Appraisal Scoop

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.

Memo from a la mode Chairman - “Customary and reasonable” fee regulations

To:     All appraisers

From: Dave Biggers, Chairman, a la mode, inc.

RE:    “Customary and reasonable” fee regulations

As many of you may know, the Federal Reserve issued 132 pages of “interim final regulations” yesterday on the hot-button issue of “customary and reasonable” fees – and more – as mandated by the Dodd-Frank Act.  Since I was preparing a broader memo on a wide variety of other timely topics anyway, I decided to combine a first look at the new regs with the other information, and so here you have it all together.  It's a little long as a result, but there's a lot to cover, so bear with me.

First Look at the Dodd-Frank Act (or “DFA”) Regs

There's one bombshell hidden in here aside from what we expected.  Everyone knew that the HVCC was being eliminated and that the issue of customary and reasonable fees would be covered, but I for one wasn't expecting the Fed to take the position (as we advocated long ago in this AppraisalPress critique, “HVCC: The Cure Is Worse Than The Disease”) that even though the DFA refers to “appraiser” and “appraisal”, the logical approach is to make the regulations include any person performing “valuations” and make them subject to the same rules.  So, under the new regs, BPOs and agents are subject to the same restrictions regarding coercion and direct or indirect interests as appraisals and appraisers.  It doesn't mean agents have to abide by USPAP, but it does mean that incenting them with a shot at a listing (real or implied) when doing a BPO would be a violation, as would telling them to hit predetermined numbers.

 
Among the other issues that stand out:

• The big one, customary and reasonable fees, is a mixed bag.  On the one hand, it seems that they bowed to AMC pressure and essentially made it “customary OR reasonable” fees, not customary AND reasonable.  On the other hand, they seemed to signal to the legal community that there was more safety in advising lenders to follow a third party reasonable standard than just hide behind customary AMC fees. 
• The crux of the fee issue comes down to allowing AMCs to include their own fees (seemingly in contradiction to the DFA's intent) in their determination of what are the recent market fees being paid to appraisers, and to have that be one of the two separate and alternative presumptions of compliance, so long as the AMC did not engage in anticompetitive behavior as defined by the Sherman Antitrust Act. 
• The second presumption of compliance, using third party data, provides more shelter to the lender – avoiding $10,000 per day fines – than does the first, which the regulators signal by expressly defining what sort of evidence would not be sufficient to overcome the presumption of compliance.  In other words, a lender using third party studies which eliminate the AMC fees will almost always win in court if someone challenges them and will almost never be fined, because simply using the fee studies or surveys is considered de facto compliance with the law.  Trotting out a different third party study showing higher fees isn't enough on its own to overturn the fact that the lender used sufficient best efforts by relying on non-AMC third party data in the first place.  That's great, and will provide the necessary added protection for many risk-averse lenders to refuse to allow AMC-tainted fees to be the basis of their customary and reasonable legal strategy. 
• Trust me, you'll hear more from us on the fees issue, and this two-paths-to-compliance quandary, in the coming weeks.  We'll be hitting our lender contacts and media with education campaigns and providing you with the tools to avoid being run over at the same time.
• The HVCC is eliminated as expected.  However, realize that the firewall restrictions of the HVCC are not eliminated, because they were nearly identically encoded in the 2008 Appraisal Independence Rules (often referred to as the “Interagency Rules”), and the interim final rule enshrines the Interagency Rules virtually unmodified as part of the new law.  The chief distinction is that the Interagency Rules do not bar particular people (mortgage brokers, agents, etc.) from expressly engaging in the process of engaging or communicating with appraisers as the HVCC did in blanket fashion, but rather bar anyone – regardless of their position – from influencing the appraiser in a manner intended to materially mischaracterize the value of the consumer's residence.
• The Fed invalidated the fee stipulations that many AMCs have demanded appraisers sign, exactly as we've argued.  In crystal clear language, they showed that one appraiser being forced to agree to a fee does not mean that appraiser has abdicated protection under the statute, nor has the appraiser given safe harbor to the AMC, since the appraiser cannot attest on his or her own as to what a customary and reasonable fee would be under the statute:  “the Board understands that some AMCs have begun requiring fee appraisers to agree that the fee is customary and reasonable as a condition of obtaining the appraisal assignment.  In these situations, the Board believes that an appraiser’s agreement that a fee is customary and reasonable is an unreliable measure of whether the fee in fact meets the statutory standard.”

This is just the quick summary.  We'll be putting out detailed guidance on the new regs in upcoming AppraisalPress articles.  Meanwhile, you can and should read the regulations yourself at:

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20101018a1.pdf 

FNC Lawsuit - "That legal issue is just not gonna fly . . . ."

I assume that many of you remember the lawsuit that was filed as a class action against FNC back in the Summer of 2007?  

"Plaintiffs allege, FNC has acquired and compiled this proprietary appraisal data into a “National Collateral Database,” where it may be accessed by subscribing lenders and other market participants."

Would you believe that It's STILL going on!!?   That's right!  At the bottom of this post is a complete audio file of testimony and rebuttals before a panel of judges. 

http://www.ca5.uscourts.gov/OralArgumentRecordings.aspx

Here's just a sample of the testimony that starts around twenty-seven minutes into the proceedings . . . .

Attorney: “In that sense, uh, uh, the statements were made to the users, not to uh competitors. The misrepresentations were not anti-competitive in the traditional sense of a Lanham Act Claim. The relevant inquiry, we would submit, is the relationship of the parties as it pertains to the challenge against the statements. And here, the misstatements were made to the plaintiffs appellants that as simply as users of. . .”  (huh?)

Judge: Give us your data and we will keep it confidential and when basically then you take the data and dump the competition . . . that’s the allegation.

Attorney: That’s the allegation your Honor. As a factual matter we will argue that stating that the data will be secure refers to the security of the transmission not to ultimately who would use it.

Judge: “We won’t let anyone else have it . . . we can use it.”

Attorney: But, but, that’s uh . . .

Judge: I hope you can sell that distinction to a jury (snicker) . . .because what that says is “We can have your data. We’re gonna protect it. Don’t worry we won’t let anybody steal it . . . .we’re gonna use it!”

Attorney: Well, uh, Your Honor, I think that at bottom what they’re suggesting . . .

Judge: That legal issue is just not gonna fly . . . .

Download FNC 09-60804_10-6-2010