Reeling as they are from a slew of new mortgage industry regulations, in addition to pondering the looming unknowns of the Dodd-Frank Act, it might be forgivable if some mortgage lenders and appraisers weren’t fully up to speed on Fannie and Freddie’s latest requirements.
But new rules are on the way, industry experts warn, and it might be all too easy for some appraisers and lenders to be left scrambling – especially if their technology servicers are lagging behind.
Starting in September, the Federal Housing Finance Agency (FHFA) – regulator of Fannie Mae and Freddie Mac – will require new rules wherein appraisers will have to submit particular appraisal information in a uniform electronic format and a uniform code. Similarly, December brings new rules for mortgage lenders, who will have to do likewise for the terms and information on each mortgage.
The new requirements will be known as the “Uniform Appraisal Dataset” and the “Uniform Loan Delivery Dataset.” And if the appraisals or mortgages aren’t in these formats, the loans can’t be sold on the secondary market.
What The Heck?
The idea is to standardize everything about the mortgage loan and appraisal, said Paul Pouliot, mortgage manager with the Federal Home Loan Bank of Boston, which draws membership from all New England states. The mortgage meltdown is seen partially as a failure of information, where the actual quality of a portfolio was obscured by a mishmash of data. Standardizing all information means everybody is on the same page, and that data can be communicated more easily between mortgage industry players.
But it’s easy to be overwhelmed by the mass of new rules out there, sources said, which means lenders and appraisers need make sure they’re not caught sleeping when autumn rolls around.
“I am confident of this: In October [and] November, there’s going to be some lenders that are going to really be hustling to figure out, ‘What the heck am I going to do Dec. 1?’” said Marc Riccio, president of Connecticut-based mortgage technology vendor Specialized Data Systems.
Because these datasets are entered and transmitted electronically, much depends on whether the bank or company’s chosen vendor is providing updates. Vendors like Riccio say some competitors are in “maintenance mode,” for certain lines of products, and aren’t moving to keep pace with the rapid-fire regulatory changes.
The market is studded with decades-old technology companies – many nimbly adapting to the changing economic and regulatory environment, Riccio said, but others merely treading water. A compliance change like this should be a shakeup.
“There’s a lot of funky stuff out there,” Riccio said.
The latest changes provide a silver lining for people in his line of work, said Darton Rose, New England-based senior account executive with South Carolina-based Avista Solutions, a mortgage origination software provider.
“As a software vendor, you kind of like those changes, because a lot of systems aren’t up to speed or don’t have the resources,” Rose said. “So it’s [a sales] opportunity for me and Avista.”
Brian Koss, managing partner of Danvers-based Mortgage Network, said his company had in-house technology systems, and was confident in their ability to roll with the changes. Of course, he added, lenders like him aren’t working in a vacuum – they’ll be relying on appraisers to fill out their datasets perfectly as well, or the loan won’t move.
Bigger appraisal companies won’t have a problem, he said, but he worried that smaller outfits might struggle to implement the systems.
“If they’re sloppy, or do it wrong … or they’re inconsistent, it’ll be a real fly in the ointment,” he said.
Girding For Change
Still, representatives for both appraisers and lenders said their constituencies were getting on board.
“Are they getting prepared for it? I would say yes,” said Steve Sousa, executive vice president of the Massachusetts Board of Real Estate Appraisers. His concerns were focused instead on how the new system would actually work for appraisers who used it.
FHFA’s chosen dataset uses a code that consumers might find confusing. For example, in their assessment of a property, appraisers will have to key in a set of codes instead of using natural language.
Today, they can write that a property is in “fair” or “average” condition, but in September, they’ll have to write in figures like “C-1” or “C-6” to say essentially the same things.
The new rules provide highly standardized forms, but also hamper the ability to communicate some of the important details of a property, Sousa said. Certain abbreviations like “Wtrfrt,” mean “waterfront,” regardless of whether the property is on the beach or just overlooks a pond. There is a “comments” field where the appraiser can add in these nuances, but the overall form may blunt these descriptions.
Sousa also cited an April 29 letter from The Appraisal Foundation’s standards board, which complained that the Uniform Appraisal Dataset’s detailed requirements sometimes seem to conflict with the foundation’s own Uniform Standards of Professional Appraisal Practice.
On the mortgage side, industry leaders were confident that most lenders were up to speed, according to Elizabeth Phelan, chairwoman of the Massachusetts Mortgage Bankers Association. She said the group was working to keep members informed.
Still, it’s entirely possible that some haven’t been paying attention to the news, overwhelmed as they are by the flood of new regulations breaking over the industry – most recently in the form of huge changes to loan originator compensation.
“There have been a lot of things that have popped up of late,” Phelan told Banker & Tradesman. “This is probably not top-of-mind for a lot of [lenders].”
