As the dust continues to settle after the subprime meltdown, there has been a significant amount of energy and activity around “appraiser independence” by regulators. The Federal Housing Finance Agency (FHFA) has formally announced the final version of the Home Valuation Code of Conduct (HVCC) to be implemented by May 1, 2009. To implement this code, lending processes will have to be changed and/or modified, thus presenting an opportunity for the mortgage industry to innovate.
The code is based on an agreement between Fannie Mae, Freddie Mac, Federal Housing Finance Agency (FHFA) and the New York State Attorney General, Andrew Cuomo, to improve the reliability of home appraisals. The final version of the Code builds on existing Fannie Mae and Freddie Mac seller-servicer guidelines to increase the reliability of appraisals for loans sold to the Enterprises for their portfolios or for securitization.
The Code applies to lenders that sell single-family mortgage loans to Fannie Mae and Freddie Mac beginning May 1, 2009 with the goal to help assure that borrowers, homebuyers and secondary mortgage market investors receive fair and independent property valuations free from improper influence and coercion.
This now opens the door for disciplinary and possibly punitive action against lenders who underwrite loans that do not incorporate “appraiser-independent” business rules into their lending process. While there will certainly be challenges implementing these changes, it also presents the opportunity to deliver innovative solutions.
Technology can be used as a great enabler of improving the lending process by delivering true appraiser independence. Unlike many traditional appraisal management systems that still rely on heavy human intervention, technology needs to be applied in innovative ways in order to take the human element out of the solution.
The technology needs to be designed to insure the independence of the appraiser, one that allows for the random selection of a qualified appraiser. Technology can be applied to track each appraiser, ensure that the appraiser is licensed in that specific state and that they are in good standing. Using innovative technology to insulate the originator or lender and the appraiser is one of the ways to ensure that undue influence or coercion does not take place.
The time for lenders and vendor to embrace innovative solutions to the challenges at hand is now. As the new administration works to stimulate the economy, there will certainly be more rules and regulations surrounding the mortgage industry. Lender and vendors need to start applying innovation to solve these industry challenges before regulations and legislation is mandated.
Appraiser independence through the use of innovative technology solutions can be one of the many steps taken to begin restoring confidence to the marketplace. One positive step as we work to redefine the lending landscape. The real question will be, can we as an industry continue to innovate before there is the need to legislate?
Please share your innovative solutions to address “appraiser independence” and what we can do together to innovate the mortgage process.
