The Mortgage Lending Crisis: A Snapshot

One of the many troubles plaguing today’s mortgage industry is a collapse of confidence in the collateral valuation process. A series of appraisal independence standards reiterate standards from the past and revise standards to match the lending context of today. HVCC was the most noted red herring to subsequent efforts to raise appraisal independence standards.

The Home Valuation Code of Conduct (HVCC) revised guidelines of 2009 were meant to address the lack of confidence in collateral valuations. Among the code restrictions,  the practice of contracting a specific appraiser to evaluate a specific property by mortgage production staff wa restricted. A process to select an appraiser that maintains influential independence was prescribed.

FHA issued revised Appraisal Independence standards with Mortgagee Letter 2009-28. The revisions were effective as of February 15, 2010. FHA promulgated their own unique requirements. In particular, FHA issued new requirements around appraisal ordering, registration within FHA Connection, and the treatment of appraiser compensation (customary and reasonable).

Among a substantial overhaul of other regulations, the Dodd-Frank Act introduced revised TILA and FIRREA statutes, legislated a federally regulated suite of appraisal independence requirements, and empowered cooperative and meaningful enforcement of Appraisal Independence. Subsequently Interim Final Rules (IFR) were issued to promulgate interim rulemaking in the spirit of the law. Fannie and Freddie have since issued AIR (Appraisal Independence Requirements) sections to their respective seller guides. When compared to HVCC, AIR is very similar but does offer some revisions and clarifications.

How will lenders and mortgage brokers conform to related guidelines? How can they do so efficiently and transparently, with minimal disruption to their day-to-day business?

Generally speaking, lenders are responsible for conformity to the standards. They remain responsible whether or not they actually administer their own appraisal operations. Many lenders realize they must QC all loans and respective appraisals and therefore maintain their own appraisal operations. These lenders will need to bolster their appraisal operations to ensure compliance with new regs and requirements as the evolve. Lenders who have outsources appraisal operations to third parties will need to assess their confidence in the outsources operations and to determine if outsourcing will remain a competitively viable approach.

AIMSdashboard, LLC maintains a Software as a Service offering to provide the origination community with a software based Appraisal Independence Management System (AIMS) to operationalize the lender's policies, provide strong management features relating to approved appraisers (in network) and appraiser selection for out of network geographies, and provide the inherent capabilities to proactively demonstrate the policies in action to meet appraisal independence standards and compliance. 

AIMS provides configurable access to appraisal operations participants, from LOs and Brokers, Underwriters, Appraisal Coordinators, Appraisers, etc. AIMS is a cross community workflow software system supporting a lender's policies, loan programs, and change control process while also proactively documenting appraisal independence compliance.

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