Appraisal Scoop

Appraisal Institute-ASA-ASFMRA-NAIFA reply regarding the pending Interim Final Rule on TILA

Here is the official comment letter of the Appraisal Institute-ASA-ASFMRA-NAIFA on the pending Interim Final Rule on TILA and customary and reasonable fees.

Download JointLetterToFederalReserveTILAAppraisalProvisions

This letter is divided into two parts: 

Part I provides brief, general observations regarding the impact of the HVCC and HOEPA’s anti-coercion provisions. 

Part II contains specific positions and recommendations regarding the contents of the interim final rule. 

You will note that in Part II they address the issue of “customary and reasonable” residential appraiser fees in great detail given this provision’s central importance to the new law’s appraisal independence requirements. 

"While implementation of the other aspects of the appraisal independence section are discussed in somewhat less detail, our organizations regard them as being of comparable public policy and consumer protection importance. We hope you find our comments helpful and responsive to the specific questions the Fed asked in connection with the conference call."

Here are several  excerpts from the letter:

 Customary And Reasonable Appraiser Fees: As we discussed during the September 8 conference call, the Dodd-Frank Act contains a provision requiring “customary and reasonable” fees be paid to appraisers to reflect what an appraiser would typically earn for an assignment absent the involvement of an appraisal management company (AMC). Under the Act, 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. This issue is extremely important given evidence that indicates wide divergence between fees paid to appraisers through appraisal management companies and those retained directly by financial institutions. While some AMCs pay full fees and charge for their services on a “cost-plus” basis, many do not. Many of our members report having to accept reduce fees by as much as 50 percent since the inception of the Home Valuation Code of Conduct.

 Prohibitions on Conflicts of Interest: The Fed asks whether “small banks” should be exempt from the appraisal independence and anti-conflict of interest provisions of the Dodd-Frank Act. In a word, our answer is an emphatic “no”. Because many of our members operate small valuation firms, we appreciate the difficulty that small businesses sometimes experience in meeting federal and state requirements. Nevertheless, we believe that consumers whose collateralized loans are made by small banks would be ill-served by exempting those banks from the appraiser independence requirements. Clearly, mid-size and large financial institutions with in-house appraisal departments have the resources to establish “fire walls” between those departments and their mortgage production departments. If small financial institutions lack such resources, they can readily go outside the bank and hire independent appraisers. We do not believe that this represents an unreasonable requirement.

Mandatory Reporting of USPAP Violations: The Fed asks whether clarification is required in connection with new TILA section 129E(e), which requires individuals involved in a collateralized consumer credit transaction to report an appraiser’s violation of USPAP, federal and state appraisal laws or who is otherwise engaging in “unethical or unprofessional conduct” to his or her state appraiser licensing agency. We strongly believe that clarification is essential if frivolous complaints against appraisers and wasted investigative efforts by state appraiser licensing agencies are to be avoided.

 Our organizations support appraiser accountability. If an appraiser violates USPAP or otherwise engages in unprofessional conduct, we want these violations examined and the appraiser sanctioned if the alleged misbehavior is confirmed. However, because the language of the mandatory reporting provision is general in nature, we urge the Fed to establish specific ground rules that would govern and circumscribe the reporting of alleged appraiser misconduct. We believe that those ground rules should describe, as concretely as possible, and provide examples of, the acts of appraisers which might constitute a possible violation of the behavior addressed in the statute’s mandatory reporting language. Without such guidelines, a torrent of unfounded complaints to state appraiser licensing agencies could be unleashed – based, for example, on nothing more than an appraiser’s refusal to provide a desired opinion of value. Indeed, an unscrupulous user of appraisal services or even a disappointed borrower could use an unfocused and generalized mandatory reporting requirement, as a means to undermine the independence and objectivity of the appraiser.

HUD-1 Line Charges:  We urge the Fed, in its interim final regulations, to require that when an appraisal is procured through an AMC or through any other third party, that consumers are provided with clear and timely information on how the appraisal fee is to be split between the appraiser and the AMC or other third party. The consumer is entitled to such transparency. While we continue to seek clarification from HUD/FHA that under RESPA, the portion of appraisal fees collected by AMCs are, in reality, loan origination costs and should not be reported on the Appraisal line of the HUD-1 form, we strongly urge that the interim final rule require creditors to provide clear and timely information to consumer-borrowers showing appraisal costs broken-out between the fee actually paid to the appraiser and the administrative fee paid to the AMC.

Finally, we strongly oppose the recommendation of one interest group that the Federal Reserve delay promulgating interim final rules to implement the “customary and reasonable fee” provisions of the statute

.

We believe that delaying implementation would violate the clear words of the statute which state that “for purposes of this section,” the Fed shall prescribe interim final regulations no later than 90 days after the date of enactment of this section…” (emphasis added). The “customary and reasonable fee” provision (129E(i)) is a part of “this section” (i.e., section 1472).

  Click here for the full TILA Appraisal Provisions Letter

FannieMae's Uniform Appraisal Dataset Summary Published

To improve the quality and consistency of appraisal data on loans delivered to the GSEs, Fannie Mae and Freddie Mac are developing the Uniform Appraisal Dataset (UAD). As previously announced in August, we expect to provide business and technical details of the UAD, implementation dates for the Uniform Collateral Data Portal (UCDP), and use of the UAD and UCDP later this year. The implementations will occur in 2011. In the meantime, we are providing a high-level summary of the UAD requirements and related information. See Appraisal Scoop article UAD Overview The UAD includes all data points required for a complete appraisal report and standardizes key data points. The standardization of certain data points will support consistent appraisal reporting, regardless of geographic location of the property or any localized reporting conventions, by addressing vague or disparate data currently included on some appraisal reports, such as: Variations in formatting numbers, dates, and measures. Inconsistent terminology for identical information (such as waterfront vs. oceanfront). Inconsistent use of descriptions (for example, property condition is sometimes reported in absolute terms such as "brick" and in relative terms, such as "average"). Download UMDP_Overview The GSEs are focused on enhancing the quality of key appraisal data that is either most material to the valuation of a property and/or critical to determining a loan's eligibility for sale to the GSEs. The GSEs are working with appraisal forms vendors to incorporate the UAD requirements into the software appraisers use to complete appraisal reports. Upon implementation of the UAD, the GSEs will require that appraisals be completed with standardized responses in certain appraisal form fields. The UAD standardized response requirements include: Standardized formats for fields that include dates, values, etc. Allowable values from a list of choices provided for certain fields. Standardized abbreviations to allow more information to fit on the printed appraisal forms. Standardized ratings and definitions for the "Condition," "Quality," and "Updating/Renovations" of the property. Initially, the UAD will apply only to the following most commonly used uniform residential appraisal report forms (Fannie Mae/Freddie Mac form numbers), which represent the vast majority of appraisals supporting loans delivered to the GSEs: Uniform Residential Appraisal Report (Form 1004/70) Individual Condominium Unit Appraisal Report (Form 1073/465) Exterior-Only Inspection Individual Condominium Unit Appraisal Report (Form 1075/466) Exterior-Only Inspection Residential Appraisal Report (Form 2055/2055) The GSEs plan to extend the UAD and the standardized responses to the other residential appraisal forms at a later date. UAD Business Overview and Implementation Specifications Before the end of December, the GSEs will publish the full details of the UAD, which will include the following: UAD business overview (for lenders and appraisers) -- a list of standardized definitions and responses for a key subset of fields on the four uniform residential appraisal report forms initially covered by the UAD and relevant details for appraisers and lenders to understand the requirements. UAD implementation specifications (for appraisal software/forms vendors, appraisal management companies, and high-volume lenders) -- MISMO XML-based mapping information and other technical details. This information is used to translate the data entered on the form into the format expected by the Uniform Collateral Data Portal (UCDP) and will be used by appraisal software/forms vendors and any lender or lender agent, such as an appraisal management company (AMC), that will be consuming the data from the form electronically. Support and Training In addition to providing the business and technical requirements for the UAD, the GSEs are working on a full range of job aids, training opportunities, and other resources to assist lenders in implementing the UAD requirements. These tools will help lenders understand how to incorporate the UAD into their business processes. To aid appraisers in adopting the new data standards, the GSEs plan to work with appraisal trade associations to distribute information, training, and job aids. Electronic Appraisal Data Submission through the UCDP To facilitate delivery of electronic appraisal report data, the GSEs are developing the UCDP through which lenders must submit appraisal data for delivery to either or both of the GSEs. In addition to providing a PDF version of the appraisal report, lenders will be required to submit electronic appraisal data to the GSEs through UCDP prior to loan delivery for all residential appraisal forms. The UAD will be integrated into the UCDP so that submissions can be validated against the GSEs' requirements for completeness and standardized responses. More details on the availability of the UCDP and its required use will be provided at a later date. Get More Information Uniform Mortgage Data Program UMDP Overview  UAD Summary  UMDP FAQs ULDD Overview Fannie Mae Implementation Guide This communication relates to the Uniform Mortgage Data Program, an effort undertaken jointly by Freddie Mac and Fannie Mae at the direction of their regulator, the Federal Housing Finance Agency.

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. 

PR - Bradford Technologies Partners with Appraisal Management Company Collateral Valuation Research Inc. For CVR Report Capabilities

San Jose, CA and Scottsdale, AZ – September 21, 2010 – Bradford Technologies innovator of valuation tools and solutions for residential appraisers and Collateral Valuation Research Inc. have partnered together to further expand Collateral Valuation Report (CVR^TM) coverage area throughout North America. 

Over the past two years, the appraisal industry has seen a tremendous amount of change as a result of new lending regulations.  Today, producing a typical Uniform Residential Appraisal Report form can be very involved and a time-consuming way to determine a property’s valuation. 

For HELOCs; appraisal reviews; and property assessment reconsiderations; Bradford Technologies’ CVR^TM is the effective and economical solution to meet the needs of AMC clients.   With statistically supported data, the CVR is leading the industry in valuation reporting.

With over 50 years of combined lending and appraisal management experience, Michael Stapley and his business partner  Kirk Jungbluth, founders of Collateral Valuation Research Inc., instantly recognized the value the CVR presented appraisers. 

“Appraisers could produce as many as four CVRs in the time it would take them to generate just one traditional uniform residential appraisal report (URAR).  For appraisers, focusing solely on CVR reports is not only less stressful, but it eliminates the constant need to be on the road evaluating properties.  More time in the office means more time to generate business.  The CVR provides a tremendous opportunity to combine appraiser skill and experience with new technology that will absorb most of the time related elements that involve data evaluation for the appraisal report. ” 

“To be involved with a company who changed their business model to accommodate the demand for appraisal reports with better accuracy, transparency and affordability delivered in the CVR, validates all the effort we put into developing this report”, said Jeff Bradford, chief executive officer of Bradford Technologies.  

 

“We look forward to our continued partnership with Collateral Valuation Research and their nation-wide network of appraisers,” said Bradford.

 

Bradford Technologies

302 Piercy Road

San Jose, CA 95138

PRESS CONTACT:

Rosalie Berg

Strategic Vantage Marketing & Public Relations

305-971-5352

[email protected]

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.

New Appraiser Customary and Reasonable Fee Survey from OREP and Working RE

Making Your Case for Fair Fees

E&O insurance leader OREP.org and Working RE Magazine announce the new Appraiser Customary and Reasonable Fee Survey. Survey results will be available for all.

Why: New legislation calls for appraisers to be paid Customary and Reasonable Fees and allows for independent studies as evidence. The studies are to exclude AMC-ordered appraisals. The legislation calls for stiff fines for lenders and their agents (AMCs) who refuse to comply.

That’s the good news. But now what? What are customary and reasonable fees (CRFs)? Most appraisers say they know what CRFs are in their marketplace for various assignments. Now you can make your case for fair fees. Substantiate your fees and create an independent record.

There were over 1,000 responses in the first 24 hours and has grown steadily from there. The value of this survey depends on your participation. Take a few moments to (once again) make your voice heard.

Click to take the survey now.

TAVMA's Letter to Delay Requirements

AMC interests are fighting to delay or stop enforcement of the customary and reasonable fee requirement. The following is from a recent letter to Chairman Ben S. Bernanke, Board of Governors of the Federal Reserve System from TAVMA, a group representing AMC interests:

”This (customary and reasonable fee requirement) is at best a vague standard lacking any coherent definition.” Act now. Complete this survey today.

(Read the complete letter)

Click to take the survey now.

Survey Includes:

• 365 Metropolitan Statistical Areas plus rural areas for each state
• 8 products/services including reviews and FHA
• Turnaround times surveyed
• Results available for all

Please be sure to pass the link along to all the appraisers you know and ask them to pass it along too: http://www.surveymonkey.com/s/YZWHYT3 .

TAVMA writes letter to delay paying appraisers reasonable fees - Says VA Fees " . . . artificially inflate appraisal fees in most markets"

Appraisers  . . . please read a letter written by Jeff Schurman, Executive Director of TAVMA - Title/Appraisal Vendor Management Association to the Board of Governors of the Federal Reserve System urging them to delay implementation of the appraisal fee provision in Title XIV of the Dodd-Frank Act. 

Download TAVMA FEE OBJECTION LETTER 8-2010

They are asking the FRB for sufficient time to define and analyze the implications of the "customary and reasonable" appraisal fee provision of the Act. 

Translation...AMC's don't want to comply with this legislation and pay appraisers a fair fee.

The TAVMA letter supports a HUD FAQ clarification in defining what a customary and reasonable fee should be:

The letter claims - 

"Yet, only one agency, the Veterans Administration (VA), publishes an appraisal fee schedule, (available at: http://www.benefits.va.gov/homeloans/fee_timeliness.asp ). These fees, however, are higher than many consumers will expect to pay in a retail mortgage transaction. 

Moreover, VA loan appraisal fees do not purport to be “customary and reasonable” for non-VA loans. Rather, they reflect “maximum allowable fees for the appraisal type” according to the VA website. Thus lenders, AMCs, and appraisers that use the VA fee schedule are very likely to distort (by artificially inflating) appraisal fees in most markets.

This could become a self-perpetuating problem, as higher “customary and reasonable” fees for non-FHA work may have the effect of increasing VA appraisal fees resulting in a vicious cycle."

Their Conclusion 

The final implementing regulation must consider these complex issues before establishing a workable and accurate set of “customary and reasonable fees.” Unfortunately, a credible source of “objective third-party” fee information simply does not exist at this time. 

The premature adoption of the fee provision will cause unanticipated harm [to] AMCs, lenders, and consumers, and likely will adversely affect competition among appraisers.

Read the full letter here:  Download TAVMA FEE OBJECTION LETTER 8-2010

The Case for Centralized Appraisal Ordering - Part 2 - Benefits

Guest Post by Fred Rossiter - State Certified Residential Appraiser - Seahaven Appraisal Services

This is the second of a two-part series presenting a case for, and benefits of, centralized appraisal ordering

Benefits of Centralized Ordering: Because the lender is no longer the appraiser’s client, the appraiser’s fiduciary is to a governmental agency. The appraiser no longer has any motivation to appease the lender. Because the appraiser remains anonymous until delivery, the lender has no opportunity to influence the appraiser. This insures a true and honest appraisal of the property.

 Centralized Ordering, through a government run web site, with appraiser anonymity, would provide the perfect “firewall” needed between the appraiser and the lender.

Centralized Ordering provides the ordering, processing, delivery and payment functions of the appraisal process thus satisfying many of the functions currently provided by Appraisal Management Companies. This will reduce appraisal costs to the consumer and insure fair and customary fees to the appraiser. 

Simplicity - All residential appraisals will be ordered through one government web site. The lender would fill out the home page (engagement letter) with property and ordering information and click on the Submit Information button. The lender would then select an anonymous appraiser on the 2nd page of the web site and click on: Order an Appraisal. Once completed, the appraiser would download the appraisal report, through the web site, to the lender and the Consumer Financial Protection Agency (CFPA) for archival. Downloading the appraisal report would automatically trigger the electronic payment of the report by debiting the lender’s reserve account and crediting the appraiser’s account.

Because the lender chooses the appraiser anonymously, the lender has no opportunity to coerce or influence the appraiser or manipulate fees. The lender is not allowed to make stipulations.

Because the appraiser is allowed to determine his own fees, free from influence by the lender, the fees become market based. Appraisers wishing to increase their volume, are free to reduce their fees and appraisers wishing to charge higher fees must compete with all other appraisers on the basis of experience, qualifications and industry affiliations. Because the appraisal fee is passed on to the borrower, the lender has no incentive to order from an appraiser offering the lowest fee.  

Centralized ordering, appraiser anonymity, and fair and customary fees, determined by the market of appraisers, will halt the theft of the appraiser’s fees by lenders and AMC’s. Appraiser’s fees will no longer provide a profit center for lenders nor parasitic AMC’s. 

A government run web site would offer only USPAP compliant appraisal products. AVM’s, BPO’s and non standard appraisal products would not be available, permitted or offered. 

Centralized ordering will negate much of the need for Appraisal Management Companies. Centralized Ordering would break the existing oligopoly now enjoyed by the nation’s five largest lenders. Lender approved fee appraiser panels would no longer be permitted nor would they exist.

Appraisal Management Companies would still exist and provide quality control services only, to those lenders who chose to use them. 

Centralized Ordering would allow the US Government and designated agencies to monitor the nation’s housing market and how well the nation’s housing stock is collateralized.  

Centralized Ordering would negate the need for appraisers to establish business relationships with lenders to promote their business. These business relationships, in the past, frequently provided lenders an opportunity to coerce, intimidate and influence appraisers on their appraised values or extract low fees under the threat of reduced business.

With Centralized Ordering, every appraiser with geographic competence in a specified zip code would be exposed to every lender in the country ordering an appraisal in that specified zip code.

Every lender or mortgage company would be required to use the government run Centralized Ordering website on all new residential loans and refinances.

Centralized ordering with its built in firewall offering appraiser anonymity, and changing the appraiser’s client from the lender to a government entity would have prevented the S & L crisis in the mid 80’s, and the housing bubble and resultant crash of the housing industry and US economy in the last several years.

Part 1 - The Case for Centralized Appraisal Ordering

Download Appraisals - Centralized Ordering

 

The Case for Centralized Appraisal Ordering - Part 1

Guest Post by Fred Rossiter - State Certified Residential Appraiser - Seahaven Appraisal Services

This is the first of a two-part series presenting a case for, and benefits of, centralized appraisal ordering.

 For there ever to be true appraiser independence, the direct link between the lender and the appraiser must be forever severed. A fundamental change must occur that replaces the lender as the appraiser’s client. This change would sever the appraiser’s current fiduciary to the lender.  

Moving forward, the appraiser’s new client should be the new Consumer Financial Protection Agency (CFPA), the FHA, VA or a GSE (take your pick). The appraiser’s fiduciary would be owed to a government entity who has no motivation to corrupt him and instead, is interested only in quality appraisal reports and protecting the country from another housing melt down. Only then will there be an end to the lender’s coercion, intimidation, corruption and influence of this nation’s appraisers. This paradigm shift would insure the proper collateralization of this nation’s housing stock.

I envision a government web site, run by the new Consumer Financial Protection Agency (CFPA), that would be accessed by any registered lender or mortgage broker desiring to order a residential appraisal. The Home Page would serve as an engagement letter between the appraiser and a government entity. The lender ordering the appraisal would be noted on the appraisal report, not as the client, but rather as an intended user of the report. 

The lender would populate the blank fields of the engagement letter noting the property address, zip code, contact info, type of appraisal product, turn around time requested, addendums requested, etc. No stipulations would be allowed. Once filled out, the lender would click on the Submit Information button.

The lender would then view the next page which would list appraisers (anonymously), who are actively licensed or certified, have a current E & O policy, and who are geographically competent (based upon the zip code) to appraise the subject property. Every appraiser would certify what zip codes they were geographically competent in.  

This list of (anonymous) appraisers would be generated from the Consumer Financial Protection Agency’s database. Their database would be derived from the Appraisal Subcommitttee’s national registry but include fees and particulars inputted by each participating appraiser.

Qualified appraisers would be listed randomly as: Appraiser A, Appraiser B, Appraiser C, etc., with their basic and ancillary fees. An estimated fee for the assignment would be calculated and quoted for each appraiser on this page for the lender’s consideration. The appraiser’s qualifications, years of experience and industry affiliations would be listed. The lender would select one appraiser from the list of anonymous appraisers and simply click on Order an Appraisal. In doing so, the lender has selected an appraiser anonymously.

The appraisal order (engagement letter plus any purchase contracts) would then be automatically e mailed to the appraiser. The appraiser would have time to research the property before deciding whether to accept, deny, or conditionally accept the assignment based upon a new proposed delivery date and/or fee. The appraiser would have 24 hours to respond to the order or it would be automatically canceled and the lender would then be given an opportunity to select a different appraiser. The web site would automatically notify the lender by e mail of the appraiser’s decision. 

If the appraiser accepted the assignment, he would set up the inspection time, inspect the property and complete the appraisal by the delivery date. The appraiser would be penalized, monetarily, for missing the inspection date and/or the delivery date.

Upon completion, the appraiser would download the appraisal report through the web site to the lender and the Consumer Financial Protection Agency (CFPA) where an original copy would be archived. Downloading the completed appraisal report would automatically trigger the electronic payment of the report by debiting the lender’s reserve account and crediting the appraiser’s account. 

Only upon receipt of the completed appraisal report would the lender discover the true identity of the appraiser. The lender would be able to run a Quality Assurance check of the appraisal. The lender would be permitted to contact the appraiser directly to make any corrections or revisions. And, the lender or the appraiser would be free to refer any complaints or instances of negligence, fraud or coercion to state appraisal boards through a Consumer Financial Protection Agency (CFPA) Hot Line.

In Part 2 of this series, I'll present the "Benefits" of a Centralized Appraisal Ordering System.