Appraisal Scoop

Cuomo v. eAppraiseIT: New York's Highest Court Held Oral Argument on eAppraiseIT's Appeal

Cuomo v. eAppraiseIT: New York's Highest Court Held Oral Argument on eAppraiseIT's Appeal Today: By Peter Christensen - Appraiser Law Blog

Today, four years after New York's then Attorney General Cuomo filed his state's lawsuit against First American eAppraiseIT (now part of CoreLogic), the New York Court of Appeals (the state's highest court) heard eAppraiseIT's appeal of the trial court's denial of its motion to dismiss. 

eAppraiseIT's argument on appeal, as it was to the trial court, is that New York is preempted by federal savings and loan laws and regulations from pursuing state law claims against appraisal management companies (AMCs) in state court.  The trial court's denial of the motion to dismiss was previously upheld by the lower New York appellate court.

The Court of Appeals' ultimate decision can't be predicted based on the questioning during oral argument today.  In the meantime, any future trial of the case will remain stayed until a final decision by the Court of Appeals.

Source: Appraisal Legal Defense and Insurance Blog by Peter Christensen and Robert Wiley - Legal issues and insurance matters affecting residential and commercial real estate appraisers   Click Here to Read Full Post

Full copies of the original complaint filed in 2007 and the Appellate Division's (the lower level appellate court) June 8, 2010 opinion can be found here.

Appraiser Independence - Where Do We Go From Here?

GUEST AUTHOR: Larry Benjamin “Benji” Brossette, is an Independent Licensed Real Estate Appraiser Trainee #T1925.  Benji currently attends Strayer University working towards an Economic Degree.  Benji specializes in the valuation of Land, Residential, and Commercial Properties in the Central Louisiana Region.

Buyer Beware! Where is the Value?   (PART 1)

In the years of 2007/2008, the ideologue of, “Appraiser Independence” had become popular for the real estate market’s economic agents and the processes it relies on to function properly. The idea gained respect, due to the perseverance of Real Estate Appraisers carrying out their Independence, during the decade of 2000-2010.

The Home Valuation Code of Conduct (HVCC) was introduced according to prevailing design and initiative:  the advancement of a market in need for an inspired and renewed sense of competition and freedom, but with sensible regulation to assist in reducing adverse affects of pure unattainable greed, to allow economies the ability to evolve and/or progress.

In retrospect, Fannie Mae and Freddie Mac—these secondary financial power houses, were placed into the center of attention with a well deserved, controversial lawsuit—instead, a decade worth of accomplishments were somehow mismanaged and/or changed, thwarting a sincere Independent Real Estate Appraisal Process. Wall Street Firms failed; they backed fraudulent/misleading documents—paying a premium while looking for unattainable returns; however, the most daunting reasoning, are artificially/manufactured (high) values, maximizing an unattainable greed, at once, cycle after cycle, and unfortunately without missing a beat.

The Dodd/Frank Financial Bill continues to have an impact on real estate economies, and its processes. In the Financial Bill’s failure to effectively and faithfully execute Appraiser Independence to its fullest, the Financial Bill inherited the exploited spirit of the HVCC. Now, the spotlight is on Appraisal Management Company’s (AMCs) liability to the real estate market’s overall value.

Before the real estate market went into a recession, then depression, and before the implementation of the exploited HVCC (Appraiser Independence), the general public was no-where near being knowledgeable (well informed or well advised).

I would like to share a summary—a professional description of the standard for which our real estate market typically operates—“Market Value.” Value definitions are pertinent to any Appraisal. Unfortunate events can occur when the real estate market is not operating within its full, socio-economic, and morally ethically, capacity to deliver an interpretation of a credible, but meaningful value. Value, in general definitions, strongly suggests a knowledgeable buyer and seller (well informed or well advised)

“…The definition of "Market Value" in its strictest sense is the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently, knowledgeably (well informed or well advised) and assuming the price is not affected by undue stimulus.”

A market cannot experience freedom and sincere growth, the Real Estate Appraiser cannot experience true Independence, and the buyer/seller cannot be knowledgeable when value is pre-determined, biased, dictated, pressured in any way, enslaved, blackmailed, or manipulated and exploited, recreated and replaced.

Between the years of 1998 and 2000, the prevailing issues were acknowledged. Changes were accepted as a necessity to avert a foreseen crisis, by a small group of Real Estate Appraisers who were historically and spontaneously joined by social technology (www.appraisersforum.com). Economically speaking, the logic is simple: tinkering with or outright playing with real estate value is pure economic suicide. Many Independent Real Estate Appraisers, over the prior decade, were hard at work eliminating commissioned driven, and profit motivated professionals; from selecting, retaining, and managing/controlling the Real Estate Appraiser (thus, estimates of value) during the run-up to the economic crisis; subject to the duress from the content outlined in the opening sentence of this paragraph.

If we are to comprehend and deal with what is needed today for a healthy real estate market, we must all understand the complications of its history (most importantly, recent history). No profession that actively participates in the real estate market banded together to protect the general public, the value of the market, investor confidence, and the containment of the unattainable we call greed—making a difference by being open and honest—only the Real Estate Appraisal Profession portrayed that courage.

Ladies and gentlemen, it all starts with real estate value—this is about power and greed—beyond the majority’s wildest imagination.  As a group, between 1998 and 2000—Real Estate Appraisers stood up and said, “ENOUGH!” A petition was lobbied for by a young man aspiring to be an Independent Real Estate Appraiser, and then argued among a small group of Real Estate Appraisers in a newly formed virtual forum. Eventually soon after, a brave Independent Real Estate Appraiser ended up writing a petition, and Real Estate Appraisers had begun to realize their Independence. I am privileged to have played an important role in Appraiser Independence. Along with the excerpts quoted below, a website which hosts this very petition (over 10,000 signatures) is provided. The petition was publicly introduced in the year 2000, while staying open for nearly a decade: http://appraiserspetition.com/

 “…Lenders (meaning any and all of the following: banks, savings and loans, mortgage brokers, credit unions and loan officers in general; not to mention real estate agents) have individuals within their ranks, who, as a normal course of business, apply pressure on appraisers to hit or exceed a predetermined value.”

“…This pressure comes in many forms and includes the following:

• the withholding of business if we refuse to inflate values,
• the withholding of business if we refuse to guarantee a predetermined value,
• the withholding of business if we refuse to ignore deficiencies in the property,
• refusing to pay for an appraisal that does not give them what they want,
• black listing honest appraisers in order to use "rubber stamp" appraisers, etc. “

Disclosure: Appraisal Organizations and Government were not involved. Individual Appraisers had everything to do with realizing Appraiser Independence, banding together for the social interest, putting it on the table, and advancing it. (I know—I was there—I am here today!).

Buyers and sellers are still too important to be influenced in a negative way. Main Street must be confident and knowledgeable, and investors must know for sure they can rely on the interpretation and true spirit of value. Instead, Main Street, and investors must feel assured the opinion of values are competently executed, ethically estimated, reconciled by the appropriate professional, and delivered in confidence—without pressure, predetermination, and without recreating and replacing, we largely experience today.

Automatic Valuation Models (AVMs) and Broker Price Opinions (BPOs) are physical reflections of “recreating and replacing” by the lending industry/data mining companies such as Zillow (AVMs), and real estate brokers/agents (BPOs). Unattainable greed forces unfound negligence upon the economy, as a whole—mocking capitalism, and depriving everyone of a meaningful study of value; a perception which conveniently allows the dictation of future market endeavors (supply/demand/value). Independent Real Estate Appraisers, today, can help protect the value of the real estate market by assisting the buyer and seller, being well informed or well advised.

Protecting and representing the real estate market’s value and relying on a knowledgeable buyer and seller, is an “Appraiser Independence” issue—today, and tomorrow. Without it, Appraiser Independence will be destined to fall. The unexploited HVCC (the original) did not go far enough in protecting the real estate market’s value, by creating a knowledgeable market and releasing the pressure from the profit driven who look to data mining for recreating and replacing, and of course to push loans through in the lending industry.

Appraisal Management Companies (AMCs) are the hubs/arms for carrying out real estate value “control” and “exploitation” within the real estate market, as of today (the profit driven—pressuring values, and data mining). An unknowledgeable market (buyer and seller), is one of several problems we all face, together, as a market; however, it is the core problem in defining value, as it is missing today.

Independent Real Estate Appraisers understand what unknowledgeable buyers and sellers do not——it is certain, and the most troubling: an unknowledgeable buyer and seller. The Real Estate Appraisal profession has an opportunity to do something great, in the midst of realizing and capturing Appraiser Independence, whatever that may come to be.

GUEST AUTHOR: Larry Benjamin “Benji” Brossette, An Independent Licensed Real Estate Appraiser Trainee #T1925. I currently attend Strayer University, in order ascertain, or earn, an Economic Degree. I am on path to earn a General Certification in Real Estate Appraisal.

 

HVCC gone! Now what? - Setting Goals for 2011

GUEST AUTHOR:  Ms. Lore DeAstra, MBA, SRA, CDEI, ACB, CL has been involved in the real estate industry for over 24 years as a commercial and residential real estate appraiser, instructor, investor, sales person, and property manager. She has written many articles and courses, published nationwide. Her mission is to improve the real estate industry by offering practical information for real estate professionals and consumers. To contact Ms. DeAstra, please send an email to Lore@continental-appraisal.com.

Since last spring, most appraisers have been on a roller coaster ride unlike any other.Now that the HVCC has sunset, have you thought about your next steps? After all, this is a great time to plan your goals for 2011, while thanking your current and previous customers. First, you will need a target, right?

Diversification is the key to survival and prosperity in the new real estate world. This article gives you easy ways to set measurable goals that will increase business to diverse target markets. As a result, you will keep an eye on your goals, help others, and increase your income. Start where you are, really?

Questions to ask:

How much more business do I want?  Set a realistic goal that is measurable. For instance, “I want to increase our appraisal business 20% within the next 12 months” The easiest way to accomplish a goal is to break down the task into believable steps.

 

As shown, you will need to complete two additional appraisals per month to increase your business by 20%. Breaking down the task into small increments makes a daunting task believable.

Are you willing to spend ten minutes a day to increase your business? Start small so you can obtain effortless victories such as one phone call a day.  Earning new business has a 10% success rate, while referral business has a 65% success rate according to Tom Hopkins, the most successful sales trainer in the world.

Who do you contact?  Open up your database and contact everyone you know who fits your target market such as your attorney, banker, accountant, insurance agent, sales agent, or friends/neighbors.

What do you talk about?  According to Hopkins*, “Never begin any selling cycle until you have taken a few moments to put yourself in the shoes of the other person”.  (* Tom Hopkins, SELLING FOR DUMMIES. Foster City. CA. IDG Books Worldwide, Inc. p. 15.) 

For instance, ask them how they are, and how can you help them* per assignment or based on an hourly rate such as:

• Attorney: Appraise properties involved in estates and trusts.
• Banker: Appraise or review properties in their portfolio.
• Accountant: Appraisals for tax or trust purposes.
• Insurance agent: Appraise real estate via cost approach for their policies.
• Sales agent: Measure homes for their listings, complete a pre- listing appraisal, review their Competitive Market Analysis, or offer to answer questions at a sales meeting.
• Neighbors: Complete a market analysis of their home for tax and insurance purposes. If you are competent, offer to compile an energy audit for a small additional fee to help them save on utilities bills.

* Make sure you apply the competency rule according to USPAP.

Bottom line: you will receive a better reception with less effort by contacting people who are familiar with you and your work. If you are like me, rejection is demotivating.

Are there any meetings that your target markets will attend?  Search in your area for functions this year and 2011 based on your target market.  Functions might include conferences or luncheons attended by real estate sales agents, appraisers, attorneys, paralegals, bankers, accountants, government agencies, or mortgage companies.

What else can you do? 

• Deliver candy attached to your business card to everyone in office. 
• Do you blog?  Offer to mention them and their company.
• Send an eCard to those in your contact list. 
• Use the social media sites (Facebook©, LinkedIn©, MySpace©) to keep in touch, advertise or send information that interests your target market.
• Ask your target market who they can refer that will benefit from your services.

There are many books, classes, seminars and others available nationwide: many online that will help you with various topics. You may learn a new skill and earn continuing education (CE) at the same time. As your confidence and script improves, so will your pocket book. How do I know? While writing this article, I made three phone calls that took about half an hour. Within a few days, I received an appraisal assignment from a referral. Besides the extra income, it was easy and fun to re-connect.

Take a few minutes, NOW, to determine the type of clients you have, who you want to work with, and how you can diversify while developing mutually beneficial target markets. Many of the software programs used for our bank accounts compile a report in seconds. Determine a believable amount of money you want to earn and let your fingers go crazy! Who knows, you might even enjoy catching up with folks you have not connected with for awhile.

Last, if you pass along your success stories to: Lore@continental-appraisal.com , I will compile a follow-up article that is a win-win for everyone. Make sure to let me know if you would like credit, or not. Thanks!'

AUTHOR: Ms. Lore DeAstra, MBA, SRA, CDEI, ACB, CL has been involved in the real estate industry for over 24 years as a commercial and residential real estate appraiser, instructor, investor, sales person, and property manager. She has written many articles and courses, published nationwide. Her mission is to improve the real estate industry by offering practical information for real estate professionals and consumers. To contact Ms. DeAstra, please send an email to Lore@continental-appraisal.com.

Hot Off The Press - Unofficial ASC staff "redlined" version of Title XI as amended by the Dodd-Frank Reform Act

Title XI of FIRREA

Real Estate Appraisal Reform [12 U.S.C. 3331-3351]

as amended by the Dodd-Frank Reform Act

The purpose of this title is to provide that Federal financial and public policy interests in real estate related transactions will be protected by requiring that real estate appraisals utilized in connection with federally related transactions are performed in writing, in accordance with uniform standards, by individuals whose competency has been demonstrated and whose professional conduct will be subject to effective supervision.

Download Title XI as amended by the Dodd-Frank Reform Act

Thanks to ICAP for a link to this document!

There is LOTS of new information in this "unofficial" redlined document.   Here are just a few excerpts of interest:

collect—

(A) from such individuals who perform or seek to perform appraisals in federally related transactions, an annual registry fee of not more than $40, such fees to be transmitted by the State agencies to the Council on an annual basis; and

(B) from an appraisal management company that either has registered with a State appraiser certifying and licensing agency in accordance with this title or operates as a subsidiary of a federally regulated financial institution, an annual registry fee of—

(i) in the case of such a company that has been in existence for more than a year, $25 multiplied by the number of appraisers working for or contracting with such company in such State during the previous year, but where such $25 amount may be adjusted, up to a maximum of $50, at the discretion of the Appraisal Subcommittee, if necessary to carry out the Subcommittee’s functions under this title; and

(ii) in the case of such a company that has not been in existence for more than a year, $25 multiplied by an appropriate number to be determined by the Appraisal Subcommittee, and where such number will be used for determining the fee of all such companies that were not in existence for more than a year, but where such $25 amount may be adjusted, up to a maximum of $50, at the discretion of the Appraisal Subcommittee, if necessary to carry out the Subcommittee’s functions under this title.

Subject to the approval of the Council, the Appraisal Subcommittee may adjust the dollar amount of registry fees under paragraph (4)(A), up to a maximum of $80 per annum, as necessary to carry out its functions under this title. The Appraisal Subcommittee shall consider at least once every 5 years whether to adjust the dollar amount of the registry fees to account for inflation.

Removal -

The Appraisal Subcommittee shall have the authority to remove a State licensed or certified appraiser or a registered appraisal management company from a national registry on an interim basis, not to exceed 90 days, pending State agency action on licensing, certification, registration, and disciplinary proceedings. The Appraisal Subcommittee and all agencies, instrumentalities, and Federally recognized entities under this title shall not recognize appraiser certifications and licenses from States whose appraisal policies, practices, funding, staffing, or procedures are found to be inconsistent with this title.

Appraisal Management Company Defined - (11)

The term ‘appraisal management company’ means, in connection with valuing properties collateralizing mortgage loans or mortgages incorporated into a securitization, any external third party authorized either by a creditor of a consumer credit transaction secured by a consumer’s principal dwelling or by an underwriter of or other principal in the secondary mortgage markets, that oversees a network or panel of more than 15 certified or licensed appraisers in a State or 25 or more nationally within a given year—

(A) to recruit, select, and retain appraisers;

(B) to contract with licensed and certified appraisers to perform appraisal assignments;

(C) to manage the process of having an appraisal performed, including providing administrative duties such as receiving appraisal orders and appraisal reports, submitting completed appraisal reports to creditors and underwriters, collecting fees from creditors and underwriters for services provided, and reimbursing appraisers for services performed; or

(D) to review and verify the work of appraisers.

(i) Appraisal Complaint National Hotline.—

If, 6 months after the date of the enactment of this subsection, the Appraisal Subcommittee determines that no national hotline exists to receive complaints of non-compliance with appraisal independence standards and Uniform Standards of Professional Appraisal Practice, including complaints from appraisers, individuals, or other entities concerning the improper influencing or attempted improper influencing of appraisers or the appraisal process, the Appraisal Subcommittee shall establish and operate such a national hotline, which shall include a toll-free telephone number and an email address.

If the Appraisal Subcommittee operates such a national hotline, the Appraisal Subcommittee shall refer complaints for further action to appropriate governmental bodies, including a State appraiser certifying and licensing agency, a financial institution regulator, or other appropriate legal authorities. For complaints referred to State appraiser certifying and licensing agencies or to Federal regulators, the Appraisal Subcommittee shall have the authority to follow up such complaint referrals in order to determine the status of the resolution of the complaint.

1124. Appraisal Management Company Minimum Requirements.

(a) In General.—The Board of Governors of the Federal Reserve System, the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the National Credit Union Administration Board, the Federal Housing Finance Agency, and the Bureau of Consumer Financial Protection shall jointly, by rule, establish minimum requirements to be applied by a State in the registration of appraisal management companies. Such requirements shall include a requirement that such companies—

(1) register with and be subject to supervision by a State appraiser certifying and licensing agency in each State in which such company operates;

(2) verify that only licensed or certified appraisers are used for federally related transactions;

(3) require that appraisals coordinated by an appraisal management company comply with the Uniform Standards of Professional Appraisal Practice; and

(4) require that appraisals are conducted independently and free from inappropriate influence and coercion pursuant to the appraisal independence standards established under section 129E of the Truth in Lending Act.

 

1125. Automated Valuation Models Used to Estimate Collateral Value for Mortgage Lending Purposes. (a) In general.—Automated valuation models shall adhere to quality control standards designed to—

(1) ensure a high level of confidence in the estimates produced by automated valuation models;

(2) protect against the manipulation of data;

(3) seek to avoid conflicts of interest;

(4) require random sample testing and reviews; and

(5) account for any other such factor that the agencies listed in subsection (b) determine to be appropriate.

Appraiser Urges the Fed to Implement the Dodd-Frank Act NOW! - Customary and Reasonable Fees

Guest Post by Joseph Lorinc, a State Certified General Residential Real Estate Appraiser, licensed by and working in the State of Florida. Joseph works for Neapolitan Appraisal, Inc. in Southwest Florida providing residential real estate appraisals. He has 13 years of residential and non-residential appraisal experience.

I am writing this letter to urge the Federal Reserve Board to move forward with the implementation of the appraisal independence and appraisal fee provisions in Title XIV of the Dodd-Frank Act.

 Download Customary Fee Letter

Title XIV (Section 1400 et seq) of the Dodd-Frank Act contains the “Mortgage Reform and Anti-Predatory Lending Act,” which includes Subtitle F – Appraisal Activities. Section 1472 of the “Mortgage Reform and Anti-Predatory Lending Act” adds Section 129 E to the Truth in Lending Act which will establish minimum federal appraisal independence requirements and customary and reasonable fee requirements.

Effective Date of Appraisal Requirements

The enacting language of the Dodd-Frank Act states that the appraisal requirements should be adopted in the Interim Final Regulations. As an appraiser, I believe it is vitally important that there should be no delay in implementation of the appraisal independence requirements under Title XIV of the Dodd-Frank Act. As part of the Dodd-Frank Act, Section 4312 (b) (2) also requires that lenders and their agents compensate appraisers at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.

 As defined in the Uniform Standards of Professional Appraisal Practice, 2010-2011 Edition by the Appraisal Standards Board of The Appraisal Foundation, valuation services are “services pertaining to aspects of property value,” an appraiser is “one who is expected to perform valuation services competently and in a manner that is independent, impartial and objective,” an assignment is “an agreement between an appraiser and a client to provide a valuation service or the valuation service that is provided as a consequence of such an agreement,” an appraisal is “the act or process of developing an opinion of value” and appraisal practice is defined as “valuation services performed by an individual acting as an appraiser, including but not limited to appraisal, appraisal review or appraisal consulting.” Appraisal services are valuation services provided by an appraiser as the result of an assignment. Under Section 4312 (b) (2), customary and reasonable fees must be paid to for appraisal services for residential loan purposes. There is no mention of specific appraisal products, rather the Dodd-Frank Act specifies appraisal services for residential loan purposes, covering any valuation services provided by an appraiser.

Customary and Reasonable Fees and Appraisal Management Companies

Customary and reasonable fees for appraisal services are available from a number of sources. Several companies have existing fee data surveys available, such as the Appraisal Fee Reference published by a la mode, inc. Over the past month since the passage of the Dodd-Frank Act, I have received invitations to participate in several other fee surveys from a variety of companies in the appraisal, appraisal management and banking fields. 

 
As Section 4312 of the Dodd-Frank bill is intended to promulgate appraisal independence requirements for residential loan purposes, I believe the most obvious source of customary and reasonable fees is being overlooked. In every residential mortgage transaction, a HUD-1 Form detailing fees (including appraisal fees) associated with the origination of a residential mortgage loan is required. The data on the HUD-1 Form could be used to determine the customary and reasonable fees that consumers have been charged for appraisal services. The HUD-1 data would provide an accurate and unbiased basis for determining the customary and reasonable fees that consumers are paying for appraisal services for residential loan purposes.

In its AMCs/Reasonable and Customary Fees/Turnaround Time FAQs HUD clarified what it believes to constitute a customary and reasonable fee:

 “FHA believes that the marketplace best determines what is reasonable and customary in terms of fees. The fee is the result of a business decision, which may or may not be negotiated, between the appraiser and the client. FHA does not set fees or determine whether a fee is reasonable or customary. Lenders are expected to know what is reasonable and customary in the areas in which they lend and are expected to ensure that the fees paid by consumers for both the appraisal and the management of the appraisal process are reasonable and customary.”

This statement appears to indicated HUD’s reliance on the free market system in determining fees.

 
Since the introduction of the Home Valuation Code of Conduct in March of 2008, appraisal management companies participation in the market has grown from 15% of appraisals ordered to an estimated 80% today. While HUD’s stance on the importance of the free market system is not in question, the current situation in the appraisal industry has little resemblance to a free market. Appraisal fees are no longer negotiated between the client and the appraiser, they are dictated to the appraiser by the appraisal management company. The Dodd-Frank Act seems to recognize this fact in Title XIV, Section 129 E (i) (1)

“In General – Lenders and their agents shall compensate appraisers at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised. Evidence for such fees may be established by objective third-party information, such as government agency fee schedules, academic studies and independent private sector surveys. Fee studies shall exclude assignments offered by known appraisal management companies.”

By specifically excluding fees offered by appraisal management companies, the writers of these regulations seem to be acknowledging the undue influence that the appraisal management companies have had on the appraisal industry.

In March of 2008, the Home Valuation Code of Conduct was introduced to curb the banking industries pressure on independent appraisers to produce appraisal reports that met their lending needs instead of reflecting the true market value of the properties being appraised. This practice by the banking industry resulted in many inaccurate appraisal reports being produced and then used as justification to finance residential mortgage loans. The unethical behavior of the banking industry and the appraisers who wrote appraisal reports they knew to be inaccurate contributed in a significant way to the collapse of the housing market in which we currently find ourselves.

Unfortunately, the Home Valuation Code of Conduct had the unintended consequence of producing a business climate where appraisal management companies have come to dominate the appraisal services market for residential lending. Under the appraisal management company business model, appraisal assignments are shopped to the appraiser that will accept the lowest fee and promise the shortest completion time. Little to no regard to the complexity of the assignment or the competency of the appraiser to complete the appraisal assignment is given.

To receive orders from an appraisal management company, appraisers are forced to complete appraisal assignments requiring an ever increasing amount of information gathering, analysis and reporting mandated by Government-Sponsored Enterprises (Federal National Mortgage Association [Fannie Mae], Federal Home Loan Mortgage Corporation [Freddie Mac]), the appraisal management companies and finally the client, in an unrealistically short timeframe for substantially reduced fees. Though it was written to improve the quality of appraisal services, the unintended results of the Home Valuation Code of Conduct have been the same, an increasing number of inaccurate reports are being produced by unqualified appraisers. In time, this may lead to yet another collapse of the housing market.

Section 4312 of the Dodd-Frank Act was intended to re-establish a business environment where appraiser independence can be maintained. In the midst of the current housing crisis, delaying the implementation of this vital legislation could have a devastating and far reaching impact on not only the housing market but the overall economy of the United States. 

New Appraiser Independence Requirements Being Developed by Fannie Mae

Fannie Mae has issued the following Notice:

 

Fannie Mae is working with the Federal Housing Finance Agency (FHFA) to develop and adopt appraiser independence requirements that will replace the Home Valuation Code of Conduct (HVCC). Until the revised requirements are released, the existing HVCC provisions in the Fannie Mae Selling Guide continue to apply. Updated requirements are expected to be substantially similar to the current provisions.

 

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, HVCC will sunset when interim final regulations are released to implement the appraisal independence-related provisions of the Act, which is expected to occur on or about October 21, 2010.

 

Fannie Mae is committed to supporting strong appraiser independence requirements. The revised requirements will maintain the spirit and intent of HVCC, and continue to provide important protections for mortgage investors, home buyers, and the housing market.

 

The revised appraiser independence requirements will be based on Fannie Mae's experience under the HVCC and will continue to support the integrity of the appraisal process. As part of the process to develop the revised requirements, Fannie Mae has received input from key industry participants.

 

Fannie Mae expects to announce the revised appraiser independence requirements in an upcoming Selling Guide announcement.

An optimistic pessimist, or a pessimistic optimist? - Dodd-Frank Financial Recovery Bill

An optimistic pessimist, or a pessimistic optimist?

I’m not sure which I really am, although I tend to lean in the optimistic direction whenever possible. This relates to the brand new, hot off the presses after a year+ of vigorous debate, Dodd-Frank financial recovery bill just signed by President Obama. This bill (now a law) has a major section devoted to appraisers and appraisals, our pay for service, but not appraisal ordering. Bear with me – I’ll get to those points in a moment.

But first I’d like to discuss some HVCC & FIRREA history.

Is this new bill really anything different than what transpired in the past? Actually, not really.  I’m a relative greenhorn in this business, having entered in 2001 with the help of my outstanding mentor. So I was not around the biz in the late 80’s when, in 1989, during the Savings and Loan Crisis FIRREA was enacted in much the same way the Dodd-Frank bill was done. Crisis’s always lead Congress to ‘do something.’

I enjoy talking with ‘more ancient’ appraisers who help me understand the history of things. Today Woody dropped a kernel into my noggin, which I confirmed by research. Guess what folks … FIRREA actually mandated what the too often maligned HVCC enforced, 20 years later. A key provision of FIRREA was that no person connected to loan production, i.e., the loan officers, would be permitted to directly order an appraisal from their favorite appraiser. What does the HVCC say? Read that preceding sentence again … the one about loan officers.

So what happened? Simply put: lack of enforcement of FIRREA, regulated banks getting out of the direct mortgage lending and appraisal ordering business, abdication of loan production regulation to non-bank personnel, and a breakdown of ethics through all facets of the mortgage lending industry. So in reality, the HVCC was the giant enforcer many years after FIRREA was enacted. It took a second national and worldwide crisis to enforce provisions mandated during the first crisis.

That brings us current, 21 years after FIRREA and 14 months after the HVCC, with the ‘new bill’ that is supposedly going to make our life better. Optimist? Pessimist? I wish I could say for sure!

 Pay for service: the bill says appraisers should be paid ‘usual and customary’ fees for appraisal service. There is much gnashing of teeth over this provision. AMC’s say (and may initially demand) that the “U&C” fee is what they offer to pay, not what you desire to charge. Some appraisers buy into that argument. Most skilled appraisers know that AMC fees paid are generally not fair compared to the amount of work involved to produce a quality report, especially for appraisers working in small urban, or suburban and rural areas.

The bill also says that the “U&C” fee cannot be mandated by what the AMC chooses to pay, but must be determined by independent surveys or fee tables from governmental agencies. But the rub is this: if you are a ‘contracted’ vendor independent appraiser working for an AMC with a fee table you have agreed to, you may be stuck. It may take a few court cases to get this resolved, and the AMC’s will fight hard against appraisers.

If you’re not ‘contracted’ and the one-hit-wonder AMC calls out of the blue to ask about ‘fee and turn time’, stand your ground with the fee you charge. The more appraisers do this, the better we all will be paid for the complex work we do.

What’s a “U&C” fee in your area? Most appraisers seem to agree that it would be what would be charged for a non-complex, non-FHA, non-VA, non-AMC full appraisal assignment that you would request from a local bank, attorney, CPA, private homeowner, etc. Per ‘the bill’ you can consult a independent fee survey for your state and county, like the one produced by alamode software company, or utilize the VA fee table for your area – although that governmental agency has more rigorous reporting requirements than typical mortgage lending assignments, so their fees are higher in some areas.

Talk to your neighbor appraisers – one on one. C’mon folks, quit being so independent from and against each other. Your peers are actually pretty nice people. Pick up the phone. Meet for breakfast or lunch, or a brewski. Join a national or state association. One on one chats about fees are perfectly fine. Find out, and share, the ‘floor’ amount that seems reasonable for your area. But when three or more of us are in a room together, ‘the weather’ might be a more appropriate topic to avoid potential accusations of price fixing or collusion. In time the word will get around. And the optimistic part of my noggin says that ultimately the AMC fee issue will be resolved in our favor.

Appraisal ordering: ‘the bill’ does not have any mention of how appraisals will be ordered. That is left up to the regulators who are right now drafting the new interim regulations that will be implemented within 90 days of the bill’s effective date on 7/21/2010. At first I was optimistic that we as an industry might be able to lobby the regulators to allow highly regulated ordering direct from the loan officers. Personally, I’d still like to see that so that the prior business (commerce) relationships could resume. But the pessimistic side of the gray matter is seeing how FIRREA and the HVCC prohibitions about this may continue unless we as an industry lobby to allow regulated ordering procedures. 

It is my contention that with the new LO national licensing requirements, the infraction reporting procedures built into ‘the bill’, the ability to track appraisers and LO’s connected to the loan via the soon to be implemented MISMO function, and the heightened awareness and bill wording about appraiser independence, then direct relationships can be resumed.

You can help this happen by being an optimist about a pesky pessimistic situation. Send your comments about this to the regulators today.

And let’s be optimistic that the ‘new bill’ will be better enforced than FIRREA. Maybe prior history will actually teach us something. Wait…that sounds too pessimistic!

Dave Towne

Towne Appraisals

Mount Vernon, WA

360-708-1196

mailto:dtowne@fidalgo.net

AI-Supported Provisions Included in Final Version of Financial Reform Bill - Appraiser News Online

The Appraisal Institute on June 28 praised inclusion of appraisal provisions in the final version of the Dodd-Frank Wall Street Reform and Consumer Protection Act (H.R. 4173). The House-Senate Conference Committee on Financial Reform completed work June 25 on the measure, which includes the most significant modernization of the appraisal regulatory structure since 1989.

via www.appraisalinstitute.org

" This bill represents a breakthrough for professional appraisers, who have consistently advocated for greater independence and competency," said Appraisal Institute President Leslie Sellers, MAI, SRA. "The Conference Committee has affirmed both ideals in the final conference report, and we believe that Congress should enact them into law."

Amendment to Eliminate HVCC Still Alive in Financial Reform Bill [HousingWire]

An amendment to the Dodd-Frank Wall Street Reform Bill that would eliminate the Home Valuation Code of Conduct (HVCC) survived congressional debates last week, according to one representative’s office.

A congressional conference last week took place to reconcile both versions of the House and Senate financial reform bills. As it stands now, the HVCC would be eliminated 90 days after the bill is signed. A new set of “appraisal independence standards” would replace it, according to the bill.

The Federal Housing Finance Agency (FHFA) implemented HVCC in May 2009 in an attempt to improve the independence of appraisers by prohibiting lenders and third parties from influencing appraisals. It’s a controversial regulation, leading to an increase in demand for appraisal management companies (AMCs) and complaints from independent appraisers who claim they’re being cut out of the market.

But the “appraisal independence standards” will be written and announced 60 days after the bill is passed. The bill, unlike HVCC, allows Fannie Mae or Freddie Mac to accept any appraisal report completed by an appraiser selected or paid by a mortgage loan originator.

The bill also stipulates that the new standards will include a requirement that lenders and their agents pay appraisers at market rates.

Download Dodd-Frank Finance Bill 2010

Per appraiser Dave Towne: Click above for the full bill as approved by the Congress conference committee on Friday 6/25/2010, now technically known as the “Dodd-Frank Wall Street Reform and Consumer Protection Act.” 

Here are the pages Dave suggests you print and read: 

• Pg 1 – bill title 
• Pg 15 – Subtitle F – Appraisal Activities (TofC for that section) 
• Pg 26 – Section 4 Effective Date (FYI…it appears this bill will become effective 1 day after the President’s signature) 
• Pages 2205 – 2250 – Subtitle F – Appraisal Activities (This is the section pertaining to appraisers/appraisals, etc.) Have fun reading!

 Click here to read the full article -  www.housingwire.com

Appraisal Game Changer on Horizon: HVCC Gone, BPOs, Reviews, AVMs Regulated, Greater Enforcement, Independence

Reprinted with permission from Working RE Magazine:  WRE Editor's Note: Hang in there. The Financial Reform Bill, now in Senate Committee, could be a game changer for appraisers. If signed into law, the bill would regulate the use of broker price opinions and appraiser valuation products, set new rules for appraisal reviews, beef up appraiser independence and enforcement and mitigate the effects of HVCC.

Appraisal Game Changer on Horizon: HVCC Gone, BPOs, Reviews, AVMs Regulated, Greater Enforcement, Independence  

By David Brauner, Editor

There are 61 pages of appraisal provisions contained in the base text of the Financial Reform Bill now in House-Senate Conference Committee. If passed and signed into law, the legislation could be a game changer for appraisers.

Some highlights included in the base text are:

·       Sub prime mortgages to require written reports by state-licensed appraisers, including an interior inspection (no more drive-bys). Failure to obtain such an appraisal by a creditor will result in a $2,000 liability to the applicant or borrower.

·       Appraisers must be licensed in the state in which the property is located.

·       Strong appraiser independence language mirroring that of the Home Valuation Code of Conduct (HVCC), including a national complaint hotline.

·       Sweeping powers for the Appraisal Subcommittee to police state appraiser boards.   

·       Mandatory reporting requirements of appraiser malfeasance and/or discovery of Uniform Standards of Professional Practice (USPAP) violations to state appraiser boards.

·       All appraisal reviews to be in compliance with USPAP. From the base text: "Appraisal reviews by a lender, appraisal management company (AMC), or other third party organization, shall be performed by an appraiser who is duly licensed or certified by a state appraisal board." 

·       AMCs to be regulated by state appraiser boards.

·       Quality control standards required for automated valuation products.  

·       Rules for broker price opinions (BPOs): "Broker price opinions may not be used as the primary basis to determine the value of a piece of property for the purpose of a loan origination of a residential mortgage loan secured by such piece of property."

·       Broker price opinions defined: "The term 'broker price opinion' means an estimate prepared by a real estate broker, agent, or sales person that details the probable selling price of a particular piece of real estate property and provides a varying level of detail about the property's condition, market, and neighborhood, and information on comparable sales, but does not include an automated valuation model as defined in section 1125(c)."

 

Game Changer

According to Darwin Ernst, SRA, Montana Real Estate Appraiser Board Member and designated Residential Member of the Appraisal Institute, these changes have the potential of being significant. "The base text says appraisals and appraisal reviews need to be done by licensed appraisers," Ernst said. "This could compel the GSEs (Government Sponsored Enterprises - Fannie and Freddie) to replace the use of AVMs and/or BPOs for quality control checks with appraisal reviews by qualified (licensed) appraisers. This could be a huge change."

"This legislation (if passed) will also lead to the removal of all unqualified personnel at appraisal management companies who are calling themselves appraisal reviewers. One goal of the legislation appears to be justly aimed at getting rid of people who are not qualified to complete appraisals or appraisal reviews. 'Qualified' now means a state licensed or certified real estate appraiser."

Ernst recently returned from an Appraisal Institute-sponsored lobbying trip to Washington, D.C. where he met with staffers from various members of Congress to provide input on these issues from the perspective of appraisers (see Fighting for HVCC Reform: Mr. Ernst Goes to Washington, WorkingRE.com, Premium Content).

HVCC, Customary and Reasonable Fees

Conspicuously absent from the base text are the elimination of the Home Valuation Code of Conduct (HVCC), which is due to sunset in November 2010 unless renewed, and any mention of customary and reasonable fees for appraisers (see Demanding Customary and Reasonable Fees for Appraisers, WorkingRE.com, Premium Content). However, both issues are addressed in a proposed amendment.

The "Amendment to Title XIV" (see, WorkingRE.com, Sidebar) calls for the sunsetting of the HVCC. It also addresses customary and reasonable fees with more specificity than the FHA, which so far has failed to enforce its own mandate. The language in this amendment says: "Lenders and their agents shall compensate fee appraisers at a rate that is customary and reasonable for appraisal services in the market area of the property being appraised. Evidence of such fees may be established by objective third-party information, such as government agency fee schedules, academic studies, and independent private sector surveys. Fee studies shall exclude assignment orders by known appraisal management companies." The last sentence seems to debunk the notion that the reduced fees offered by AMC should be considered "customary and reasonable."

According to Ernst, whether or not the amendment is added, the base text of the legislation will have the De facto effect of superseding HVCC. "Most lenders will not make any changes to their current practices even when the HVCC is officially sunsetted, until they are forced by new regulations. The appraiser regulatory provisions in this financial reform legislation are such regulations. The GSEs' policies for lenders will likely have to change in order to comply with the new law,” said Ernst.

According to Ernst, it is possible that this legislation, if signed into law, may also curtail the use of BPOs for valuations. "BPOs are defined here as a 'probable selling price,' as distinct from an appraisal from a qualified appraiser that provides an opinion of market value," said Ernst.

Day of Reckoning 

The base text also calls upon the Comptroller General to conduct a study to determine the effects that the changes to the seller-guide appraisal requirements of Fannie Mae and Freddie Mac, contained in the HVCC, "have on small business, like mortgage brokers and independent appraisers, and consumers, including the effect on the quality and costs of appraisals; length of time for obtaining appraisals; impact on consumer protection, especially regarding maintaining appraisal independence, combating appraisal inflation, and mitigating acts of appraisal fraud; structure of the appraisal industry, especially regarding appraisal management companies, fee-for-service appraisers, and the regulation of appraisal management companies by the states; and impact on mortgage brokers and other small business professionals in the financial services industry."

Find the Appraisal-Related Base Text of the Financial Reform Bill at WorkingRE.com, Sidebar.

For background information, please see July 4 - Independence Day or Doomsday for Appraisers? at WorkingRE.com, Premium Content.

About the Author

David Brauner is Editor of Working RE magazine and Senior Broker at OREP, a leading provider of E&O Insurance for appraisers, inspectors and other real estate professionals in 49 states (OREP.org). He has covered the appraisal profession for over 16 years. He can be contacted at dbrauner@orep.org or (888) 347-5273. Calif. Insurance Lic. #0C89873.