Appraisal Scoop

Consumer Financial Protection Bureau proposes rule to improve consumer access to appraisal reports

Rule would give consumers additional rights to information on how a home value is determined

WASHINGTON, D.C. – Today, the Consumer Financial Protection Bureau (CFPB) released a proposed rule that would require mortgage lenders to provide home loan applicants with copies of written appraisals and other home value estimates developed in connection with the application. The rule would ensure that consumers receive information prior to closing about how the property’s value was determined.

“When looking to buy a home or refinance a mortgage, consumers need the best available facts and data,” said CFPB Director Richard Cordray. “This rule would guarantee consumers receive important disclosures on how a lender determines the value of the home, making it easier for loan applicants to make informed decisions.”

In response to the mortgage crisis, the Dodd-Frank Wall Street Reform and Consumer Protection Act requires that creditors provide mortgage applicants with a copy of written appraisals and home value estimates developed in connection with the application.  Today’s proposed rule would require that creditors inform consumers within three days of applying for a loan of their right to receive a free copy of appraisal reports and home value estimates. Creditors would then be required to provide the reports to consumers as promptly as possible, but in no case later than three days before closing, regardless of whether credit is extended, denied, incomplete or withdrawn.

Appraisals and other home value estimates are used by creditors to inform lending decisions for most home sales. Consumers are typically charged for the costs related to conducting an appraisal; however, currently consumers must request appraisal reports from creditors and may be charged a fee to obtain the report.  Under the proposed rule, creditors could still charge reasonable fees associated with conducting appraisals and home value estimates; however, the rule would prohibit creditors from charging consumers fees for obtaining the reports.

The proposed rule would amend the Equal Credit Opportunity Act (ECOA)’s Regulation B, which require certain disclosures and prohibits lenders from discriminating on the basis of race, national origin, sex, or other protected bases. Under the Dodd-Frank Act, the Bureau is authorized to issue regulations implementing ECOA and supervise compliance with ECOA and Regulation B for certain lenders.

The CFPB welcomes comments on the proposed rule. The public will have 60 days, or until October 15, 2012 to review and provide comments on the proposed rule. The CFPB will review and analyze the comments before issuing a final rule in January 2013.

The CFPB’s proposed rule is available at: http://files.consumerfinance.gov/f/201208_cfpb_ECOA_proposed_rule.pdf

A summary of the CFPB’s proposed rule is available at: http:://files.consumerfinance.gov/f/201208_cfpb_ECOA_plain_language_summary.pdf

The proposed rule can be found here: http://files.consumerfinance.gov/f/201208_cfpb_ECOA_proposed_rule.pdf

This is one of several rulemakings governing mortgage practices currently underway at the Bureau in order to implement requirements of the Dodd-Frank Act. Today, in partnership with several other federal regulatory agencies, the Bureau is also issuing a proposed rule to establish special requirements concerning appraisals for higher-risk mortgage loans, which would require creditors to use a licensed or certified appraiser to prepare the written appraisal report based on a physical inspection of the property.

The interagency proposed rule is available at: http://files.consumerfinance.gov/f/201208_cfpb_HRM_proposed_rule.pdf

A summary of the interagency proposed rule is available at: http://files.consumerfinance.gov/f/201208_cfpb_HRM_plain_language_summary.pdf

Agencies Issue Proposed Rule on Appraisals for Higher-Risk Mortgages

WASHINGTON— Six federal financial regulatory agencies today issued a proposed rule to establish new appraisal requirements for “higher-risk mortgage loans.”  The proposed rule would implement amendments to the Truth in Lending Act enacted by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Under the Dodd-Frank Act, mortgage loans are higher-risk if they are secured by a consumer’s home and have interest rates above a certain threshold.

Download HRM_Joint_Proposed_Rule-Signed

For higher-risk mortgage loans, the proposed rule would require creditors to use a licensed or certified appraiser who prepares a written report based on a physical inspection of the interior of the property. The proposed rule also would require creditors to disclose to applicants information about the purpose of the appraisal and provide consumers with a free copy of any appraisal report.

Creditors would have to obtain an additional appraisal at no cost to the consumer for a home-purchase higher-risk mortgage loan if the seller acquired the property for a lower price during the past six months. This requirement would address fraudulent property flipping by seeking to ensure that the value of the property being used as collateral for the loan legitimately increased.

The proposed rule is being issued by the Board of Governors of the Federal Reserve System, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the National Credit Union Administration, and the Office of the Comptroller of the Currency.

The Federal Register notice is attached. The agencies are seeking comments from the public on all aspects of the proposal. The public will have 60 days, or until October 15, 2012, to review and comment on most of the proposal. However, comments related to the proposed Paperwork Reduction Act analysis will be due 60 days after the rule is published in the Federal Register. Publication of the proposal in the Federal Register is expected shortly. 

Download HRM_Joint_Proposed_Rule-Signed

Should I Attach My E&O Declarations Page to My Appraisal Report? - Peter Christensen

GUEST POST: Peter Christensen is an attorney who advises professionals and businesses about legal and regulatory issues concerning valuation and insurance. He serves as general counsel to LIA Administrators & Insurance Services. He can be reached at [email protected].

Because some AMCs still wrongheadedly insist that appraisers do it, we are asked this question a lot: "should I attach my E&O declarations page to my appraisal report?" The answer is always the same: it's a bad idea. It's bad for both the appraiser and the client/AMC. It is perfectly reasonable for a client or an AMC to ask for proof of E&O insurance and ask to receive updated insurance information each year. That's common to many professions, but there is no good reason to require that the information be included within or attached to appraisal reports. (Lawyers like myself certainly don't attach proof of insurance to our opinion letters or legal briefs.)

Why is it a wrongheaded practice?

Let's start with this basic fact: the insurance policy that the appraiser has at the time of performing an appraisal -- and thus the policy that the appraiser would attach to a report -- will most likely be irrelevant to any insurance that the appraiser may have if a claim by a lender or AMC later arises. The reason for this is that all appraiser E&O insurance -- like almost all other professional liability insurance -- is issued on a claims made basis. This means that the policy that will cover the appraiser is not the policy that the appraiser had in place on the date of the appraisal but rather the policy that the appraiser has in place years later when the lawsuit is filed or the claim asserted. Since almost all claims by lenders or AMCs arise years after delivery of the report, whatever policy may be attached to the report is usually irrelevant. (Note: for appraisers and AMCs, the more critical issue for them to look out for regarding appraiser E&O insurance coverage is to make sure that appraisers are not losing coverage for prior appraisal work by moving to policies which will not cover prior acts. See "A Serious Warning for Appraisers and AMCs About Some Risky E&O Insurance.")


So that makes the practice wrongheaded. Why is it a bad idea from a risk point of view?

The main reason why we advise against attaching E&O information to reports is that it results in more claims being asserted by property owners and borrowers against both appraisers and AMCs. These parties, of course, are neither clients nor intended users. Attaching E&O information to an appraisal report simply invites a few more of these parties to threaten or bring claims. I don't want to overstate the problem because the existence of insurance does not have anything to do with most claims -- lenders and borrowers will generally sue regardless. But for a few people, seeing insurance information attached to a report will spark the idea of making a claim. We've seen many claims reported directly to us by borrowers when they are a disappointed with the value and cannot refinance. We've also received claims from homeowners who've alleged things as petty as square footage being off by 2% and then expected a payment as if an appraiser's E&O were a manufacturer's warranty. Many of these claims reported directly to us probably would not have been sparked except for the insurance information that the borrower saw attached to the report. (Claims like these, of course, are defended and rarely result in any recovery to the claimant but all claims cost money to defend.)

We realize that some AMCs and lenders nevertheless require appraisers to attach their E&O to reports. There's no law or regulation against that, but we suggest that the appraiser try to reason with them and explain:

1. You are happy to supply the AMC or lender with a copy of your E&O declarations page that they can keep on file.
2. Attaching your E&O to your report not only exposes you to unnecessary risk of claims by third parties but it also makes it more likely that the AMC or lender will be dragged into a case filed by a homeowner or borrower. (Yes, we've seen AMCs themselves dragged into lawsuits as a result of problems that arose in connection with E&O being attached to a report.)

If those lines of reasoning don't work, we suggest attaching your E&O information only when required for a specific client. Don't make it a general practice.

Click here for the full article: Should I Attach My E&O Declarations Page to My Appraisal Report?

***

Appraisers can learn more about ways to reduce their liability risk at www.readimember.org -- a free resource created by LIA Administrators & Insurance Services.

Peter Christensen is an attorney who advises professionals and businesses about legal and regulatory issues concerning valuation and insurance. He serves as general counsel to LIA Administrators & Insurance Services. He can be reached at [email protected].

 

Could Appraiser Shortage Mean Rising Costs to Borrowers?

Re-blogged with permission from Elizabeth Ecker Published in News, Reverse Mortgage

One component of the reverse mortgage—and general mortgage—business seems to be shrinking fast, in spite of rising demand: Appraisers.

Once a booming business, many appraisers left the industry upon the housing crash, never to reenter the market. More generally, though, changes including new regulations have led to a decline in qualified appraisers at a time when borrowers are starting to need their services increasingly once again.

“A lot of appraisers left when business volume tanked and many were frustrated with AMCs that offered very low fees,” says Erik Richard, CEO of Landmark Network. “Appraisers are an aging population and then couple that with the difficulty there is now in becoming an appraiser, and the number of appraisers are way down.”

 Today’s regulations require appraisers in training to partner with a working, certified appraiser in a sort of apprenticeship role. Historically, that process allowed a new appraiser to get the right education while logging a set number of hours before applying for a full license.

Under the arrangement, trainees were able to complete appraisals with the certified appraiser, essentially co-signing the report. But today, there are fewer certified appraisers and more importantly, very few will bring on trainees. Exacerbating the problem, few financial institutions will accept work done by a trainee.

“It really is the perfect storm when you add the rise of loan applications and the stabilization of home values in many markets,” Richard says.

Further, the industry is having a hard time recruiting new people.

“The appraisal industry is in a dire situation,” says Brian Coester, CEO of Coester VMS. “New appraisers are not coming in and old appraisers are getting out.”

“The problem is exacerbated by the inability to attract the next generation of appraisers to the profession,” wrote Michael Kleber-Diggs of Vesta Valuation in a January article in online publication Appraisal Buzz.

 

   

Source: The Appraisal Institute

With the market for appraisals beginning to show an uptick through homeowners refinancing under The Home Affordable Refinance Program (HARP) II, as well as values beginning to drive sales again in a few select areas of the country, the shortage is actually leading to longer turn times for getting an appraisal.

“A lot of appraisers that are strapped and are busy,” says Davide Stroop of Mortgage Information Services. “They’re pushing their turnaround times out a bit. Normally, we’d find another appraiser to take care of the overflow, but that’s where we’re seeing the reduction. There are not as many who are able to take that work on today. Turnaround times haven’t been impacted that greatly, but where’s the next wave of appraisers coming from? Where are they?”

Looking ahead, the lack of supply and growing demand could also lead to rising costs to borrowers. In some markets this is already the case, AMCs say.

“Appraisals will cost a lot more,” Coester says, as a result of the supply and demand. “Borrowers have a big enough problem paying for appraisals now in the reverse mortgage space.”

Written by Elizabeth Ecker - Click here to see the original article

PR: Zaio (Zone Data Systems - USA) Expands AMC Distribution Network Nationally

Axis Appraisal Management to Distribute Zaio's Suite of Appraisal Products

CALGARY, ALBERTA, Jul 31, 2012 (MARKETWIRE via COMTEX) -- Zaio Corporation  today announced that its partner in the United States, Zone Data Systems LLC ("ZDS"), has entered into a reseller agreement with Axis Appraisal Management Solutions Inc. (Axis), a national appraisal management company (AMC), to provide direct order access to Zaio's suite of on demand appraisal products.

Based just north of San Francisco, California, Axis has a nationwide panel of certified appraisers that provides appraisal services to a large and growing list of mortgage lenders and other clients across the United States.

"Partnering with Zone Data Systems and utilizing Zaio technology provides Axis with a unique product offering in the United States," noted Ron Simmons, Director of Valuation Services & Chief Appraiser of Axis. "Zaio's product offering leverages our position in the marketplace and complements our nationwide appraiser panel, growing review service needs, and automated valuation model offerings. It gives our customers another option and additional price points by which they can do
business with Axis."

Axis joins Kirchmeyer & Associates, Veros Corporation, and Servicelink in offering Zaio products and services across the United States.

National AMCs are an important link in the property appraisal process. Local property appraisers align themselves with AMCs to gain access to a broader base of regional and national customers who may be looking for appraisal services in their area. Regional and national mortgage lenders use AMCs to route their appraisal orders to these local appraisal experts. By establishing direct order access relationships with AMCs, Zaio is able to provide the AMC's customer with an accurate, cost effective, rapid response suite of appraisal products.

"We are starting to see increased interest from the AMC community in Zaio's appraisal product suite because our database has now reached a critical mass in terms of the number of properties and the number of urban centres that we cover," noted David King, Zaio's President and CEO. "I expect Zaio's
relationship with Axis to grow as we continue to fill out the scope of our coverage, which today stands in excess of 30 million properties ready for order taking."

For further information visit www.zaio.com  .

About Zaio Corporation

Zaio provides customers in the property valuation, underwriting and lending industries with real-time access to certified appraisal reports from the Company's patented database of proactively maintained residential property valuations prepared by licensed appraisers across the United States. The

        
        Contacts:
        Zaio Corporation
        David King
        President & CEO
        (403) 984-ZAIO
 
www.zaio.com            
        Genoa Management Ltd.
        John Sadler
        (416) 594-9292