like to request that the HUD-1 be revised to include a separate line for all AMC related fees such that the appraisal fee might
be separate from non-appraisal fees. Finally, we request that the Department follow through on a commitment to propose rules for public comment relating to AMCs that would ban inappropriate practices, such as hiring an appraiser primarily on price or turnaround time, without consideration of competency or qualifications. The positive impact of such rules on the lending community, consumers, and the appraisal community would be profound.

Thank you, in advance, for your consideration of this request. If you need additional information, please contact Bill Garber, Director of Government and External Relations, Appraisal Institute at 202.298.5586 or bgarber@appraisalinstitute.org, or Peter Barash, Government Relations Consultant, American Society of Appraisers, at (202) 466-2221 or peter@barashassociates.com.

Sincerely,

Appraisal Institute
American Society of Appraisers
American Society of Farm Managers and Rural Appraisers
National Association of Independent Fee Appraisers

Appraisers Seek Sensible Reform is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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Hundreds of thousands of people have lost their homes and cars, two major items likely to be financed. They have also lost their jobs and thus the ability to pay bills.

As a result there are now calls for the suspension of foreclosure proceedings in Louisiana and Mississippi and the delay of new and tougher federal bankruptcy rules scheduled to start in mid-October.

There is surely an attraction to such proposals, and historic precedence as well. In 1983, as an example, the Farmers Home Administration placed a two-year moratorium on farm foreclosures while in 1985 Iowa had a state-wide moratorium on farm properties. As to delaying federal rules, that can be done by Congress and the President in an afternoon.

But once we’re done with the moratoriums and delays, we will ultimately need to deal with the problem that mortgages worth billions of dollars were once secured by real estate, real estate that is now devalued because of Katrina.

Since payments are not being made, many note holders will seek foreclosures — quietly at first, more openly in the future.

Note holders, in fairness, have a legitimate claim to the income and principal associated with their investments. Alternatively, the logic of foreclosures in the aftermath of Katrina is elusive. We now have great numbers of loans secured by properties that are uninhabitable, unsafe, can’t be rented, can’t be sold and will cost big money to make right. Foreclosure in such circumstances makes no sense because the interests of neither the borrower nor the property owner are advanced.

We have seen this before.

In the Dust Bowl years in the 1930s banks would foreclose on farms. Since the farms had no value, the banks would knock down homes to discourage squatters — as Woodie Guthrie explained, families were “tractored out by the cats.”

The country reacted. Under Franklin Roosevelt, we established the Federal Housing Administration in the 1930s and the FHA popularized long-term loans in place of then-common five-year “term” mortgages. With longer loans it became possible to better withstand financial downturns.

Our approach some 70 years later is notably different. The President has suspended the 1931 Davis-Bacon Act in areas impacted by Hurricane Katrina. This is the federal law which assures that workers on government construction projects will receive the prevailing wage — in New Orleans that means about $9 an hour. (See: Bush Suspends Pay Act In Areas Hit by Storm, The Washington Post, September 9, 2005)

Let’s do the math: $9 x 2,000 hours per year = $18,000 in wages — before taxes. This is the wage level the President wants to reduce.

At the same time, FEMA has already handed out five no-bid contracts worth as much as $100 million — each. (See: No-Bid Contracts Win Katrina Work, The Wall Street Journal, September 12, 2005.

“The first large-scale contracts related to Hurricane Katrina,” said the Journal, “as in Iraq, were awarded without competitive bidding, and using so-called cost-plus provisions that guarantee contractors a certain profit regardless of how much they spend.”

How wonderful. Our national government wants to assure that people who have lost everything will not earn $18,000 a year while multi-billion dollar corporations are guaranteed huge profits.

What can we do?

Shrinking government by starving the tax base has not worked. The philosophy is attractive in theory but the results have proven disastrous — just look at federal deficits. We need a different approach, so how about:

• A special tax on Freddie Mac and Fannie Mae profits, say a 50% Katrina relief fund. This reverse tax break would bring in billions of dollars each year for as long as necessary. Given that the federal government started these companies, provided them with potential access to federal coffers in the event of emergency and has shielded them from state and local taxes for decades, the time for payback has arrived. And no, taxing profits will not raise mortgage costs, it will merely mean less for shareholders.
• Taxing estates above $10 million to finance Katrina relief and help balance the federal debt. Virtually no one below that level is now taxed, and those above that level can pay. The screaming about “death taxes” and “double taxation” is nonsense, an effort to distract us from the creation of a permanent patrician class. If Bill Gates and Warren Buffett favor such a tax, so can other plutocrats.
• Having a special prosecutor review every no-bid contract, publish the reviews on a company by company basis and jail everyone who overcharges the government — and make sure the jail is in the bayou.
• Restoring the Bacon-Davis Act so we can create more taxpayers and fewer working poor.
• Having a foreclosure moratorium for at least a year in areas hit by Katrina. Give mortgage investors a tax credit to offset their Katrina losses so their interests are protected. Fair is fair.
• Creating inverse investment tax credits for re-development. That is, rank ZIP codes in areas hit by Katrina and give a higher level of tax breaks for investment in the worst areas.
• Re-building the levees and forgetting the pork construction projects being suggested nationwide.
• Finding out what went wrong with FEMA and fix it.
• Giving credit to the Coast Guard and the National Oceanic and Atmospheric Administration for exceptional work.

It is now time for our federal government to be both conservative and compassionate. The list above is a just a starting point.

————————
Published originally by Realty Times on September 20, 2005 and posted with permission.

Should We Postpone Foreclosures? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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