What to Expect from a Fannie MORA audit?

Request Article 

Request MORA Tune-up® Information 

QUESTION 

Last month, you answered a question about doing an internal audit in advance of Fannie’s MORA audit. We did not pay much attention to it because (A) we never had a MORA audit, and (B) we did not expect a MORA audit anytime soon. Then, all hell broke loose! 

Yesterday, we got a letter from Fannie Mae telling us that they will be scheduling a date for an on-site audit. They are requesting policies, procedures, and many other documents. There are due dates. This review makes a state banking exam look like child’s play. But I’m a QC manager, so I don’t have the whole picture of our risks. However, I do know one thing: we are not ready for this MORA audit. 

The CEO called a team meeting in the conference room. Our compliance manager is in charge, and everyone reports to her. I got your name at the meeting because she said we are going to use you to do a MORA Tune-up®. I just wish they would have done this sooner. 

What I need – and I think they need it too – is some idea of what we can expect from the MORA exam. I hope you don’t wait to reply. The compliance manager and others in management read your articles. They pass them around to us all the time. Please tell us what to expect about the MORA process. 

What is the audit process of a Fannie MORA audit? 

SOLUTION 

MORA Tune-up® 

RESPONSE 

If you want a copy of this article, please contact us here. 

We realize your question is urgent. Accordingly, we are prioritizing a response. You only have a few weeks to get ready for the MORA audit, the purpose of which is for Fannie Mae to evaluate your company’s compliance with Fannie guidelines as well as assess the operational risks. 

For those who don’t know, Mortgage Origination Risk Assessment (MORA) is a Fannie Mae review of a Fannie Seller/Servicer. It is intended to be a collaborative engagement led by the review team with the active participation of your organization.[i]

Getting our MORA Tune-up® engaged is one of several readiness activities you must undertake as soon as possible. Ours is the pioneer of the Compliance Tune-up, a unique review that provides a risk assessment and self-evaluation to satisfy the Second Line of Defense. I am grateful that your compliance manager chose Lenders Compliance Group. Nevertheless, to all our subscribers, please know that a few compliance and law firms offer to prepare you for the MORA review. Pick one you trust and get it done! 

There are seven phases in the MORA review process, and I will outline them for you. My outline will give you a high-level view. You should not delay! 

Here are the seven phases of a MORA review: 

Phase 1: Selecting the Organization 

Phase 2: Confirmation and Engagement 

Phase 3: Document Request and Receipt 

Phase 4: Process Evaluation 

Phase 5: Interviews 

Phase 6: Final Assessment 

Phase 7: Remediation 

I am going to provide a brief overview of each phase. However, numerous contingencies can affect the process and outcome. Take this review as a deep dive, one that will make your company stronger and its relationship with Fannie more durable. It is not too late to get started immediately. 

PHASE 1: SELECTING THE ORGANIZATION 

Fannie Mae selects organizations for a review using risk-based inclusion criteria and provides advance notice to the organization prior to scheduling the review. A member of the review team begins the process by compiling the organization’s pertinent contact information to start the review before moving to Phase 2. 

We are often asked if there is a way to predict whether and when the selection takes place. The short answer is No. The best answer is Soon. In other words, always be prepared.

PHASE 2: Confirmation and Engagement 

There are obviously two parts to this phase: the first part involves confirmation, and the second part involves scheduling. These two parts are interfaced. What happens is your point person – in your case, the compliance manager – will discuss Fannie’s BAMS team, that is, its Business Account Management Solutions team, to discuss some basics. The MORA team is independent of the BAMS team. This is a sort of Question and Answer format where the BAMS team gathers the following information:

Fannie Mae requires Report of Changes in the Lender's Organization

On March 31, 2015, Fannie Mae issued Selling Guide Announcement SEL-2015-03, in which a section highlights an update entitled, Notification to Fannie Mae of Changes in the Lender's Organization.

According to the Announcement, the lender must send Fannie Mae "advance written notice of any contemplated major changes in its organization to allow Fannie Mae adequate time to review and analyze the contemplated change and provide its prior written approval or notice of non-objection or objection, where required." 

The written notice from the lender must include copies of any filings with, or approvals from, the lender's state and/or other regulatory authority. The lender should contact its lead Fannie Mae regional office for additional guidance or may email the notice to the Changes in Lender Organization mailbox.

Examples of the major changes about which Fannie requires advance written notice include, but are not limited to, the following:

1. any mergers, consolidations, or reorganizations;
2. the sale of all or substantially all of the lender's assets or the purchase of all or substantially all of the assets of another Fannie Mae-approved seller or servicer;
3. any substantial change in ownership, regardless of whether it is by direct or indirect means (indirect means include any change in the ownership of the lender's parent, any owner of the parent, or any other beneficial owner of the lender that does not own a direct interest in the lender);
4. a change in an organization's legal structure or charter;
5. the change of any senior management personnel;
6. a significant change in the lender's financial position;
7. a change in the legal name of the lender's organization; or
8. a change in the address of its principal place of business.

Changes of the type described in the first four categories require Fannie Mae's prior written approval of or notice of non-objection to the change before the change is made.

If the lender fails to provide adequate advance written notice of or obtain prior written approval or notice of non-objection (where required) for such contemplated changes, such failure is a breach of the Lender Contract and Fannie Mae may exercise any available remedies. 

Note should be taken of categories five through eight because, although each of these may not require prior written approval prior to the change, Fannie may still take a position on the approval of these categories after the change is made. 

The lender is also required to provide immediate written notice to Fannie Mae if a regulatory agency assumes a participatory role in the management of the lender's operations.

GSEs: Ability-to-Repay and Qualified Mortgages

Yesterday, the Federal Housing Finance Agency (FHFA) announced that it is directing Fannie Mae ("Fannie") and Freddie Mac ("Freddie") to limit their future mortgage acquisitions to loans that meet the requirements for a qualified mortgage ("qualified mortgage" or "QM"), including those that meet the special or temporary qualified mortgage definition, and loans that are exempt from the “ability to repay” ("ATR") requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).

In January, the Consumer Financial Protection Bureau (CFPB) issued a final rule implementing the “ability to repay” provisions of Dodd-Frank, including certain protections from liability for loans that meet the criteria of a qualified mortgage as outlined in the rule.

We have discussed the ability to repay provisions HERE, HERE, HERE, HERE, and HERE.

I would like to call your attention to a few important details.*

__________________________________________________

IN THIS ARTICLE

Overview

Eligible for Sale to Fannie and Freddie

Additional Guidance and Notifications

__________________________________________________

Overview

Considered historically, the Consumer Financial Protection Bureau (CFPB) issued a final rule on January 10, 2013, implementing the “ability to repay” provisions of the Dodd-Frank. That rule generally requires lenders to make a reasonable, good faith determination of a consumer’s ability to repay before originating a mortgage loan and establishes certain protections from liability for QMs.

The ATR rule takes effect for applications dated on or after January 10, 2014.

It is significant that, beginning January 10, 2014, Fannie and Freddie will no longer purchase a loan that is subject to the ATR rule if the loan:

• is not fully amortizing,

• has a term of longer than 30 years, or

• includes points and fees in excess of three percent of the total loan amount, or such other limits for low balance loans as set forth in the rule.

The FHFA announcement states that "effectively, this means Fannie and Freddie will not purchase interest-only loans, loans with 40-year terms, or those with points and fees exceeding the thresholds established by the rule."

Fannie and Freddie will continue to purchase loans that meet the underwriting and delivery eligibility requirements stated in their respective selling guides. This includes loans that are processed through their automated underwriting systems and loans with a debt-to-income ratio of greater than 43 percent. But loans with a debt-to-income ratio of more than 43 percent are not eligible for protection as QMs under the CFPB’s final rule unless they are eligible for purchase by Fannie and Freddie under the special or temporary qualified mortgage definition. 

__________________________________________________

Eligible for Sale to Fannie and Freddie

Just a few days ago, on May 2, 2013, the FHFA directed Fannie Mae and Freddie Mac to limit future acquisitions to loans that:

• are qualified mortgages under the ability to repay rule, including those meeting the special or temporary qualified mortgage requirements; or

• are exempt from the ability to repay requirements, such as investor transactions.

Thus, effective for mortgages with application dates on or after January 10, 2014, Fannie and Freddie will not be allowed to purchase any loans if they are subject to the ATR requirements and are either:

• loans that are not fully amortizing (e.g., no negative amortization or interest-only loans);

• loans with terms in excess of 30 years (e.g., no 40-year terms); or

• loans with points and fees in excess of 3% of the total loan amount or such other limits for low balance loans as set forth in the ability to repay final rule.

Fannie will continue to purchase loans that meet the underwriting and delivery eligibility requirements (i.e., existing debt-to-income ratios, loan-to-value ratios, and reserves) stated in the Selling Guide, including loans processed through Desktop Underwriter®.

Freddie will limit future purchases to:

• Mortgages that are “qualified mortgages” under the final rule, including those meeting the special or temporary qualified mortgage requirements, and

• Mortgages that are exempt from the ATR, such as investor transactions.

Therefore, effective for mortgages subject to the final rule with applications received on or after January 10, 2014, Freddie will not be permitted to purchase the following:

• Mortgages that are not fully amortizing (e.g., Mortgages with a potential for negative amortizations or interest-only Mortgages);

• Mortgages with terms in excess of 30 years (i.e, 40-year fixed-rate Mortgages); and,

• Mortgages with points and fees in excess of 3% of the total loan amount or such other limits for low balance Mortgages as set forth in the final rule.

Throwing a Lifesaver to Underwater Borrowers

The Federal Housing Finance Agency (FHFA) released its September 2012 Refinance Report (Report) on November 28, 2012. The Report provides some statistical information, most of which comes as no surprise to mortgage industry participants, while there are some tidbits of data that seem to demonstrate the impact of the Home Affordable Refinance Program, known as HARP, on the GSEs (viz., Fannie Mae and Freddie Mac). The end date for HARP was extended until December 31, 2013 for loans originally sold to the GSEs on or before May 31, 2009.

HARP was established in 2009 to assist homeowners who are unable to access refinance due to a decline in their home value. The program was originally designed to provide these borrowers with an opportunity to refinance by permitting the transfer of existing mortgage insurance to their newly refinanced loan, or by allowing those without mortgage insurance on their previous loan to refinance without obtaining new coverage.

The premises for HARP are simply stated, as follows:

1) Since the GSEs are already responsible for certain high LTV loans; and 

2) Default risk is lowered by allowing a refinance of these high LTV loans; therefore, 

3) HARP loans refinancing high LTV loans at lower rates reduce default risk.

One of my concerns with HARP, or as it is referred to now HARP 2.0, is it has failed homeowners because it just is not reaching enough qualified borrowers and many lenders take too long to issue approvals. One remedy would be to have the government expand its guidelines to include non-agency lenders and by removing certain features of the 2009 origination qualifier. Also, low credit scores remain an obstacle by preventing underwater homeowners from taking full advantage of the current HARP guidelines with respect to refinancing eligibility.

HARP has obviously triggered a wave of refinance activity, just as expected. In speaking with several of our clients that are very involved in HARP refinances, it seems that about 50%-75% of their refinance business may be coming from homeowners who have LTVs above 125%. Because the 125% ceiling on LTV was removed, some lenders are actually refinancing LTVs of 155%.

In the following discussion, I will offer some consideration to HARP's most recent survey.*

_____________________________________________________________

IN THIS ARTICLE

Overview

HARP Refinance, Quarterly Volume

Monthly HARP Volume by LTV

Percentage of HARP Refinances by LTV

Mortgage Terms, LTVs Greater than 105%

Total HARP, Percentage of Total Refinances

Timeline for Interest Rate Changes

Library

_____________________________________________________________

Overview

-More than 90,000 homeowners refinanced their mortgage in September through HARP with more than 709,000 loans refinanced since the beginning of this year.

-Since the program’s inception in 2009, the GSEs have financed more than 1.7 million loans through HARP.

-In September, half of the loans refinanced through HARP had LTV of greater than 105% and one-fourth had LTVs greater than 125%.

-In September, 19% of HARP refinances for underwater borrowers were for shorter-term 15-year and 20-year mortgages.

-HARP refinances in September represented 45% of total refinances in states hard hit by the housing downturn - Nevada, Arizona, Florida and Georgia - compared with 21% of total refinances nationwide.

-In September, HARP refinances for borrowers with LTV ratios greater than 105% accounted for more than 70% of HARP volume in Nevada, Arizona and Florida and more than 60% of the HARP refinances in California.

________________________________________

HARP Refinance, Quarterly Volume

HARP volume continued to represent a material portion of total refinance volume in 2012 as HARP enhancements took effect in the first half of the year. HARP volume represented 24% of total refinance volume in the third quarter of 2012.

Fannie and Freddie: New Appraisal Portal–Deadline Approaches

A critical appraisal requirement deadline approaches![i]

The requirement went into effect on December 1, 2011. The deadline is March 19, 2012.

In This Article *

Synopsis

Overview

Starting the Registration Process

-Registering with Fannie Mae

-Registering with Freddie Mac

Accessing the UCDP Portal

Using the UCDP Portal

Training

What to Expect from Lenders

Important Dates

Synopsis

On and after March 19, 2012, Fannie Mae and Freddie Mac (GSEs) will mandate compliance with their new Uniform Mortgage Data Program® (UMDP Program).[ii] The UMDP Program has been developed under the direction of their regulator, the Federal Housing Finance Agency.

The UMDP Program implements uniform appraisal and loan delivery data standards that are meant to support data accuracy and integration of mortgage data. Actually, the UMDP Program implements two of Fannie Mae's Loan Quality Initiative (LQI) objectives: electronic submission of appraisal data and collection of additional loan data in an updated format. Thus, the UMDP Program is an intrinsic part of the LQI requirements.

The UMDP Program includes:

· Uniform Appraisal Dataset (UAD): standardizes key appraisal data elements.

· Uniform Collateral Data Portal® (UCDP®): electronic collection of appraisal data.

· Uniform Loan Delivery Dataset (ULDD): leverages MISMO Version 3.0 standard. [iii]

In this article, I will pay particular attention to the Uniform Collateral Data Portal® (hereinafter, UCDP Portal).[iv] The UCDP Portal was activated in June 2011. This is a single portal for submitting data electronically of an appraisal file. Lenders must use the UCDP Portal to those data files, including the Uniform Appraisal Dataset (UAD),[v] when applicable, before the delivery date of the mortgage to Fannie Mae and Freddie Mac.

Appraisal report forms for all conventional mortgages delivered to the GSEs on or after March 19, 2012 must be transmitted through the UCDP Portal (prior to the delivery date of the mortgage) under these two conditions:

• The loan application is dated on or after December 1, 2011, and
• An appraisal report is required.

Variances and waivers will not be given to a lender from either GSE for the subject data, if a lender is not able to submit an appraisal before a single delivery or is not ready by the announced effective dates.

The loans subject appraisal data upload to the UCDP Portal at this time are conventional loans sold to Fannie and Freddie. FHA, VA, and Rural Development mortgages are excluded from the UCDP Portal requirement. Mortgage brokers cannot register for UCDP Portal.[vi]

There are three user categories that will access the UCDP Portal:

• Lenders that have an existing Fannie Mae Seller/Servicer Number
• Correspondents that do not have an existing Fannie Mae Seller/Servicer Number
• Agents (Appraisal Management Companies, Appraiser Vendors)

Overview

There are many “moving parts” to the UMDP Program, but we will highlight the UCDP Portal.

The rule of thumb is, as follows: if an appraisal is required, the appropriate appraisal report form should be transmitted via the UCDP Portal for all conventional mortgages with application received dates on or after December 1, 2011 for loans delivered to the GSEs on or after March 19, 2012.

Learning to Play the HARP

A week ago the Obama Administration announced revisions to the Home Affordable Refinance Program (HARP).

Better late than never! Actually, coming three years belatedly, a change to HARP may bring some relief to homeowners and the economy.

But is it a viable solution?

As you may know, I have written extensively about the failure of both the Home Affordable Modification Program (HAMP) and HARP.

Is the new and improved version of the two-year old HARP a quick fix or yet another boondoggle in the making?

Real Estate and Jobs

Last week's announcement stems from the revisions developed by the Federal Housing Finance Agency (FHFA), the GSE's overseer, with feedback from lenders, mortgage insurers and other mortgage industry participants. In a sense the revisions are a patent admission that the economy simply will not regain its strength without a robust real estate market; or, put another way, jobs will not return unless a strengthened real estate market returns.

The linkage of real estate to jobs has roots in the MBS World, a murky realm way below the revisions contemplated by the Administration and the homeowners' needs.

The Federal Reserve has a central place in the MBS World, since it is permitted to participate in the agency MBS financial instruments, and not permitted to participate in buying equity, real estate, or corporate debt.

Remember: MBS yields are the primary trigger in the formation of mortgage rates. The safest financial instruments, of course, are Treasuries; so, relative to Treasuries, the margin or spread between mortgage rates and yields on 10-year Treasuries has continued to move upward. When the Fed makes its MBS purchase, it thereby reduces mortgage interest rates, compressing those relative margins. Operationally speaking, then, a so-called target for mortgage rates is set in this manner.

Ostensibly, lower mortgage rates lead to refinances and the concomitant diminution of financial pressure on homeowners who have been trapped in the housing crisis with underwater mortgages, because such reduction both lowers the cost of debt service through refinance and supports purchases of houses, which creates demand - and thus an increase in pricing - for housing.

What Went Wrong?

To date, a tiny percentage of seemingly eligible borrowers have refinanced through HARP.

In my estimation, these are the factors that led to the HARP failure:

-Resistance: the refusal by some second lienholders to subordinate themselves to the first mortgagee.

-Fear: the GSEs might "put back" the new loans if they subsequently move into default, which causes constrained underwriting.

-Restrictions: the original MI being applied to the new loan, particularly if the new loan has a different servicer.

-Reluctance: homeowners afraid of being rejected, lack of public awareness, and insufficient news about program information.

Also, it is common knowledge that lenders have rejected all but the most creditworthy borrowers from taking advantage of HARP, out of reluctance to take on the risk of existing representations and warranties; however, this may yet find a solution (see below).

Plans and Suggestions

In this latest version of HARP, there is an extension of the program's mandates through December 2013. As a quick overview, I think it's fair to describe HARP as a temporary program by the GSEs, the primary goal of which is to permit borrowers whose loans are currently guaranteed by the GSEs to be refinanced, despite the fact that these loans are significantly higher than 80LTV.

There are some important revisions, perhaps the most important being the removal of the 125LTV ceiling. In addition, in many cases a new appraisal is eliminated, fees to borrowers are lowered, and the GSEs are waiving some lender representations and warranties (about which we will know more by November 15, 2011, when the program guidelines are issued).

I think the revisions to representations and warranties are needed and justified, inasmuch as all loans eligible under HARP have been seasoned for more than three years, and defects in a loan usually show up in the first few years of the loan. So, the risk - and the implications for representations and warranties - is certainly much lower at this point.

As to homeowners' reluctance and lack of information, although the HARP revision does not require it, I think the GSEs should communicate with potentially eligible borrowers and let them know that their loans are eligible under HARP at current mortgage rates.

With respect to the resistance of second lienholders, many studies suggest that second liens are no longer a major barrier to refinancing. It is very important that second lienholders participate in the program, because refinancing the first lien ameliorates the condition of the second lien, due to the fact that it frees up funds that can be used for second lien servicing.

The MI issue is a thorny one. The fact is, notwithstanding the foregoing, borrowers with MI will have fewer options than others to refinance. It remains to be seen how the proposal to waive aspects of the representations and warranties will incentivize servicers to resolve the MI debacle.

A Macroeconomic Solution

So, can revamping HARP bring new jobs and stabilize the real estate market?

One study I have read, a CBO research paper, estimates that a revised HARP, structured along the lines I've outlined above, would (1) result in $428 billion additional refinancings with annual savings to households of $7.4 billion, (2) would have a small positive effect on the GSEs' net worth, and (3) would have a small net cost to the government of less than $1 billion (which, in any event, is subsumed by the Fed's prepaid MBS portfolio).

The overall effect is to create a stimulus, since HARP beneficiaries will have higher marginal means to create demand, that is, their consumption will more than offset the opposing demand from existing MBS investors (i.e., financial institutions). Based on the studies I have read, if HARP increased GDP by as little as $1 billion per year for two or three years, the additional tax revenues would significantly exceed the costs. So, the macroeconomic effect would be net positive and stimulative.

Finally, if mortgage rates were sustained by the 2% to 2.5% range that has been a trending indicator, when combined with the HARP revisions, there would be a very substantial boost of mortgage loan originations, perhaps enough of a boost to a sizeable part of the GSE portfolio. Such an impetus would mean a re-set of trillions of dollars in asset value, and a yearly reduction in household interest expenses into the many billions.

The Fed's Role

As I see it, the Fed can weigh in forcefully in supporting the HARP revisions.

For instance, if the Fed purchased as much as $2 trillion of new MBS, then existing MBS holders would be displaced into investing that $2 trillion elsewhere. Hence, such re-investment would lead to an increase in stock prices, reduction in debenture yields, increase in real estate values, and higher foreign currency values.

A recent study, conducted by the San Francisco Fed, clearly shows that Fed purchases upward of 2$ trillion would increase GDP by more than 2% in two years and create 3 million new jobs. If the HARP refinance revisions are factored in, the overall stimulative effect would be much larger, perhaps as high as creating 4 million new jobs.

Moving forward robustly with the HARP revisions would surely lead us to conclude that the new and improved version, though coming about belatedly, is not too little, too late.

What do you think?

Please feel free to comment!

Appraiser Independence Requirements - AIRs on April 1, 2011

On April 1, 2011, a new industry acronym will be officially born: AIR -which stands for Appraiser Independence Requirements. AIR replaces the Home Valuation Code of Conduct (HVCC), which will have no further force or effect. 

The term "AIR" actually has been around for some time, used by Fannie and Freddie in their development of HVCC. Its requirements pertain to all loans sold to Fannie Mae and Freddie Mac originated for the acquisition or refinancing of 1-4 unit, primary residential properties.  

The FRB issued an interim final rule on AIR, effective December 27, 2010. However, compliance was optional until April 1, 2011. Furthermore, the FRB has removed the 2008 Appraisal Independence Rules [12 CFR 226.36(b)] effective April 1, 2011. Section 1472 of Dodd-Frank essentially codifies the 2008 Appraisal Independence Rules and expands on the protections that they provide.

As part of Dodd-Frank, the GSEs are required to review rules of appraiser independence. That is, implementation of AIR is specifically required by Dodd-Frank. Both Fannie and Freddie will continue to issue future rules about AIR, such as those relating to conflicts of interest and fee disclosure by appraisal management companies (AMCs).

In an effort to provide greater protection to the consumer, as well as prevent the "over-appraisals" alleged to have contributed to the recent mortgage meltdown, Dodd-Frank and the FRB's regulatory mandates may seem to be overreaching. But the structure of AIR is really just a more precise version of HVCC.

AIR is here to stay, so let's get more familiar with it!

Who Is Subject To AIR

Financial institutions that have been subject to the HVCC will incur minimal changes. The requirements have the biggest impact on banks and credit unions that have not implemented HVCC and now must implement the AIR procedures.

In-house appraisal departments and AMCs must determine how they will be in compliance with the appraiser compensation requirements.

 Appraiser Independence

• Prohibition on coercion and other similar actions are designed to cause appraisers to base the appraised value of properties on factors other than their independent judgment.

• Prohibition on appraisers and appraisal management companies hired by lenders from having financial or other interests in the properties or the credit transactions.

• Prohibition on creditors from extending credit based on appraisals if they know beforehand of violations involving appraiser coercion or conflicts of interest, unless the creditors determine that the values of the properties are not materially misstated.

• Requirement that creditors or settlement service providers, who have information about appraiser misconduct, file reports with the appropriate state licensing authorities.
• Requirement of customary and reasonable compensation to appraisers who are not employees of the creditors or of the appraisal management companies hired by the creditors (i.e., "customary and reasonable compensation" for appraisal services performed in the market area of the property being appraised).
  
  

Appraiser Coercion

No creditor or mortgage broker (or their affiliates) may directly or indirectly "coerce" - or otherwise encourage - an appraiser to misstate or misrepresent the value of a principal dwelling.

Examples

• Implying to an appraiser that current or future retention of the appraiser depends on the amount at which the appraiser values a consumer's principal dwelling.

• Excluding an appraiser from consideration for future engagement because the appraiser reports a value of a consumer's principal dwelling that does not meet or exceed a minimum threshold.

• Telling an appraiser a minimum reported value of a consumer's principal dwelling that is needed to approve the loan.

• Failing to compensate an appraiser because the appraiser does not value a consumer's principal dwelling at or above a certain amount.
• Conditioning an appraiser's compensation on loan consummation.

 Appraiser Non-Coercion

Examples

• Asking an appraiser to consider additional information about a consumer's principal dwelling or about comparable properties.

• Requesting an appraiser to provide additional information about the basis for a valuation.

• Requesting that an appraiser correct factual errors in a valuation.

• Obtaining multiple appraisals of a consumer's principal dwelling, so long as the creditor adheres to a policy of selecting the most reliable appraisal, rather than the appraisal that states the highest value.

• Withholding compensation from an appraiser for breach of contract or substandard performance of services as provided by contract.
• Taking action permitted or required by applicable federal or state statute, regulation, or agency guidance.
  

 Material Misstatement Voids Transaction

If a creditor who knows - at or before loan consummation - of a violation of misrepresentation in connection with an appraisal, the creditor is prohibited from extending credit based on such appraisal, unless the creditor documents that it has acted with reasonable diligence to determine that the appraisal does not materially misstate or misrepresent the value of the dwelling.

A misstatement or misrepresentation is not material if it does not affect the credit decision or the terms on which credit is extended.

Nuances

• AMCs are regulated just as individual appraisers are regulated.

• HELOCs and portfolio loan origination procedures must comply with appraiser independence practices, such as prohibiting individuals involved in loan production from various forms of contact to the appraisal process.

• In-house appraisal staff compensation and fee arrangements must be evaluated for compliance.

• Small institutions with assets of $250M or less must separate appraisal and loan production staff.

• Appraisers and AMCs may only receive customary and reasonable compensation, using at least a 3-part test: 

1. the fee must be reasonably related to recent rates paid for appraisals in a relevant geographical market;  
2. the fee is commensurate with the property type and scope of work; and, if applicable 
3. the fee is established by third party requirements, not including fees paid by an AMC (i.e., such as a fee survey).
   

 Visit Library

Appraisal Activities, Dodd-Frank
Title XIV - Mortgage Reform and Anti-Predatory Lending Act
Subtitle F - July 21, 2010

Fannie & Freddie: Administration To "Wind Them Down"

Today, the Obama Administration has delivered a 32-page report to Congress that outlines plans to "wind down Fannie Mae and Freddie Mac and shrink the government's current footprint in housing finance on a responsible timeline."

Released jointly through the Treasury and HUD, it is entitled Reforming America's Housing Finance Market - A Report to Congress, February 2011, the report is meant to lay out reforms to continue fixing the "fundamental flaws in the mortgage market" through stronger consumer protection, increased transparency for investors, improved underwriting standards, and other critical measures. 

It provides guidelines to provide "targeted and transparent support to creditworthy but underserved families" that want to own their own home, as well as affordable rental options.

We will be analyzing the various policy suggestions in this report and publish an outline in the near future, especially as it affects residential mortgage compliance.

Overview of Report

1. Wind Down Fannie Mae and Freddie Mac and Help Bring Private Capital Back to the Market.

Phasing in Increased Pricing at Fannie Mae and Freddie Mac to Make Room for Private Capital, Level the Playing Field.

Reducing Conforming Loan Limits.

Phasing in 10 Percent Down Payment Requirement.

Winding Down Fannie Mae and Freddie Mac's Investment Portfolios.

Returning Federal Housing Administration (FHA) to its Traditional Role.

2. Fix the Fundamental Flaws in the Mortgage Market.

Helping Consumers Avoid Unfair Practices and Make Informed Decisions About Mortgages.

Increasing Accountability and Transparency in the Securitization Process:

Creating a More Stable Mortgage Market.

Servicing and Foreclosure Processes.

Forming a New Task Force on Coordinating and Consolidating Existing Housing Finance Agencies.

3. Better Target the Government's Support for Affordable Housing.

Reforming and Strengthening the FHA.

Rebalancing the Housing policy and Strengthening Support for Affordable Rental Housing.

Ensuring that Capital is Available to Credit-worthy Borrowers in All Communities, Including Rural Areas, Economically Distressed Regions, and Low-income Communities.

Supporting a Dedicated Funding Source for Targeted Access and Affordability Initiatives.

4. Longer-Term Reform Choices.

Visit Library

Obama Administration Plan Provides Path Forward for Reforming America's Housing Finance Market, Winding down Fannie Mae and Freddie Mac
Press Release
Treasury, 2/11/11

Reforming America's Housing Finance Market - A Report to Congress
February 2011
Treasury and HUD, 2/11/11