Appraisal Scoop

20 Benefits of the Full-Fee Appraisal Management Company (AMC) Model

AUTHOR: Jeff Schurman is the executive director of Leading Causes LLC ( www.leadingcauses.com ), a leadership and business development advisory firm that helps mortgage lenders and third-party service providers to assess strategic, operations, reputation, reporting, and compliance risks that accompany sourcing of real estate mortgage settlement services. He is the editor of the Mortgage Third Party Risk Blog (www.mortgagethirdpartyriskblog.com ), and the former executive director of the Title Appraisal Vendor Management Association.

From Jeff Schurman's white paper:  Download The AMC Full-Fee Hypothesis - Jeff Schurman

"In this section, we propose that there are at least 20 self-serving benefits to the AMC industry by paying appraisers their full-retail fees. We rely extensively on research we and others have conducted, our extensive combined interactions with appraisers and AMC industry leaders, and basic economic principles, chief among them supply and demand. Most of our observations are grounded in free market behaviors among buyers and sellers of settlement services. Significantly, much of the rationale is grounded in the discipline generally known as systems thinking."

Paying appraisers their full (or retail) fees…

1. Removes the single-largest barrier to acceptance of AMC as legitimate business partners.

2. Increases the supply of appraisers willing to work with AMCs.

3. Encourages new appraisers to enter the appraisal profession.

4. Leads to better control of appraisal quality.

5. Lowers costs for recruiting, quality control, and rework.

6. Enables AMCs to gain market share.

7. Provides AMCs rationale to charge lenders for the actual value the AMC brings to the transaction.

8. Enables AMCs to provide clients quantifiable means with which to compare AMC alternatives.

9. Reduces third-party risks described in numerous FFIEC Financial Institution Letters and agency guidelines.

10. Promotes less contentious treatment of AMCs.

11. Takes the subjective “customary and reasonable” fee requirement in the Dodd-Frank bill off the table.

12. Paves the way for nationalizing AMC regulation.

13. Provides clients better overall service quality.

14. Preempts external efforts of factions to force AMCs to pay up.

15. Is the most ethical thing to do in a fair and equitable society.

16. Allows for significantly improved vendor relations between the AMC and the appraiser.

17. Reduces the risk that disgruntled appraisers will draw the attention of federal regulators.

18. Provides joint marketing opportunities because appraisers will see the AMC as worth promoting.

19. Opens the door to a better borrower experience because the appraiser doesn’t enter the home angry.

20. Opens the door for joint publicity efforts because appraisers will feel like partners.

 

 Download The AMC Full-Fee Hypothesis - Jeff Schurman

Appraisal and AMC Fees Separated on Revised Settlement Forms

The Consumer Financial Protection Bureau released the second proposed version of a new Consumer Disclosure Form Feb. 1 that includes clear disclosure of any fee paid to a “Local Appraisal Company” and to an “Appraisal Management Company.” 

The Appraisal Institute reported last month that the CFPB is in the midst of developing a new form that would replace the existing HUD-1 settlement statement. In December 2011, Appraisal Institute representatives met with CFPB officials about the new form.

The CFPB has indicated that several versions of the proposed form will be developed and tested with consumers by focus groups, with a proposed rule to be released this summer.

Click Here to read the complete article at the Appraisal Institute's Opinions of Value site.

American Guild of Appraisers Files Request with Federal Reserve Board Seeking Documents Related to Regulations on Customary and Reasonable Compensation of Fee Appraisers

WASHINGTON, Jan. 23, 2012 /PRNewswire-USNewswire/ -- On behalf of the American Guild of Appraisers, today the law firm Garvey Schubert Barer filed a request with the Federal Reserve Board under the Freedom of Information Act seeking a wide variety of documents related to the regulations on customary and reasonable compensation of fee appraisers that were issued by the Board in October 2011. 

In announcing this action, Guild President Peter Vidi said, "It is clear that appraisal management companies have interpreted rules issued by the Fed as permitting practices that result in real estate appraisers being compensated at levels that are far below 'reasonable and customary fees' as required in the Dodd Frank Law.  We want to learn whether the Fed intended this result and if so why."

Vidi continued, "we hope that these documents will shed light on why the Board chose to create two conflicting 'safe harbors' for compliance with these regulations, one of which permits Appraisal Management Companies to rely upon the considerably lower rates that they themselves pay appraisers in determining what compensation is considered 'customary and reasonable' in direct violation of the Dodd Frank law.  To this end, we have asked for all internal and external correspondence related to their development of these regulations, as well as documents such as meeting records, studies, reports and other information considered by the Board in the development of the regulations."

The formal request under the Freedom of Information Act seeks all documents that chronicle any consideration given by the Board, after having issued the regulations, to the public comments submitted to them, many of which pointed out the problems created by the safe harbor provisions, as well as to any follow-up actions that might be taken to correct these problems.   "We are hopeful that these documents will allow us to better understand the seriousness with which these issues have been considered and the potential for future corrective action," Vidi noted.

The Guild previously announced that it had retained a law firm to explore all avenues including possible litigation to correct a regulation that is in violation of the Dodd Frank law.  The FOIA request is a next step in determining the best means to get the problem resolved.  

This reduction in fees to appraisers of up to 50 percent and amounting to more than $100 million according to industry experts, does not result in any savings for homebuyers because the appraisal management firms have not reduced fees charged to lenders and passed on to borrowers.  Instead, according to Vidi, the quality and reliability of appraisals is being degraded and many competent appraisers are leaving the profession.  "The appraisal fee provisions in Dodd Frank were intended to ensure the independence of appraisers and the integrity of the appraisal process.  Simply put, this is not what is happening," Vidi said. 

ABOUT THE AMERICAN GUILD OF APPRAISERS/OPEIU GUILD 44
The American Guild of Appraisers/OPEIU Guild 44 seeks to represent the interests of appraisers, developing a strong presence before the U.S. Congress and each of the state legislatures.  By working closely and exchanging dialog with other like-minded organizations, the AGA works to educate consumers about the appraisers' non bias, independent role in the value process, while ensuring the accountability of both the appraisal profession and the financial institutions with which the appraiser provides services.

ABOUT OPEIU
The Office and Professional Employees International Union represents more than 110,000 members (representing 125,000 employees) in the United States, Puerto Rico and Canada. OPEIU represents employees and independent contractors in banking and credit unions, insurance, higher education, shipping, hospitals, medical clinics, utilities, transportation, hotels, administrative offices and more.

Professional organizations and Guilds affiliated with OPEIU are a diverse group that includes physicians, pharmacists, chiropractors, appraisers, podiatrists, clinical social workers, hypnotists, teachers and helicopter pilots.

SOURCE Office and Professional Employees International Union, AFL-CIO (OPEIU)

Read more: http://www.digitaljournal.com/pr/558017#ixzz1lLjkamwj

GAO Recommendation: Appraisal Subcommittee Needs to Improve Monitoring Procedures

Why GAO Did This Study

Real estate appraisals have come under increased scrutiny in the wake of the recent mortgage crisis. Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 created an oversight structure for appraisals and appraisers that involves state, federal, and private entities. This structure includes ASC, a federal agency responsible for monitoring these entities’ Title XI-related activities. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) expanded ASC’s Title XI role and required GAO to examine ASC’s activities and exemptions to federal appraisal requirements. This report discusses (1) how ASC is carrying out its original Title XI responsibilities, (2) ASC’s actions and plans to implement Dodd-Frank Act provisions, and (3) regulatory dollar thresholds for determining when an appraisal is required. To do this work, GAO reviewed ASC records and reports, surveyed state appraiser regulatory agencies, analyzed government mortgage data, and interviewed industry stakeholders.

Full Report:  GAO-12-147 Click Here

What GAO Found

The Appraisal Subcommittee (ASC) has been performing its monitoring role under Title XI, but several weaknesses have potentially limited its effectiveness. For example, Title XI did not originally provide ASC rulemaking and enforcement tools that could be useful in promoting state compliance. In addition, ASC has not reported or clearly defined the criteria it uses to assess states’ overall compliance levels. Title XI charges ASC with monitoring the appraisal requirements of the federal financial institutions regulators, but ASC has not defined the scope of this function—for example, by developing policies and procedures—and its monitoring activities have been limited. ASC also lacks specific policies for determining whether activities of the Appraisal Foundation (a private nonprofit organization that sets criteria for appraisals and appraisers) that are funded by ASC grants are Title XI-related. Not having appropriate policies and procedures is inconsistent with federal internal control standards designed to promote effectiveness and efficiency and limits the accountability and transparency of ASC’s activities.

ASC faces potential resource and planning challenges in implementing some Dodd-Frank Act provisions. ASC has only 10 staff and is funded by appraiser registration fees that totaled $2.8 million in fiscal year 2010. The Dodd-Frank Act expands ASC’s responsibilities and authorities.

For example, the act requires ASC to establish a national appraiser complaint hotline and provide grants to state appraiser regulatory agencies, and it gives ASC limited rulemaking and enhanced enforcement authorities to help address prior weaknesses.

As of October 2011, ASC had completed several implementation tasks that required no rulemaking or creation of new programs and was in various stages of progress on the others. The potentially resource-intensive nature of some remaining tasks will require careful planning. For example, operating a complaint hotline may require investments in information technology and the creation of screening and follow-up procedures. Also, implementing a grant program will require ASC to set aside funds, develop funding criteria, and oversee grantees. ASC is in the process of developing a strategic plan to help carry out these efforts with available resources.

GAO found that more than 70 percent of residential mortgages made from 2006 through 2009 were $250,000 or less—the regulatory threshold at or below which appraisals are not required for transactions involving federally regulated lenders. In recent years, however, the threshold has had a limited impact on the proportion of mortgages with appraisals because mortgage investors and insurers such as Fannie Mae, Freddie Mac, and the Federal Housing Administration have generally required appraisals for mortgages both above and below the threshold.

While these entities currently dominate the mortgage market, federal plans to scale them back could lead to a more privatized market, and whether this market would impose similar requirements is not known. None of the appraisal industry stakeholders GAO spoke with argued for increasing the threshold. Some stakeholders said the threshold should be lowered or eliminated, citing potential benefits to risk management and consumer protection.

Others noted potential downsides to lowering the threshold, such as requiring more borrowers to pay appraisal fees and requiring appraisals on more transactions for which cheaper and quicker valuation methods may be sufficient.

What GAO Recommends

To help ensure effective implementation of ASC’s original Title XI and additional Dodd-Frank Act responsibilities, ASC should clarify and report the criteria it uses to assess states’ overall compliance with Title XI and develop specific policies and procedures for its other monitoring functions. GAO provided a draft of this report to ASC and seven other agencies. ASC and two other agencies agreed with the report’s recommendations. One agency did not comment on the recommendations, and the others did not provide written comments

SOURCE: GAO-12-147 - January 18, 2012

American Guild of Appraisers Fights to Overturn Federal Regulations that Dramatically Cut Fees and Threaten Profession

WASHINGTON, Nov. 7, 2011 /PRNewswire-USNewswire/ -- The American Guild of Appraisers (AGA), a national organization of real estate appraisers that is an affiliate of the AFL-CIO's Office and Professional Employees International Union (OPEIU), announced today it has retained a law firm as part of a broad-reaching effort to overturn recent federal regulations that dramatically cut the fees that appraisers are paid to perform appraisals, and threaten the viability of professional appraisal practice and the reliability of appraisals used in real estate transactions.

In the aftermath of the national financial collapse brought on in part by badly underwritten subprime loans, Congress found that inadequate appraisals resulting from undue pressure on the appraisal process was a contributing factor.  To address the problem, Congress enacted a series of appraisal reforms in the Dodd Frank law to ensure appraiser independence and accountability.  A key component of the legislation is a requirement that appraisers be paid Reasonable and Customary fees for their work.  Under the legislation, Reasonable and Customary fees are defined to ensure that appraisers are not undercompensated relative to the market and the nature of the assignment.  Responding to evidence that Appraisal Management Companies (AMC's) have been dominating the market and pressuring appraisers to accept assignments with unreasonable requirements and unreasonably low fees, the law specifically prohibits basing fees on the current practices of Appraisal Management Companies.   

Earlier this year, however, the Federal Reserve Board adopted implementing rules that have been interpreted by the banking industry and AMC's as permitting paying appraisers a fraction of Reasonable and Customary fees.  Appraisal industry experts also point out that in addition to controlling virtually all of the business, AMCs also dictate the turn-times for assignments that, in many cases, have been unreasonably set at 24 hours while at the same time increasing the details and requirements for documentation in the appraisal report.   

According to AGA President, Peter Vidi Jr. this is a big problem for appraisers, consumers and taxpayers.  "To understand this problem and its impact, first you have to follow the money," said Vidi.  "A borrower is required by the lender to pay an appraisal fee that represents whatever is Reasonable and Customary in that market. What the borrower doesn't know is that perhaps less than half of the fee that they are required to pay is actually going to the appraiser who performs the appraisal.  The rest, often more than half of the fee, goes to the appraisal management company.  AMC's are often owned or controlled by lenders and make big profits without the borrower's knowledge that his fee is an additional profit center for the lender or the subsidiary management company at the expense of the borrower.  Additionally, since the implementation of recent, well intended but poorly implemented federal legislation, the vast majority of appraisals for mortgages have been ordered through Appraisal Management companies that drive the fees down to professional appraisers while requiring the consumer to pay market rates.

"Why should anyone care?  If an appraiser is not paid a Reasonable and Customary fee and forced to comply with unrealistic turn-times for an appraisal assignment then the quality of the work product suffers," Vidi continued.  "Fees that are a fraction of Reasonable and Customary, along with the unrealistic and 'creeping' appraisal requirements are driving many good appraisers out of the profession.  We are seeing unprecedented numbers of seasoned appraisers leaving the market. Those that remain are forced to cram more appraisals into the workweek in order to earn a living.  The result inevitably will be less reliable appraisals and another round of poorly underwritten loans that could help to destabilize a fragile economy. The American Guild of Appraisers feels that it is time to take a stand for the professional real estate appraiser."

"From a legal standpoint, it's quite clear that Congress intended that appraisers be paid Reasonable and Customary fees and that most appraisal management companies are simply violating the law," said Matt Schneider with Garvey Schubert Barer, the law firm retained to represent the AGA.  "Unfortunately, the Federal Reserve has adopted regulations that AMC's are interpreting as permitting and validating their practice of paying appraisers a fraction of what is a Reasonable and Customary fee.  Regrettably, so far the Fed has been unwilling to take any action to ensure that both its regulations and the behavior of AMC's comply with the law."

Schneider said that his firm is reviewing all of the facts and the law and will be advising the AGA as to what options are available for legal action that may include a lawsuit against the Federal Reserve Board.

"Taking legal action against the Federal Reserve is not something that the appraisal industry would do lightly, but there may be no other option," said Vidi.  "This is far too important an issue to appraisers and consumers to simply walk away.  We are fighting for our livelihood and for the integrity of the work that we do."  

OPEIU President Michael Goodwin said that OPEIU and the AFL-CIO and their millions of members stand firmly behind the AGA.  "We support concerted action by the American Guild of Appraisers to protect the integrity of professional appraisal practice and the profession by ensuring that the federal agencies carry out the intent of the law."

ABOUT THE AMERICAN GUILD OF APPRAISERS/OPEIU GUILD 44
The American Guild of Appraisers/OPEIU Guild 44 seeks to represent the interests of appraisers, developing a strong presence before the U.S. Congress and each of the state legislatures.  By working closely and exchanging dialog with other like-minded organizations, the AGA works to educate consumers about the appraisers' non bias, independent role in the value process, while ensuring the accountability of both the appraisal profession and the financial institutions with which the appraiser provides services.

ABOUT OPEIU
The Office and Professional Employees International Union represents more than 110,000 members (representing 125,000 employees) in the United States, Puerto Rico and Canada. OPEIU represents employees and independent contractors in banking and credit unions, insurance, higher education, shipping, hospitals, medical clinics, utilities, transportation, hotels, administrative offices and more.

Professional organizations and Guilds affiliated with OPEIU are a diverse group that includes physicians, pharmacists, chiropractors, appraisers, podiatrists, clinical social workers, hypnotists, teachers and helicopter pilots.

 

SOURCE Office and Professional Employees International Union, AFL-CIO (OPEIU)

RELATED LINKS
http://www.opeiu.org

Article Source: WASHINGTON, Nov. 7, 2011 /PRNewswire-USNewswire/

NAIHP Files Formal Complaint Against Fannie/Freddie Regulator Over HVCC Alleged Cover-Up

WASHINGTON, DC, Oct 14, 2011 (MARKETWIRE via COMTEX) -- NAIHP has filed a formal complaint with the Inspector General's Office, alleging Fannie/Freddie and their regulator agreed to the terms of the Home Valuation Code of Conduct (HVCC) as part of a plea bargain like agreement to avoid further investigation by the New York Attorney General's Office.

In December of 2008, Fannie Mae, Freddie Mac and the Federal Housing Finance Agency (FHFA), agreed to the final version of HVCC on the condition then New York Attorney General Andrew Cuomo, drop the GSE's from his valuation fraud investigation.

"In May of 2008, I met with Fannie Mae General Counsel Beth Wilkinson. During our meeting, I asked the G.C. why Fannie signed on to the HVCC agreement. Her exact words were, 'Cuomo has his foot in our throats.' 

Amongst other evidence, this supports our allegation that the GSE's only signed the agreement to escape further investigation by Cuomo," said NAIHP President Marc Savitt.

NAIHP is vigorously pursuing copies of the tens of thousands of public comment letters received by the GSE's and the FHFA, with respect to the HVCC. NAIHP has made numerous requests for these letters, all of which have been denied. A formal request through the Freedom of Information Act (FOIA) is being
prepared.

In a May 19, 2010 letter to Andrew Cuomo, FHFA Acting Director Edward DeMarco stated, "The Home Valuation Code of Conduct deployed by Fannie Mae and Freddie Mac was implemented after taking extensive market place comments." "Refusing to release the comment letters after admitting they relied upon them when implementing the HVCC suggests the letters fail to support the code's implementation and the FHFA is deliberately withholding this information from the public and Congress," said Savitt.

According to the NAIHP: Since HVCC was implemented on May 1, 2009, valuation fraud has risen by over 50%, appraisal quality has decreased substantially, thousands of appraisal professionals have been forced out of business and home values have continued to decline. Additionally, new appraisal rules have created a sharp increase in settlement costs for consumers.

Although, the HVCC agreement expired late last year, it's been replaced by similar language in the Dodd-Frank Act and GSE guidelines. NAIHP will continue to work with Congress and the CFPB on this important issue.

National Association of Independent Housing Professionals. 601 Pennsylvania Ave NW. Ste. 900 Washington, DC 20004

Contact: Marc Savitt 540-550-4496

SOURCE: National Association of Independent Housing Professionals

HUD Unveils New Web-Based Mapping Tool to Display Nearly Half of U.S. Foreclosed Properties

New portal will help communities target NSP Funds to stabilize hard-hit neighborhoods

HUD No. 11 -166
Brian Sullivan
(202) 402-7527

WASHINGTON – The U.S. Department of Housing and Urban Development today launched a new web-based mapping tool displaying the location of all foreclosed properties held by Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA).  These foreclosed homes collectively account for nearly half of all real estate-owned or REO properties in the U.S.  HUD’s REO Portal is intended to help local communities, homebuyers and responsible investors to acquire these properties and accelerate efforts to stabilize local housing markets.  Click Here: http://www.huduser.org/REO/reo.html

 This new mapping tool will be of particular help to those communities employing HUD’s Neighborhood Stabilization Program (NSP) in the targeted acquisition, rehabilitation and/or demolition of these REO properties.  The REO Portal’s consolidated graphic listing includes properties held by Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA).  The tool enables users to search a specific address or neighborhood, as well as estimated delinquency counts based on HUD analysis for local NSP program activities.

 “In this case, a picture is worth more than a thousand words,” said HUD Secretary Shaun Donovan.  “This new mapping tool gives local communities a much clearer picture of where these foreclosed properties are so they can focus their energies in especially hard-hit neighborhoods.”

 

  “HUD’s REO Portal gives prospective homebuyers and local community development organizations a comprehensive view of housing opportunities in their desired neighborhood,” said Ed Neill, Senior Vice President of Credit Loss Management at Fannie Mae. “The REO Portal supports Fannie Mae’s ongoing commitment to stabilizing neighborhoods by allowing buyers to search through a vast selection of houses and find one they can call their home.”

 Anthony Renzi, executive vice president of single family business and information technology at Freddie Mac added, “The HUD REO Portal gives buyers a terrific new tool for comparison shopping affordable homes, including Freddie Mac’s HomeSteps homes, in the neighborhood of their choice.   I want to thank Secretary Donovan for giving Freddie Mac the opportunity to help develop the REO Portal, which underscores our mission to foster stable communities and support the nation’s housing markets.”

 In partnership with Fannie Mae, Freddie Mac, FHA, and the Federal Housing Finance Agency, HUD’s Office of Policy Development and Research developed this REO web portal allowing users to map available REO properties in their local community.  In addition to mapping individual properties, the portal provides consolidated listing for user-defined neighborhoods with details such as list date, price, number of bedrooms, bathrooms, and links to Homepath (Fannie Mae), Homesteps (Freddie Mac), and HUD Homestore (FHA) to connect potential buyers to the acquisition process.  The REO Portal supports more efficient disposition of REO properties to support the stabilization of neighborhoods and recovery of local housing markets by enabling a neighborhood-focused, strategic approach to acquisition.

ASA/ NAIFA/ ASFRMA Letter to House Financial Services Subcommittee Urges Federal Agencies’ Reliance on Credentialed Appraisers

ASA/ NAIFA/ ASFRMA Letter to House Financial Services Subcommittee Urges Federal Agencies’ Reliance on Credentialed Appraisers, Criticizes Loophole In Federal Reserve Proposed Rule

On August 4th, ASA, joined by the National Association of Independent Fee Appraisers (NAIFA) and the American Society of Farm Managers and Rural Appraisers (ASFMRA) sent a letter to the House Subcommittee for Insurance, Housing, and Community Opportunity, expressing their views regarding the Subcommittee’s July 13 “Mortgage Origination” hearing.
 
In the letter, ASA, NAIFA and ASFMRA asserted that professional appraisals provide a “critical safety and soundness and consumer protection”, and pointed to a recent Government Accountability Office (GAO) report concerning real estate appraisals in support of the role played by appraisers in the underwriting process. The GAO found that real estate appraisals “play a critical role in mortgage underwriting by providing evidence that the market value of a property is sufficient to help mitigate losses if the borrower is unable to repay the loan”.

The letter also addressed the Federal Reserve Board’s implementation of the Appraisal Independence Provisions of Dodd-Frank, describing its Interim Rule as being flatly incompatible with the statutory requirement of Dodd-Frank that appraisers be paid customary and reasonable fees that exclude consideration of fees paid by AMCs to appraisers.

The letter also voiced serious disagreement with the criticisms leveled by the Appraisal Institute (AI) against The Appraisal Foundation (TAF) and the Federal Appraisal Subcommittee (ASC). The letter states that ASA, NAIFA, and ASFMRA firmly back TAF, arguing that its work is a fundamental asset to the continued growth of appraiser professionalism and the reception by federal and state agencies of Uniform Standards of Professional Appraisal Practice (USPAP). The letter goes on to voice support for the newly created Appraisal Practices Board (APB) of TAF, stating that the need for a uniform set of best practices for the professional real estate appraisers (particularly the roughly 70,000 unaffiliated appraisers) is critical.

The letter did, however, also concur with AI’s assessment of the ongoing implementation of the Dodd-Frank Act, specifically as it relates to the issues of customary and reasonable fees, separate fee disclosures on the HUD-1 form, and the use by Fannie Mae and Freddie Mac of the Uniform Appraisal Dataset (UAD).
 
About ASA
The American Society of Appraisers is an international organization of appraisal professionals and others dedicated to the education, development and growth of the appraisal profession. ASA is the oldest and only major organization representing ALL disciplines of appraisal specialists, originating in 1936 and incorporating in 1952. ASA’s headquarters is in the metropolitan Washington, D.C. area. To find an accredited appraiser near you, visit http://www.appraisers.org or call (800) 272-8258.

Christy Jones
American Society of Appraisers
(703) 733-2124

Source:  Reston, VA (PRWEB) August 15, 2011

GAO Report: Residential Appraisals - Opportunities to Enhance Oversight of an Evolving Industry

Thanks to Dave Towne of Towne Appraisals for sending this document:

Per the Dodd-Frank law, the General Accounting Office (GAO) was required to produce a report concerning appraisals. It has been released. You can access a copy at this link: http://www.gao.gov/new.items/d11653.pdf  

What GAO Found

Data GAO obtained from the enterprises and five of the largest mortgage lenders indicate that appraisals—which provide an estimate of market value at a point in time—are the most commonly used valuation method for first-lien residential mortgage originations, reflecting their perceived advantages relative to other methods. Other methods, such as broker price opinions and automated valuation models, are quicker and less costly but are viewed as less reliable and therefore generally are not used for most purchase and refinance mortgage originations. Although the enterprises and lenders GAO spoke with do not capture data on the prevalence of approaches used to perform appraisals, the sales comparison approach—in which the value is based on recent sales of similar properties—is required by the enterprises and the Federal Housing Administration and is reportedly used in nearly all appraisals.

Recent policy changes may affect consumer costs for appraisals, while other policy changes have enhanced disclosures to consumers. Consumer costs for appraisals vary by geographic location, appraisal type, and complexity. However, the impact of recent policy changes on these costs is uncertain. Some appraisers are concerned that the fees they receive from AMCs—firms that manage the appraisal process on behalf of lenders—are too low.

A new requirement to pay appraisers a customary and reasonable fee could affect consumer costs and appraisal quality, depending on how new rules are implemented. Other recent policy changes aim to provide lenders with a greater incentive to estimate costs accurately and require lenders to provide consumers with a copy of the valuation report prior to closing.

Conflict-of-interest policies, including HVCC, have changed appraiser selection processes and the appraisal industry more broadly, which has raised concerns among some industry participants about the oversight of AMCs. Recently issued policies that reinforce prior requirements and guidance restrict who can select appraisers and prohibit coercing appraisers. In response to market changes and these requirements, some lenders turned to AMCs to select appraisers.

Greater use of AMCs has raised questions about oversight of these firms and their impact on appraisal quality. Federal regulators and the enterprises said they hold lenders responsible for ensuring that AMCs’ policies and practices meet their requirements for appraiser selection, appraisal review, and reviewer qualifications but that they generally do not directly examine AMCs’ operations. Some industry participants said they are concerned that some AMCs may prioritize low costs and speed over quality and competence.

The Act places the supervision of AMCs with state appraiser licensing boards and requires the federal banking regulators, the Federal Housing Finance Agency, and the Bureau of Consumer Financial Protection to establish minimum standards for states to apply in registering AMCs. A number of states began regulating AMCs in 2009, but the regulatory requirements vary. Setting minimum standards that address key functions AMCs perform on behalf of lenders would enhance oversight of appraisal services and provide greater assurance to lenders, the enterprises, and others of the credibility and quality of the appraisals provided by AMCs.

Conclusions

Because appraisals provide an estimate of market value at a particular point in time, they are affected by changes in the housing and mortgage markets. In recent years, turmoil in these markets has heightened attention on residential property valuations, and appraisals in particular. The prominent role of appraisals in the mortgage market underscores the importance of efforts to better ensure appraisal quality. HVCC, the Act, and federal banking regulator guidance have sought to address some of the factors that can affect appraisal quality, including appraiser independence and compensation. In addition, the enterprises are undertaking an initiative to collect detailed and standardized appraisal data that could provide them with greater insight into appraisal practices for the mortgages they purchase.

Partly in reaction to appraiser independence requirements, lenders have increasingly relied upon AMCs to perform certain functions. Despite the increased use of AMCs, direct federal oversight of AMCs is limited because the focus of regulators is primarily on lenders, and state-level requirements for AMCs are uneven, ranging from no laws to laws with specific standards for registering with the state. Some appraisal industry participants have raised concerns that the management practices of some AMCs may be negatively affecting appraisal quality.

Among the areas of concern are AMCs’ practices for key functions, including selecting appraisers for assignments, reviewing completed appraisal reports, and establishing qualifications for appraisal reviewers.

The federal banking regulators have emphasized the importance of these functions in guidelines that apply to lenders’ appraisal functions. The Act requires the federal banking regulators and other federal agencies to set minimum state standards for registering AMCs, which provides an opportunity for the regulators to address these areas of concern and promote more consistent oversight of these functions, whether performed by lenders or AMCs. Doing so could help to provide greater assurance to lenders, the enterprises, and federal agencies of the quality of the appraisals provided by AMCs.

 Recomendation for Executive Action

To help ensure more consistent and effective oversight of the appraisal industry, we recommend that the heads of FDIC, the Federal Reserve, FHFA, NCUA, OCC, and the Bureau of Consumer Financial Protection— as part of their joint rulemaking required under the Act—consider including the following areas when developing minimum standards for state registration of AMCs: criteria for selecting appraisers for appraisal orders, review of completed appraisals, and qualifications for appraisal reviewers.

   Click HERE for the complete GAO Report

Webcast: “Mortgage Origination: The Impact of Recent Changes on Homeowners and Businesses”

Wednesday, July 13, 2011 2:00 PM in 2128 Rayburn HOB
Insurance, Housing and Community Opportunity

Click herefor the Archived Webcast of this hearing. Mark Savitt's testimony beings at approximately 1 hour and 35 minutes into the hearing.

Of particular interest to appraisers are the testimonies of:

Mr. Marc Savitt, President, The Mortgage Center, on behalf of the National Association of Independent Housing Professionals

Ms. Sara Stephens, President Elect, Appraisal Institute

Mr. Don Kelly, Executive Director, Real Estate Valuation Advocacy Association (REVAA), on behalf of REVAA and the Coalition to Facilitate Appraisal Integrity Reform

You can click on the Author Links above to read their official "prepared" testimony.

Excerpt From Marc Savitt:

 

"Unfortunately, like its predecessor HVCC, appraiser independence has already proven to be a failure. Appraisers are still being pressured and blacklisted with no mechanism in place to report offenses. Moreover, Appraisal Management Companies (AMC’s), have found a "workaround" enabling them to set factious "Customary and Reasonable fees," that are anything but customary and reasonable. In fact, appraisers are now being paid less than under HVCC."

Excerpt From Sara Stephens:

Real estate agents have reported that consumers are paying higher appraisal fees in recent years,yet according to our members, appraiser fees have declined by as much as 40 percent

How can this be the case? The answer is simple – lenders have passed through appraisal administration expenses onto the backs of consumers through the Appraisal line of the HUD-1.

Current RESPA interpretations allow for, and even promote, "bundled" fees to consumers, whereby appraisal management fees are lumped together with actual appraisal fees. When a lender utilizes an AMC, HUD’s current interpretation of RESPA dictates the fee paid to the AMC – not the actual appraiser – be disclosed to the consumer on Truth and Lending disclosures and listed on the HUD-1 settlement statement As a result, a perverse incentive exists for AMCs to seek reductions in appraisal fees to carve out larger profit margins.

Don Kelly formerly represented the Appraisal Institute but now represents REVAA.  His testimony has an entirely different tone NOW!  Here's who he presently speaks for . . . AMAZING!!