Realtors, Mtge Brokers Push For Delay In New Appraisal Rules
April 27 2009 - 7:05PM
Dow Jones News
Realtors and mortgage brokers are in an 11th-hour push to delay
by a year new Fannie Mae (FNM) and Freddie Mac (FRE) rules
governing real-estate appraisals.
The rules, which take effect May 1, have sparked criticism from
many corners of the real-estate industry.
The National Association of Realtors complained in a letter last
week that the industry was given scant guidance and too little time
to implement the rules. Appraisers worry the rules, which will put
middlemen between loan originators and appraisers, will squeeze
their fees. Meanwhile, mortgage brokers say the changes will make
them uncompetitive.
"This is going to be devastating for everyone," Marc Savitt, the
president of the National Association of Mortgage Brokers, said
Monday.
The rules arose from an investigation by New York Attorney
General Andrew Cuomo into alleged collusion between mortgage
lenders and appraisers to pump up home values. Fannie and Freddie,
which became targets of probe, agreed in early 2008 to require all
appraisers on mortgages they buy or guarantee to adhere to a new
code of conduct.
The companies' regulator, the Federal Housing Finance Agency,
signed onto the agreement. Then, in January, a few months after it
had seized Fannie and Freddie, FHFA issued a revised code of
conduct, incorporating input from the industry. Still, the industry
complains it has not been fully heard.
"Unfortunately, it's a Fannie-Freddie agreement with Cuomo and
their regulator, but the real compliance burden is on entities that
are not a party to the agreement," Michael Carrier, a Mortgage
Bankers Association official, said.
The rules are intended to reduce collusion and fraud in the
appraisal industry, which has been blamed for generating wildly
inflated home values during the housing boom. The new code requires
lenders to go through third-parties, known as appraisal management
companies, to order appraisals. Lenders with in-house appraisal
staff must set up safeguards to ensure loan officers don't
influence the home appraisal process.
Lenders, realtors and brokers agree the changes could push up
costs for borrowers. In cases where Fannie or Freddie determine the
code has been violated, they can force lenders to repurchase the
loan. Borrowers shopping for a good rate could be asked to pay for
additional appraisals, Carrier of the mortgage bankers group said,
because lenders will be suspicious of appraisals they didn't
order.
The code of conduct also prohibits mortgage brokers from
ordering appraisals, requiring them to go through lenders. Mortgage
brokers, who typically have close relationships with appraisers,
argue this will push up costs, making it harder for them to compete
with lenders.
The mortgage broker trade group filed a lawsuit earlier this
year against FHFA Director James B. Lockhart to block the rule, but
quickly dropped the suit. Savitt said he was "very hopeful" that
FHFA would delay the rule.
Appraisers argue the new guidelines will drive the most
experienced appraisers out of the business, hurting appraisal
quality, because the appraisal management companies will squeeze
their fees. Jim Amorin, the president of the Appraisal Institute,
an industry trade group, said such companies take at least half of
appraisers' fees.
The realtors group argued for a one-year moratorium on the new
rules in a April 20 letter to the chief executives of Fannie and
Freddie, Cuomo and Lockhart. The trade group, which supports the
new code of conduct, said Fannie and Freddie only provided
substantive guidance on the rule weeks ago. It also noted an
industry survey by FNC Inc. finding that most lenders hadn't
completed the necessary computer upgrades to comply with the new
rules.
FHFA spokeswoman Stefanie Mullen said the rules would take
effect as planned on May 1.
-Jessica Holzer, Dow Jones Newswires; 202-862-9228;
jessica.holzer@dowjones.com