Brokers Sue Over HVCC

Mortgage brokers claim that the new appraisal code places them at a severe disadvantage with their mortgage banking brethren and have filed a lawsuit to protect their interests. The lawsuit is the second filed by brokers in the last three months against a government entity over compliance issues that are crippling their ability to compete.

The lawsuit was filed by the National Association of Mortgage Brokers in U.S. District Court for the District of Columbia against Federal Housing Finance Agency Director James B. Lockhart, an announcement Monday from the trade group said.

Brokers claim that the Home Valuation Code of Conduct competitively puts them at a “severe” disadvantage with mortgage banking originators because brokers cannot communicate with real estate appraisers who provide fair market values on loans they close. They say that the code will drive up borrower costs and force some of the nation’s 70,000 mortgages brokers out of business.

“HVCC will drastically reduce the ability of mortgage brokers to provide consumers with an efficient and cost-effective means of obtaining a mortgage,” NAMB President Marc Savitt said in the statement.

The code was originally established between New York’s attorney general and the Office of Federal Housing Enterprise Oversight in March 2008 for loans purchased or guaranteed by Fannie Mae and Freddie Mac. OFHEO, which has since been replaced by the FHFA, regulated the two government sponsored enterprises at the time. Lockhart was also the director of OFHEO.

The code, which becomes effective on May 1, prohibits originators at mortgage banking and mortgage brokering firms from communicating with appraisers. Appraisals must be ordered utilizing a system that prevents originators and production employees from being involved in the entire appraisal process.

In its lawsuit, the McLean, Va.-based trade group also claims that the HVCC is essentially regulation that is subject to the Administrative Procedures Act of 1992 — which requires a rigorous process and comment period for establishing rules.

“NAMB strongly supports policy initiatives that seek to ban coercion of appraisers,” the statement said. “However, NAMB believes it is critical for mortgage and real estate professionals to maintain an appropriate level of contact with appraisers to ensure appraisal quality and independence.”

NAMB’s docket also includes a lawsuit filed in November 2008 against the U.S. Department of Housing and Urban Development over new yield-spread premium disclosure requirements under the Real Estate Settlement Procedures Act.

“The final rule discriminates against mortgage brokers with the required broker-only disclosure of yield-spread premium, placing them at a permanent disadvantage in the marketplace,” NAMB said in a December announcement. “HUD has disregarded numerous federal and private sector studies providing evidence that different origination channels disclosing differently confuses consumers, and will often times cause them to choose a more expensive mortgage product.”

NATIONAL ASSOCIATION OF MORTGAGE BROKERS, INC., 7900 Westpark Drive, Suite T-309, McLean, VA 22102, Plaintiff, v. JAMES B. LOCKHART III, DIRECTOR OF THE FEDERAL HOUSING FINANCE AGENCY 1700 G Street, N.W., 4th Floor, Washington, D.C. 20552, Defendant.