Bill Rayburn, chief executive officer, FNC Inc

Mortgage Banking, March, 2009 by Charles Wisniowski

Bill Rayburn has been chief executive officer of Oxford, Mississippi-based FNC Inc.--a collateral-management technology company serving mortgage lenders--since the company began in 1999.

Rayburn is a former business professor at the University of Mississippi, Oxford, and is co-author of several books on collateral, including Sheshunoff Information Services' Bankers Guide to Real Estate Appraisal Compliance and Uniform Standards of Professional Appraisal Practice: Applying the Standards.

More recently, Rayburn has emerged as one of the appraisal industry experts that are party to a growing debate over changes to appraisal practices contained in the upcoming Home Valuation Code of Conduct (HVCC).

In March 2008, New York Attorney General Andrew Cuomo announced an agreement with Fannie Mae, Freddie Mac and the Office of Federal Housing Enterprise Oversight (OFHEO) to establish the Home Value Protection Program. The program established significant changes to the real estate appraisal process for residential mortgage transactions and included a code of conduct that mandates appraiser independence and appraisal compliance to regulatory standards, among other new guidelines.

In December, OFHEO's successor agency, the Federal Housing Finance Agency (FHFA), released a revised final Home Valuation Code of Conduct applicable to mortgage lenders that sell residential mortgage loans to Fannie Mae and Freddie Mac.

Following a postponement from its original Jan. 1, 2009, start date, the HVCC is scheduled to take effect May 1,

Mortgage Banking recently spoke with Rayburn, and he shared his thoughts on the impact of the HVCC's provisions on the industry.

Q: Where does FNC--and other companies like yours--come down on the Home Valuation Code of Conduct debate, and more broadly on the whole challenge of creating more appraisal independence?

A: Of course the concept of independence for the appraiser is a very good thing. It's been [part of] banking regulations for a long time. Congress passed and the president [George H.W. Bush] signed back in August 1989, nearly 20 years ago, legislation called FIRREA--the Financial Institutions Reform, Recovery and Enforcement Act of 1989--that laid out a lot of [requirements to achieve] appraiser independence.

Now ... with the Home Valuation Code of Conduct, we're simply seeing [those requirements] apply specifically to non-regulated institutions and, more particularly, to mortgage brokers.

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Q: What do you envision the impact on the industry will be if the HVCC in its current form takes effect as planned on May 1?

A: Let's just talk about the impact on industry players. If we're talking about regulated institutions, I think there will be minimal impact except for a few changes in disclosure. If we're talking about what are today non-regulated institutions, they'll be some impacts--but in terms of regulated institutions, there will be very little impact outside of disclosure.

There is a little kicker in the disclosure requirements. As you know, today a regulated institution has to give the applicant a copy of the appraisal either on a routine basis or they have to give them notice of their right to a copy.

Under the Code of Conduct, you have to give the applicant a copy when it's completed, but in no less than three days prior to closing. Now, the applicant can waive their right to that, but that's a change for a regulated institution.

Q: Critics of the traditional approach of allowing the originator to pick the appraiser contend that there was a widespread loss of confidence in the real estate appraisal process by consumers and especially by investors that was a major driver of the current mortgage crisis. Do you agree?

A: I'm not sure I agree with that [premise]--that the appraisal process is the problem. There's certainly a lack of confidence in what the value of a particular property is. I absolutely agree with that. What I'm not sure I agree with is why did people lose confidence in [the assessments of] what the property was worth? So your house is allegedly worth $400,000--do you believe that or do you not believe that?

The question is, does having independence in the process between the originator and the appraiser solve the problem? I think it solves part of the problem, absolutely. However, appraisers measure value at a point in time, not necessarily two years [into] the future. But what you want to know as a homeowner is--"OK, it's worth X today; what's it going to be worth two years from now?"--and that's what an investor wants to know.

Q: So in your opinion, was adoption of the HVCC necessary? Were the existing rules regarding appraisals deficient or did the industry simply not abide by the rules?

A: These rules and regulations, the majority of them, have been around [for] a long time. So there is nothing really that new about the [HVCC].

What we're talking about is [that] for wholesale origination, these rules and regulations are very different. The broker now has to go through the [lending] institution or someone designated by the institution to order the appraisal.