Appraisal Subcommittee Hires an Executive Director

For Immediate Release

March 31, 2009

The Appraisal Subcommittee Hires an Executive Director

The Appraisal Subcommittee (ASC) today announced the hiring of Jim Park as its Executive Director. Mr. Park has over 23 years of appraisal and mortgage banking experience. During his extensive career, he has held executive management and leadership roles at several financial institutions. He also served for four years as the Director of Research and Technical Issues at The Appraisal Foundation. Mr. Park holds a B.A. in organizational communications from the University of Colorado and a certified general appraiser credential in the Commonwealth of Virginia.

The Executive Director is the senior staff position of the ASC with responsibility for the supervision of the day-to-day ASC operations and ASC staff. Under direction of the ASC, the Executive Director is responsible for implementing ASC policies, overseeing its programs, and developing recommendations to the ASC members. The Executive Director also represents the ASC before state appraisal regulatory officials and various appraisal industry groups. He may be contacted via email at Jim@asc.gov

Congratulations on the new position Jim!

Thanks, Ken

Although there has been quite a bit of discussion among appraisers and real estate brokers about Broker Price Opinions (BPOs), objective discussion of the difference between real property appraisals and BPOs has been missing from articles directed towards consumers. Count on Ken Harney to take charge and inform the public.

What Might Be Hurting Home Values

By: Kenneth R. Harney

Are low-balled value estimates on short sales and bank-owned foreclosures artificially depressing property values in neighborhoods across the country?

Growing numbers of appraisers and consumer groups think the answer is yes, and are demanding that Congress or state regulators crack down. Their complaints focus on what are called "broker price opinions," or BPOs, which substitute for appraisals.

Unlike standard property valuations performed by licensed appraisers, which can cost hundreds of dollars, BPOs often cost $50 and are performed by real estate agents who may have minimal or no appraisal training and are subject to no regulatory oversight. Real estate agents defend BPOs, arguing that their extensive knowledge of local market trends equips them to render accurate estimates.

FULL STORY

I found this part of the article surprising:

The National Association of Realtors, whose 1.2 million members include many of the agents who prepare BPOs, says it has no policy guidance on the issue, but expects to issue a statement in May. Asked whether the association would at the minimum urge members to adhere to state laws and regulations, a spokesman said "there is no policy" on the issue at present.

My reading and understanding of the National Association of Realtors Code of Ethics reveals Articles and Standards of Practice that provide guidance and obligations to members:

Article 1 - When representing a buyer, seller, landlord, tenant, or other client as an agent, REALTORS® pledge themselves to protect and promote the interests of their client. This obligation to the client is primary, but it does not relieve REALTORS® of their obligation to treat all parties honestly. When serving a buyer, seller, landlord, tenant or other party in a non-agency capacity, REALTORS® remain obligated to treat all parties honestly. (Amended 1/01)

• Standard of Practice 1-3
  REALTORS®, in attempting to secure a listing, shall not deliberately mislead the owner as to market value.


• Standard of Practice 1-14
  Fees for preparing appraisals or other valuations shall not be contingent upon the amount of the appraisal or valuation. (Adopted 1/02)

Article 11 - The services which REALTORS® provide to their clients and customers shall conform to the standards of practice and competence which are reasonably expected in the specific real estate disciplines in which they engage; specifically, residential real estate brokerage, real property management, commercial and industrial real estate brokerage, real estate appraisal, real estate counseling, real estate syndication, real estate auction, and international real estate.

REALTORS® shall not undertake to provide specialized professional services concerning a type of property or service that is outside their field of competence unless they engage the assistance of one who is competent on such types of property or service, or unless the facts are fully disclosed to the client. Any persons engaged to provide such assistance shall be so identified to the client and their contribution to the assignment should be set forth. (Amended 1/95)

• Standard of Practice 11-1
  When REALTORS® prepare opinions of real property value or price, other than in pursuit of a listing or to assist a potential purchaser in formulating a purchase offer, such opinions shall include the following:

1. identification of the subject property


2. date prepared


3. defined value or price


4. limiting conditions, including statements of purpose(s) and intended user(s)


5. any present or contemplated interest, including the possibility of representing the seller/landlord or buyers/tenants


6. basis for the opinion, including applicable market data


7. if the opinion is not an appraisal, a statement to that effect (Amended 1/01)

Florida law specifically allows real estate licensees to prepare appraisals and Broker Price Opinions. However, if a real estate broker prepares an appraisal, it must conform with the Uniform Standards of Professional Appraisal Practice (USPAP).

After reviewing dozens of BPO forms, including those developed by Fannie Mae and Freddie Mac, I've not seen one that would allow a REALTOR to comply with their obligations under the Code of Ethics without significant narrative additions. Also clear is that few of the folks jumping on the BPO Bandwagon recognize their potential for liability when providing valuation services. It's just a matter of time before users of these "valuation products" start to file complaints with local Associations of Realtors and State Regulatory Agencies.

At any rate, this will be discussed by the National Association of Realtors Appraisal Committee, along with the Home Valuation Code of Conduct (HVCC) during their meetings in Washington, D.C. in May. I'm looking forward to NAR publishing some specific guidance for their members.

Dear Homeowner

From

Dear Homeowner
by Rita Bradley

Dear Homeowner,
I was very sorry to hear about the possible foreclosure of your home. I'm sure this is a very unpleasant time for you.

I'm sure none of it is your fault. Your friends and neighbors were on their way to becoming millionaires, on paper at least, from owning real estate. You'd have to have been crazy not to take advantage of such an easy money making scheme. The friendly loan officer (that called you one night while you were eating dinner) said that real estate would NEVER go down in value! And banks really wanted to lend you the money. They visited the mortgage broker offices every week offering fabulous programs for their clients. And the fact that your job pays just a bit more than minimum wage was a simple obstacle to overcome. You just got a “stated” loan and stated that you had enough income to afford the house of your dreams. I understand, really I do.

FULL STORY

Every appraiser in my sphere could write the same letter!

Undercover Operation Results in Fraud Charges

...via

Undercover Operation Results in Fraud Charges Against Professionals in the Mortgage Loan Industry

Federal law enforcement officials announced today that 24 defendants, most of whom are professionals in the mortgage loan industry -- including mortgage brokers, loan officers, loan processors, attorneys, accountants, an appraiser, and a banker -- were named in 10 indictments charging them with federal offenses relating to mortgage fraud in the Chicago area.

Nine of the indictments were the product of Operation Madhouse, an undercover investigation conducted by the FBI and the Department of Housing and Urban Development, Office of Inspector General (HUD-OIG), in which undercover law enforcement agents posed as straw buyers of houses seeking assistance in financing and closing fraudulent mortgage transactions. In each of the nine cases, multiple real estate professionals worked to carry out the frauds. Each case involved a different fraudulent mortgage loan arranged by a different group of defendants based in the Chicago area.

Those defendants' roles in the fraudulent transactions, as described in the individual ndictments, included, among other things: preparing loan applications and other documents that they knew to contain false information about the undercover agents' identity, employment, and income; creating (or explaining how the undercover agents could create) fraudulent banking information; fabricating income tax returns; creating fictitious verifications of employment and rental income; creating false appraisals; and submitting the bogus applications and supporting documents to the lenders.

In each of the undercover transactions, a cooperating individual represented that he was selling a house to a nominee buyer who intended to walk away from the property and default on the mortgage after the transaction closed. In reality, the nominee buyers were undercover agents, as were paralegals who assisted in closing the real estate transactions. The houses bought with the fraudulently obtained mortgage loans were actually owned by the federal government. Instead of defaulting on the fraudulently obtained loans after the closings (as the undercover agents had told the defendants they intended to do), the government fully repaid the lenders after each transaction closed.

FULL STORY

I'm not sure about your state, but here in Florida it's not necessary for the FBI to conduct a sting to generate this type of criminal behavior.

HVCC - NAMB Lawsuit Update

Appraisers, real estate brokers and mortgage brokers have been anxious to hear the status of the lawsuit filed by the National Association of Mortgage Brokers (NAMB) against Federal Housing Finance Agency (FHFA) Director James B. Lockhart over the Home Valuation Code of Conduct (HVCC). In an email to members and supporters, NAMB President, Marc Savitt, says:

As you know, on February 23, 2009, NAMB filed a lawsuit against the Federal Housing Finance Agency (FHFA) over the controversial HVCC included in agreements between New York Attorney General Andrew Cuomo, Fannie Mae and Freddie Mac (GSEs), and their regulator, the FHFA.


This week, the litigation took a major step forward as NAMB filed its initial brief outlining why the HVCC is unlawful and should be disallowed. The 45 page document was supported by numerous affidavits, exhibits, and other materials which demonstrated the grave problems created by the HVCC. NAMB is asking the U.S. district Court for the District of Columbia to take any one of several actions that would invalidate the HVCC. As expected, the court declined to rule immediately that the HVCC should be withdrawn without first permitting FHFA to present its arguments, and thus the court has denied NAMB’s request for an immediate Temporary Restraining Order. However, in doing so, the court expressly reserved judgment on the merits of NAMB’s position, which the court has yet to address.


What does this mean?


The District Court may block implementation of the HVCC through an immediate Temporary Restraining Order (TRO), a Temporary Injunction, or a Permanent Injunction. A TRO is rarely granted—it requires a showing that a party faces immediate and irreparable harm if a TRO is not granted and, when granted, typically is in effect only for a matter of days. Because the District Court did not find that there would be immediate and irreparable harm done to appraisers or mortgage brokers within the next few days if a TRO was not granted, the court ruled that a TRO was not appropriate.


That decision does NOT mean that the District Court denied NAMB’s claim. To the contrary, the litigation is now proceeding to the next stage, when NAMB will have an opportunity to present its case to the court, which will then make a ruling.


NAMB has requested an expedited hearing process given the close proximity of the HVCC effective date. NAMB continues to seek both a temporary injunction and permanent injunction blocking implementation of the HVCC, and is seeking resolution of the matter in the coming weeks.

Savitt continues: "Despite the initial good news, there is much more to be done! NAMB is so grateful for your support thus far, but we still need your help! Please continue to circulate the donation letters to appraisers.

As information becomes available, we'll make sure to pass it on. Don't be shy about making a contribution to the NAMB effort by using the link above.

h/t to Dana Bain at Premiere Mortgage Services Inc.

More information at FHA Appraisers.com in their NEWSLETTER

CRIST APPOINTS ORETO TO THE FLORIDA REAL ESTATE APPRAISAL BOARD

March 20, 2009

GOVERNOR’S PRESS OFFICE

(850) 488-5394

TALLAHASSEE

Governor Charlie Crist today announced the following appointment:

Florida Real Estate Appraisal Board (Senate confirmation required)Evalyn “Fran” Oreto, 57, of Hudson, staff appraiser, Bank of America, succeeding Francois K. Gregoire, appointed for a term beginning March 20, 2009, and ending October 31, 2011

LINK

CONGRATULATIONS FRAN!!

Just for Today

....in honor of St. Patrick..

President of Appraisal Institute to Testify on the Hill

UPDATED- May 15, 2009 (TAVMA Responds - See Link Below)

From the Appraisal Institute:

NOTE: The testimony is TODAY, March 11, 2009

MEMO

To: All Members

From: Frederick H. Grubbe, CEO

Date: March 10, 2009

Subject: Jim Amorin to Testify Tomorrow Before the House Committee on Financial Services' Subcommittee

Jim Amorin, MAI, SRA, President of the Appraisal Institute, will testify tomorrow afternoon before the House Committee on Financial Services' Subcommittee on Financial Institutions and Consumer Credit at the Subcommittee's hearing on mortgage lending reform. The hearing will stream live tomorrow, March 11, at 2:30 p.m. ET via the House Committee on Financial Services' Web site

(www.house.gov/apps/list/hearing/financialsvcs_dem/hr0311092.shtml).

During his testimony, President Amorin will stress the importance of appraiser independence and address what our organization perceives to be weaknesses in the mortgage lending process. Included in the points he will make are the following:

• The need for mortgage reform legislation that addresses the inappropriate pressuring of appraisers and the need for providing greater accountability and enforcement options for federal and state appraiser regulators.


• The recommendation for an immediate review of the new loan modification guidelines (Home Affordable Modification) released by the Treasury Department last week, in order to ensure that consumers and neighborhoods are being protected and that proper valuation is being utilized, including questioning the allowances of Broker Price Opinions being used in lieu of appraisals.


• The need to regulate appraisal management companies and encourage lenders to use the best qualified appraisers available to mitigate financial institutions' risk and protect the investment of both lenders and consumers.

If you are unable to tune into the hearing, a transcript of President Amorin's testimony will be made available in tomorrow's issue of Appraiser News Online.

NOTE: The testimony is available NOW in PDF format right HERE

The Appraisal Institute 550 W. Van Buren St., Suite 1000, Chicago, IL 60607 T 312-335-4140 F 312-335-4258/4222

UPDATE!!

Three panels of speakers, a total of 15, testified before the committee today. At least two should be of interest to appraisers, real estate brokers and borrowers:

Charles McMillan, President of the National Association of Realtors

Mark Savitt, President of the National Association of Mortgage Brokers

Both addressed the HVCC and the need for regulation of AMCs.

UPDATE!! May 15, 2009 - The Title/Appraisal Vendor Management Association (TAVMA) responds by questioning the truthfulness of the Professional Appraisal Associations offering testimony - HERE

Pounding the Rock

About a month ago, in a post "About the HVCC and AMCs" we linked to a BusinessWeek article about Appraisal Managment Companies and how the Home Valuation Code of Conduct came to be and that one of the major impacts will be the funnelling of thousands of appraisal assignments through these unregulated enterprises.

It took some time, but some others are getting the memo and expressing concern.

Are Subprime Lenders Up to New Tricks?
Posted By: Diana Olick

Several weeks ago I reported a story about how former subprime lenders were starting new careers in loan modification companies. These are companies that promise, for a fee, to get you through all the red tape with your lender and get you the best modification money can buy. Some of the companies are legitimate, but many more are not. Many are scamming already-scammed borrowers, taking the money and providing no real services.

Then today I read an article in BusinessWeek that literally gets my stomach acid going.

FULL STORY

h/t to Dana Bain at Premiere Mortgage Services Inc.

It's reassuring to see that Ms. Olick has discovered that several banks actually operate their own AMCs. My favorite line?

"Sounds to me like this new "code of conduct" managed to take all the bad kids off the principal's bench and assign them to hall monitor duty. "

It's about time some folks outside of the real estate brokerage, real estate appraisal and mortgage brokerage professions start to notice the heavy handed implications of the HVCC. Keep pounding the rock. Alert your local media of the negative consequences and increased costs to borrowers and consumers if the HVCC is implemented as written.

If you believe strongly, the National Association of Mortgage Brokers (NAMB) is accepting contributions for their legal battle.

NAMB President Marc Savitt said in the announcement that the HVCC will drive up costs for consumers and push small businesses out of the market, and that it’s critical for mortgage and real estate professionals to maintain an appropriate level of contact with appraisers to ensure appraisal quality and independence.

We want it thrown out. Our suit will be in court probably within 10 days or so. We’re going to ask for an injunction to have this thing put on hold until it can be heard by the court. Especially with everything going on – we’re trying to restart the housing industry – this is going to delay the process and add cost to consumers.

and

Let me give you one example. Appraisers can’t work for half price. They’re hurting now. So if you’re making $400 on an appraisal now, and the appraisal management company is going to pay you $200, you’re going to raise your prices. So who ends up paying for that? The consumer.You’re going to have a lot of lost time because you’ll have to have longer lock-in periods. Lock-ins are going to cost more money because they’ll be for longer periods of time.

Utah Legislature passes bill to regulate Appraisal Management Companies

Just posted on the National Association of Realtors Appraisal Insight blog:

The Utah Legislature recently passed a bill that would regulate Appraisal Management Companies. The measure requires AMC's to register with the Division of Real Estate of Commerce before they can legally operate within the state of Utah. The bill also lists several prohibited activities that the AMC may not engage in. This includes withholding payment as a means of coercing the appraiser to reach a pre-determined value.

Read all about it along with a link to the legislation at Appraisal Insights.

We posted about the efforts to regulate Appraisal Management Companies in Utah when the bill passed their House of Representatives.

From the Comments - AMC Regulation

One of the benefits of the increased interest in the Appraiser Active blog is some readers are posting comments to the posts. Some offer support and agreement; others take issue and provide counterpoints. It's beneficial to hear what others have to say and see their point of view.

For instance, in response to the post "It's Time to Regulate Appraisal Management Companies", Robert said:

Dear Frank,I represent an "in development" AMC located on the West coast based in Seattle. For months now I have heard appraisers moaning and groaning about AMC's, specifically how they are ruining their livelihoods. I myself know that the glory days for AMC's are coming to an end. More importantly, I understand that appraisers and AMC share a symbiotic relationship where one cannot survive without the other.

Currently we are in the process of structuring our whole revenue model to remain competitive in the AMC industry and MOST IMPORTANTLY we want to keep our appraisers happy however there has never been any talk about what is "fair." While I do not believe it is "fair" when AMC's take 50% of the appraisal fee, I do believe AMC's are an essential role in the loan process. We are preparing a incentive package which we believe appraisers will love but what are your thoughts?

First of all, thanks for the input. Unlike some of my appraisal brethren, I believe Appraisal Management Companies (AMCs) provide a service and are legitimate businesses. AMCs existed long before the Federally mandated licensing, certification and regulation of real estate appraisers. Quite a few lenders opted to utilize the services of AMCs and a couple of AMCs offered quite a bit of assistance in efforts to get appraisers and appraisal firms up to speed with appraisal software and office management.

My own firm, Gregoire & Gregoire, Inc., received complimentary appraisal forms software from one of the early AMCs. Although my firm was already using computers for appraisal reporting and some analysis, the software provided enabled us to mover from a mini-computer to personal computers and enabled us to update to revised forms more quickly. Gregoire & Gregoire, Inc. enjoyed a mutually beneficial relationship with that AMC for over a decade.

Unfortunately, that relationship started to sour with fee pressure, turnaround pressure and what appeared to be the AMC's accounts payable department taking advantage of the "float" in their payment procedures, policies and responsiveness. We arrived at the realization that it cost the firm just $1.00 less to send an appraisal report out the door than the fee received from the AMC. The seven appraisers, including the principals, were extremely busy, but there was no profit. Instead, we had a flurry of activity and paper and constant phone calls for status and appointments. Our requests for modest fee adjustments were refused. Gregoire & Gregoire, Inc. decided to reduce our volume, enhance our quality and concentrate on the segment of the market more interested in quality than cost and speed.

The Florida Real Estate Appraisal Board was interested in the regulation of Appraisal Management Companies long before there was a Home Valuation Code of Conduct. After reviewing hundreds of workfiles and reading the written and email requests from AMCs to appraisers, the problems were clear. Many, not all, AMCs were making representations to their clients that could not be met and appraisers were pressured to make miracles happen; often to the detriment of the public and appraisers' professional license and certification.

As you suggest, Robert, "fairness" and equity was and is needed. What is proposed for Florida is a fairly simple act that will require registration of AMCs along with their officers and directors. it is only fair that AMCs meet the same character qualifications as appraisers. We also propose that AMCs and their officers and directors comply with the same laws, rules and regulations, including the Uniform Standards of Professional Appraisal Practice, applicable to Florida Appraisers; nothing more, nothing less.

The Florida Legislature is in session right now. We're waiting for our bill to be introduced and being debated. In the meantime, feel free to offer your comments, pro and con.

Thanks for your interest and participation!

Brace For Change

We have posted a number of times about the Home Valuation Code of Conduct (HVCC). With the May 1, 2009 implementation date getting ever closer, this drastic change is starting to get some attention.

From the Contra Costa Times:

Appraisers brace for industry change


By David Morrill Staff Writer
Posted: 03/06/2009 04:19:54 PM PST

An accurate appraisal equals piece of mind. At least that's what it should be in a perfect world. Simply stated, the appraiser should be the sole objective party in a real estate transaction.But sometimes ideals and reality aren't one in the same.

Pete Rosselli of Martinez and his family have been a part of the appraisal industry for almost 20 years, and he says that an appraiser who says they've never felt outside pressures "to hit values" are not being honest. "If you've been in it as long as I have, we've all seen it and all experienced it," Rosselli said.

On May 1, a new code of conduct, the HVCC (Home Valuation Code of Conduct) is scheduled to be implemented with the intent that it will isolate the appraisal process of loans purchased by Fannie Mae and Freddie Mac from bias. Loan production personnel, including mortgage brokers, will no longer be able to order the appraisal or influence the choice of appraiser.

FULL STORY

Although the spin of the article is largely positive, there will be a major negative effects to small business real estate appraisers, small business real estate brokers and consumers. Many, if not most appraisal assignments will be channelled through Appraisal Management Companies (AMC), ostensibly to isolate the appraiser from pressure. Considering the fact that the investigation prompting the agreement that resulted in the HVCC was initiated by an AMC caught trying to influence appraisers to "hit the correct number", isn't it amazing one of the consequences of the "solution" to be implemented will be direct that more appraisals will be assigned through these unregulated AMCs?

For instance, take a look at the Complaint filed by New York Attorney General Andrew Cuomo against First American.

LINK

Page 9, Paragraph 24. "Despite their claims of independence from their lender clients, First American and eAppraiseIT violate federal and state independence requirements with regard to appraisals performed for WaMu, and in doing so deceive borrowers and investors who rely on their proclaimed independence.

Page 11, Paragraph 29. "Almost immediately after WaMu retained eAppraiseIT to provide appraisals in early Summer 2006, WaMu’s loan production staff began complaining that the appraisal values provided by eAppraiseIT’s appraisers were too low. It was clear, and eAppraiseIT well understood, that WaMu’s dissatisfaction was largely due to the fact that eAppraiseIT’s staff and fee appraisers were not "hitting value,” that is, were appraising homes at a value too low to permit loans to close.

Page 13, Paragraph 37. "In February 2007, WaMu directed eAppraiseIT to stop using its usual panels of staff and fee appraisers to perform WaMu appraisals. Instead, WaMu’s loan origination staff demanded that eAppraiseIT use a Proven Panel of appraisers selected by the loan origination staff, who were chosen because they provided high values.

Page 14, Paragraph 41. "In February 2007, eAppraiseIT simply capitulated to WaMu’s demands. In an email on February 22, 2007, eAppraiseIT’s President told senior executives at First American “we have agreed to roll over and just do it.” He explained that “we were willing to live with the change if they would back us up with the appraisers and tell them that simply because they are rated as Gold Preferred does not mean that they can grab all the fees. They agreed.” In other words, for the right price in fees, eAppraiseIT was wwilling to go along with the Proven Panel.

These are just a few choice bits from the complaint. Please take a minute to read all of the alleged wrondoings by the AMC and WAMU. You should start to develop an opinion about the wisdom of channelling appraisal assignments through AMCs.

Because AMCs broker appraisal assignments, lenders will see higher costs for their appraisals. Of course, that higher cost will be passed on to consumers. It's unlikely these borrowers will see any benefit of the increased expense. Data shows that AMCs have a record of assigning appraisals using criteria other than the competency of the appraiser as a priority.

Many Americans, appraisers and other real estate professionals included, are interested in change. However, is this the change we want or need?

Use this LINK to read some prior posts about the HVCC.