Appraisal Scoop

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:[email protected]

Draw Plats from Legal Descriptions on Your iPad

 From James' Real Estate Business Blog:

"A new app I just downloaded for my iPad is called Metes and Bounds. I decided to test it the minute it opened with a current deal and entered 25 calls from the legal description to draw the plat. And, to my great surprise, the lines didn't close at the Point of Beginning, a problem. There was a gap."

"It wasn't a problem with the app, and I looked pretty good when I informed the title company of the typo in the legal description."

Read about Metes & Bounds and what it does in this profile.

Appraisers lose out in Wells Fargo lawsuit - Valuation Review

The following was re-blogged with the permission of Valuation Review Editor, David Napuk.  Thanks Dave! 

Since there has been a great deal of buzz in the industry surrounding the decision in the Wells Fargo/Rels Valuation v. appraisers lawsuit, Valuation Review is giving you the unique opportunity to sample of the premium content that our subscribers receive every week.

Wells Fargo and its appraisal management subsidiary Rels Valuation won an important lawsuit this month when a [U.S.] district judge granted the company's motion to dismiss. The lawsuit was filed by two residential appraisals who claimed that Rels Valuation had pressurized them into reaching inflated values on appraisal reports and then subsequently blacklisted them when they did not comply with demands.

Don Pearsall, from Puyallup, Wash., and Timothy Savage of Vail, Colo., both claimed that Wells Fargo and Rels tried to strong-arm them into inflating appraisal values and then blacklisted them when they refused to hit the desired numbers. They were represented by Hagens Berman Sobol Shapiro (HBSS), the Seattle-based law firm that has filed similar lawsuits against several lenders.

The case is Sound Appraisal and Savage Appraisal Services, Inc., on behalf of themselves and all others similarly situated, v. Wells Fargo Bank, N.A. and Valuation Information Technology, LLC, d/b/a Rels Valuation, No. C 09-01630 CW. It was filed in U.S. District Court in San Francisco in April 2009.

Although Wells Fargo was the primary defendant in the case, Rels is technically a joint venture between First American Solutions, a subsidiary of First American Corp. and Wells Fargo Foothill, a subsidiary of Wells Fargo & Co.

The plaintiffs alleged that, in an effort to increase market share in the home mortgage business, Wells Fargo has engaged in a pattern and practice of pressuring appraisers to write appraisals designed to justify the loan even if the appraisal violates USPAP. The plaintiffs also alleged “If an appraiser does not 'play ball' and produce a report affirming the property value or the parameters that Wells Fargo expects or wants, Wells Fargo, through Rels Valuation, suspends the appraiser or removes the appraiser from the list of preferred appraisers and, in essence, 'blacklists' the appraiser.” 

The plaintiffs also claimed that Wells “utilized a host of indirect methods to communicate to the appraiser the value needed to fund the loan, and the value the appraiser is expected to 'hit.' As an example, they claimed that Rels' appraisal order form, which indicates the Borrower Estimated Value, reflects the value that the appraiser is expected to meet or exceed in the appraisal.

According to court documents, Pearsall completed an URAR appraisal for Wells Fargo and Rels in June 2007 in Enumclaw, Wash. After submitting his report, an officer of Rels requested that he alter it to reflect the company's desired views on the property. Specifically, Rels' area manager, Randall Pierzina, asked Pearsall to remove all indications that the home in question was currently being remodeled. Pearsall refused to alter the report, noting that doing so would be a violation of his ethical duty under USPAP. In response, Pierzina yelled, “[Y]ou appraisers take USPAP too seriously.” Pierzina then threatened to remove Pearsall from his list of “eligible” appraisers if he “did not receive the requested, altered report immediately.” [Mr. Pierzina is no longer the Rels Area Manager]

After refusing, Rels blacklisted Pearsall, which meant a loss of approximately 21-36 percent of Pearsell's business. When Pearsall inquired about the loss of work, he was told by Pierzina that he had been suspended for refusing to comply “with an OPUS issue.” However, Pierzina did not explain what an “OPUS issue” was and never provided any further explanation for the suspension or notified Pearsall of any procedure by which he could challenge his suspension.

Pearsall confirmed his existence on the blacklist when he received an offer of an assignment from Rels on April 8, 2009. He told the employee over the phone, “I would love to take the job, but aren't I on your blacklist?” The employee put him on hold to check, then came back and said “I'm sorry, I wasn't supposed to contact you.” Savage had been doing appraisals for Rels for 12 years. In Jan. 2009, Savage performed two such appraisal assignments for Rels. After Savage provided these appraisals, a “Collateral Compliance Reviewer” for Rels emailed Savage with information “to support an increased value” of the appraised property. Savage reviewed the appraisal and determined that no such increased valuation was appropriate. The next month, he received a letter from Rels stating that he had been removed from its approved panel of appraisers. The letter did not provide an explanation for the removal.

Before being blacklisted Savage estimated he received 11-17 percent of his income from Rels.

The complaint also contained nine statements by appraisers in Arizona, Nevada, Washington, Pennsylvania, Illinois, Virginia, Indiana and Oregon who alleged that Rels also stopped hiring them because they refused to alter appraisals upon Rels' request. The original lawsuit had three causes of action, but two of these were dismissed with the only complaint remaining a violation of the common law duty to provide fair procedures.  

Granting Wells' motion to dismiss, District Judge Claudia Wilken opined that the case centered on the percentage of work that was lost as a result of the blacklisting, and on whether the fair process doctrine should apply to a private organization. “Certain private entities possess substantial power either to thwart an individual's pursuit of a lawful trade or profession, or to control the terms and conditions under which it is practiced,” she wrote, but “certain institutions and enterprises are viewed by the courts as quasi-public in nature: The important products or services which these enterprises provide, their express or implied representations to the public concerning their products or services, their superior bargaining power, legislative recognition of their public aspect, or a combination of these factors, lead courts to impose on these enterprises obligations to the public."

But to be held liable for violating the right to fair procedures, Wilken opined, a private entity must have the power to “significantly impair” the individuals' ability to work in a particular field. “In essence,” she wrote, “the law concerns exclusion or expulsion from membership by a gatekeeper organization, like a union or an insurance company,” which she determined did not apply to Wells Fargo. 

“Wells Fargo's extensive national involvement in originating and servicing mortgages does not necessarily mean that it wields significant power over the appraising profession in the geographic areas in which plaintiffs work,” wrote Wilken.

“It is especially important to note that, while loss of income after exclusion by a private entity is relevant, it is not 'conclusive proof' that the exclusion impaired the plaintiff's ability to continue in the profession,” she continued. In the judgment of the court, the percentage of business lost by Pearsall and Savage following their blacklisting was not enough to establish a duty to provide fair procedures. In addition, the blacklisting didn't affect Pearsall or Savage's ability to receive work from other mortgage companies. 

“No authority requires the imposition of the fair procedure doctrine simply because removal from a single company's list of appraisers it chooses to retain substantially affects the economic interest of a removed appraiser. Defendants simply made a choice not to do business with plaintiffs; they did not exercise power as a gatekeeper of a profession nor did they prevent plaintiffs from pursuing employment by others,” said Wilken. On this reasoning, she dismissed the claim against Wells Fargo with prejudice, saying that any further amendment would be “futile.”

At press time, neither Wells Fargo nor HBSS were able to return requests for comment to Valuation Review.

Editor: David Napuk [[email protected]]

Fannie Mae Announcement SEL-2010-09 - Selling Guide Updates and Additional Guidance on Appraisal-Related Policies

 Fannie Mae's Announcement  SEL-2010-09 describes the following:

• Appraisal-related policies that update the Selling Guide
• Miscellaneous appraisal-related guidance (no impact on the Selling Guide)
  Miscellaneous Selling Guide updates
• Updates to Special Feature Codes
• Updates to Mortgage Insurance Codes

For each policy change or clarification that impacts the Selling Guide, the topics (and specific paragraphs) are noted and are linked to the updated Selling Guide. The updated topics are dated June 30, 2010.

Updated Appraisal-Related Policies

Fannie Mae’s post-purchase reviews of mortgage loan files have identified issues with appraisals. As a result of those reviews, new policy requirements and clarifications concerning existing lender requirements are being added to a number of appraisal sections of the Selling Guide, including:

• Inclusion of interior photographs in the appraisal report B4-1.2-06
• Lender changes to the appraised value and guidance on addressing appraisal deficiencies B4-1.4-21
• Appraiser selection criteria B4-1.1-03
• Sources of comparable market data B4-1.4-16
• Selection of comparable sales
• Communication under the HVCC
• Seller concessions
• Treatment of personal property
• Market Conditions Addendum to the Appraisal Report (Form 1004MC)

As a result of these changes, the online Fannie Mae Selling Guide has been updated, and now carries a June 30, 2010 date.

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."

'Sustainable' Housing Price Recovery Not Shown in April Case/Schiller Home Price Index

According to the latest S&P/Case-Shiller Home Price Index, the annual growth rates of all 20 MSAs and the 10- and 20-City Composites improved in April compared to March because of the home buyer tax credit program that ended April 30, 2010.

New York, June 29, 2010 – Data through April 2010, released today by Standard & Poor’s for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, show that annual growth rates of all 20 MSAs and the 10- and 20-City Composites improved in April compared to March 2010. The 10-City Composite is up 4.6% from where it was in April 2009, and the 20-City Composite is up 3.8% versus the same time last year. In addition, 18 of the 20 MSAs and both Composites saw improvement in prices as measured by April versus March monthly changes.

The chart above depicts the annual returns of the 10-City and 20-City Composite Home Price Indices with increases of 4.6% and 3.8%, respectively, in April 2010 compared to the same month last year. Of note, Dallas, Denver, San Diego and San Francisco have all posted six consecutive months of positive annual rates of return, recording +3.3%, +4.4%, +11.7% and +18.0% in April, respectively.

“Home price levels remain close to the April 2009 lows set by the S&P/Case Shiller 10- and 20-City Composite series. The April 2010 data for all 20 MSAs and the two Composites do show some improvement with higher annual increases than in March’s report. However, many of the gains are modest and somewhat concentrated in California. Moreover, nine of the 20 cities reached new lows at some time since the beginning of this year. The month-over-month figures were driven by the end of the Federal first-time home buyer tax credit program on April 30th. Eighteen cities saw month-to-month gains in April compared to six in the previous month. Miami and New York were the two that fared the worst in April compared to March. New York is the only MSA to have posted a new relative index low with April’s report.” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. 

“Other housing data confirm the large impact, and likely near-future pullback, of the federal program. Recently released data for May 2010 show sharp declines in existing and new home sales and housing starts. Inventory data and foreclosure activity have not shown any signs of improvement. Consistent and sustained boosts to economic growth from housing may have to wait to next year. ”

The chart above shows the index levels for the 10-City and 20-City Composite Indices. As of April 2010, average home prices across the United States are at similar levels to where they were in late summer/early autumn of 2003. From their peak in June/July of 2006 through the trough in April 2009, the 10-City Composite is down 33.5% and the 20-City Composite is down 32.6%. The peak-to-date figures through April 2010 are -30.5% and -30.0%, respectively. 

New York posted a new index low in April, as measured by the current housing cycle, where it peaked in June 2006. The peak-to-trough figure is -21.7%. Eighteen MSAs and both Composites showed monthover- month improvements in April. The 10- and 20-City Composites were up 0.7% and 0.8%, respectively. Eleven of the MSAs reported monthly increases of at least 1.0%. Miami and New York were down 0.8% and 0.3%, respectively. San Diego has now shown 12 consecutive months of positive returns. It is the only market that did not contract in the late winter months.

The S&P/Case-Shiller Home Price Indices are revised for the 24 prior months, based on the receipt of additional source data. More than 23 years of history for these data series is available, and can be accessed in full by going to http://www.homeprice.standardandpoors.com