January 2009

NEW RULES FOR ORDERING APPRAISALS TO BEGIN MAY 1

James Lockhart, director of the Federal Housing Finance Agency (FHFA), announced that Fannie Mae and Freddie Mac will implement the Home Valuation Code of Conduct (HVCC) on May 1.

Under this code, mortgage brokers will no longer be allowed to order appraisals on mortgage loans that are sold to these government sponsored enterprises (GSEs). Lenders can use staff appraisers or their own appraisal management companies, but firewalls must be in place to ensure that the person ordering the appraisal does not have a vested interest in what the appraised value will be.

“The enterprises have a strong interest in ensuring the soundness of the appraisal practices that lead to appraisal reports supporting the mortgage loans they purchase from lenders,” Lockhart said in an FHFA press release. “FHFA supports this effort by the enterprises to strengthen the appraisal process against the possibility of improper influence or coercion.”

According to the HVCC, Fannie Mae and Freddie Mac will not purchase mortgage loans from lenders after April 30, unless this finalized code has been strictly adhered to. The GSEs are in the process of providing information to residential or commercial mortgage lenders about this issue.

“The code strikes a balance of ensuring enhanced protections for appraisers while maintaining lender ability to address unprofessional appraisal practices and to perform quality controls on appraisals received,” Lockhart said. “I appreciate the work of Fannie Mae and Freddie Mac on the code and of the [New York] attorney general’s office throughout the process.”

COMPLIANCE PLUS IS READY FOR LENDERS NEEDING FIREWALL

Now that the agreement that led to the Home Valuation Code of Conduct has been finalized, ELLIOTT® & Company Appraisers stands ready to assist residential and commercial mortgage lender’s with its recently established firewall service, Compliance Plus. This appraisal management service is tailor-made for banks, wishing to distance themselves from the issue of appraisal pressure and the associated and market pressures.

Compliance Plus is designed to provide ELLIOTT’s commercial and residential mortgage-lending clients with a safe, defensible, economical and efficient alternative method of complying with appraiser independence mandates, imposed upon them by federal regulatory agencies and government sponsored enterprises (GSEs).

For further information, call our Client Services Department at (800) 854-5889.

COMMERCIAL DEVELOPERS ASK FOR SHARE OF BAILOUT FUNDS

Twelve real estate trade groups sent a letter to Treasury Secretary Henry Paulson late last year, asking to be included in a $200 billion loan program that the government created to aid troubled credit card debt, student loans and car loans.

“Right now, we believe there is insufficient systemic capacity to refinance expiring, performing commercial real estate loans,” the letter read in part. “For many borrowers [refinancing credit] is not available.”

Some commercial real estate leaders are urging Congress and the new administration to set up a program designed exclusively to increase commercial real estate lending.

“We’ve been urging Washington to put this as one of the top priorities in dealing with the economy,” said Real Estate Board of New York President Steven Spinola.

Commercial real estate mortgages come due much earlier than their residential counterparts. There usually is a large amount due when the commercial mortgage expires. This final payment is usually refinanced, but with tighter credit, much of this refinancing will be unavailable and many commercial developers could face foreclosure. About $530 billion in commercial mortgages is expected to come up for refinancing in the next three years.

“The credit crisis has gotten so bad that even good loans may be drying up,” said Richard Parkus, head of commercial-mortgage-backed securities research at Deutsche Bank.

ASK MARTITIA

QUESTION:  What are the consequences of a lender being caught in violation of the HVCC?

MARTITIA: Fannie Mae and Freddie Mac reserve the right to suspend, or even terminate, the eligibility of a lender, who continuously disobeys rules of the Home Valuation Code of Conduct, to sell them loans. The HVCC only applies to loans that are being sold to Fannie Mae and Freddie Mac. It does not apply to FHA or VA loans.

Martitia Mortimer, Elliott’s executive vice president, answers appraisal questions on a regular basis in Elliott Real Estate News.

QUOTES

“If GM had kept up with the technology like the computer industry has we would all be driving $25 cars that got 1,000 miles per gallon.” -- Bill Gates

“Coming together is a beginning; keeping together is a progress; working together is a success.”
                                                                                                                                            -- Henry Ford

“Ambition is a dream with a V8 engine.” -- Elvis Presley

“A sensor is a man who knows more than he thinks you ought to know.” -- Laurence Peter

“Patriotism is easy to understand in America. It means looking out for yourself by looking out for your country.”
                                                                                                                                                        -- Calvin Coolidge
 

Newsletter Editor: kevin@elliottco.com
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