This week, David Green, president of outsource company The StoneHill Group, chats with MortgageOrb about quality control, appraisal standards and the looming RESPA rule changes.
Q: In recent months, the Department of Housing and Urban Development's (HUD) Mortgagee Review Board (MRB) has issued a wave of announcements, ranging from Federal Housing Administration (FHA) lender penalties to suspensions. What message does this pattern send to mortgagees?
David Green: In April of this year, the MRB took action against 71 HUD-approved mortgagees. To me, it indicates a very clear message that ‘business is not as usual.’ It is obvious that HUD is sending a clear message to the mortgage lending community that lenders are under scrutiny, and they better play by the rules.
Q: Has FHA's heightened vigilance had an effect on more than just the bad apples? In other words, do some lenders view these developments as reason to reexamine QC policies?
Green: In the past six months, The StoneHill Group has experienced a steady increase in inquiries from lenders concerned about their own QC policies and auditing. We have also seen some lenders with a backlog of QC audits requesting they be brought to current reporting requirements. FHA vigilance is just part of the overall movement of the mortgage industry getting back to the basics.
Q: Seven months after it first took effect, the Home Valuation Code of Conduct (HVCC) is still a highly polarizing set of regulations, and FHA's adoption of similar protocols will likely do little to quiet the storm. Which HVCC objections do you believe are overstated, and which concerns are valid?
Green: I'll start with the valid concerns first. The best-known benefit of HVCC has been to remove the realm of undue influence (for repeat business) away from the appraiser and the production staff. The appraiser is able to provide his or her professional opinion of market value without the fear of losing the next appraisal request for not providing the value needed to make today's loan work. This has to be a stabilizing force in reestablishing true market values across the nation.
Freddie Mac has reported that it has seen a tangible improvement in the quality of appraisals of loans it buys since HVCC was implemented. The Realtors and mortgage brokers argue that HVCC has depressed values due to the assignment of appraisers by management companies to areas they are not familiar with, resulting in lower appraised values.
So the argument is, has HVCC helped align market values or has it resulted in lower values due to appraisers assigned to markets they are not qualified to evaluate? I am under the impression that HVCC has helped stabilize the market by removing the influence of the originator away from the appraiser's offered opinion of market value.
Q: How do you predict the industry will react to the implementation of FHA's appraisal standards? What will the net effect be?
Green: With the implementation of increased performance standards and sanctions by HUD, I expect to see a retraction in the number of qualified FHA-approved appraisers. The market will react by moving away from FHA mortgage lending.
Q: Jan. 1 is a big day in mortgage regulation, as new RESPA rules take effect. What specific compliance issues should lenders be mindful of when working with the Good Faith Estimate? What's the preferred treatment for disclosing yield-spread premiums?
Green: The biggest challenge lenders face will be enforcing that their sales staff and closing agents abide by the original Good Faith Estimate provided to the borrower. Lenders are going to have to create bundled services in order to survive the rigidity of disclosing the borrower's closing costs in the original Good Faith Estimate.
HUD tested the new Good Faith Estimate, and its results were conclusive: that the borrower would choose the loan with the lowest closing costs when all closing costs were accurately disclosed. The consumer benefits when he has full knowledge of loan closing costs. The new RESPA rules will finally take the confusion out of mortgage lending for the consumer.