Trying to reduce the need for the Home Valuation Code of Conduct, the former president of the National Association of Mortgage Brokers is promoting a plan to require originators and appraisers to pay $10 each at the closing table.
The $20 in fees would go toward building a "recovery fund" for Fannie Mae and Freddie Mac and could lead to changes in the HVCC. At least, that's the hope of Marc Savitt, a recent past president of the broker group who is pushing the idea.
He has already pitched the recovery fund plan to the Federal Housing Finance Agency and the New York Attorney General's Office, the latter of which created the valuation code.
In cases where appraisal fraud leads to losses and the lender is unwilling or unable to repurchase the loan, the government-sponsored enterprise could tap the recovery fund. "The best way to shield Fannie and Freddie from losses would be to have a recovery fund," said Savitt, who owns a small brokerage in West Virginia and recently started the National Association of Independent Housing Professionals. The group's nearly 400 members include mortgage brokers, appraisers and real estate and settlement agents.
One of Savitt's goals as the NAIHP's president is to change the code, which forbids loan officers and brokers from selecting appraisers. Mortgage brokers and other originators should be able to use local, experienced and knowledgeable appraisers, he said.
According to Savitt and others, the code forces lenders to rely on appraisal management companies, which generally select appraisers who are willing to take an assignment at the lowest possible cost.
That low cost, Savitt said, translates into hiring inexperienced appraisers who have hurt housing values by undervaluing properties, driving down prices and scuttling some transactions. Creating a recovery fund could open the door for brokers to order appraisals again, the NAIHP says.
The National Association of Mortgage Brokers is taking a different tack. It is working with Olde City Lending Solutions of Warrington, Pa., to provide brokers with an electronic appraisal ordering service. This would let brokers order an appraisal without making direct contact with the appraiser.
The broker group's executive vice president, Roy DeLoach, said the "blind ordering" system will ensure appraiser independence, which is one of the main objectives of the code. "There isn't any pressure or influence on the appraiser," DeLoach said.
Savitt and his new trade group strongly oppose the blind ordering concept. "It gives credibility to the HVCC and" appraisal management companies, he said. The code has already imposed a blind ordering system on brokers that delays settlements and increases consumer costs, Savitt said.
DeLoach said there is no going back to the old way of ordering appraisals. "It doesn't matter if HVCC sunsets or it is legislatively banned tomorrow," he said. "Lenders and investors are still going to want some level of confidence that the appraisal was conducted in a sound manner."