The Federal Housing Finance Agency (FHFA) is Regulator to Fannie Mae, Freddie Mac and the Federal Home Loan Banks. The agency was created on July 30, 2008, as part of the Housing and Economic Recovery Act of 2008, replacing the Office of Federal Housing Enterprise Oversight (OFHEO). Congress believed OFHEO failed to properly regulate the GSE’s during the housing boom, which contributed to the current financial crisis. Congress decided OFEHO needed to be replaced with a stronger regulator. Now pay close attention, because here comes the really interesting part. OFHEO’s Director at the time was James Lockhart III. The Deputy Director and COO was Edward DeMarco. Lockhart and DeMarco began their tenure with OFHEO in July and October of 2006, respectively. When the new, improved and tougher regulator took over in July 2008, Lockhart, DeMarco and just about everyone on staff at OFHEO, transitioned in to the FHFA in their same positions. The only thing that changed was the sign on the building. This article is being written to expose the sham, known as the Home Valuation Code of Conduct or HVCC. The following paragraphs depict a series of events that I’ve either personally witnessed or found in public records. In 2007, then New York Attorney General Andrew Cuomo, announced a wide spread investigation of appraisal fraud by some of the country’s largest banks. During the investigation, Cuomo discovered evidence of fraud and subsequently filed suit against Washington Mutual and “eAppraiseit,” an unregulated appraisal management company, or AMC. The investigation revealed emails between WaMu and eAppraisit, which showed the bank was pressuring the AMC to inflate property values. More importantly, the investigation also provided Cuomo with strong evidence the GSE’s knew or suspected they were buying loans with fraudulent appraisals.
In May of 2008, I met with Fannie Mae General Counsel Beth Wilkinson. During our meeting, I asked Ms. Wilkinson why Fannie signed on to the HVCC agreement.” Her exact words were,
“Cuomo has his foot in our throats.” NAIHP has long believed, HVCC was for all intense and purposes a
“plea bargain,” designed to provide an escape for the GSE’s from further investigation and exposure. The first draft of HVCC in March of 2008 contained an important component, which would finally eliminate a serious conflict of interest. Cuomo believed bank ownership of AMC’s needed to be limited to no more than twenty percent. In my opinion, it should have been completely outlawed. However, when the final version of the code was re-signed in December of 2008, the twenty percent prohibition was removed, allowing banks unlimited ownership in AMC’s. I made five trips to Mr. Cuomo’s Office in N.Y., concerning HVCC. At the final meeting, we were told by a top Cuomo staffer, the bank ownership limitation was “stripped out by the federal government.” He refused to identify any specific individual, but I remember OCC Director John Dugan initially being opposed to the March 2008 draft, even calling it a “De Facto Regulation.” When the final version was released in December of that same year, Mr. Dugan had no objection. I’m sure everyone remembers the public comment period, where Fannie, Freddie and the FHFA solicited what they later called “extensive marketplace comments.” The housing industry responded with tens of thousands of comments, which were rumored to have shut down the GSE’s servers on one particular day. I’ve personally met with the FHFA’s General Counsel (Alfred Pollard), on seven different occasions. During the last two meetings, I requested copies or access to the comments. Mr. Pollard refused to release them, claiming those commenting failed to give permission for their release. I informed him, this was a PUBLIC comment period and the government had an obligation of transparency. Pollard still refused, but did confirm there were tens of thousands of comments, but most were discounted, as they were form letters. Form letters or not, they were the opinions of industry participants. It’s important to note, it was during this same time period,
“Think Big Work Small” organized an anti-HVCC petition with over 122,000 signatures. Therefore, it’s reasonably safe to say, the FHFA’s embargoed comments contained similar objections to HVCC. In a May 19, 2010 letter to Andrew Cuomo, FHFA Acting Director Edward DeMarco stated,
“The Home Valuation Code of Conduct deployed by Fannie Mae and Freddie Mac was implemented after taking extensive market place comments.” Refusing to release the comment letters after acknowledging they relied upon them when implementing the HVCC, suggests the letters fail to support the code’s implementation and the FHFA is deliberately withholding this information from the public and Congress. On October 6, 2011, the National Association of Independent Housing Professionals (NAIHP), filed a formal complaint with the Inspector General’s Office, alleging Fannie/Freddie and their Regulator agreed to the terms of the Home Valuation Code of Conduct (HVCC) as part of a special plea bargain like agreement to avoid further investigation by the New York Attorney General’s Office. The complaint is being investigated. Since HVCC was implemented on May 1, 2009, valuation fraud has risen by over fifty percent, appraisal quality has decreased substantially, thousands of appraisal professionals have been forced out of business and home values have continued to decline. Additionally, new appraisal rules have created a sharp increase in settlement costs for consumers. The HVCC agreement expired late last year and has been replaced by similar language in the Dodd-Frank Act. The question is, if the HVCC was nothing more than a scam, sustained by covering up evidence, what does this mean for Appraiser Independence under Dodd-Frank? NAIHP will continue to push for access to the comment letters and changes to the current Appraiser Independence guidelines. Moreover, we call upon Congress and the Department of Justice to investigate those responsible for the HVCC agreement and the incredible harm still being inflicted on consumers and Main Street America.
Marc is the President of the National Association of Independent Housing Professionals. Previously, he served as the 2008-2009 President of the National Association of Mortgage Brokers. He also held the positions of NAMB’s President-elect, Vice President, Director, Chairman and Founder of the Consumer Protection Committee and was awarded NAMB’s highest honor, Broker of the Year.
