NOVEMBER 2009
MISSISSIPPI MORTGAGE PROFESSIONAL MAGAZINE
www.NationalMortgageProfessional.com
By Charlie W. Elliott Jr., MAI, SRA
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FTC Extends Enforcement Deadline for Identity Theft Red Flags Rule
and creditors subject to their oversight. For more information, visit www.ftc.gov.
At the request of members of Congress, the Federal Trade Commission (FTC) has delayed enforcement of the “Red Flags” Rule until June 1, 2010, for financial institutions and creditors subject to enforcement by the FTC. The Rule was promulgated under the Fair and Accurate Credit Transactions Act, in which Congress directed the Commission and other agencies to develop regulations requiring “creditors” and “financial institutions” to address the risk of identity theft. The resulting Red Flags Rule requires all such entities that have “covered accounts” to develop and implement written identity theft prevention programs to help identify, detect, and respond to patterns, practices, or specific activities, known as “red flags,” that could indicate identity theft. The Commission previously delayed the enforcement of the Rule for entities under its jurisdiction until Nov. 1, 2009. The Commission staff has continued to provide guidance to entities within its jurisdiction, both through materials posted on the dedicated Red Flags Rule Web site (www.ftc.gov/redflagsrule), and in speeches and participation in seminars, conferences and other training events to numerous groups. The Commission also published a compliance guide for business, and created a template that enables low risk entities to create an identity theft program with an easy-to-use online form. FTC staff has published numerous general and industry-specific articles, released a video explaining the Rule, and continues to respond to inquiries from the public. To assist further with compliance, FTC staff has worked with a number of trade associations that have chosen to develop model policies or specialized guidance for their members. On Oct. 30, the U.S. District Court for the District of Columbia ruled that the FTC may not apply the Red Flags Rule to attorneys. The announcement that the FTC will delay enforcement of the Rule until June 1, 2010, does not affect the separate timeline of that proceeding and any possible appeals. Nor does it affect other federal agencies’ ongoing enforcement for financial institutions
FHA announces credit policy changes and addition of chief risk officer Federal Housing Administration (FHA) Commissioner David H. Stevens has announced plans to implement a set of credit policy changes that will enhance the agency’s risk management functions. Stevens also announced his intention to hire a chief risk officer for the first time in the FHA’s 75-year history. “By keeping affordable loans flowing, particularly to the growing ranks of first-time homebuyers, the FHA has been critical to our nation’s economic and housing market recovery,” said U.S. Department of Housing & Urban Development (HUD) Secretary Shaun Donovan. “As we begin to move from recession to recovery, these changes will not only ensure FHA’s financial strength but they will also help to further strengthen our nation’s economy.” In addition to adding a chief risk officer, the FHA is proposing specific credit policy changes largely focused on ensuring responsible lending and risk management for FHA-approved lenders. As the FHA’s stable of lenders grows, these lenders must have “skin in the game.” These credit changes will do that by ensuring they have long-term interest in the performance of the loans they originate. Supervised mortgagees will be required to submit audited annual financial statements to FHA. This new requirement is a prudent safeguard that permits FHA to ensure that those entities with which it does business are adequately capitalized to meet potential needs. FHA is aware that the majority of supervised and non-supervised mortgagees are already required to prepare audited financial statements for various regulatory bodies, governmentsponsored enterprises (GSEs) and investors. The FHA plans to propose to increase the net worth requirement for approved mortgagees to meet industry standards. The requirement is currently at $250,000 and has not been increased continued on page 8
How Far Away Can an Appraiser Be? Amidst all of the discussion of the mort- incompetence and errors. One of the gage crisis and the implementation of most common complaints is that the Home Valuation Code of Conduct appraisers are being assigned work in (HVCC), there has been lots of finger areas long distances from their home pointing, concerning who was at fault bases or offices. for the meltdown and what should and The details of the HVCC and appraisshould not be done to fix the problem(s). er independence are multifaceted and Unless you have been in seclusion for would require much discussion, far the past year, you have heard of the beyond the scope of this article. With attempts of New York Attorney General this in mind, we will restrict our discusAndrew Cuomo to keep appraisers sepa- sion to the distances appraisers travel rated from loan originato do appraisals and distors. He, along with Fannie cuss “how far is too far.” Mae and Freddie Mac, our This question reminds two largest governmentme of the question of how sponsored enterprises long a man’s legs should (GSEs), signed an agreebe. U.S. President Abraham ment as a compromise to Lincoln is reported to have settle a lawsuit. This lawanswered that question by suit was primarily about saying, “Long enough to mortgage foreclosures, reach the ground.” In which resulted, according appraisal distances, an to Attorney General analogy may be made that Cuomo, from lenders placit varies with the person ing pressure on appraisers and the circumstance. Not “In the end, an to appraise properties to trivialize the issue, there appraiser closest to a higher than their market are distances and locations property, who is capa- that individual appraisers value in an attempt to ble of delivering the make fraudulent loans. will find excessive to travel most professional These loans ended up in order to provide profescosting homeowners their service, is usually the sional appraisal service. homes and costing taxpayHaving said that, some cirbest choice.” ers billions of dollars in cumstances will warrant bailout money. The resulting agreement further distances than others and there between the participants led to the cre- can be no hard and fast rule. The circumation of the HVCC, which, among other stances that matter most in addressing things, forbids mortgage brokers from the question, in my opinion are, the ordering appraisals from appraisers on number of appraisers available to serve a loans, which they make that are sold to specific location at a specific time, the Fannie Mae and Freddie Mac. It also geographic experience and competence restricts loan production officers in banks of the appraiser, whether the assignment from ordering appraisals or communicat- is commercial or residential and the ing with appraisers who are performing availability of sales data. appraisals on bank loans. A couple of examples of some realMany mortgage brokers and bank life issues relating to the above are: loan officers are crying foul, claiming that the HVCC has damaged their abili- The property is located in a rural ty to make loans. They allege that the county and there are only two result has caused many appraisals to be appraisers serving the area. One has assigned to bank-owned or independa reputation of providing poor servent appraisal management companies ice and the other is located 50 miles (AMCs) and that their applications are being turned down due to appraiser continued on page 8