Appraisal Scoop

Appraisal and AMC Fees Separated on Revised Settlement Forms

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

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

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

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

The 1004D - Appraisal Update and/or Completion Report - Uses and Misuses

Guest Author:  Ken Shure, Certified Residential Appraiser in the Los Angeles, California area.  Contact: [email protected]

The 1004D form issued by Fannie Mae has two distinct sections. The first section is utilized to produce a summary appraisal report associated with a subject property for which a prior appraisal report was completed and to do so as of a new effective date. The form labels this section as a "Summary Appraisal Update Report" however it must be noted that when completing this section one has undertaken a new assignment and must be aware of the USPAP considerations of doing so. The second section is utilized to confirm whether or not requirements or conditions stated in the original appraisal report have been met. The focus of this writing is on the latter section.

The appraiser completing the lower section of the 1004D form certifies that they have performed a visual inspection of the subject property to determine that the conditions or requirements stated in the original report have been satisfied. This certification language makes the lower section appropriate for use when repairs were called for in a prior appraisal report that utilized the third check box option within the reconciliation section (CB3). Checking this box provides for the appraisal to be based on a hypothetical condition that specific repairs or alterations have been completed. In addition, the 1004D form is appropriate for use when the second check box option within the reconciliation section (CB2) has been utilized in the original report. Checking this box provides for the appraisal to be based on a hypothetical condition that the improvements have been completed according to plans and specifications that were in place as of the effective date.

Requests for completion of the lower section of the 1004D often expand beyond these appropriate purposes and it has become the "go to" form for lenders to request certification by the appraiser that an abundant array of issues are not problematic or have been solved. It is fairly evident to anyone who receives requests for this assignment type with any reasonable frequency that appraisers are being asked to complete assignments mandating the use of the 1004D in instances where this particular form is not appropriate.

The first example of this is the request for the 1004D when the lender requires an issue tobe corrected that was not conditioned for in the appraisal report via the use of CB3. The1004D language specifically states that the issues being confirmed as completed werethose where the requirements or conditions were called for in the original report. While this can be viewed as a minor distinction, it does mandate that the appraiser add in verbiage that the repairs are being required by the client. This will result in the presence of contradicting statements and the potential for one to be accused of producing a misleading document as the preprinted form language indicates that the repairs were a requirement of the original report. One possible action by the appraiser when such a request is made would be to supply an addendum confirming that the repairs required by the lender did in fact take place. Unfortunately this action is typically either not accepted by lenders or will result in the appraiser not being paid for the work involved for confirmation of the repairs in question. Ideally lenders and other clients would not put the appraiser in the position of having to complete an assignment or assignment element in an inappropriate and/or questionable fashion in order to be compensated for it.

The second example is one that can result in unnecessary and undesirable liability for the appraiser that complies. This deals directly with whether the original appraisal report called for repairs using CB3 in the reconciliation section or called for an inspection using the fourth checkbox option (CB4) in the reconciliation section. As was noted previously, an appropriate use of the 1004D form is to confirm that repairs or alterations that were called for by the appraiser via the use of CB3 in the original report have taken place. In these cases the appraiser can reasonably be expected to have the ability to confirm and certify the completion of these items using the 1004D.

Unfortunately, the 1004D is often being utilized by clients to engage the appraiser in cases where an inspection was called for via the use of CB4. This can be highly problematic for the appraiser.

• First, the form language of the 1004D does not call for the appraiser to certify that an inspection took place, was done properly, or had correct conclusions. The form language calls for verification that the improvements have been completed as required by the original report with certification that confirmation took place via a visual inspection of the subject property by the signing appraiser.
• Second, when an appraiser does certify that whatever item of concern is now satisfactory the appraiser has taken on a level of responsibility for the professional inspection that took place.

The signing appraiser has in effect become a potential responsible party in the event of a problem. The most common purpose of CB4 is for the appraiser to call for an inspection by an appropriate professional in cases where the appraiser is not qualified to make a particular determination. In these cases the inspection report is the proper vehicle to assist in the lending decision and complete the file, not a 1004D signed by an appraiser who has indicated via the use of CB4 in the original report that they do not have the expertise to make the determination in question. The only possible purpose of the 1004D in this instance is to add the appraiser to the list of liable parties should the inspection prove to be faulty. Appraisers would be well served to let other professionals such as roof inspectors, home inspectors, engineers, and pest controllers maintain full responsibility for their services and not sign certifications that make them responsible for the services, opinions, and conclusions of another professional.

As has been noted, when CB3 has been checked and the original appraisal has been based on a hypothetical condition that certain repairs have been made, it is reasonable for the client to expect that the appraiser is able to determine if the repairs have been completed and provide certification via the 1004D. Appraisers need to carefully review what they are requiring via the use of CB3 and determine if they will be competent to make the determination that the repairs or alterations have been completed. If the issue is sufficiently complex as to possibly require substantial construction or significant alteration then the appraiser needs to be clear if the issuance of a building permit would be necessary to certify completion via the 1004D. If the situation of concern will involve the use of plans and specifications that have been prepared as of the effective date, then consideration should be given as to whether the second check box in the reconciliation section (CB2) would be the more appropriate avenue by which to proceed. This option is typically utilized for new construction or major renovations and is only engaged if proper plans are already in place that can be reviewed by the appraiser.

The time to ensure a proper engagement and completion of a 1004D begins during completion of the 1004 or related form. When it becomes apparent that the appraisal will need to be conditioned via CB2, CB3, or CB4 it is important to outline within the report what exactly the specific issues are and to classify them on an individual basis as to whether they have resulted in the report being conditioned subject to an inspection by another professional, subject to repairs, or subject to completion according to plans and specifications. It is also important to outline to the client precisely what the appraiser will be able to certify to in the event a 1004D is requested. Language within the original report clarifying that the appraiser will not be able to certify the conclusions of an inspection report called for via CB4 and completed by another professional (ie: roof inspection or termite inspection) is certainly proper. In cases where CB3 is utilized the appraiser needs to consider their own comfort level with certifying completion of the specific repairs that are being called for. While certifying that paint had been applied, a kitchen sink installed, or a window repaired would all be within reasonable expectations, would one be competent to certify that a roof had been repaired adequately to prevent the reoccurrence of water damage to the ceiling? If there is a question as to comfort level or competence in determining that the repairs being called for have been completed properly, one should evaluate if the more appropriate step would be to proceed via CB4. In the case of a roof issue, perhaps calling for repairs of the ceiling via CB3 if the damage is seen as extensive enough while also calling for an inspection of the roof by a qualified professional via CB4 to determine conclusively if repairs to the roof are needed and to what extent.

The 1004D form provides a desired format for a necessary function often required by lenders. When utilizing the lower section of this form appraisers would be well advised to proceed in a manner that conforms with the form language and to avoid the potential liability of certifying the inspection results of another professional. In addition, when conditioning a report for specific repairs via CB3 the appraiser should be confident that they will be able to competently determine if the repairs requested have been completed properly. If not, consideration should be given to proceeding via CB4 and requiring an inspection by the appropriate professional to determine if the need for repairs does in fact exist and if so to what extent.

Copyright KB Shure 2012

Guest Author:  Ken Shure, Certified Residential Appraiser in the Los Angeles, California area.  Contact: [email protected]

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

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

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

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

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

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

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

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

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

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

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

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

GAO Recommendation: Appraisal Subcommittee Needs to Improve Monitoring Procedures

Why GAO Did This Study

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

Full Report:  GAO-12-147 Click Here

What GAO Found

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

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

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

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

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

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

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

What GAO Recommends

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

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

Appraiser Joan Trice Authors New NAHB Primer Aimed at Helping Builders Work More Effectively With Appraisers

With builders around the nation continuing to grapple with faulty appraisals that jeopardize sales of their new homes, NAHB is adding an “Appraisal Primer” to its collection of resources aimed at helping association members strive for the best possible outcome from today’s less-than-perfect appraisal process.

The newly published primer from NAHB discusses in detail the appraiser’s role in the financing of new homes.

“There is a lot behind the scenes that affects the way appraisers must conduct their business,” writes Joan Trice, an appraiser and author of the primer; editor and publisher of Appraisal Buzz, an email publication; and the host of the Alterra Group’s Valuation Expo, which is the largest annual conference for the appraisal community.

Trice is also consulting with NAHB on the association's efforts to resolve appraisal problems.

“Understanding the regulations, methodologies and task of the real estate appraiser will provide home builders with the necessary knowledge to discuss valuation issues with appraisers before they become valuation problems,” Trice says.

Beginning in 2009, NAHB has held a series of four appraisal summits at the National Housing Center in Washington, D.C., attended by representatives of federal banking regulators, the appraisal industry, the housing finance industry, the real estate and housing sectors and others for discussions of deficiencies in the current system of evaluating homes and how to address them.

While much more needs to be done to reform the system — which is expected to be a long-term undertaking stretching far into the housing recovery now beginning to materialize in specific markets across the country — NAHB has made substantial headway on key appraisal issues.

Covered in detail in the Nov. 7, 2011, issue of Nation’s Building News — which was devoted to what NAHB has been doing to fix the broken new-home appraisal system — builders have seen progress on such key concerns as their ability to communicate with the appraiser and the right to have their homes appraised by individuals who are qualified to do the job.

In conjunction with the release of the “Appraisal Primer,” NAHB has updated its “Appraisal Guidance for Builders,” which summarizes information on:

• the selection of appropriate appraisers,
• the use of comparable sales in determining the value of new homes,
• what builders can and should do to ensure accurate appraisals and
• actions they should take if an appraisal was conducted improperly or contains errors.

In a FAQ section at the end of the new primer, Trice answers some specific concerns that builders have been voicing over appraisals.

Among the questions she addresses:

• What should an appraiser do to determine the value of a new home with options and upgrades that do not appear in other homes recently sold in the local area?
• Will the appraised value support the additional costs of expensive geothermal heating and other green options?
• What are some of the problems that builders can encounter when appraisers are selected by national appraisal management companies (AMCs), which may be looking for appraisers who charge the lowest fees so they realize the highest margin on the referral?
• Is it true that under the Dodd-Frank bill builders cannot communicate with appraisers?

For more information, email Steve Linville at NAHB, or call him at 800-368-5242 x8597.

SOURCE: National Association of Home Builders (NAHB) - Nation's Building News