When the real estate chaos engulfed the nation one of the alleged causes to it was how mortgage brokers were pushing appraisers around to "hit the number." Home loan professionals were smooth-talking them - in some cases supposedly being even rather loud about it - to value a property at what their contract said it should be. In those go-go years it commonly meant many appraisals came in high. This practice, in some shape or form fraud, had to be put under a large microscope the big mortgage banks were telling everybody who would listen and eventually were able to convince the government it all really was true and should be remedied yesterday. The rumor has it Wall Street does have some pull in Washington.
As a result the HVCC was born. The Home Valuation Code of Conduct, which Fannie Mae and Freddie Mac embraced last year. It bans mortgage brokers and loan officers from picking appraisers and basically handed the valuation process to appraisal management companies. The birth wasn't all that joyous, however. It instantly drew a lot of sharp flak from mortgage brokers, real estate agents, appraisers themselves and the home building industry, undisputed key elements in the real estate realm.
How is the HVCC doing nowadays?
MARI, or Mortgage Asset Research Institute, a LexisNexis shop, sheds quite a bit of light on this. According to its research - using data gathered from over 600 mortgage wholesalers - the number one fraud generator remains the mortgage borrower who supplies bad data - for instance on income, assets and employment - on the application. This amounts to 59% of all reported mortgage fraud cases in 2009, easily the dominant category.
Tinkered appraisals came in second. They carved out 22% of the mortgage fraud pie in 2008 and then comes the real eye-opener. The figure jumped to 33% in 2009, as MARI's research found out. That's about a 50% jump. In a year when HVCC took effect? Yes. It was shaped to cut back fraud to some very low number everyone could be proud of. But it didn't happen.
Florida tops the list of states with the highest mortgage fraud rate in 2009. New York earned the second place finish and California, Arizona and Michigan rounded out the prolific five. For once Nevada wasn't heading a list with this sort of reputation, in fact it didn't even make the top ten. Among the gang of four hardest-hit states it's the only one with a reasonably decent record. Las Vegas metro still harbors the most mortgage foreclosures and that can often suggest plenty of fraud is also involved. But no cigar.
When HVCC debate was underway supposedly all sides in the mortgage industry were listened to. Now it's obvious that some sectors were given keener ear than others. Wall Street operators pushed their own agenda and in the process managed to drown out most of the counter arguments, with the obedient Capitol Hill sitting by taking notes. The legislation was rushed through without a thorough analysis and instead of fixing the problem, the appraisal regime clearly grew into an even bigger mess. By referring to defective and understated appraisals NAR, or National Association of Realtors, has petitioned Congress to freeze for 18 months the HVCC Fannie Mae and Freddie Mac use, but no action has been taken on it yet.