Appraisal Scoop

Agencies Issue Proposed Rule to Exempt Subset of Higher-Priced Mortgage Loans from Appraisal Requirements

WASHINGTON— Six federal financial regulatory agencies today issued a proposed rule that would create exemptions from certain appraisal requirements for a subset of higher-priced mortgage loans. The proposed exemptions are intended to save borrowers time and money and to promote the safety and soundness of creditors. The appraisal requirements for higher-priced mortgages were imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).

Under the Dodd-Frank Act, mortgage loans are considered to be higher-priced if they are secured by a consumer's home and have interest rates above a certain threshold.

The proposed rule would provide that the following three types of higher-priced mortgage loans would be exempt from the Dodd-Frank Act appraisal requirements:

• loans of $25,000 or less; 
• certain "streamlined" refinancings; and 
• certain loans secured by manufactured housing.

In January 2013, a final rule implementing the new Dodd-Frank Act appraisal requirements was issued by the Federal Reserve Board, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the National Credit Union Administration, and the Office of the Comptroller of the Currency. Compliance with the final rule will become mandatory on January 18, 2014. These same agencies are jointly issuing the proposed rule on additional exemptions in response to public comments previously received.

The Federal Register notice is attached. The agencies are seeking comments from the public on all aspects of the proposal. The public will have until September 9, 2013, to review and comment on most of the proposal. However, comments related to the proposed Paperwork Reduction Act analysis will be due 60 days after the rule is published in the Federal Register. Publication of the proposal in the Federal Register is expected shortly.

Attachment: Proposed Rule on Higher-Priced Mortgages - PDF (PDF Help)

 

Senate Bill to Abolish Fannie and Freddie Hits the Floor

A bill to abolish the two government sponsored enterprises (GSEs) Freddie Mac and Fannie Mae will finally be introduced today after months of preparation.  Although not widely believed to be passable in its current form, any iteration is likely to be significant for the housing market.  As it sits, the bill would replace the GSEs with a reinsurer of mortgage-backed securities (MBS) to act as a backstop to private capital in a crisis.    See Full Article at Mortgage News Daily

The legislation will be proposed by a bipartisan group of senators led by Bob Corker (R-TN) and Mark Warner (D-VA).  It would liquidate the two GSEs, which have been in government conservatorship since 2008, within five years., replacing them with a reinsurer, tentatively named the Federal Mortgage Insurance Corporation.  It is designed to insure a liquid mortgage market would exist even in times of crisis while protecting taxpayers from loses.  The reinsurance would kick in only after private creditors had absorbed a 10 percent loss of the principal balance of the affected mortgage-backed securities should the loans go bad.  

Reuters reports that analysts were calling the legislation a first step that faces an uphill battle in Congress, especially in the House where some members want the government completely out of the housing finance business. The news agency quotes Jaret Seiberg, a senior policy analyst at Guggenheim Securities, who said that there "is almost zero chance the bill introduced today will be adopted" as it is currently written.

The bill would require private entities to buy mortgages from lenders and issue them to investors as securities, according to the discussion draft. Private equity would be required to absorb a 10 percent loss of the principal underlying those new mortgage-backed securities if the loans went bad.

The Federal Mortgage Insurance Corp. would charge and collect fees to cover its operating costs and maintain a catastrophic fund - probably similar to FDIC depositor insurance.  It would also continue efforts recently initiated by the Federal Housing Finance Agency (FHFA), the GSE conservator, to build a common securitization platform for pooling mortgages, issuing and selling MBS.  

Since they were placed in conservatorship the GSEs have been shored up with an aggregate $187.5 billion in  money from the U.S. Treasury but each is now posting record profits.  A discussion draft of the proposed legislation proposes that any proceeds from the wind down of the GSEs would be paid first to Treasury which holds $188 billion in senior preferred stock in the two.  Any remaining moneys would be paid to preferred stockholders then to common shareholders of each. Several large stockholders recently filed suit against the government for losses they claim were caused by the government's seizure of the companies.  

  View Article: http://www.mortgagenewsdaily.com/06252013_gse_reform.asp

Fannie Mae’s February 2013 National Housing Survey results are IN!

Americans Expect Home Prices and Mortgage Rates to Increase

Attitudes About Economy and Household Finances Remain Flat

WASHINGTON, DC – Consumer attitudes toward the economy and housing continue to diverge this winter, according to Fannie Mae’s February 2013 National Housing Survey results. On the one hand, consumers continue to express strong positive attitudes toward housing. On the other hand, sentiment about the economy and household finances is stalled. Average 12-month home price expectations and the share of consumers who believe home prices will go up over the next year both rose to record highs, and the percentage of Americans who say mortgage rates will rise reached its highest level since August 2011. At same time, Americans’ views on their personal financial situation, household income, and the direction of the economy fell or remained flat.

“Despite fiscal headwinds and political uncertainty, consumer sentiment toward housing is robust and continues to gather strength,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “We expect home prices to firm further amid a durable housing recovery, gradually reducing the population of underwater borrowers and helping to boost the share of consumers who say that now is a good time to sell."

“Since reaching its trough last September, the share of consumers expecting mortgage rates to rise has trended up,” continued Duncan. “However, despite historically low mortgage rates, nearly half of borrowers have never refinanced their mortgage. Combined with the scheduled year-end HARP deadline, rising rate expectations should prompt some borrowers to refinance soon to take advantage of more favorable mortgage terms and add to their disposable income, helping to offset ongoing fiscal drag.”

SURVEY HIGHLIGHTS

Homeownership and Renting

• The average 12-month home price change expectation increased 0.5 percent over last month to 2.9 percent, the highest level since the survey’s inception.
• At 48 percent, the share who believe home prices will go up in the next 12 months also reached a survey high, while the share who believe home prices will go down held steady at the survey low of 10 percent.
• The percentage who think mortgage rates will go up increased by 4 percentage points to 45 percent, the highest level since August 2011, while those who think they will go down held steady at 7 percent.
• Twenty-five percent of respondents say it is a good time to sell a house, the highest level since the survey’s inception in June 2010.
• At 3.9 percent, the average 12-month rental price change expectation increased 0.2 percent over January.
• Fifty percent of those surveyed say home prices will go up in the next 12 months, holding steady from January at the highest level since the survey’s inception.
• The share of respondents who said they would buy if they were going to move increased by 2 percentage points to 67 percent.

The Economy and Household Finances

• At 38 percent, the share of respondents who say the economy is on the right track has held steady over the past three months.
• The percentage who expect their personal financial situation to get better over the next 12 months fell by 2 percentage points to 41 percent.
• Twenty-one percent of respondents say their household income is significantly higher than it was 12 months ago, a 2 percentage point decrease from last month.
• Thirty-one percent report significantly higher household expenses compared to 12 months ago, a 7 percentage point decrease and the lowest level since June 2010.

The most detailed consumer attitudinal survey of its kind, the Fannie Mae National Housing Survey polled 1,008 Americans via live telephone interview to assess their attitudes toward owning and renting a home, home and rental price changes, homeownership distress, the economy, household finances, and overall consumer confidence. Homeowners and renters are asked more than 100 questions used to track attitudinal shifts (findings are compared to the same survey conducted monthly beginning June 2010). Fannie Mae conducts this survey and shares monthly and quarterly results so that we may help industry partners and market participants target our collective efforts to stabilize the housing market in the near-term, and provide support in the future.

For detailed findings from the February 2013 survey, as well as a podcast providing an audio synopsis of the survey results and technical notes on survey methodology and questions asked of respondents associated with each monthly indicator, please visit the Fannie Mae Monthly National Housing Survey site. Also available on the site are quarterly survey results, which provide a detailed assessment of combined data results from three monthly studies. The February 2013 Fannie Mae National Housing Survey was conducted between February 2, 2013 and February 21, 2013. Interviews were conducted by Penn Schoen Berland, in coordination with Fannie Mae.

Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's Economic & Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR Group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR Group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.

Fannie Mae enables people to buy, refinance, or rent a home. We play a leading role in America's economic recovery today and in building a better housing finance system for the future.

Follow us on Twitter: http://twitter.com/FannieMae.

New UAD Update and UCDP Release Notification - Fannie/Freddie Mac

January 29, 2013

Freddie Mac and Fannie Mae (the GSEs) are providing you with the January 2013 Uniform Appraisal Dataset (UAD) Update and Uniform Collateral Data Portal^® (UCDP^®) Release Notification to announce the first phase of the conversion of current UAD compliance warning edits to fatal UAD edits in the UCDP.

The first phase, targeted for implementation in June 2013, includes the following data fields:

• Appraisal effective date.
• Subject contract price/Comparable sale price.
• Above grade Gross Living Area (GLA) (subject and comparables).
• Sale type (subject and comparables).

Originate & Underwrite and Sell & Deliver

If an appraisal submitted to the UCDP receives one or more fatal UAD edits, it will result in Hard Stop 401 (UAD Compliance Check Failure), and a "Not Successful" status will be issued in the UCDP. If the lender or appraisal vendor receives a "Not Successful" status in the UCDP, the lender or appraisal vendor must resubmit a corrected appraisal with the required data in the correct format to ensure a "Successful" status.

In addition, in order to ensure the UAD data submitted to the UCDP is of high quality and compliant with our data standards, the GSEs are announcing our intent to discontinue accepting appraisals in PDF and other alternative appraisal formats; and to accept only the MISMO file format in the UCDP. We have initiated conversations with key vendors associated with the non-MISMO XML formats and we will work closely during 2013 with lenders and vendors using these formats to ensure a smooth migration path for lenders. Once a retirement date has been determined we will provide at least six months’ notice of any formalretirement. The GSEs will provide more updates on our progress throughout the year.

For more information, including a complete listing of the first phase of fatal UAD edits, refer to the January 2013 UAD Update and UCDP Release Notification on FreddieMac.com.

This communication relates to the Uniform Mortgage Data Program®, an effort undertaken jointly by Fannie Mae and Freddie Mac at the direction of their regulator, the Federal Housing Finance Agency.

NCRC Statement on CFPB Appraisal Rules - "Research shows that 90% of appraisals during the height of the period of irresponsible, toxic lending were improperly and illegally influenced by lenders."

Washington, DC – Today, in reaction to the Consumer Financial Protection Bureau’s (CFPB) release of new appraisal rules, NCRC President and CEO John Taylor made the following statement:

“The CFPB’s new appraisal rules promote transparency and fairness for consumers. In a step that NCRC has long called for, all consumers will now receive copies of appraisals and automated valuation model (AVM) reports and will be able to check them for errors. Further, consumers and industry alike will benefit from the use of responsible valuation professionals in high cost loan origination. We are very pleased that the CFPB has taken our recommendations in this area.”

“One of the most overlooked elements of the housing and economic crisis is the role that inflated appraisals played. Research shows that 90% of appraisals during the height of the period of irresponsible, toxic lending were improperly and illegally influenced by lenders. Conversely, since the onset of the crisis home values have been overly deflated. The new disclosure requirements help immensely with both of these problems.”

“In addition to the steps they have taken thus far, the CFPB and the other regulators should undertake additional rulemaking to better regulate the activities of Appraisal Management Companies (AMCs), and to create a true arms length between originators and appraisers, which is already required by law but largely ignored.”

In June of 2012, NCRC Chief Program Officer David Berenbaum testified on appraisal oversight before the United States House of Representatives Committee on Financial Services.

About NCRC

The National Community Reinvestment Coalition is an association of more than 600 community-based organizations that promote access to basic banking services, including credit and savings, to create and sustain affordable housing, job development and vibrant communities for America's working families. To find out more, visit http://www.ncrc.org

Consumer Financial Protection Bureau adopts rule to improve consumer access to appraisal reports

Rule gives consumers additional rights to information on how a home value is determined

WASHINGTON, D.C. — Today (1/18/2013) the Consumer Financial Protection Bureau (CFPB) adopted a new rule that requires mortgage lenders to provide applicants with free copies of all appraisals and other home-value estimates. The rule will ensure that consumers can receive information prior to closing about how the property’s value was determined.

“This rule will guarantee consumers can receive important information on how a lender determines the value of the home,” said CFPB Director Richard Cordray. “Having this information available promptly makes it easier for loan applicants to make informed decisions.”

Appraisals and other estimates of a home’s value are generally used by mortgage lenders to inform their decisions. Consumers are typically charged for the costs related to conducting an appraisal; however, currently the law does not require that consumers receive a copy of the appraisal unless they request it and does not require that consumers receive a copy of any other estimates of the home’s value.

The Dodd-Frank Wall Street Reform and Consumer Protection Act requires that lenders give consumers a copy of each appraisal or other estimate free of charge although a lender generally may still charge the consumer a reasonable fee for the cost  of  conducting the appraisal or other estimate. The Bureau’s new rule implements these requirements.

Today’s rule also requires that creditors inform consumers within three days of receiving an application for a loan of their right to receive copy of all appraisals.  Creditors will then be required to provide the copies of appraisal reports and other written home-value estimates to consumers promptly, or three days before closing, whichever is earlier.  The new rule will go into effect in January 2014 and will apply to first-lien mortgages.

The final rule is available at: http://www.consumerfinance.gov/regulations/disclosure-and-delivery-requirements-for-copies-of-appraisals-and-other-written-valuations-under-the-equal-credit-opportunity-act-regulation-b/

A summary of the CFPB’s rule is available at: http://files.consumerfinance.gov/f/201301_cfpb_ecoa-appraisals-rule_summary.pdf

Today, in partnership with several other federal regulatory agencies, the Bureau is also adopting a new rule that establishes special requirements concerning appraisals for higher-priced mortgage loans. The new rule creates an additional level of due diligence by requiring that creditors use a licensed or certified appraiser to prepare the written appraisal report based on a physical inspection of the property. The rule also requires creditors to disclose to applicants information about the purpose of the appraisal and provide consumers with a free copy of any appraisal report.

The interagency higher-priced appraisals rule for higher-priced mortgage loans is available at: http://www.consumerfinance.gov/pressreleases/agencies-issue-final-rule-on-appraisals-for-higher-priced-mortgage-loans/

A summary of the interagency rule is available at: http://files.consumerfinance.gov/f/201301_cfpb_tila-appraisals-rule_summary.pdf

Final Rule: Appraisal Standards for Higher-Risk Mortgages Approved by FDIC

U.S. mortgage lenders will get an additional year to implement new appraisal standards for higher-risk loans after regulators revised the Dodd-Frank Act measure to address concerns raised by financial firms.

Download 2013-01-15_notice_dis-a_res

Creditors issuing loans at above-average interest rates that don’t meet the “qualified mortgage” standard will need to get written reports by certified appraisers who physically inspect homes under rules approved today by the Federal Deposit Insurance Corp., one of six agencies that must sign off.

The chiefs of the Consumer Financial Protection Bureau and Office of the Comptroller of the Currency -- as FDIC board members -- also approved the rule.  

SOURCE:  Bloomberg

SOURCE: http://www.fhfa.gov/webfiles/24893/HRMPressRelease011813FINAL.pdf

SOURCE: http://www.fhfa.gov/webfiles/24892/HRMFR11813.pdf

Resource: Mortgage News Daily

Who Has Been Suing the Most Appraisers? Two Names You Know. Two Names You've Probably Never Heard.

GUEST POST: Monday, October 8, 2012 - Who Has Been Suing the Most Appraisers? Two Names You Know. Two Names You've Probably Never Heard - By Peter Christensen

These are four of the parties who have been suing the most appraisers in 2011-12.  I suspect most appraisers won't recognize two of the names, unless the appraisers are defendants in one of their cases.  The parties are in no particular order, but the last one does file the most lawsuits. 

LSF6 Mercury REO Investments.  This is an investment fund of a private equity company named Lone Star.  LSF6 bought discounted mortgage debt from bankrupt CIT Group in 2008.  In late 2011, LSF6 began suing appraisers in New York as part of what appears to be an experiment with mass appraiser litigation to recover damages from appraisers relating to the defaulted mortgages.  Most of the mortgages and appraisals at issue date to 2005 to 2007.  So far, LSF6 has sued at least 50 individual appraisers and small appraisal firms in New York.  LSF6, however, has lost some of its early New York cases or been forced to abandon others.  Its masterminds made some obvious legal mistakes.  Perhaps seeking a new testing ground, LSF6 filed one of its most recent lawsuits against an appraiser in a Western state.  If LSF6's experiment with mass appraiser litigation pays off for its private equity investors, the appraisal industry will have a dark future of voluminous appraiser litigation. 
 
Lehman Brothers Holdings, Inc.  This company hardly needs an introduction.  It is the financial services firm commonly blamed for the near destruction of our economy in 2008.  So, what's this former giant doing suing individual residential appraisers?  Well, one of Lehman's mortgage origination machines at the height of the real estate and mortgage bubble was its subsidiary Aurora Bank.  Lehman acquired mortgages from that subsidiary and packaged many for sale to other parties. Though it filed for bankruptcy in 2008 and remains in bankruptcy, Lehman began filing sporadic negligence lawsuits last year against appraisers who appraised for loans by Aurora back in 2005-2006.  These lawsuits have been filed or threatened against appraisers in California, Colorado, Florida, Georgia and Tennessee (to name a few states).  Lehman filed its most recent lawsuit against an appraiser last week in Michigan.
 
Heritage Pacific Financial.  This entity is an investment vehicle of some type that purchases defaulted mortgage debt for pennies on the dollar and then tries to recover some of the debt through creative means.  One of its strategies has been to sue the borrowers for fraud, not just breach of the debt instrument.  Because insolvent borrowers rarely fight in court, Heritage Pacific often obtains default judgments against the borrowers without a fight.  A judgment for fraud can be non-dischargeable in bankruptcy and thus potentially will remain collectible against the borrower forever (a judgment can be renewed perpetually in California) or as long as judgments are enforceable.  The judgments are then either collected on or sold to third parties according to marketing literature from Heritage Pacific.  In the last couple of years, Heritage Pacific also has tried suing appraisers for professional negligence and misrepresentation, contending that the appraisers are liable for the unpaid loan balances -- though Heritage Pacific may only have paid pennies on the dollar for the already defaulted debt.   

With respect to its borrower actions, Heritage Pacific is facing at least one class action for unfair debt collection practices.  Separately, it has been subject to state action for alleged securities violations concerning its investment offerings.  The Center for Investigative Reporting's California Watch published a report on Heritage Pacific earlier this year (link).

Federal Deposit Insurance Corporation.  The FDIC's tear against appraisers continues unabated.  From January 1, 2011 through today, it has sued approximately 140 individual appraisers and small appraisal firms relating to defaulted loans of failed lenders under its supervision as receiver.  It has identified approximately 400 additional individual appraisers by name as grossly negligent in its two lawsuits against national AMCs.  Most or all of those 400 appraisers recently received a document entitled "notice of claim" which purported to give notice that civil claims for damages would be made against them relating to the appraisals in the FDIC's two AMC lawsuits, but the notices do not appear to have come from the FDIC.  Almost all appraisals that the FDIC is suing over date to 2005 to 2007.  Some appraisers in high risk states now have E&O policies that exclude coverage for damages awarded to the FDIC. The FDIC, acting as receiver for failed Amtrust Bank, filed its most recent lawsuit against an appraiser in September in Ohio. 

 
The FDIC's litigation tactics against appraisers also have been questioned.  It has been using a law firm called the Mortgage Recovery Law Group to make demands on, subpoena and sue appraisers across the country.  The firm is staffed by personnel formerly employed by Indymac Bank, which itself failed and is under FDIC receivership. 

 

One attorney in the FDIC's law firm held the title "Director of Quality and Fraud Risk Management" at Indymac.  A non-attorney staffer formerly employed at Indymac held the title "Vice President of Fraud Prevention and Loss Mitigation."  In some cases, these law firm personnel play the role of a witness for the FDIC; in other cases, the law firm's lawyers represent the FDIC as attorneys.  Some might think the FDIC's utilization of former management insiders at the failed bank is clever, but other people may think it's repugnant that former insiders are now profiting from their management work in Indymac's pilothouse, while others are being sued for it.  In one of its cases (not handled by the Mortgage Recovery Law Group), the FDIC is suing two appraisers -- husband and wife -- over appraisals done years ago.  The husband appraiser is now deceased and the wife appraiser has dementia.  It really is the FDIC against "mom and pop."
 
I could add a few regular lenders to the short list above as suing a fairly high number of appraisers and a couple lenders do sue more often than others, but it's not really newsworthy that appraisers' named lender-clients sue them and the lenders actually don't sue very often as compared to their mortgage volumes.

Does it seem like commercial appraisers have been left out?  They should not feel that way.  First, in recent months, the FDIC and its outside law firms have begun suing and sending subpoenas to more commercial appraisers.  Second, the litigation described above is merely the most frequent, not the most severe.  As written about elsewhere in this blog, the three biggest appraisal negligence lawsuits currently pending concern commercial appraisal work. 

 

New UAD Resource Available and Upcoming UCDP Release - Freddie Mac

September 18, 2012

The GSEs (Freddie Mac and Fannie Mae) appreciate the industry’s continued successful compliance with the Uniform Appraisal Dataset (UAD) standards and to provide the required data for successful submissions to the Uniform Collateral Data Portal® (UCDP®). Today, we are providing you with a September UAD update and notification of changes in the UCDP on October 7, 2012.

New UAD Resource

We closely monitor the use of the UAD, and will provide you with UAD updates to support the successful submission of the UAD appraisal reports in the UCDP.

In support of your continued use of the UAD and successful submissions to the UCDP, we are
providing additional guidance for using the UAD in the September Uniform Appraisal Dataset Update
resource document. The latest resource document provides you with:

• Upcoming fatal UAD edits
• Reminders about PDF Extraction
• Updates on Financing Concessions for Comparables

The September UAD Update and other UAD business resources are available on the FreddieMac.com
Web site. The GSEs will provide future updates as needed.

Upcoming UCDP Release

On October 7, 2012, Freddie Mac and Fannie Mae will update the UCDP to implement enhancements for appraisal submissions to both GSEs. The enhancements include an update to error messaging for Hard Stop 9001, an update to the View/Edit screen, and a change related to appraiser trainee license numbers.

For more information, refer to the UCDP October Release Notification.

This communication relates to the Uniform Mortgage Data Program^®, an effort undertaken jointly by Fannie Mae and Freddie Mac at the direction of their regulator, the Federal Housing Finance Agency.

New UAD Resource Available and Upcoming UCDP Release - Freddie Mac

September 18, 2012

The GSEs (Freddie Mac and Fannie Mae) appreciate the industry’s continued successful compliance with the Uniform Appraisal Dataset (UAD) standards and to provide the required data for successful submissions to the Uniform Collateral Data Portal® (UCDP®). Today, we are providing you with a September UAD update and notification of changes in the UCDP on October 7, 2012.

New UAD Resource

We closely monitor the use of the UAD, and will provide you with UAD updates to support the successful submission of the UAD appraisal reports in the UCDP.

In support of your continued use of the UAD and successful submissions to the UCDP, we are
providing additional guidance for using the UAD in the September Uniform Appraisal Dataset Update
resource document. The latest resource document provides you with:

• Upcoming fatal UAD edits
• Reminders about PDF Extraction
• Updates on Financing Concessions for Comparables

The September UAD Update and other UAD business resources are available on the FreddieMac.com
Web site. The GSEs will provide future updates as needed.

Upcoming UCDP Release

On October 7, 2012, Freddie Mac and Fannie Mae will update the UCDP to implement enhancements for appraisal submissions to both GSEs. The enhancements include an update to error messaging for Hard Stop 9001, an update to the View/Edit screen, and a change related to appraiser trainee license numbers.

For more information, refer to the UCDP October Release Notification.

This communication relates to the Uniform Mortgage Data Program^®, an effort undertaken jointly by Fannie Mae and Freddie Mac at the direction of their regulator, the Federal Housing Finance Agency.