Freddie Mac posts long awaited HOME VALUATION CODE OF CONDUCT (HVCC) on their website today

The Code of Conduct has a number of main concerns including sections addressing the issues of Appraiser Independence Safeguards, Appraiser Engagement, Prevention of Improper Influences on Appraisers, establishment of The Independent Valuation Protection Institute and Scope of the Code.

No doubt, this detailed document will be much discussed, interpreted and clarified in the days ahead, but at first glance it appears as though:

--An Independent Valuation Protection Institute is to be established

--This Institute will receive complaints for review and referral regarding non-compliance with the Code of Conduct

--The Code of Conduct applies to Freddie Mac and Fannie Mae, not FHA

--Some sensible provisions designed to prevent coercion of appraisers are being enacted.

--Various "firewalls" are to be constructed with the goal of separating mortgage loan production functions and appraiser selection.

--The final nail in the "Comp Check" coffin may have been driven.

--Nothing in the Code of Conduct mandates the usage of appraisal management companies.

The full text can be found by following this link: http://www.freddiemac.com/singlefamily/pdf/122308_valuationcodeofconduct.pdf

We really hope you find our newsletter to be informative! If you have any input on future topics for discussion, please email me your questions and I will do my best to address them in the next issue. If you want to look back at past issues you can see our archive at www.fhaappraisernewsletter.com
Regards,
Bill Collins
bill@fhaappraisers.com
www.fhaappraisers.com
www.fharoster.com
(877) 4FHA-VALU

An Open Letter to President-Elect Obama

Like many Americans, I am excited about your upcoming administration, but concerned about the steep challenges that await.

So much about your election represents what is best about this country. We are still a land of opportunity, a place where qualifications matter and the "cream can rise to the top." While the playing field is not always level, at least we are all on the field and can get in the game.

We are a forward looking people for the most part and feel that better days may be ahead. It may take some hard work and involve tough decisions but Americans are ready to pitch in.

Your usage of the internet during the election campaign was exciting and a lesson to all of us that we need to continually strive to utilize the latest technology and remain competitive in the marketplace, whatever our industry or profession may be.

No one has elected me to any positions recently, but I have the honor to be both a real estate appraiser and part owner of an internet advertising directory for appraisers. As such, I also feel a responsibility to share some thoughts with you as to the precarious state of the profession and the possible impact of various regulatory decisions.

The past year has been disastrous for many appraisers due to the frozen credit market, reduced lending and reduced demand for appraisals. Many appraisers have left the profession and I say to a large percentage of them good riddance! During the crazy period earlier this decade, the appraisal profession was invaded by thousands of individuals who were both inadequately trained and ethically bankrupt. These form-filling, number-hitters joined forces with similarly morally challenged and opportunistic loan originators in a grand scheme which helped make many wealthy and contributed to the mortgage meltdown.

Many qualified, honest appraisers left the profession as this unfolded, but many still remain, of which a substantial number are struggling financially. The economic crisis which developed during the past year drove a dagger into an already wounded profession which was reeling from a loss of business to the corrupt bunch that teamed with corrupt loan officers and garnered the bulk of appraisal business.

There is no doubt that the appraisers who are now suffering are not completely blameless. Many could have diversified their appraisal practice away from a reliance on residential appraisals for mortgage purposes, and many could have been more courageous and taken stronger action against the corrupt group that was destroying the profession.

There is no turning the clock back to a golden age for appraisers, however, and appraisers are not looking for any handouts or bailout. Good appraisers, though, can play an extremely important role in the overall complex solution to the lending system, which we all agree is broken. Automated valuation models and complex statistical constructs, inadequate by themselves and capable of producing grossly misleading results, can be used by well trained appraisers to support valuations that can truly be relied upon by mortgage professionals.

We are all too aware now of the fallacy of relying on complex financial derivatives with uncertain assets at their core. Alan S. Blinder, the respected professor of economics at Princeton and former vice chairman of the Federal Reserve wrote in the New York Times on 12/21/08, "There were several rationales for buying troubled mortgage-backed securities. First, panic had virtually shut down the markets for these securities-markets that must be restarted to restore our system of mortgage finance. Second, one source of that panic was that nobody knew what the securities were worth. A functioning market would establish objective valuations."

Don't let the fox back into the hen house! While many of the corrupt mortgage brokers and lenders who pressured appraisers to "hit their numbers" have moved on, some reportedly to "foreclosure help" schemes, others becoming involved in so-called appraisal management companies ("AMC's) where they can still pressure the appraiser. Theoretically, AMC's should operate as a firewall between the loan originator and the appraiser. In reality there is pressure on the appraiser; while more sophisticated and less direct, it can be equally effective in achieving fraudulent results through the selection of appraisers who "play the game."

At the same time, many AMC's contribute little of value while "picking the appraiser's pocket" for maybe 30% to 50% of the appraisal fee. The result is that appraisers who actually fully research their appraisal assignments are quitting this now unprofitable business, leaving a diminished pool of appraisers, many of whom are less qualified and quick to take foolish shortcuts in their appraisal analysis to remain profitable.

While new regulations are needed, lets make sure they are smartly conceived. Some reforms can be found in the marketplace itself, such as competition between AMC's which drive down their share of the appraisal fee leaving more for qualified appraisers. Striving for transparency in all parts of the loan process is important and will reduce opportunities for fraudulent acts. Let's take the deal making out of the back rooms and shine the spotlight on the process, utilizing our most advanced technology to ensure trustworthy valuations and mortgage securities that have value that can be quantified and truly relied upon.

Sincerely,

Bill Collins

FHA Certification Requirement Delayed until 10/09

The U.S. Department of Housing and Urban Development, in Mortgagee Letter 2008-39, has just announced that the implementation date for the requirement that all appraisers be state certified (certified residential or certified general) has been extended until October 1, 2009.

The mortgagee letter states that: "Although Section 202(f) of the National Housing Act was made effective upon enactment, FHA has determined that the loss of available FHA Roster appraisers in certain locations will impede its ability to support affordable mortgage financing in those areas, which would contravene the goals of the HOPE for Homeowners Program and hinder use of other FHA single family programs at a time when use of those programs has increased significantly."

Appraisers interested in reading the complete mortgagee letter can find it at www.fha.gov, then click on "Access Mortgagee Letters and Handbooks," click on "2008 Letters" and then click on "08-39FinalML-Revised FHA Roster Requirements."

As we have advocated for many months, it is highly recommended that licensed appraisers interested in FHA Appraisal business take the necessary steps to become certified as soon as possible, as many lenders are already looking for certified appraisers to perform their FHA appraisals.

We really hope you find our newsletter to be informative! If you have any input on future topics for discussion, please email me your questions and I will do my best to address them in the next issue. If you want to look back at past issues you can see our archive at www.fhaappraisernewsletter.com

Regards,
Bill Collins
bill@fhaappraisers.com
www.fhaappraisers.com
www.fharoster.com
(877) 4FHA-VALU