Appraisal Scoop

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

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

WASHINGTON, D.C. — Today (1/18/2013) the Consumer Financial Protection Bureau (CFPB) adopted a new rule that requires mortgage lenders to provide applicants with free copies of all appraisals and other home-value estimates. The rule will ensure that consumers can receive information prior to closing about how the property’s value was determined.

“This rule will guarantee consumers can receive important information on how a lender determines the value of the home,” said CFPB Director Richard Cordray. “Having this information available promptly makes it easier for loan applicants to make informed decisions.”

Appraisals and other estimates of a home’s value are generally used by mortgage lenders to inform their decisions. Consumers are typically charged for the costs related to conducting an appraisal; however, currently the law does not require that consumers receive a copy of the appraisal unless they request it and does not require that consumers receive a copy of any other estimates of the home’s value.

The Dodd-Frank Wall Street Reform and Consumer Protection Act requires that lenders give consumers a copy of each appraisal or other estimate free of charge although a lender generally may still charge the consumer a reasonable fee for the cost  of  conducting the appraisal or other estimate. The Bureau’s new rule implements these requirements.

Today’s rule also requires that creditors inform consumers within three days of receiving an application for a loan of their right to receive copy of all appraisals.  Creditors will then be required to provide the copies of appraisal reports and other written home-value estimates to consumers promptly, or three days before closing, whichever is earlier.  The new rule will go into effect in January 2014 and will apply to first-lien mortgages.

The final rule is available at: http://www.consumerfinance.gov/regulations/disclosure-and-delivery-requirements-for-copies-of-appraisals-and-other-written-valuations-under-the-equal-credit-opportunity-act-regulation-b/

A summary of the CFPB’s rule is available at: http://files.consumerfinance.gov/f/201301_cfpb_ecoa-appraisals-rule_summary.pdf

Today, in partnership with several other federal regulatory agencies, the Bureau is also adopting a new rule that establishes special requirements concerning appraisals for higher-priced mortgage loans. The new rule creates an additional level of due diligence by requiring that creditors use a licensed or certified appraiser to prepare the written appraisal report based on a physical inspection of the property. The rule also requires creditors to disclose to applicants information about the purpose of the appraisal and provide consumers with a free copy of any appraisal report.

The interagency higher-priced appraisals rule for higher-priced mortgage loans is available at: http://www.consumerfinance.gov/pressreleases/agencies-issue-final-rule-on-appraisals-for-higher-priced-mortgage-loans/

A summary of the interagency rule is available at: http://files.consumerfinance.gov/f/201301_cfpb_tila-appraisals-rule_summary.pdf

Consumer Financial Protection Bureau Issues Rule to Protect Consumers from Irresponsible Mortgage Lending

Rule Requires Lenders Ensure Borrowers Have the Ability to Repay Their Mortgage

WASHINGTON, D.C. – Today the Consumer Financial Protection Bureau (CFPB) adopted a new rule that will protect consumers from irresponsible mortgage lending by requiring lenders to ensure prospective buyers have the ability to repay their mortgage. The rule also protects borrowers from risky lending practices such as “no doc” and “interest only” features that contributed to many homeowners ending up in delinquency and foreclosure after the 2008 housing collapse.

“When consumers sit down at the closing table, they shouldn’t be set up to fail with mortgages they can’t afford,” said CFPB Director Richard Cordray. “Our Ability-to-Repay rule protects borrowers from the kinds of risky lending practices that resulted in so many families losing their homes. This common-sense rule ensures responsible borrowers get responsible loans.”

Leading up to the mortgage crisis, certain lenders originated mortgages to consumers without considering their ability to repay the loans. The gradual deterioration in underwriting standards led to dramatic increases in mortgage delinquencies and rates of foreclosures. What followed was the collapse of the housing market in 2008 and the subsequent financial crisis. The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act created broad-based changes to how creditors make loans and included new ability-to-repay requirements, which the CFPB is charged with implementing.

Ability to Repay

In the years leading up to the financial crisis, lenders too often offered mortgages to consumers who could not afford them. Under the Ability-to-Repay rule announced today, all new mortgages must comply with basic requirements that protect consumers from taking on loans they don’t have the financial means to pay back. Among the features of the new rule:

• Financial information has to be supplied and verified: Lenders must look at a consumer’s financial information. A lender generally must document: a borrower’s employment status; income and assets; current debt obligations; credit history; monthly payments on the mortgage; monthly payments on any other mortgages on the same property; and monthly payments for mortgage-related obligations. This means that lenders can no longer offer no-doc, low-doc loans, where lenders made quick sales by not requiring documentation, then offloaded these risky mortgages by selling them to investors.
• A borrower has to have sufficient assets or income to pay back the loan: Lenders must evaluate and conclude that the borrower can repay the loan. For example, lenders may look at the consumer’s debt-to-income ratio – their total monthly debt divided by their total monthly gross income. Knowing how much money a consumer earns and is expected to earn, and knowing how much they already owe, helps a lender determine how much more debt a consumer can take on.
• Teaser rates can no longer mask the true cost of a mortgage: Lenders can’t base their evaluation of a consumer’s ability to repay on teaser rates. Lenders will have to determine the consumer’s ability to repay both the principal and the interest over the long term − not just during an introductory period when the rate may be lower.

Qualified Mortgages

Lenders will be presumed to have complied with the Ability-to-Repay rule if they issue “Qualified Mortgages.” These loans must meet certain requirements which prohibit or limit the risky features that harmed consumers in the recent mortgage crisis. If a lender complies with the clear criteria of a Qualified Mortgage, consumers will have greater assurance that they can pay back the loan. Among the features of a Qualified Mortgage:

• No excess upfront points and fees: A Qualified Mortgage limits points and fees including those used to compensate loan originators, such as loan officers and brokers. When lenders tack on excessive points and fees to the origination costs, consumers end up paying a lot more than planned.
• No toxic loan features: A Qualified Mortgage cannot have risky loan features, such as terms that exceed 30 years, interest-only payments, or negative-amortization payments where the principal amount increases. In the lead up to the crisis, too many consumers took on risky loans that they didn’t understand. They didn’t realize their debt or payments could increase, or that they weren’t building any equity in the home.
• Cap on how much income can go toward debt: Qualified Mortgages generally will be provided to people who have debt-to-income ratios less than or equal to 43 percent. This requirement helps ensure consumers are only getting what they can likely afford. Before the crisis, many consumers took on mortgages that raised their debt levels so high that it was nearly impossible for them to repay the mortgage considering all their financial obligations. For a temporary, transitional period, loans that do not have a 43 percent debt-to-income ratio but meet government affordability or other standards − such as that they are eligible for purchase by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac) − will be considered Qualified Mortgages.

There are two kinds of Qualified Mortgages that have different protective features for a consumer and different legal consequences for the lender. The first, Qualified Mortgages with a rebuttable presumption, are higher-priced loans. These loans are generally given to consumers with insufficient or weak credit history. Legally, lenders that offer these loans are presumed to have determined that the borrower had an ability to repay the loan. Consumers can challenge that presumption, though, by proving that they did not, in fact, have sufficient income to pay the mortgage and their other living expenses. 

The second, Qualified Mortgages that have a safe harbor status, are generally lower-priced loans. They are generally prime loans that are given to consumers who are considered to be less risky. They will also offer lenders the greatest legal certainty that they are complying with the new Ability-to-Repay rule. Consumers can legally challenge their lender if they believe the loan does not meet the definition of a Qualified Mortgage.

The Ability-to-Repay rule does not affect the rights of a consumer to challenge a lender for violating any other federal consumer protection laws.

Today, the CFPB is also releasing proposed amendments to its Ability-to-Repay rule. These amendments would, among other things, exempt certain nonprofit creditors that work with low- and moderate-income consumers. The proposed amendments would also make exceptions for certain homeownership stabilization programs − such as those that offer loans made in connection with the Making Home Affordable program − which help consumers avoid foreclosure. The proposed amendments would also provide Qualified Mortgage status for certain loans made and held in portfolio by small creditors, such as community banks and credit unions. Finally, today’s proposed amendments invite comment on how to calculate loan origination compensation under the points and fees provision of Qualified Mortgages.

The proposed amendments, if adopted, would be finalized this spring and go into effect at the same time as the Ability-to-Repay rule in January 2014. The CFPB is dedicated to working with industry and consumers for a smooth transition to the new rule. To help creditors with compliance, the CFPB will, among other things, be publishing plain-language translations of the regulation for lenders in booklet and video form, issuing implementation guides, and, in coordination with other agencies, releasing materials that help lenders understand supervisory expectations. As the effective date approaches, the CFPB will give consumers information about their new rights under these rules.

The rule and proposed amendments will be available on Thursday at: http://www.consumerfinance.gov/regulations

A factsheet further explaining the new rule is at: http://files.consumerfinance.gov/f/201301_cfpb_ability-to-repay-factsheet.pdf

A summary of the final Ability-to-Repay rule is at: http://files.consumerfinance.gov/f/201301_cfpb_ability-to-repay-summary.pdf

SOURCE: CFPB Website

NAR Releases Statement Regarding Appraiser Independence

Today, the National Association of Realtors (NAR) released a statement regarding appraisers and appraiser independence on their appraisal web page. In the statement, NAR expresses concerns about recent attempts to interfere with the appraisal process and the independence of the appraiser.

Over the last 18-36 months a host of rules, regulations, and laws have been announced to further protect appraiser independence yet appraisers continue to be pressured. NAR believes this pressure unnecessarily adds risk to the mortgage transaction for lenders and consumers. You can read the full statement here.

Source: Appraisal Insight Blog

FRB Rethinking "Final Interim Rules"? - Consumer Financial Protection Bureau (CFPB) Established

GUEST AUTHOR: Dave Towne, Certified Real Estate Appraiser - Towne Appraisals.  16422 Britt Rd., Mount Vernon, WA  Phone: 360.708.1196   eMail: [email protected]  Web:http://www.TowneAppraisals.com

Appraisers…. AppraiserForum news received [last week] about potential changes to the Federal Reserve Bank’s Interim Final Rule (IFR) concerning Customary and Reasonable fees is contradictory, per the info below . . . . .

[Editor's Note: The IFR provides two alternative ways in which lenders, their agents, and appraisal management companies will be presumed to be in compliance with the Customary and Reasonable Fee rules.]

Presumption one requires that the amount of compensation is reasonably related to recent rates for appraisal services performed in the geographic market of the property. Fees paid by AMCs are specifically included in this approach. Moreover, necessary fee adjustments are to be made for type of property, scope of work and fee-appraiser qualifications, etc. In addition, there can be no anti-competitive action in violation of federal law such as price-fixing or restricting others from entering the market. This is an explicit requirement of Dodd-Frank designed to prevent collusion or market dominance among AMCs to depress appraiser fees.

Presumption two relies on objective independent, third-party information, including fee schedules, studies and surveys. This approach excludes AMC fees.

By April 1, lenders and AMC’s must decide which method or compliant combination/hybrid they will use in determining customary and reasonable fees for fee appraisers.]

The conflicting messages are these:

FIRST: From a Virginia appraiser, circulated to nationwide appraisers on 4/09/2011:

"I have had a rather lengthy conversation with a highly placed source in DC in the Appraisal world this afternoon. This person and I have known each other for decades. I promised not to reveal his/her name.

This individual gave us some rather valuable information. He/she has been in direct contact with folks at the Federal Reserve…and they have heard a BUNCH from appraisers, Realtors, and others regarding the Reasonable and Customary fee uproar.

The Fed had first determined they were done, finished, and walking away from this issue. They are now RE-THINKING their final interim rules as we speak.

Please contact the Fed. This is indeed working….the louder and harder we complain the better it will be. MORE and MORE of us need to take just 5 minutes to write and mail an explanatory complaint letter. [I modified this to say LETTER, not e-mail]"

You need to send your letter today to the Federal Reserve Bank bureaucrats who modified the intent of the Dodd-Frank law in the regulation they wrote. Tell the FRB how you really feel about AMC’s being allowed to steal a portion of your former income to line their own pockets:

Mail to:Jennifer Johnson, Secretary, Board of Governors – Federal Reserve System, 20th Street & Constitution Ave. NW, Washington, DC 20551 (Reference: the Final Rules for Appraiser Independence, within the Dodd-Frank Law).

SECOND: From an Oregon appraiser on The AppraisersForum, posted 4/07/2011:

I got a call back from an attorney at the Fed Reserve Board today regarding any further clarification of the Dodd Frank legislation.

Basically, they understand there was A LOT of comments and confusion arising from their interim rule, which I did confirm is now the final rule as of 4/1/2011. They want to comment further to help clarify their interpretation of Appraiser Independence and C&R fees, BUT they can't.

It seems that there is a brand new agency in the process of being set up called the Consumer Financial Protection Bureau. [This is true.] Since many of the staff from the Fed who worked on this issue are going to be transferred to this new CFPB agency there will be no further comments about the final rule until they are up and running. This is to happen in late July of this year.

There are apparently many agencies that will be working with and answering to the CFPB and the attorney from the Fed said it will likely be several months after they open before they offer any more comments on the C&R fee issue in order to give all the agencies time to report in to this new CFPB.

So, everyone should keep pressure on the CFPB when they go live. They have a website set up at http://www.ConsumerProtection.gov. [Actually it’s: http://www.consumerfinance.gov/  - I could find NO mailing address or e-mail address on this site] I've not checked it out yet to see if there is any contact info yet or not....kicking the can down the road it looks like!

 

 Mail your letter to the FRB today!

GUEST AUTHOR: Dave TowneTowne Appraisals Mount Vernon, WA 360-708-1196 & Appraiser Education Service

NAHB Issues Guidelines on Drywall Fix

The National Association of Home Builders has produced, ""Imported Problematic Drywall: Identification Strategies and Remediation Guidelines," a new resource for its builder and remodeler members. According to a press announcement, "The publication represents more than a year of intensive research, testing, analysis and evaluation under the auspices of NAHB's Chinese Drywall Task Force, whose mission was to identify a permanent solution to problems with drywall emitting or off-gassing corrosive compounds, which can lead to blackening of copper electrical wiring and air conditioning evaporator coils and can cause mechanical, electrical and electronic failures."

March 16, 2011 - A new resource for builders and remodelers looking for answers on the critical question of how to detect and remediate problematic drywall imported from China in recent years is now available from the National Association of Home Builders (NAHB).

"Imported Problematic Drywall: Identification Strategies and Remediation Guidelines" can be downloaded at www.nahb.org/drywallguidelines.

The publication represents more than a year of intensive research, testing, analysis and evaluation under the auspices of NAHB's Chinese Drywall Task Force, whose mission was to identify a permanent solution to problems with drywall emitting or off-gassing corrosive compounds, which can lead to blackening of copper electrical wiring and air conditioning evaporator coils and can cause mechanical, electrical and electronic failures.

"The downstream effects of these problems include widespread property damage, huge financial losses, hundreds of lawsuits, and legitimate concerns about possible health effects from living with these unpleasant airborne compounds," said NAHB First Vice Chairman Barry Rutenberg, who moderated a webinar to introduce the guidelines to NAHB members.

"In a landscape cluttered with untested products, devices and procedures purported to resolve drywall problems, NAHB based these guidelines on scientifically proven technologies, materials, means and methods for remediating drywall problems in single-family homes, condominiums, apartments and townhomes," Rutenberg said.

Designed to address problematic drywall in residential applications, the document does not represent the only approach to remediating the problem. It is not intended to set minimum or maximum requirements for remediation nor is it intended to be used to determine the effectiveness of remediation efforts that have already been completed. Builders might decide to follow different guidelines that are less inclusive or that include additional measures.

Among some of the document's recommendations:

• Replace all low-voltage, signal and data wiring; all switches and receptacles; and all smoke, fire and carbon monoxide alarms and life-safety systems. This reiterates interim remediation guidance issued by a Federal Interagency Task Force on this issue last year.
• If the home was built between 2001 and 2008 and it has been confirmed that problematic drywall is present throughout the entire home, total remediation is the only viable option. Selective remediation is an option if problem drywall is found in a limited portion of the home that can be isolated.
• To determine whether the remediation has been adequate, conduct clearance testing after the drywall has been removed and the house has been cleaned and aired out but before the drywall is replaced.

The New Threat to Appraiser Independence

Guest Post: Charles R. (Chuck) Dettling is a Certified Residential Real Property Appraiser licensed in Alabama and Florida. Chuck and his son, Seth, also a Certified Residential Real Property Appraiser, operate a small firm, Dettling & Associates, covering seven counties in Southwest Alabama and the Florida panhandle. Their practice includes single family, small commercial, condo, and land, with a specialization in REO assignments. Email: [email protected]  

As most appraisers and mortgage market participants are aware, the Board of Governors of the Federal Reserve published an Interim Final Rule in the Federal Register on October 28 2010, Volume 75, Number 208, Pages 66554 through 66587, that implements Section 129E of the Truth in Lending Act (TILA) U.S.C. 1601, which was enacted on July 21, 2010 as Section 1472 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Rule is to take full effect on April 1, 2011, and among other things, intends to establish new requirements for appraiser independence, and better consumer protection in all finance transactions that involve their principal residence.

As appraisers, we generally applaud the efforts of Congress and the Federal Reserve to implement rules and procedures that enhance appraiser independence, help to protect the integrity of our profession and increase public trust in the appraisal process. From the appraisers’ point of view, some of the more popular provisions of the Rule include the elimination of the HVCC, and mandated payment of “reasonable and customary compensation” to the appraiser. Other provisions attempt to strengthen already existing ethics rules and regulations. As with many extremely complex federal regulations, there are often unintended consequences. In this appraiser’s view, the mandate that “… parties involved in the transaction report appraiser misconduct to state appraiser licensing authorities” could lead to a new breed of pressure on appraisers, i.e., the threat of a board complaint. Most of us would agree there are unethical and poorly trained appraisers out there competing with the rest of us, and those should be reported when warranted. But, what unintended consequences could result from enactment this provision?

Over the course of the past several years, I have found the relationships between appraisers and real estate brokers, agents and sales staff to be increasingly strained. One need only recall the visceral reaction by the real estate sales profession after the implementation of HVCC. The national news media was filled with so-called ‘horror stories” of appraisers “low-balling” appraisals in order to avoid liability in what was (and is) clearly a tragically devastated real estate market. Agents complained bitterly that they could not get their deals done because those naughty appraisers were intentionally valuing their pending sales too low. One of the more obnoxious examples was a report on Fox Business News wherein David Asman interviewed Dolly Lentz, the Real Estate Vice Chairman of Prudential Douglas Elliman. Asman asked Lenz what needed to be done to “fix the problem” and incredibly she replied, “…I think for one, they should have to provide comparable sales.” Earth to Dolly!!

Section 226.42 42(g) Mandatory Reporting “TILA Section 129E(e) requires certain persons to report an appraiser to the applicable state appraiser certifying and licensing agency if the person has a reasonable basis to believe the appraiser is failing to comply with USPAP, is violating applicable laws, or is otherwise engaging in unethical or unprofessional conduct. 15 U.S.C. 1639e(e). This provision applies to creditors, mortgage brokers, real estate brokers, appraisal management companies, and any other persons providing a service for a covered transaction.”

By the way, notice how the new law is strangely silent on the responsibilities and professional conduct of real estate sales professionals. Could it be that the massive National Association of Realtors lobby was able to convince congress that everything was just hunky-dory on their end. Just fix the appraisers and everything will be just fine.

So, now we have several million people described in the above code section who are required by law to report appraisers when they “have a reasonable basis to believe that an appraiser has not complied with USPAP or ethical or professional requirements…” Unfortunately, the Fed forgot to define “reasonable.” Question. With (hopefully) the exception of licensed or certified appraisers, who in this group knows squat about USPAP, really? When is the last time you heard Jane Q. Public espouse the many virtues and complexities of USPAP? I had a dream the other night. I was talking to a homeowner about the appraisal process and that rascal looked over his bifocals, leaned toward me, smiled (exposing all six of his teeth), and said: “So, doesn’t the Scope of Work Rule in USPAP require you to include the research and analyses that are necessary to develop credible assignment results?” 

A couple of years ago I had a property owner file a complaint against me. The complaint letter stated rather adamantly that I had refused to consider “comparable sales” that she had provided. Those “comparables” were in another state and were so superior that it was ridiculous. I expected the case to be dismissed immediately. But according to the Board they are required by the Appraisal Standards Board to conduct a full investigation into every aspect of the appraisal assignment. Six months later and with ten years of my life eliminated, I was completely exonerated, with not even a private warning.

Armed with this new “weapon” it is easy to imagine a huge surge in complaints by irate real estate agents, unhappy property owners, and others to the state boards. What is going to happen to E&O insurance rates when over-zealous state boards launch World War III against the appraisers to protect the public (oh, yes, and raise some much-needed revenue)? Will appraisers quickly discover that simply “tweaking” the numbers to accommodate real estate sales contracts or consumers’ wishes will minimize or eliminate the risk of complaints? Will too many appraisers end up with frivolous complaints that result in fines and reprimands, tainting the valuable reputations of our colleagues, and driving the best of our lot from this profession? In short, will this codified mandate to report appraisers become the new threat to appraiser independence?

About The Author: Charles R. (Chuck) Dettling is a Certified Residential Real Property Appraiser licensed in Alabama and Florida. Chuck and his son, Seth, also a Certified Residential Real Property Appraiser, operate a small firm, Dettling & Associates, covering seven counties in Southwest Alabama and the Florida panhandle. Their practice includes single family, small commercial, condo, and land, with a specialization in REO assignments. Email: [email protected]  

Appraisal Independence Interim Final Rule - Effective 4/1/2011

On October 18, 2010, the Federal Reserve Board of Governors (the "Board") announced a new rule setting standards for appraisals of residences offered as security for consumer credit transactions - 12 C.F.R. § 226.42 (the "Rule" or "Section 42").

The Rule amends the Board's Regulation Z, which implements the Truth in Lending Act ("TILA"). The Rule prohibits (i) undue influence on appraisers, (ii) mischaracterization of value in appraisals, and (iii) certain appraiser conflicts of interest. Section 42 also sets forth requirements for (i) compensation for licensed/certified appraisers and (ii) reporting of appraiser misconduct. Notably, the Rule places stringent requirements on creditors that employ in-house appraisers, so as to avoid conflicts of interest. (source: Mondaq)

Background: The new rules regarding appraisal independence adds a new section under Part 226 (Regulation Z), Subpart E (Special Rules for Certain Home Transactions), as Section 226.42 (titled as – Valuation Independence). These provisions were issued as an interim final rule with comment period due to the limited time frame the Act provided for issuance of this rule under the statutory deadline. 

This rule eliminates the current appraiser independence rules in Reg Z at 226.36(b) that were added last year, but those rules will stay in effective until April 1, 2011, at which time compliance with this rule will be mandatory. Through March 31, 2011, you may comply with either 12 CFR 226.36(b) or new 12 CFR 226.42.  (federal register)

"The Federal Reserve Board on Monday [October 18, 2010] announced an interim final rule to ensure that real estate appraisers are free to use their independent professional judgment in assigning home values without influence or pressure from those with interests in the transactions. The rule also seeks to ensure that appraisers receive customary and reasonable payments for their services."

The interim final rule includes several provisions that protect the integrity of the appraisal process when a consumer's home is securing the loan. The interim final rule:

• Prohibits coercion and other similar actions designed to cause appraisers to base the appraised value of properties on factors other than their independent judgment;
• Prohibits appraisers and appraisal management companies hired by lenders from having financial or other interests in the properties or the credit transactions;
• Prohibits creditors from extending credit based on appraisals if they know beforehand of violations involving appraiser coercion or conflicts of interest, unless the creditors determine that the values of the properties are not materially misstated;
• Requires that creditors or settlement service providers that have information about appraiser misconduct file reports with the appropriate state licensing authorities; and
• Requires the payment of reasonable and customary compensation to appraisers who are not employees of the creditors or of the appraisal management companies hired by the creditors.

The interim final rule is required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Compliance will be mandatory on April 1, 2011.

Source: Federal Reserve Press Release

Federal Register notice: HTML | 271 KB PDF

Federal Register notice, technical correction: HTML | 53 KB PDF

2010 Banking and Consumer Regulatory Policy

 

Assuring Accurate Appraisals, Part II: What's A Consumer To Do?

According to Broderick Perkin's first article article Assuring Accurate Appraisals Part I:

"During the height of the housing boom, appraisers were pressured to up the value of homes. Now, during the housing downturn, appraisers are being pressured to lower the value of homes."

In the follow-up article, Assuring Accurate Appraisals, Part II: What's A Consumer To Do? , Perkins says:

"Appraisers are typically hired by the lender to protect its stake in a home buying transaction. That means the appraiser is beholden to his or her employee -- the lender -- not necessarily the buyer nor the seller.

However, both the seller and the buyer can play a role in the appraisal process through a process of due diligence known as looking over the lender's shoulder."

 

Click Here for the full Realty Times article by Broderick Perkins

Next Week: What's a consumer to do? How consumers can play a leading role in the appraisal process.

Arizona Court Rules Appraiser Owes Duty to Buyer/Borrower

In an April 30 decision, the Arizona Court of Appeals has ruled, for the first time in an Arizona published opinion, that an appraiser hired by a lender owes a duty to the buyer/borrower in that transaction. In its decision, the Court focused on the reality that the buyer would likely never hire a separate appraiser. For that and several other reasons, the appraiser owes a legal duty of care to the buyer/borrower.

"Finally, adopting Blagg’s contention that an appraiser retained by a lender owes no duty to the buyer/borrower would mean that a prospective homebuyer who seeks to rely on a prepurchase appraisal must contract separately with an appraiser for that purpose.

In the purchase in this case, as is not uncommon, the buyer was obligated to reimburse the cost of the appraisal ordered by the lender. Even if we were to assume such an arrangement were not the general rule, we see no reason to impose on the parties to a transaction the burden of paying twice for the same information simply so that the buyer may join the lender within the scope of the appraiser’s duty of care.

Public policy and common sense compel the conclusion that when a lender to which a prospective homebuyer has applied for a loan contracts for an appraisal of the home, the appraiser the lender hires owes a duty of due care not only to the lender but also to the homebuyer."

The decision was rendered in a Sage v. Blagg Appraisal Company, in which the buyer/borrower sued the appraiser for overvaluing the home because he used the incorrect square footage, among other things. The trial court had dismissed the action concluding, under two prior Court of Appeals decisions, that an appraiser hired by someone other than the buyer/borrower did not owe any duty to the buyer/borrower. In its unanimous decision, the Court of Appeals disagreed and allowed this case to proceed.

The case opens the door for buyers to sue appraisers even when the appraiser was hired by the lender.

Daphne Reaume of Berk & Moskowitz, P.C. argued the appeal for the buyer/borrower. For a PDF of the court’s decision, visit www.berkmoskowitz.com/documents/CV080331.pdf .

Wells Fargo and Rels Valuation's Home Appraisal Practices and Inflated Fees Under Investigation

SEATTLE, Jan 16, 2009 (BUSINESS WIRE) -- Hagens Berman is investigating Wells Fargo and its appraisal subsidiary, Rels Valuation, based on reports the companies allegedly engaged in a rigged appraisal process designed to boost profits at the expense of homeowners and independent appraisers.

The firm is investigating claims that the company forces homeowners to use its appraisal firm, Rels Valuation, which then turns around and subcontracts the work to independent appraisers while charging homeowners an inflated fee for the work.

The practice, if proven, damages homeowners as Wells Fargo and Rels Valuation control the appraisal market, a profit-boosting move that allows the companies to control third-party appraisers.

"The real estate industry and lending practices in this country put homeowners at the mercy of companies like Well Fargo and others controlling the marketplace," said Steve Berman, managing partner of Hagens Berman Sobol Shapiro.

"We recently filed a lawsuit against Countrywide claiming the giant rigged its appraisal process and it's not surprising to us that other lenders may mirror Countrywide's practices."

The firm is investigating additional claims against Wells Fargo, including the use of strong-arming tactics with independent appraisers, pushing them into low-ball pricing guidelines. Some claim if appraisers don't comply with Wells Fargo's fee structure, the company adds them to a blacklist and refuses business with them in the future.

"If the claims are correct and Wells Fargo and others inflate appraisal fees the damage to homeowners could run into the hundreds of millions of dollars," said Berman. "That doesn't even take into account the abuse and loss of business independent appraisers may be experiencing."

Hagens Berman is looking for anyone who's purchased or refinanced their home through Wells Fargo and Rels Valuation. You can contact attorneys at [email protected]. You can learn more about this investigation at www.hbsslaw.com/WFCappraisals.

Join the Wells Fargo Home Appraisals Investigation!