Fannie Mae and Freddie Mac Release Lender Letters and FAQs on HVCC Implementation

With the Appraisal Code – the newly revised Home Valuation Code of Conduct – set to take effect on or after May 1, 2009, for single-family mortgage loans delivered to Fannie Mae and Freddie Mac, the government-sponsored enterprises have released lender letters introducing lenders and originators to the language of the HVCC and providing these parties with implementation details as well as an overview of amendments made to the HVCC since its initial introduction in March of 2008.

In addition, Fannie Mae and Freddie Mac have put together a FAQ sheets answering questions the mortgage giant anticipates commonly receiving from lenders.

To read Fannie Mae’s Lender Letter and FAQ sheet, or to review the HVCC, visit Fannie Mae HVCC and FAQ. 
To view Freddie Mac’s FAQ sheet, visit Freddie Mac FAQ

Paulson: Fannie, Freddie Mac Could Be Run Like Public Utility

At a speech before the Economic Club of Washington on January 7, 2009, outgoing Treasury Secretary Henry Paulson suggested that the best option for Fannie Mae and Freddie Mac might be to run them like public utilities. “We must have some degree of private sector involvement in the evaluation of credit risk if we are going to have a mortgage market that allocates resources with efficiency,” said Paulson.

Paulson’s comments sparked debate about the future of the two mortgage giants. Karen Shaw Petrou, managing director of Federal Financial Analytics, Inc., called it “the easiest way out of the public-private conundrum” while David Shulman, senior economist at UCLA Anderson Forecast, said “it solves some of the public-private issues (if) you retain Fannie or Freddie as a private entity and it’s run more as an insurance company, which is more like what the original function was.”

Others disagree with Paulson. “We have public utilities because of economies of scale in power and utility production and distribution, and because everyone needs it,” said Jim Vogel, head of fixed-income research at First Horizon National Corp.’s First Financial Capital Markets Corp. “So you need a common capital pool to produce utilities. I’m not sure how mortgages fit into any of those economic categories unless we’ve just changed the whole nation’s housing system.”

Under Paulson’s model, Fannie and Freddie would be replaced with one or two private sector entities that would be responsible for purchasing and securitizing mortgages with government-backed credit guarantees. The new entity or entities would be privately owned, but be regulated by a rate-setting commission. Moreover, a public utility-like mortgage credit guarantor would be created to resolve conflicts between public purpose and private gain. According to Paulson, the Obama administration, along with Congress, must decide how government should support homeownership in light of the economic hardship imposed on the country as a result of the housing market downturn.

 
 
AI Members Express Concern about Appraisal Quality Post HVCC

The newly announced “Appraisal Code” – the revision of the original version of the home-valuation standards that Fannie Mae and Freddie Mac agreed to adopt under a March 2008 deal with New York Attorney General Andrew Cuomo – has raised speculation that the use of appraisal-management companies of some kind, whether or not they are owned by the lender, will increase. Real estate appraisers nationwide are reporting already that they are being asked to do more for less, and they report something has to give. The concern is that quality is being jeopardized further by unintended consequences from the revised Code.

Beginning May 1, Fannie and Freddie will not buy or guarantee loans that do not comply with the code. According to American Banker, since the two government-sponsored enterprises are among the few remaining secondary-market buyers, the code will effectively apply industrywide. The revised code retains the original version's ban on appraisals ordered by mortgage brokers. This might sound like good news for appraisers, who have long complained about pressure from lenders and brokers to inflate valuations so that loans will go through. However, several appraisers told American Banker that, as revised, the code would worsen a different problem. Many appraisers argue that management companies put too much emphasis on minimizing costs and turnaround times for valuations, at the expense of quality. Since local salespeople could no longer order appraisals, these appraisers reasoned, lenders would have to use some kind of appraisal management company, either one they owned or a third party.

Among those interviewed, Appraisal Institute members weighed in heavily.

"This would further commoditize appraisers and is counterproductive to solving the problem of collateral valuation," said Richard Maloy, MAI, SRA, chair of the government relations committee. There are "safety issues" when a mortgage lender uses an appraisal management company "as a profit center that is held captive," he said.

Immediate Past President R. Wayne Pugh, MAI, said that if a standard appraisal fee is $300, then an appraisal management company will charge that amount but hire an appraiser who has less experience and will do the work for "significantly less."

"The consumer suffers because they're not necessarily getting the best appraisers in their market area," he said.

Maloy said Cuomo and the FHFA may have agreed to "back away from the original" agreement because many large banks have in-house appraisal departments or affiliated appraisal companies. Separating those employees, who also have retirement and health-care plans, "would have created quite an upheaval."