Are Lenders Ready for the HVCC?
With stark changes to much of the appraisal process set to go into effect in less than one week, one firm says lenders remain ill-prepared to comply new requirements about to go into effect. Lansdale, Penn.-based Global DMS says that many lenders are ill-informed when it comes to implementing changes required by the Home Valuation Code of Conduct that goes into effect for the first time this Friday. The firm has provided appraisal process management solutions for the past 10 years and says that widespread misconceptions are leaving lenders and correspondents exposed to possible HVCC violations. “A lot of lenders and correspondents are making some very common -- but very erroneous -- presumptions, which could be putting them at risk of noncompliance with HVCC guidelines as of May 1st,” says Vladimir Bien-Aime, president of Global DMS and the creator of OASIS Software, a web-based enterprise software that manages the appraisal process. “In addition to numerous calls from companies telling us that they have no idea where to begin in getting themselves prepared for the HVCC, we’re also finding that many who think they’re prepared are actually not prepared at all -- simply because they’re operating under some fundamental misconceptions. For example, quite a few companies are under the assumption that using an AMC (appraisal management company), will eliminate their liability in HVCC compliance. This is simply not the case and can leave them exposed to compliance violations.” Bien-Aime cites other lender misconceptions as well, such as the idea that a lender is required to use an AMC, rather than independent appraisers. “Lenders and correspondents can actually use independent appraisers and still be HVCC compliant,” he said. “But they’ll need to do business with those independent appraisers in a manner that’s compliant with HVCC guidelines.” Other lenders believe that COD payments will still be widely accepted for appraisals. “COD payments are going away, so lenders and correspondents are going to have to manage prepayments, in addition to managing the appraisal process,” he says. “For some, this will be a big issue. We’re providing relief through our software, which enables users to set up automatic payments.” As the result of legal action almost a year ago, New York Attorney General Andrew Cuomo announced an agreement with Fannie Mae (FNM), Freddie Mac (FRE), and the Federal Housing Finance Agency (formerly OFHEO) to establish the HVCC. Currently, about 85 percent of U.S. mortgages are purchased or guaranteed by the GSEs, according to most industry estimates. After May 1, the GSEs will have the right to force the seller to buy back any loans found to be out of compliance with the Code. Global DMS is the latest collateral valuation specialist that says it has found evidence suggesting lenders aren't yet ready for the change. Mortgage technology company FNC, Inc. said on April 6 that a survey of key industry personnel suggested that most had not yet completed system upgrades to ensure compliance with the new guidelines. It shouldn't be too difficult, bank executives say, to bring existing operations into compliance -- although the issue of compliance is likely to be slightly different for smaller mortgage bankers, they say. "We've seen at least 10 major vendors with software and solutions from a plug-n-play perspective that focus on HVCC compliance, and all seem to be a strong solution set," said one senior bank executive at a regional bank with large mortgage operations, who asked not to be named. "From our perspective, it's a matter of changing the systems we already have in place. It might be a larger issue for smaller firms that lack some of the IT infrastructure in this area." Write to Paul Jackson at firstname.lastname@example.org. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.