NAR Assessment of Cuomo Settlement with Fannie Mae and Freddie Mac:

The Cuomo/GSE Appraisal Deal April 30, 2008

New York State Attorney General Andrew M. Cuomo, Fannie Mae and Freddie Mac (government sponsored enterprises) reached an agreement on March 3, 2008, to change appraiser selection criteria that will help eliminate conflicts of interest on mortgage appraisals. The agreement has the support of the Office of Federal Housing Enterprise Oversight (OFHEO). There are three main components to the agreement:

• Establishment of the New Home Valuation Protection Code
• Banks will be required to adhere to the Code
• Formation of the Independent Valuation Protection Institute

The requirements will have a significant impact on appraisal practices by lenders as they will have to comply with the new requirements agreed-to by the government sponsored enterprises (GSE) if the lenders sell mortgages to the GSEs. The parties have agreed to get comment and concurrence from the federal banking regulators and HUD, as they move to implement the Agreement and the new Code of Conduct. The GSEs have agreed to implement the new Code beginning January 1, 2009. During 2008, the GSEs will get comments from market participants, and changes to the Code are possible.

Home Valuation Protection Code
A Home Valuation Protection code will be implemented establishing standards on solicitation, selection, compensation, conflicts of interest and corporate independence. Mortgage brokers are prohibited from selecting appraisers. Lenders will not use “in house” staff appraisers to conduct initial appraisals and will not use appraisal companies owned or managed by the lender. The code entitles the borrower to one copy of an appraisal report, free of charge, within 3 days of the closing of the loan.

Banks Will Adhere to the Code
Starting January 1, 2009, GSEs will no longer purchase mortgages from lenders that utilize internal appraisers for appraisal reports. Lenders will be required to represent and warrant that the appraisal report was obtained in a manner consistent with the New Home Valuation Protection Code.

Independent Valuation Protection Institute
A clearinghouse of appraiser information will be created, with a separate board of directors, to monitor complaints from appraisers and consumers. All lenders will be required to provide post-purchase copies of appraisal documents to the clearinghouse. Lenders will establish a telephone hotline and E-mail address to receive complaints from appraisers and users of appraisal services on the improper influence or attempted improper influence of appraisers. The Institute will be headed by a Board of Directors with members having no financial connection with Fannie Mae, Freddie Mac, or lenders with whom the GSEs engage.

Frequently Asked Questions
Does this agreement concern only mortgages in New York State?
No, this agreement applies to mortgages across the country. After January 1, 2009, the GSEs will not purchase single-family loans from mortgage originators in any state that do not agree to adopt the Home Valuation Protection Code.

Does this agreement apply to all lenders?
GSEs may exclude lenders that meet the definition of “small bank” according to 12 USC§ 2908 and which the GSE determines would suffer hardships from the provisions of paragraph VI, subsections 1-4 of the Home Valuation Protection Code. However, excluded lenders must otherwise comply with the other provisions of the Code and meet appropriate standards of appraiser independence.

Who is responsible for applying the new Valuation Protection Code?
The government sponsored enterprises will apply the new code to lenders selling mortgages on the secondary mortgage market.

Will appraisers have to help fund the Independent Valuation Protection Institute?
No, the institute will be funded by the GSEs. Fannie Mae and Freddie Mac will each contribute $12 million over five years beginning in 2009.

What does this agreement mean for the independent appraiser?
Independent appraisers and appraisal companies not owned or managed by lenders or settlement companies must continue to meet appropriate standards of appraiser independence, including following Uniform Standards of Professional Appraisal Practice (USPAP) and maintaining relevant state certifications.

What does this agreement mean for REALTORS® ?
Individual REALTORS® cannot serve as a third party between a lender and appraiser. This includes selection, retention, and compensation of an appraiser.

Broker REALTORS® that offer services as a lender or affiliated lender and appraiser services must comply fully with the Home Valuation Protection Code if there is an expectation that their loans will be purchased by Fannie Mae or Freddie Mac after January 1, 2009.

Is NAR going to provide comments and recommendations on the agreement?
Yes, NAR will provide comments and recommendations to OFHEO on the Code and its implementation. NAR will comment on the creation of Independent Valuation Protection Institute; which should likely be affiliated with the Appraisal Foundation. Finally, NAR will comment on the impact this agreement will have on its members and the overall real estate industry.

Can lenders continue to own appraisal management companies (AMC)?
Yes, lenders can continue to own AMCs. According to the agreement, if a lender chooses to obtain appraisal reports from an AMC that is owned by the lender, or an affiliate of the lender, the lender must: 1) maintain 20 percent or less ownership in the AMC, 2) have no involvement of day-to-day business operations of the AMC, 3) the AMC is operated independently, and 4) the lender has no role in the selection of the appraiser.

Is this agreement federal law?
No. This is an agreement signed by two government-sponsored corporations, Fannie Mae and Freddie Mac, and the New York State Attorney General, Andrew Cuomo. The federal regulator of Fannie Mae and Freddie Mac, the Office of Federal Housing Enterprise Oversight (OFHEO) also signed the agreement. No legislation was passed or signed into law with respect to this agreement.

Are real estate agents prohibited from communicating with appraisers?
No. There is only one portion of the code that applies directly to real estate agents. Part III states that third parties, including real estate agents, cannot select the appraiser or compensate the appraiser. A third party, including real estate agents, can still ask appraisers for additional information, provide additional information to an appraiser, or ask for corrections of factual errors.

Can lenders work only through appraisal management companies?
No, lenders that utilize in-house appraisers can still order appraisals as long as they are independent of the loan production staff and do not ultimately report to an officer who manages loan production.

Update from Dave Biggers on HVCC:

To: Our colleagues
Re: Thank you for speaking up about the HVCC
From: David Biggers, Chairman, a la mode, inc.

Prior to the April 30th deadline for commentary on the proposed HVCC regulations, I wrote you asking for your help in alerting our government officials and the private sector to the damages which would be brought onto the real estate industry if the HVCC was implemented as written.

Amazingly, more than 31,000 of you responded within 48 hours. That exceeded our projections by tens of thousands. Frankly, I would have been pleased if 5,000 of you spoke up. But 31,000 in such a short time is absolutely unprecedented, and it’s gotten the attention of the people in D.C. and New York involved in the HVCC’s drafting and implementation.

The response spanned all sectors of the industry. Over 17,000 appraisers, more than 10,000 mortgage brokers, and more than 3,000 real estate agents signed up and forwarded comments on to the powers that be. Over 500 lenders even added their voices, as did hundreds of attorneys, homeowners, title agents, and more. Plus, nearly 12,000 of you added your own comments to our pre-written appeal to reconsider the regulations.

And rest assured, we delivered your words. By the April 30th deadline, we printed and delivered to OFHEO, Fannie, Freddie, and the New York Attorney General’s office a massive shipment of 127,169 pages of letters.

It’s a good thing that we printed and physically mailed them, because the e-mail servers at OFHEO and Freddie Mac almost immediately began blocking your messages. To Fannie Mae’s credit, they initially blocked the e-mails, but then proactively called us, worked out a solution, and subsequently accepted all of your letters. We’re going to assume based on Fannie Mae’s professionalism that they will pass the comments on to OFHEO as promised. To make it easier for them to incorporate your ideas, and to contact you if needed, we also delivered a CD to each entity with all of your suggestions and contact information in convenient database format.

You can read more details of the HVCC protest, and the full text of the critique that our law firm in D.C. sent (along with other letters submitted to OFHEO), in our AppraisalPress newspaper website at http://www.appraisalpress.com/news/hvcc. Look it over and tell us what you think.

But, I don’t want this “thank you” letter to mislead you – while it’s nice to see such response to our call to action, the fight to stop the HVCC is far from over. You’ll be seeing more from us in the coming days, because we now need to help you get the word directly to your members of Congress, in written form, by phone, and ultimately in face to face visits, as Congress comes home over Memorial Day weekend. You will receive an alert shortly with information on when and how to contact your members of Congress. There will be local media opportunities as well, as we outline the local economic impacts and provide you with key talking points to get their attention.

The bottom line is that solutions are clearly needed in response to the problems which have plagued the mortgage industry, but the HVCC is the wrong regulation, done the wrong way, at the wrong time.

Thank you for reading our bulletins and newspaper, for speaking up, and for the kind words you’ve sent our way in this fight. With your help, we’ll continue to do our best to protect our industry and our nation’s homebuyers at the same time.

Dave Biggers
Chairman
a la mode, inc.

Google has added a real estate filter to Google Maps, enabling searchers to look for listings directly via Google. This means that users can not only search for listings directly from Google, but also check out the home and surrounding neighborhood using Google’s Street View.

While this is not a game changer in and of itself, due to the lack of data Google has to work with in showing listings, it is yet another stark warning to the major players in real estate search that Google can step in at any point in time change the world of real estate search as we know it. Once the data problem is solved and Google makes a serious commitment to throw its hat in the ring, there is little that the major players in real estate search today will be able to do stop the intense erosion in market share that will inevitably occur virtually overnight.

At this point this is Google’s world and we just live in it, so if your business model relies purely on search or data aggregation, your model can be rendered meaningless overnight if you cross paths with the big G. The only consolation to the existing real estate search players is that Google is already very busy with other projects and its non-stop push to scale globally.

I just received yet another call from a mortgage broker asking me for information regarding a mortgage lead company called Target Publishers. This time the broker received my information via records at the Reno Courthouse. I’ve been receiving such calls for the past two years since I first did business with Target Publishers. All of the calls follow the same script. A mortgage broker has purchased mortgage leads from Target Publishers, the leads were never delivered, Target Publishers has ceased all communication and is refusing to deliver leads or a refund and the broker is wondering how he is going to get his $x,xxx back. In the case of the latest call I received, the broker worked in a shop with 4 loan officers and had lost $6,000 to Target Publishers.

When I purchased leads from Target Publishers, the campaign started two weeks late, didn’t deliver the daily number of leads required and after around the 15th unsuccessful transfer attempt over the course of a week (all leads ended in static, echos, and or hangup) I requested a refund. After paying $1800 for a test run, three weeks later I had nothing to show for my time or money. When I attempted to contact Jacob Larson (the contact person usually mentioned in various complaint threads across the interwebs) or the owner (according to Jacob this is Darren McDowell, whom may or may not be a real person) they became abusive and stopped all communication.

I filed a BBB complaint (they’re no longer members), posted a friendly warning on brokeroutpost.com (which Darin promptly deleted, sadly enough to this day I still see the occasional brokeroutpost poster announcing that they too have been ripped off, who knows how many of these could have been prevented), and filed a small claims case in Reno with the hope they would settle out. Ultimately, I sued them in Reno Small Claims Court and won a default judgment when they did not show up. My intention was not to follow through with the small claims case because of the dollar amount, but once the ball got rolling, I figured what the heck and followed through, even though it meant having to fly from sunny Huntington Beach, CA to Reno.

Until recently, their address was a Reno address which happened to be a PO Box at a UPS store. My belief is that they actually operate out of California or Oregon. I attempted service twice without success at the UPS PO Box, once at the home of “Darren McDowell” in El Cajon, California, and once in Las Vegas, NV before successfully serving the original UPS PO Box when we learned the owner was not accepting the service when he was actually supposed to.

After winning the judgment, it came time to collect. The original Bank of America that cashed my check was in Beaverton, OR, so I naively assumed that I had to serve that specific branch in order to garnish Target Publisher’s bank account. This required filing a Foreign Judgment in Clackamas County, Oregon in order to validate the Reno judgment in Oregon. This was at least as much work as the original small claims case.
When the Write of Garnishment was eventually served, there were no funds in the account so I got nothing.

I then posed as a lead buyer to get Target’s latest bank information to see if they had changed banks. They had not, the bank account number was identical and was still used in their day to day operations. On a side note, Target does not accept credit cards, yes I know, HUGE RED FLAG. I again served the Writ on Bank of America and again was denied as there were no funds available. As long as they immediately transfer funds out of their bank account when they receive payment from customers, they seem to be protected. A call to the Bank of America garnishment department confirmed this.

The bottom line is that Target Publishers is very good at what they do. They immediately transfer funds out of their corporate account whenever they receive a payment and thus are protected from creditors like myself. They also make serving them very difficult. A quick google search of targetpublishers.com shows the three of the top five listings are discussing Target Publishers as a scam, yet they continue to operate year after year. They haven’t even had to change their name, which is the first thing they will do once they get catch enough heat.

I have a call in to Target Publishers for comment.

Have a Target Publishers story? Share it with us here.

The Title / Appraisal Vendor Management Association has weighed in regarding HVCC. The report, written a over a week ago has gone under the radar as most things HVCC have. This topic just cann’t seem to get traction regardless of how important it might be.

If the GSEs implement the Code as currently drafted, it will cause a major
disruption in the lending community due to a serious interruption in appraisal services.
Such a disruption ultimately will increase consumers’ closing costs and their ability to
obtain financing in a timely manner, or at all.

Hat tip to Rick Grant.

The FED has lowered the federal funds rate to 2.00%, the lowest it has been since 2004. This is the 7th consecutive cut. The question now becomes, “Where do we go from here?” The good news is that the first quarter showed positive growth.

Google PR (PageRank) updates are under way. Oddly enough, the update seems to be affecting Google Search and Google Reader….. I’ve had problems loading and updating Google Reader all morning and I’ve had up to 30 second delays in loading the Google home page….. very odd, but comes with the territory I guess.

PageRank Forumla = PR(A) = (1-d) + d(PR(t1)/C(t1) + … + PR(tn)/C(tn))

PageRank is often misunderstood like all things SEO and SEM related. To keep things complicated, read this primer. To keep things simple, PageRank uses a logarithmic scale and is based primarily on incoming links. In plain speak, this means that if PR were on a point scale and moving from PR1 to PR2 took “10 Points”, then moving moving from PR2 to PR3 might take “200 points” and moving from PR3 to PR4 might take “1500 Points” and moving from PR4 to PR5 might take “9500 points”. I think you get the idea, while my points system is just nonsense I’ve made up, the point is that each move upwards in PR becomes exponentially harder.

What does PageRank mean to you? Well for starters, PageRank does not guarantee high search engine rankings. PR is more of a qualitative measure of a site, but does not translate into directly higher rankings, although there is no reason why a site with high PR shouldn’t rank well also.

Well it’s perfectly normal to get excited as you watch your PR grow. The truth is that I’ve had sites that I’ve put no effort in building links to become PR4. While PR5 is definitely respectable, I think PR6 is a real accomplishment and requires a real sustained effort, most blogs will never become a PR6.

At the end of the day you can NEVER go wrong focusing on publishing high quality content that others find useful. If you do, people will link to you, you will rank well and eventually your PR will follow. PR is a lagging indicator, so don’t put the horse in front of the cart!

Which Lower My Bills ads do you have in your collection? I’m collecting them all and have 5 so far! You must collect all 25 to become the Supreme Chinpokomon Champion! Inspired by this.

CLICK ON EACH IMAGE FOR FULL FLASH DEBACLE!

The latest Cease & Desist Letter by overzealous legal council.

This is fresh on the heals of a recent discussion at LeadCritic.com regarding Lending Tree’s lame attempt via C & D letters to try to get bloggers to delete comments left by a commenter in posts discussing the Lending Tree Data Leak. The comments listed Lending Tree’s client URL login and claimed it was easy to hack along with basic information indicating he was an ex-exec, nothing to get excited about.

“Cease & desist letters are free traffic” - Mike Arrington of TechCrunch.

This C & D letter is a classic and this letter shows what can happen when issuing a C & D backfires. The moral of the story is that blogs usually have very little to lose by posting your C & D, especially if it has very little merit or is simply a bluff. Your C & D will only cause you embarrassment and boost traffic for the recipient, so think long and hard about what you are trying accomplish before hitting the send button.

UPDATE: As expected the TechCrunch prevails vs Marvel at the cost of $2000 for TechCrunch council. Talk about a waste of resources, Party A pays attorney to send C & D to Party B. Party B pays attorney to respond that there is no grounds for the complaint, Party B backs off and everyone goes back to square one. This could perhaps be slightly less productive then high school girl drama.

Wednesday is the deadline for submitting feedback regarding HVCC or the Home Valuation Code of Conduct. The HVCC, in its current form, contains select language that hurts brokers, agents, appraisers, and consumers.

The underlying story is how well this story has flown under the radar. A handful of appraisers, agents, and mortgage brokers I have spoken with were either unaware or vaguely aware of the HVCC and its implications. Unlike legislation moving through the Senate and House, the HVCC has received very limited coverage. While we are acutely aware that with less then 36 hours until the feedback deadline meaning a petition may be a bit late, we are also aware that you miss every shot you don’t take, that is why we ask you to join us in signing the Petition to Reconsider HVCC.

History:

After an investigation by New York Attorney General, Andrew Cuomo into Fannie Mae and Freddie Mac Appraisal practices, the agencies (with the Office of Federal Housing Enterprise Oversight (OFHEO)) agreed adopt new changes to how appraisals are processed in the mortgage industry in exchange for an end to the investigation. The centerpiece of the agreement is the HVCC, which contains many positive and common sense initiatives to help clean up the industry, but also contains significant negative changes to the how brokers and agents are able to work with appraisers and how appraisers are able to operate, hurting consumers, mortgage brokers, agents, and appraisers.

What it means for Brokers:

1. Brokers (or anybody compensated on a commission basis upon the successful completion of a loan) may not choose appraisers to be used for loans they originate and may not engage in any communication with appraisers. Choosing appraisers and all communication with appraisers is delegated to lenders. This means that brokers are not only not allowed to choose appraisers based on quality of work and professionalism, but ultimately lose control of an integral part of the loan origination process, possibly increasing loan funding times and increasing costs to the consumers in the form of longer rate locks and the need to order new appraisals if there is a change of lender.

2. Since appraisals are made in the lender’s name and not the broker’s, if the broker chooses a new lender for the deal, a completely new appraisal will need to be ordered. This increased consumer costs and the time involved in the transaction.

3. All relationships with appraisers are rendered meaningless overnight.

4. Brokers lose control over transactions and are put at disadvantage as power is shifted toward and biased towards large institutions.

What it means to Appraisers:

1. Must use AMC’s (appraisal management companies), meaning independent appraisers are forced to join and AMC and give 40% or more of their income to the AMC. You read that correctly, this will deprive independent appraisers of nearly 50% of their income in most cases (this could likely mean many experienced appraisers will leave the industry altogether). AMC’s are not regulated, by the way.

2. Unfairly targets appraisers, does not affect AVM’s (Automated Valuation Models) and BPO’s (Broker Price Opinions). This not only hurts appraisers as Lenders may prefer unregulated and unrestricted alternatives that are not included in the HVCC and in a manner which is in contrast with the stated purpose of HVCC.

3. Disallows appraisers from engaging in ANY communication with mortgage brokers, loan officers, agents, or others that may receive a commission upon funding of a deal. This means appraisers are not allowed to talk to their clients, a restriction no placed on any other industry to date. This means all the client relationships they have built are rendered meaningless overnight, an unprecedented act against any industry segment to date.

What it means to Consumers:

1. Higher Costs: If there is a need to change lenders or brokers as a new appraisal will be necessary.

2. Increased time to fund loans as brokers lose control of choosing and managing appraisals and may necessitate longer rate locks or extensions of existing locks. In the case that a new lender or broker is chosen, a new appraisal will be necessitated, increasing time to funding.

3. Decrease incentive to change lenders or brokers if they are not getting the service they deserve due to increased costs and time involved.

Fannie Mae Agreement

Freddie Mac Agreement