Feds Approve Final Lending Rule
In a Press Release dated July 14th, it was announced that “the Federal Reserve Board approved a final rule for home mortgage loans to better protect consumers and facilitate responsible lending. The rule prohibits unfair, abusive or deceptive home mortgage lending practices and restricts certain other mortgage practices. The final rule also establishes advertising standards and requires certain mortgage disclosures to be given to consumers earlier in the transaction.” The new rulels will become effective October 1, 2009.
For more information go to: Federal Lending Rule
On March 3, 2008, the Office of Federal Housing Enterprise Oversight (OFHEO), NY Attorney General, Fannie Mae and Freddie Mac Signed Agreements To Combat Appraisal Fraud. The agreements seek to enhance appraisal and evaluation services that are critical to the residential mortgage process. "Accurate, independent appraisals are very important to ensuring the safety and soundness of Fannie Mae, Freddie Mac and the mortgage market," said Director Lockhart. "These agreements build upon existing federal and state laws and regulations to further strengthen the single-family home appraisal process."
"The agreements should help restore confidence in the mortgage market by enhancing underwriting practices, reducing mortgage fraud and making home valuations more reliable. I thank the Attorney General, Fannie Mae and Freddie Mac for their strong roles in this important effort."
There are many significant provisions in the agreements that are designed to strengthen the independence of appraisers, including:
- eliminating broker-ordered appraisals,
- prohibiting appraiser coercion, and
- reducing the use of appraisals prepared in-house or through captive appraisal management companies in underwriting mortgages.
The agreements also enhance quality control in the appraisal process and establish a complaint hotline for consumers. The agreements include a Home Valuation Code of Conduct that the Parties will apply to lenders selling mortgages to Fannie Mae or Freddie Mac. The Code becomes effective on January 1, 2009. The parties also agreed to establish and the Enterprises fund an Independent Valuation Protection Institute designed to supplement current efforts to provide an appraisal complaint process, mediation of appraisal disputes, and mortgage fraud reporting. The agreement seeks the comments and concurrence of the federal banking agencies and solicits the comments of market participants that will be considered in making amendments to the Code during the implementation process. The comment period ended April 30th.
The Home Valuation Code of Conduct, in summary:
*provides restrictions on attempts to influence an appraisal or appraisal value,
*requires lenders to provide borrowers with copies of the appraisal,
*includes restrictions on payment for appraisals,
*requirements for appraiser selection by the lender,
*conditions on utilization of appraisal reports,
*establishment of a telephone hotline for complaints, and
*reporting and quality assurance requirements for lenders.
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My understanding is that these comments will be considered during the month of May, and by June 1st the laws will be finalized. Everyone will be bound to fully comply with the new regulations by January 1st, 2009, though we believe many companies will implement the changes much sooner.
This new code could significantly change the way we do business. Despite its good intentions, the unintended consequences could result in lower quality appraisals, lower fees for appraisals, increased use of Management Companies, and lower quality of service to clients and borrowers.
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