Appraisal Scoop

2010-2011 EDITION OF USPAP ADOPTED

The Appraisal Foundation recently announced that the Appraisal Standards Board (ASB) adopted revisions for the 2010-2011 edition of the Uniform Standards of Professional Appraisal Practice (USPAP) at its public meeting in New Orleans.

The 2010-2011 edition of USPAP will be valid for two years, effective January 1, 2010 through December 31, 2011. As with the current edition of USPAP, the new edition will include guidance from the ASB in the form of the USPAP Advisory Opinions and the USPAP Frequently Asked Questions (FAQs).

The new edition of USPAP is scheduled to be available by October 1, 2009. However, appraisers and users of appraisal services should begin familiarizing themselves with the changes to the document as soon as possible. To this end, the ASB has issued a Summary of Actions document, which explains the changes that are being made and the rationale for those changes. The Summary of Actions is available by visiting the following link to The Appraisal Foundation’s website:

http://commerce.appraisalfoundation.org/html/Docs/2009_ASB_summary_of_actions.pdf 

Most of the revisions that will become effective on January 1, 2010 involved improving the clarity, understandability and enforceablility of the ETHICS RULE, the COMPETENCY RULE and STANDARD 3: Appraisal Review, Development and Reporting.

There were also two significant changes:

• A requirement was added to the Conduct section of the ETHICS RULE, stating that, prior to accepting an assignment (and if discovered at any time during the assignment), an appraiser must disclose to the client and in the report certification any services regarding the subject property performed by the appraiser within the prior three years, as an appraiser or in any other capacity.
• The appraiser’s obligation to allow a client access to his or her workfile when providing a Restricted Use Appraisal Report was removed.

“The change to the Conduct section of the ETHICS RULE is significant,” said Sandra Guilfoil, Chair of the ASB, the Foundation Board that promulgates USPAP. “It creates a new requirement for appraisers to disclose, up front to prospective clients, any involvement the appraiser might have had with the property within the past three years.”

The ASB believed this new requirement was necessary for public trust. “In a current climate with a focus on things like transparency in financial transactions, the ASB did not believe that USPAP was adequately serving public trust by allowing an appraiser to complete an assignment without initially notifying the client of any recent involvement with the property. The ASB believes the client has a right to know about an appraiser’s involvement and make the decision whether or not to engage the appraiser in that particular assignment,” said Guilfoil.

In fact, the ASB believed this particular revision was so important that it issued a series of Q&A’s on this topic in April 2009, providing guidance to appraisers almost eight months before the change takes effect. “We understand this new obligation may be unpopular with some appraisers and are doing our best to provide them with guidance,” Guilfoil stated.

Finally, Guilfoil added, “We encourage appraisers and users of appraisal services to read through the Summary of Actions now, and thoroughly familiarize themselves with the requirements well in advance of the January 1, 2010 effective date.”

Source: The Appraisal Foundation July Newsletter

Timing of Mortgage Loan Disclosure Statements and Appraisal Reports: Truth in Lending and the HVCC

The Home Valuation Code of Conduct (HVCC) adopted by Fannie Mae and Freddie Mac as of May 1, 2009, requires that a copy of the appraisal ordered by the lender must be given to the borrower at least three business days prior to the closing. The requirement can be waived by the borrower. Under HVCC, real estate agents and brokers may not select, retain or compensate in any manner an appraiser providing an appraisal to the lender.

Read Hartzler’s full memorandum regarding Truth in Lending and HVCC.

The Green REEPer - Cap and Trade Bill

Think your E&O insurance is expensive? Wait till the U.S. Senate passes the "Cap and Trade" (aka Crap and Tax) bill which has already been pushed through the U.S. House of Representatives.

Can you imagine getting sued by a homeowner because you appraised a house which some bureaucrat determined (after-the-fact) did not meet arbitrary EPA guidelines for "energy efficiency"?

That's right folks, it's time to learn a new term: REEP - Retrofit for Energy and Environmental Performance.

Just think: California's repressive environmentalist policies aimed at houses and businesses being implemented all over the country.

In short - You can't sell your house or business unless it has been properly "retrofitted". i.e. Anything and everything the environmentalist wackos can think up to make your house more "green". The cost to retrofit? Well that's the homeowner's problem.

Well maybe not just the homeowner's problem. Why? Because homeowners will want to do whatever they can to keep expenses down before they sell. They will cut corners. Someone will sign off that the work has been completed. They will have all the appropriate documents. They will sell the house, and an appraisal will be performed. Then, when the bureaucrats finally come to check up on us, the blame will be spread all around, and the appraisers will not have an easy out. It may be years later, when some "expert" determines the house sold or resold, not having appropriate modifications or credible documentation. Then you get a letter in the mail.

You will be party to law suits just because you were the appraiser. It does not matter that we are not energy experts. It does not matter that we are not knowledgeable of green retrofitting. It will not matter that some "expert" signed off on the retrofitting as having been completed.

Is REEP really in the Cap and Trade bill? Yes it is. It was one of those minor details (300+ pages) slipped into the bill at three in the morning (before the vote) so members of Congress would not have time to read them. Those members who asked to read the additions were denied the right to see them before the vote was taken. Denied, and laughed at on the floor of the Congress. So much for "transparency" in the Democrat controlled Congress.

Is there anything that can be done? We can certainly call and email our U.S. Senators and ask them to oppose the Cap and Trade legislation. Not just for our own sakes. But because the one issue I have mentioned is just the tip of the iceberg in terms of how REEP will further devastate the housing market. And REEP is the only a small portion of the the overall Cap and Trade legislation which most economists predict will devastate the already crippled economy via excessive taxation on energy production and manufacturing.

Read the article below for details on REEP.

Democrats’ Cap-and-Trade Bill Creates ‘Retrofit’ Policy for Homes and Businesses

Scott A. Austin, IFA

Certified Residential Appraiser

Birmingham, AL

AMCs vs. Direct Contact Roughly 50/50 Post-HVCC

Nearly six weeks after the Home Valuation Code of Conduct went into effect, technology vendor Global DMS found that the number of lenders ordering appraisals through appraisal management companies was roughly the same percentage as those lenders who ordered appraisals directly from the appraiser.

While Global DMS – which owns and operates Oasis software and e-Trac – reported that there has been a surge in lending institutions ordering valuation services through AMCs, there also have been suggestions that customers of AMC services have been dissatisfied with the results; especially when those results have led to increased fees to the borrower and declining fees to the appraiser.

Click here to read the full article from the Appraisal Institute

Open Letter from a la mode Chairman: Reversing the damage done by the HVCC

To: Our colleagues in the real estate industry

From: David Biggers, Chairman, a la mode, inc.

RE: Reversing the damage done by the HVCC

As many of you are aware, we’ve always been at the forefront of lobbying for and protecting the interests of the profession. That’s why, a little over a year ago, we began the complex and expensive process of trying to educate everyone we could about the little-known dangers of the proposed “HVCC”, or Home Valuation Code of Conduct.

"Unfortunately, as the economic meltdown and our presidential election garnered all the attention in Washington this past year, the HVCC transitioned quietly from a mere proposal into concrete national policy altering the core aspects of virtually all real estate transactions, with devastating effects."

Today, the complications of the HVCC are killing real estate deals in every corner of the country, forcing buyers to pay more in closing costs while receiving less service, eliminating the positive aspects of the business relationships that REALTORS®, mortgage brokers, and appraisers have nurtured for decades, and shifting market value decisions to unfettered and often clueless appraisal management companies located thousands of miles away. Worse, your transactions, in your town, are many times being derailed by night shift hourly workers parading as “appraisal reviewers” in call centers half a world away. That’s not appraisal independence – that’s appraisal insanity, and it’s hurting every one of us.

Our friends at NAMB, the National Association of Mortgage Brokers, are seemingly more aware of that than anyone. They agreed with us from the beginning that the HVCC is not just an appraisal issue and indeed is a threat to the livelihood of thousands of independent small businesses run by their members.

That’s why we’re happy to pass on this Call To Action from NAMB and to encourage you to follow through with the phone calls, e-mails, letters, and visits to everyone you can reach. Getting the reversal of the HVCC back into the national spotlight is achievable if we each take the time to make a difference.

A few minutes is all that’s required, but it could literally save the entire real estate industry from the specter of ill-conceived national policy interfering with inherently local real estate practices and relationships. None of us can afford to let that take root. Please read NAMB’s call to action [click here], and help us all save our industry from this dangerous federal bureaucratic meddling.

NAMB - HVCC Call To Action

To: All Mortgage Brokers, Real Estate Agents, Appraisers, Lenders, Home Builders, Title Agents, and Consumers

From: Marc Savitt, President- National Association of Mortgage Brokers

After more than a year of exhaustive negotiations with Fannie Mae, Freddie Mac, Director of FHFA (GSE Regulator) James Lockhart, and NY Attorney General Andrew Cuomo, NAMB believes the time has come for your individual voice to be heard.

In order for this “Call to Action” to be effective, we ask that you fully participate, encourage others to join the action and continue calling and emailing everyday, until advised to stop by NAMB. This will NOT be a one day action!

We have received hundreds of e-mails through the hvcc@namb.org  e-mail address outlining specific cases where the HVCC has created delays and additional costs to consumers. NAMB has categorized and compiled a report of the examples received, which was sent to FHFA Director James Lockhart. Please use your own examples in your conversations with legislators, regulators, or their staff. Also, please visit the NAMB HVCC Resource Center for additional information and documents on the HVCC.

Who will you be contacting?

• NY Attorney General Andrew Cuomo’s Office: (212) 416-8000, Internet Complaint
• Federal Housing Finance Agency (FHFA): (866) 796-5595, director@fhfa.gov
• Fannie Mae: (202) 752-7000, headquarters@fanniemae.com
• Freddie Mac: (703) 903-2000, Internet Complaint
• Senators, Representatives and Governors: Click here for contact information.

Also, please contact your local TV and Newspaper outlets. Below are talking points and background information to assist in your conversations. Please remember we are all professionals and should conduct ourselves accordingly in any communication with the above parties.

For the most successful and influential calls, it is important to concisely quantify how the HVCC is affecting your consumer and your business.

Talking Points:

1) NAMB conservatively estimates (breakdown below) that the HVCC is costing consumers over 2.8 BILLION dollars a year in extra fees, created by long delays (extended lock-in fees) and higher appraisal costs.

2) Unregulated Appraisal Management Companies (AMCs), who have been the subject of several misconduct investigations, are the centerpiece of the HVCC. The original Cuomo investigation involved a federally chartered bank and an AMC.

3) AMCs are driving honest appraisers and mortgage brokers from business, eliminating competition, increasing costs to consumers and reducing state revenue. The HVCC is causing significant delays in real estate transactions, hurting real estate agents, title companies and other third parties reliant on turnaround time.

4) HVCC does nothing to reduce fraud, as it legitimizes the same failed model, which was the subject of Attorney General Cuomo’s investigation.

5) No Portability! Consumers are “trapped” with a specific lender. If a better deal becomes available with a different lender, the consumer is forced to pay for another appraisal.

Click here to continue reading . . . .

Fannie Mae Announcement 09-19 - Clarification of Announcement 08-30, Appraisal-Related Policy Changes and Clarifications

Fannie Mae's Announcement 09-19 updates and clarifies the following appraisal and property-related topic: Clarification of Announcement 08-30, Appraisal-Related Policy Changes and Clarifications Updates to Announcement 08-30, Appraisal-Related Policy Changes and Clarifications.

Market Conditions Addendum to the Appraisal Report

 In Announcement 08-30, Fannie Mae introduced the Market Conditions Addendum to the Appraisal Report (Form 1004MC) to further enhance the transparency of the conclusions made by the appraiser related to market trends and conditions.

To add clarity, Fannie Mae has added several shaded areas to the form to recognize that all the requested data may not be available from the data sources used by the appraiser and therefore the information may not be provided. The lack of completion of these areas is acceptable as long as the appraiser provides an explanation as to why these sections of the form are not complete. However, if the data is available, the appraiser must include the data in the analysis.

Fannie Mae is also modifying the requirement for the “Median List-to-Sale Price Ratio” to now label it as “Median Sale Price as a Percentage of List Price.” Additional research indicated that this figure is typically provided by data sources as a percentage. The revised form is dated March 2009 and is available on eFannieMae.com. It was also provided to the major form software vendors. Lenders are encouraged to use the updated version immediately; however, it will be required for all one- to four-unit appraisals dated on or after July 1, 2009.

Use of Supervisory Appraisers

 Announcement 08-30 provides additional policy and guidance on the use of supervisory appraisers when they sign an appraisal report on the left-hand side of the form as the “appraiser.” Fannie Mae is providing the following clarification.

The Fannie Mae Selling Guide defines the appraiser as “the individual, who personally inspected the property being appraised, inspected the exterior of the comparables, performed the analysis, and prepared and signed the appraisal report as the appraiser.” The Announcement was intended to address instances where a trainee or unlicensed appraiser (who does not sign the report and where it is allowable by state law) completes the inspection, but the supervisory appraiser signs on the left-hand side of the appraisal as the “appraiser,” when they have never inspected the subject property.

In Announcement 8-30, Fannie Mae was conveying that this practice is unacceptable. Any appraiser signing on the left-hand side as the “Appraiser” must perform the level of inspection required by the assignment.

This guidance does not require the supervisory appraiser to inspect the subject property in all instances.

Time Adjustments on the Appraisal Report

Announcement 08-30 clarified that time adjustments may be either positive or negative. It also stated the adjustments must reflect the difference in market conditions between the date of sale of the comparable and the effective date of the appraisal for the subject property. The term “date of sale” was used in lieu of “contract date.” The correct terminology as stated in the Selling Guide is “contract date.”

Download FNMA_Announcement_0919

Key Highlights of Announcement 08-30:

•  New Market Condition Addendum form 1004MC

• Supervisory appraisers must now inspect the subject property

• Reporting prior sales and listing history

• Appraising a property on sites over 5 acres

• Effective age adjustments

• Cost approach for insurance purposes

New Appraisal System (HVCC) Impacts Consumers

[The other day Appraisal Scoop posted I'm just an Appraiser. How can I do anything to impact the HVCC? , with permission from Truett D. Neathery, who suggested getting LOCALwith your activism.  I belive the following article provides a good basis for your "Letter to the Editor" or elected official.]

The HVCC or Home Valuation Code of Conduct was recently implemented by Fannie Mae and Freddie Mac as a new system of appraisals in the U.S. Under the rules, many of the appraisals are handled by management companies (some of which are also owned by the lenders themselves). The system is designed to reduce fraud and lower costs with an improved appraisal.

This new system has numerous flaws and has been widely criticized from both the Appraisal Institute (which represents over 20,000 appraisers nationwide), and the National Association of Realtors.

Some of the major criticisms include:

Homeowners don't choose who they want to complete the appraisal of their home or how they calculate the value. The appraisal management companies are actually unregulated and the quality of their appraisals may be inferior to those of an established professional appraiser.

The costs are actually increased since the appraisal management companies charge extra for their role. Typically, an appraiser charges approximately $325, but when consigned by the management company they only receive about $200. The customer is charged $400 and must pay up front for the appraisal instead of during closing. If the deal doesn't go through, the consumer absorbs the cost and the management company still pockets the extra charge.

There doesn't seem to be any fee management and the costs for appraisals have increased dramatically. As reported by the National Association of Mortgage Brokers, one lender, EverBank, advertised its fees as follows: $465 for GHA appraisals and $390 for standard single family appraisals. Flat fees in Hawaii are a hefty $700.

The new system is being extended to FHA mortgages, even though they are not included under the new code of rules.

This new regulation increases the overall closing time and the waiting time before the customer can receive funds.

Appraisal portability is also decreased since each lender will require a new appraisal.

Small business appraisers will be squeezed out even though they may have a better knowledge of the area and may be considerably more qualified than the employees of the designated unregulated appraisal management company. This removes competition and equitable pricing guidelines for the consumer. The larger management companies will distribute orders through a central area which may be located hundreds of miles from the property being appraised. The chances of the consumer of receiving a below standard appraisal by employees who are not familiar with the area are increased.

The HVCC was never required to pass through the Administrative Procedures Act, the regulatory Flexibility Act or any other procedural filter generally required by a federal agency. There are some that consider the HVCC code invalid and unenforceable due to its failure to comply to the Administrative Procedures Act.

The Real Estate Settlement Procedures Act (RESPA) regulates the the way lenders and mortgage brokers close a sale and do business. The HVCC is in violation of rules against up-charging and fee-splitting. Every lender could leave themselves open to a possible HUD lawsuit on each loan they issue.

                                                      ####

Author Resource:  Work with a qualified, dedicated agent for your next Foxhall DC condo purchase. Justin Lee will help you find the perfect home in Washington D.C.

Article From Real Estate Pro Articles

Speak Up! Home Valuation Code of Conduct's Unintended Consequences

Today I'm starting a new category on Appraisal Scoop called - Speak Up!  I'll use this category to re-blog (with permission) the best of comments, forum posts, and "Letters To The Editor" that I find.  If you come across (or have written) a particularly newsworthy story, please drop me a note at bjdavis@OurAppraisal.com

The first post in this series is by Linda Morgenroth or Alliance Appraisals on Ken Harney's LA Times article Fannie Mae and Freddie Mac's new rules are raising appraisal costs, critics say on 5/17/09

I enjoyed Mr. Harney's well-written article. I only wish he had an appraiser respond to Mr. Kuegler's comment that the appraiser can make up the AMC fee cut through "a steady stream of work, training and support."

"As to appraisers' complaints about fees, Kuegler said, his firm offers them "the ability to have a steady stream of work, training and support." In other words, appraisers can expect to make up in overall volume what they're sacrificing per assignment. "

My response would be:

A) What if you already had all of the volume you could possibly handle at full fees prior to the HVCC? How then does the appraiser benefit from the fee cut?

B) Exactly what kind of training do they purport to provide, given the myriad of classes, CE, exams and supervision already mandated? Does it actually have value to the appraiser in the marketplace or is it self-serving to benefit the AMC? Or perhaps he means their appraisers require training because the appraisers they can attract with the typical AMC fee schedule are completely inexperienced?

C) I would like Mr. Kuegler to elaborate on the "support" his company provides. I suspect their definition of support actually has more to do with emailing the appraiser twice a day asking: "Has it been inspected? We need the report asap. It's been 48 hours since we ordered it. Tardy reports will result in termination of your services." Or perhaps they offer helpful suggestions about how you can greatly increase the volume of work they will send you if you will lower your fees down to $175 or $200. That is akin to suggesting to GM that they could solve their financial woes if only they cut the price of each automobile by 50%.

I don't know the actual answers to these questions as I am not willing to contract with a low-paying AMC to find out. I didn't spend four years at Northwestern University and many more building a successful, ethical appraisal practice to be suddenly become the de facto employee of an AMC. I have chosen instead to tailor my business plan to clients not affected by the HVCC. Additionally, I work with lenders who have chosen to create HVCC-compliant departments to coordinate their appraisals. These lenders have created a carefully selected panel of appraisers assigned by a department not compensated for loan production. They generally ask for reasonable turn times of 5-7 days and pay the appraisers standard full fees.

As referenced in your excellent article, the most qualified, best-educated, most experienced appraisers will not be the ones willing to accept the cut-rate fees, 48-hour turn-around times and net 30 payment terms offered by the as-yet unregulated AMCs. More likely than not, it will spawn appraiser "trainee mills" run by unscrupulous appraisers. They send trainee appraisers out to inspect the property and write the report (passing themselves off as the licensed appraiser, even sometimes wearing the appraiser's name tag). The licensed appraiser then reviews and signs the report, fraudulently asserting that they personally inspected the property. This type of fraud was rampant during the last boom and will very likely become common again in this AMC scenario.

Appraiser independence is crucial. However, how can we expect to achieve this by handing the power over to AMC's often wholly-owned by the banks who will benefit financially by the loan closing successfully. Aren't we just creating a new source of pressure on appraisers? Doesn't this sound more than vaguely similar to the Wamu-EAppraiseIt scandal that prompted Mr. Cuomo's initial investigation?

The increased hit to the consumer's wallet, the decrease in quality of mortgage appraisals and the delayed recovery of the real estate industry are the three biggest unintended casualties of this ill-advised plan. The harm caused to tens of thousands of small appraisal firms is additional collateral damage that remains unaddressed.

Best regards,

Linda Morgenroth, Alliance Appraisals

Linda@AllianceAppraisalsOnline.com

PR: ClickFORMS Prepared for Fannie's New MISMO XML Data Delivery Requirements

Beginning March 1, 2010, Fannie Mae will require all appraisal reports to be submitted to them electronically in the MISMO Appraisal XML format (click here). This new guideline is for lenders, the lenders will be requiring appraisers to submit their reports in the MISMO format. Fannie Announcement 09-14 FAQs

What does this mean for you — the appraiser? It means that if you submit through Lighthouse or AppraisalPort, your reports will be converted twice, with twice the chance for errors. Once when it is converted to either the Lighthouse or AIReady format and then again when it is converted to MISMO XML.

ClickFORMS has already implemented the MISMO Appraisal XML format, and so has RELS. In fact, they are the only AMC to have do implemented it in the entire country. Because they are so large, this was a major milestone in the industry.

Any time you submit a report to RELS using the ClickFORMS RELS Connection, you are using the MISMO XML format.

So what the big deal about the MISMO Appraisal XML format?

1. MISMO delivers your report exactly as you created it. Your client gets your PDF, not a conversion or translation of it like in AppraisalPort or Lighthouse. No more extra signatures or missing pages or fields from your report.
2. It's an open standard, so no one company owns it like FNC's AIReady and ACI's Lighthouse. 
3. RELS has been using it for more than a year, so it's a proven reliable standard with easy scalability.
4. The rest of the Mortgage Industry has adopted the MISMO standard and become more efficient. The appraisal industry is finally starting to see that porprietary standards are only good for the owners of those standards.

For more information about MISMO XML technology with ClickFORMS, check out our website at: http://bradfordsoftware.com/mismoxml/ .

Additional Resource: Paying To Use Your Own Bathroom: AI XML