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Did HVCC lead to more fraud?

Tommy A. Duncan
Dec 31, 2009

The National Association of Mortgage Brokers (NAMB) is attempting to link valuation fraud to the Home Valuation Code of Conduct (HVCC). I wish NAMB would give up the ghost on trying to stop HVCC because it is depleting NAMB’s resources. As a member of NAMB, I would rather see NAMB place its efforts on membership, training/certifications, and fight proposed legislation like HR 4173, Wall Street Reform and Consumer Protection Act. The reason NAMB will not be successful in linking valuation fraud to HVCC is because a number of lenders were already using the HVCC model prior to the inception of HVCC. Another reason, Fannie Mae announced that collateral and loan quality has improved 16 percent since HVCC. It appears to me the organizations that complain the most about HVCC are the organizations that have no skin in the game such as NAMB, National Association of Home Builders (NAHB), and the National Association of Realtors (NAR). HVCC is about upholding compliance from Uniform Standards of Professional Appraiser Practice (USPAP), Federal Housing Administration (FHA), and the Seller’s Guide, that was not monitored or maintained in the industry. Brokers need to focus on taking the next application and leave the items that relate to risk to those mortgage entities that have the most risk with the loan. Another problem that NAMB will have with the data they are using is discerning between those mortgage entities who maintain their own rotation and those who do not. The trend that I see is those mortgage entities who proclaim they are maintaining their own rotation are the ones with the most collateral problems. In order to resolve these problems, investors should require a HVCC quality control report that demonstrates Section IV & Section VI. Section IV of HVCC focuses on non-influence and fair treatment of appraisers. Section VI of the Code relates to the 10 percent sampling quality control on the appraisal. The code mentions the use of automated valuation model (AVM) and broker price opinion (BPO) as the method to QC the appraisal. These products are the weakest of the appraisal products. I recommend Field Review Appraisal because there is a license professional performing the review and evaluation the assessment of the appraisal under review. Also, AVMs and BPO are often produced by out of date or wrong data. The Field Review Appraisal usually is created by an appraiser familiar with the area resulting in a more accurate assessment. At this point the agencies have not required a reporting format for reporting Sections IV & VI of the Code. It is a matter of time before reporting Section IV & VI will be required as the industry learns of those mortgage entities who manage their own rotation and not meeting the intent of HVCC. Very few AMCs will provide Section IV to a lender as part of their services and they are not equipped to perform Section VI of the Code. Next time an AMC proclaims they are in compliance with the code ask them how they handle Section VI. They just do not do it. Also, those mortgage entities who manage their own rotation cannot report Section IV & VI as part of the HVCC. Now that FHA is in the game, few can report ML 96-36 which requires fair opportunities to women and minority appraisers. Will FHA start checking appraisal management companies (AMCs) and mortgage entities who manage their own rotation to see if they are complying with ML 96-36? If NAMB wants to impact the industry, lobby for proof of upholding HVCC which will force those behind HVCC to demonstrate appraisal compliance rather than doing away with the code. Right now most are going through the motions or have an icon of rotation and seriously falling short of HVCC. Tommy A. Duncan is executive vice president of Quality Mortgage Services LLC. For answers to your QC and FHA questions, please contact Tommy at (615) 591-2528, ext. 124.
Dec 31, 2009
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