Appraisal Scoop

Appraisal Independence at Crossroads, Again!

AUTHOR: Micheal W. Armentrout, VP AM Appraisals, Inc. Mike has been involved in full time real estate valuation since early 1992 and has experience in numerous Central Ohio markets.

Talk about deja vu, nineteen years after the Savings and Loan bailout brought us Title XI of FIRREA, the appraisal profession finds itself in the sights of politicians again. The Home Valuation Code of Conduct proposed by the OFHEO that could bring sweeping changes to the entire industry begs the question; what will become of USPAP and State Licensing?

With all the discussions and questions posed about the proposed code of conduct, perhaps we should wonder what happened to the accountability that USPAP and Licensing was aimed at creating. With just about any issue, policies and laws are only as good as their enforcement. State licensing boards are typically overloaded with cases and can only do so much with the manpower and funding they have. Is more bureaucracy the answer and how would the proposed system be implemented, managed and enforced?

As any appraiser who does regular review work knows, the current licensing system does not guarantee quality appraisals but it should ultimately make them accountable with fines, suspension or even revocation when reported and properly investigated. This was intended to be the safety net to catch appraisers who do not have the professional and personal ethics to perform qualified valuations.

It seems as though our industry has convinced itself that lender pressure is the driving force for the need for change and that the only way to change is by a new definition of appraiser independence.

But can independence simply be defined by not receiving value estimates and targets or by cutting off communication between appraisers and their clients? 

Every appraiser who has lost jobs and clients because they appropriately refused to “get value” should know that this is not the case.

Understanding that this is a sensitive issue, can or should we be concerned that under such a system, appraisers might be inclined to “play it safe” by valuing properties in the low range of adjusted value and if so what impact will that have on lending?

Will appraisers be relegated to a world of automated orders, fill-in-the-blank reporting and poor communication? This get‘em, do‘em and invoice’em mentality sounds more like a vocation than a profession.

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Webcast: Treasury Sec. Paulson Hosts Background Briefing on Financial Regulatory Blueprint

U.S. Treasury department officials hosted a briefing by Secretary Henry M. Paulson, Jr. today to discuss Treasury's Blueprint for a Modernized Financial Regulatory Structure.

The initiative calls for some long-standing government agencies to combine and others to disappear. Major players at the core of the nation's financial system, including banks, securities firms, insurance companies, commodity investors, and mortgage firms and brokers, may have to submit to increased oversight.

Under proposals for quick action, the Treasury suggested that a new Mortgage Origination Commission be created to develop standards for state mortgage market participants.

The body would be run by a presidential appointee and a board with representatives from the Fed, the Federal Deposit Insurance Corporation and other existing government bureaus.

Click here for the on-demand webcast 

Download: Blueprint For A Modernized Financial Regulatory Structure

Press Release: Zaio Launches Propertywise Qualified Appraisal Program

Press Release: SCOTTSDALE, AZ, March 31 /CNW/ - Zaio Corporation (TSX-V: ZAO) and its Scottsdale, Arizona-based subsidiary Zaio Inc. announce the launch of the Propertywise Qualified Appraisal Program

Mortgage brokers can place a Propertywise Qualified Appraisal order (see order) through Zaio's new technology platform. Zaio will assign the order to an independent, pre-screened appraiser.

When the appraisal is returned to Zaio, (see example) Zaio will review the appraisal, and reconcile the value against automated risk indicators. Once completed, the appraisal will be delivered to the broker along with a Propertywise Seal of Approval, which indicates to the broker and to investors that the appraisal was independently ordered and reviewed.

GMAC ResCap recently reached an agreement to use Zaio's Propertywise Qualified Appraisal program for certain mortgages purchased through their Homecomings Financial wholesale channel.

Unbiased, quality appraisals are essential to the foundation of mortgage lending. Fannie Mae and Freddie Mac recently proposed changes to appraisal practices based on concern about appraiser pressure.

GMAC-ResCap worked with Zaio to create quality control procedures that promote the independence contemplated in the proposed Home Valuation Code of Conduct, and deliver high quality appraisal reports with great service to mortgage brokers.

Related Article: Download AppraisalBuzz_GMAC_Zaio_Deal.pdf

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Organizational Committee Issues Q&A and Endorsement Letter for the Alternative Dodd/Crowley IVPI Proposal

According to George W. Dodd, SRA, he and his committee (Download DC_IVPI_Members.pdf) have developed an Independent Valuation Protection Institute (IVPI) proposal that outlines and offers an alternative to the IVPI agreed to by Cuomo and the GSEs - Fannie Mae and Freddie Mac.

The Dodd/Crowley IVPI proposal dated March 17,2008 - (Download IVPI_Proposal.pdf ):

1. Provides significant improvements over the current ordering, processing, and review of appraisals. 
2. Establishes the “Vault” which will provide the ability to maintain the appraisal reports in an environment that is free from fraud and abuse.
3. And provides a central location that Investors can access to verify authenticity an appraisal.

Over the past three weeks, the IVPI Organizational Committee has reviewed hundreds of forum postings, emails, and private messages to committee members on those key topics and more.  Naturally there that been many, many question on the details of the plan and how it would effect both individual appraisers and appraisal firms.

From appraiser comments, the committee has developed a consensus opinion of the Core Issues with the Dodd/Crowley IVPI.  They've addressed five of them in their first in a series of IVPI Proposal Q&A's.

Dodd/Crowley Independent Valuation Protection Institute (IPVI) Q&A #1:  Download IVPI_Questions_And_Answers.pdf

The Committee assures readers: Questions which have not been addressed in this Q&A are under review, consideration, and in-depth discussion on a daily basis. Subsequent Q&A's will address those concerns and be published on the Appraisal Scoop blog.

Click here for "IVPI Contacts" and the IVPI "Endorsement Letter"

Treasury Department's Blueprint For Overhauling U.S. Financial Requlatory Structure

According to the Washington Post article: Treasury Wants to Reshape Regulation by David Cho on 3/29/2008:

The Treasury Department on Monday will propose a far-reaching overhaul of the nation's financial regulatory structure that would reshape the relationship between Wall Street and Washington and redefine the responsibilities of some of the federal government's most powerful agencies, according to administration officials.

The initiative calls for some long-standing government agencies to combine and others to disappear. Major players at the core of the nation's financial system, including banks, securities firms, insurance companies, commodity investors, and mortgage firms and brokers, may have to submit to increased oversight.

The New York Times says: (click here)

The Treasury Department is rushing to complete its own blueprint for overhauling what is now an alphabet soup of federal and state regulators that often compete against each other and protect their particular slices of the industry as if they were constituents.

“What we’re looking at in our blueprint is how to make our regulatory structure more efficient, less duplicative and more in line with today’s capital markets,” said David G. Nason, assistant secretary of the Treasury for financial institutions. “We’ve got five regulatory agencies focused on depository institutions. We’re one of the only countries in the world that separates securities from futures, and our regulation of insurance is solely at the state level.”

The Huffington Post says: (click here)

The Treasury Department will propose on Monday that Congress give the Federal Reserve broad authority to oversee financial market stability, in effect allowing it to send SWAT teams into any corner of the industry or any institution that might pose a risk to the overall system.

The proposal is part of a sweeping blueprint to overhaul the country's hodge-podge of regulatory agencies, which many specialists say failed to recognize rampant excesses in mortgage lending until after they triggered what is now the worst financial calamity in decades.

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Fidelity National (FNIS) First To File with SEC for Lender Processing Unit Spinoff

According to the MarketWatch story (click here) by Bhattiprolu Murti, Fidelity National Information Services Inc.'s (FIS) Lender Processing Services Inc. unit Thursday filed for its proposed spinoff from the company.   

"That unit currently handles more than 50 percent of the mortgage loans processed in U.S. and generated 9.4 percent of Fidelity National's $4.8 billion in total revenue last year."

Fidelity, a Jacksonville, Fla., financial data-processing company also said it can't predict now how it would be affected by Fannie Mae and Freddi Mac's (FRE) adoption of a new home valuation code of conduct.

Separately, the company said government-sponsored enterprises Fannie and Freddie recently adopted the home valuation code of conduct, which prohibits mortgage lenders from using any appraisal report if there are any potential conflicts of interest.

Fannie and Freddie have agreed that they won't purchase any single-family mortgage loans - other than government-insured loans - originated after Jan. 1, 2009, from mortgage originators that haven't adopted the code for those loans.

In a separate Wall Street Journal article (click here)

Fidelity National Information Services Inc., which is seeking federal approval to spin off a unit that processes data for major mortgage providers, warned that its business could be harmed by heightened government inquiry into the U.S. lending crisis and new regulations that may result.

In a filing with the Securities and Exchange Commission, Fidelity National said that lawsuits or tighter regulations that may ensue from state and federal probes of mortgage-lending practices in response to the housing-market collapse "could have adverse consequences that could affect our business."

FIS says at this time it is unable to predict the ultimate effect of the code on its business or results of operations, but intends to participate in the comment process that ends April 30.

Fidelity National could also benefit from the new regulations, as this could result in a flood of business for its subsidiary LSI from lenders seeking government-sanctioned home valuations.

For the full MarketWatch story (click here)

For the FINS Newroom - click here

Appraisal Institute Surveys Members on the Home Valuation Protection Program (HVPP)

The Appraisal Institute has issued a memo asking for member input on the agreement announced on March 3, 2008 between Fannie Mae/Freddie Mac, the New York Attorney General's Office, and the Office of Federal Housing Enterprise Oversight (OFHEO).

The Agreement resulted in the Home Valuation Protection Program and Cooperation Agreement including the Home Valuation Code of Conduct. In addition, the Agreement calls for the formation of the Independent Valuation Protection Institute, which will handle complaints from consumers and appraisers.

Your input on the Home Valuation Protection Program is very important. The Appraisal Institute will provide a summary of comments from members to OFHEO by April 30, 2008.

We have prepared a survey, which will take only a few minutes of your time. To take part, please click on the link below (or copy and paste the URL into your Web browser): http://websurveyor.net/wsb.dll/36470/AIHVPPSURVEY.htm

If you would like to learn more about the Agreement before taking the survey, please click on the following link: http://www.appraisalinstitute.org/newsadvocacy/cuomofanniefreddie.aspx

Thank you in advance for your time. Though the survey will remain open through Friday, April 4, we would appreciate your input as soon as possible.
 
Best Regards,

Appraisal Institute Research Department

Sen. Feinstein Urges Passage of the Feinstein-Martinez SAFE Mortgage Licensing Act (S.2595) to Create National Standards for Mortgage Brokers and Lenders

Press Release (click here) Los Angeles – U.S. Senator Dianne Feinstein (D-Calif.) and Los Angeles Mayor Antonio Villaraigosa today called for Congress to pass legislation to create national licensing and oversight standards for mortgage brokers and lenders. Mayor Villaraigosa also announced his endorsement of the legislation – the SAFE Mortgage Licensing Act -- introduced by Senators Feinstein and Mel Martinez (R-Fla.) in February.  Read the bill.

“The subprime mortgage brokerage and lending business is like peeling the skin of an onion,” Senator Feinstein said. “As you peel it back, you find that there are fraudulent and unethical practices. You find that often an individual’s financial qualifications to own a home are not verified. People are given mortgages they cannot afford. They are not informed about rate resets. And some are told that their taxes are included when they are not. 

Others, such as Patricia Simmons, who joined us today, find themselves paying huge commissions that are buried in hundreds of pages of documents. “The fact is that there are bad actors in the mortgage lending and brokerage business. They must be stopped. The time has come for national licensing standards to replace the thin patchwork of state regulations.”

“Too many families across this nation have seen their dream of home ownership become a nightmare due to questionable lending practices that hurt consumers,” said Mayor Villaraigosa. “Los Angeles has been especially hard hit by the mortgage crisis, and it is time for Congress stand up for America’s working families by taking action to fix a broken system.

Today, mortgage brokers and lenders are licensed by the states, leaving a thin patchwork of regulation. In the absence of uniform national standards, accountability has not kept pace with the increasing sophistication of the mortgage industry.

The Feinstein-Martinez SAFE Mortgage Licensing Act (S.2595) would:

• Establish national licensing and oversight standards for all residential mortgage brokers and lenders.
• It would also create a public database, allowing homebuyers to check whether their mortgage brokers and lenders are professionally licensed.
• Require that brokers and lenders have no felony convictions;
• Require brokers and lenders pass 20 hours of approved educational requirements, including courses on consumer protection and subprime lending.

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Market Modeling and the Real Property Appraiser - Part III

Author: David A. Braun, MAI, SRA (President, Braun & Associates, Inc.) has been actively engaged in real estate appraisal, review, and consulting since 1976. In this period, assignments have been performed throughout East Tennessee for numerous clients

This is the final part of a three part article on "market modeling". The purpose of this series of articles is to introduce real property appraisers to the concept of market modeling in a way that helps remove the mysterious cloak surrounding it.

In Part I we discussed that market modeling covers AVMs, matched pairs, regression, artificial intelligence, and expert systems. The article pointed out that appraisers perform market modeling every time they fill out a sales grid when performing the Direct Comparison Approach. In theory, even the most complex AVM program can be duplicated by hand calculations.

The climax of Part I was that all of the methods represent one science; as their purpose and nature are all similar. In fact, appraisers know a lot more about market modeling than they think. A regression application that I programmed in Excel was provided (Excel utility) so that appraisers could get some hands on experience with automated modeling.

The video tutorial was designed to give the appraiser enough information to use the application; but was not intended to be a "how-to" for regression analysis. Based on feedback from many of you, the application that I provided was very functional and much easier to use than many other programs available to the appraiser. My goal was for appraisers to see that applying a proper regression analysis intended to extract adjustments was much more labor and time intensive than we had been told.

In Part II we focused on regression analysis and laid out some requirements and goals that would be necessary for any market modeling system to be used in everyday appraising. These were:

1. Produce a more reliable (accurate) value opinion without adding too much time.
2. Shorten the time to perform an appraisal of equal quality.

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Runt Rants - How Do Appraisal Management Companies (AMC) Fit Into The Proposed Cuomo "Home Valuation Code of Conduct" Agreements?

Author: Ken Verrett is the owner of Acorn Appraisal Associates, a 22 year old firm offering a wide range of quality appraisal services to the Financial and Business Communities. kverrett@oak-acorn.com

There are plenty of articles appearing now analyzing the Cuomo Agreements and the HVCC proposal. I’m going to focus on what I believe all that could mean to our appraisal businesses.

SETTING THE STAGE: WHO DID IT?

Appraisers complained for years about value pressure and the need to be insulated from it. A major player has used its annual surveys to highlight that issue for years. It has been a major topic at appraisal forums for years.

I've also stated for years that value pressure from Appraisal Management Companies (AMC) clients is non existent in our experience. I'm an average kind of guy with an average kind of business, which does an above average amount of AMC business. I'm guessing that other businesses that serve the AMC market have had the same experience.

I'm also guessing that as Cuomo canvassed the nation for the last year talking to appraisers about where the problems were, he and his staff detected the same patterns over and over. Value pressure comes from those who have skin in the transaction closing. Mortgage brokers and local loan officers who are judged by the loans they close have skin in the transaction. Many appraisers have reported that others are unable to resist that pressure. AMCs don't have skin in the game and weren't the source of value pressure. In fact, part of the role of major AMCs is to provide quality Control (QC) and review...functions formerly done by the lender, but now farmed out to the AMC. The skin the AMCs have in the transaction are in quality and service.

Cuomo, being the astute guy he clearly is, may have concluded local lenders and mortgage brokers were providing value pressure on the appraiser; that AMCs were a functioning reality which did not provide value pressure and those AMCs could in part solve the problem.

He therefore may have crafted his solution; the Cuomo Agreements and the HVCC. Appraisers got what they asked for, and as often is the case, the solution was not exactly what they bargained for....

It wouldn’t surprise me if the AMC solution was not a primary focus of the Agreements; an unintended consequence. The Agreements would let the market solve the problem of how to create the firewall between the folks with skin in the transaction. The AMCs, having been around for years and currently the firewall of choice for the major lenders, might be the likely winner.

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