HB 303-Regulation of Appraisal Management Companies, Passes Florida Legislature

Mark this date: April 27, 2010. On this date, the Florida Legislature passed HB 303 - Regulation of Appraisal Management Companies. The Florida House passed the bill on Monday, the 26th. The bill was sent to the Florida Senate and referred to three committees. The Senate decided to lay their bill, S 2210, on the table, and vote on the House bill. The vote was 35 Yeas / 0 Nays.

In addition to requiring the registration and regulation of Appraisal Management Companies, if signed by the Governor, the bill will require the Florida Real Estate Appraisal Board to adopt rules to specify the means by which an appraiser's signature may be affixed to an appraisal  report and include requirements for protecting the security of an appraiser's signature.

If signed by the Governor, the effective date of the legislation is July 1, 2011.

Thanks to Rep. Matt Hudson, the sponsor of the bill, and all the cosponsors. We should also acknowledge Sen. Lee Constantine and Sen. Mike Fasano, sponsors of the bills on the Senate side of the legislature. The Florida REALTORS® demonstrated determination and perseverance in getting this bill introduced, through all the committees and on the floor for consideration. A special thanks to Trey Goldman, Legislative Counsel for the Florida REALTORS®. Region X of the Appraisal Institute, and their lobbyist, Bob Hartnett were actively involved in this effort as well. Well done!

Rating Agencies - Gaming the System?

Real Property Appraisers are subject to a myriad of regulations, must comply with standards and guidelines promulgated by Federal Agencies, Government Sponsored (OWNED) Enterprises, state governments and state agencies. Many appraisers have effectively lost their ability to compete in the market on the basis of their skill, experience and service because of a negotiated settlement agreement (HVCC), initiated because of allegations of illegal and unethical business practices by non-appraisers.

Appraisers have taken it on the chin for the excess that caused the Savings and Loan collapse in the 1980s, and are now the scapegoat for the ineptitude of others involved in the mortgage meltdown of the 2000s. Sure, some of the current problems are due to inept and corrupt appraisers, but it's time to focus the investigative light on much bigger fish.

A few months ago, Appraiser Active wondered about a Code of Conduct for the rating agencies. After all, the rating agencies analyse and offer an opinion of the value and risk for an investment in the hundreds of millions of dollars. Residential appraisers, on the other hand, provide value opinions on very small parts of this pool.

Via Calculated Risk, we found a story about the recent grilling of the chairman and chief executive of Moody's Corp., Ray McDaniel.

Moody's chief Ray McDaniel, under questioning, said that he didn't think his company had continued to rate complex deals backed by U.S. mortgages after it and competitor Standard & Poor's jolted the markets in July 2007 with massive downgrades of earlier deals.

"I apologize, I do not recall that," McDaniel said.

The panel's chairman, Sen. Carl Levin, D-Mich., then presented him with documentation that both Moody's and S&P gave investment-grade ratings to a Citigroup deal in December 2007, worth almost $400 million, backed by shaky subprime loans that by then clearly were toxic.

The point Levin was making — and made repeatedly — is that credit-rating agencies did whatever was needed to get lucrative fees, some as high as $1.4 million, for rating complex deal.
....
While other Wall Street executives have expressed contrition when they appeared before Congress, McDaniel and former S&P President Kathleen Corbet were unapologetic on Friday.

Throughout the day in earlier testimony and in e-mails released by Levin, however, former Moody's and S&P officials told how they were pushed out or quit in frustration because managers badgered them to "massage" complex deals until they could land the business.
....
Investment-grade ratings gave investors the illusion of safe bets, allowing big Wall Street firms such as Goldman Sachs to peddle the securities across the globe. Moody's and its chief competitors were key players in the prelude to a near meltdown of global finance in September 2008.

Called to appear before the panel, Richard Michalek, a former Moody's vice president and senior credit officer, described the ratings process for deals that could bring more than $1 million in fees as a "must say yes" atmosphere.
....
In one e-mail presented by Levin, an S&P employee inquiring about evidence that subprime lender Fremont General was showing problems with poor underwriting was told not to worry about it. Levin seized on this e-mail when grilling Susan Barnes, an S&P managing director, angrily asking her why relevant information and poor performance was discarded.

"Why doesn't the supervisor say, 'Damn right, it's relevant,'?" demanded Levin, eventually coaxing a response from Barnes

.
Read the whole thing

Why, when there is clear evidence of the fee being paid having an effect on the opinion rendered, is there no movement to provide a firewall between the securitizer and the rating agency? Why all the attention on appraisers?

Ineptly Prepared Appraisal? - What to do? - UPDATED 5-2-2010

Back in February, Julia Brazier sent me an email. The subject line read "Another HVCC Disaster". Attached to the email was a pdf copy of an appraisal of single family residence in the Woodlawn area of St. Petersburg, Florida. The property was originally listed at $495,000, was now priced at $399,400, and was under contract at $375,000. The out of town appraiser stated his opinion of value to be $315,000.

Julia asked me to take a look at the report and provide some suggestions for a course of action. After identification of some problems with the appraisal report, Julia shifted into high gear. The sale closed April 8, 2010 at $375,000. Financing was 80% of the purchase price. How did this happen? Susan Taylor Martin explains in the St. Petersburg Times.

A year ago, the nation's housing industry adopted new rules aimed at preventing the kind of appraisal-related fraud that helped drive home prices to ridiculous — and unsustainable — heights.

Now, many Tampa Bay real estate agents say the appraisal rules are a good idea gone bad, delaying and threatening sales as the market struggles to recover.

Take the case of Luke Nuemann, who was planning a move from Tampa to Pinellas County.

In February, Neumann found his dream home: a lovingly restored, 1936 traditional with garage apartment in St. Petersburg's desirable Woodlawn area. He signed a contract for $375,000, and the lender ordered an appraisal.

The results flabbergasted everyone.


A Tampa appraiser unfamiliar with Woodlawn valued the property at $315,000 — $60,000 less than the amount the buyer and seller agreed was a fair price. Even the normally conservative property appraiser's office showed the house to be worth $331,000.

Read the whole story HERE.

There were quite a few problems with the appraisal; more than described in the story. Among the most disturbing were internal inconsistencies. This included a description of the neighborhood price trend as "declining" when the appraiser's own data in the report and addenda revealed it to be "stable". Erroneously stating there was a lack of vacant land sales, and pulling a land value estimate of $115,000 out of thin air was another problem. A quick search of data sources revealed four vacant land sales ranging in price from $120,000 - $237,500.

It remains to be seen if this report will find it's way to the Florida Real Estate Appraisal Board.

UPDATE 4/29/2010

Bill Cobb, over at Real Estate Appraiser Tips, linked to this post. He tells a story of a similar situation in his neck of the woods. Unfortunately, it has not turned out so well.

Cruise on over and READ his tale.

UPDATE 5/2/2010

The Business Section of today's St. Petersburg Times publishes three Letters to the Editor about Susan Martin's story. Here are some highlights.

Lizabeth Cantos, from Tampa, says:

I, too, was shocked at the way appraisers now appraise homes. They seem to be scared to death to place a "true value" on homes.

Last August, I started getting our home appraised. Four appraisers came out, not any of them were close to each other in our home's value. The ranged from a high of $745,000 to a low of $470,000.

Karen C. Willis, a St. Petersburg, Florida State-Certified Appraiser offers these comments:

However, I take offense at the comment that appraisers drove home prices to ridiculous and unsustainable heights. Bad appraisers are not the only reason we are in this housing mess. Realtors who had overpriced the market, unscrupulous lenders and homeowners who used their home equity as a line of credit are also to blame.

There are severe flaws in the Home Valuation Code of Conduct. I received an order from an appraisal management company recently. It was for $135. For the same report one year ago, I would have made $350. Now I have to "share" my fee with the "management company," but not the liability. It doesn't pay for my errors and omissions insurance, continued education, software, car maintenance, office space, computers, etc.

Now a college education is required (to become a state-certified appraiser), and for what, to make $135 an appraisal? Forget it. Who will want to work for that?

New HVCC Appraiser Talkback Survey

David Brauner, from Working RE Magazine, has posted a new survey on his Appraiser Talkback blog. Take a look at the post, New HVCC Appraiser Talkback Survey: One Year On, and spend a few minutes letting him know of your experience with the HVCC.

Here's what David has to say:

Editor’s Note: After a year of turmoil since the Home Valuation Code of Conduct (HVCC) was implemented, we know at least one thing: that you are being heard and that your feedback does make a difference. Don’t give up now. You’ll find the new survey questions about life after HVCC below. It’s up to you to let regulators and lawmakers know what is working and what isn’t. Is the FHA mandate, that appraisers be paid “customary and reasonable fees,” working? Has appraisal quality improved? Should Appraiser Management Companies (AMCs) be regulated? Are you feeling less pressure today to “make a deal work”? Are appraisers hired based on low fees rather than competency?

Click HERE to take the survey.

Results of previous Working RE and NAR Surveys HERE.

Head's Up!!

This just posted over on the Appraiser Law Blog. Authors are attorneys with LIA Administrators & Insurance Services.

The Single Biggest Liability Threat to Appraisers: the FDIC


By Peter Christensen
 
The single biggest liability threat to both residential and commercial appraisers is the Federal Deposit Insurance Corporation. The FDIC held a conference last week in Chicago for law firms interested in representing the FDIC. What came out of that conference made me very anxious for appraisers, but it's much more than just a threat to individual appraisers. What the FDIC is doing hampers the ability of the appraisal profession to deliver accurate valuations going forward. The reason is: if you're an appraiser doing work for a lender (which may or may not be one of the 700+ troubled banks on the FDIC's watch list), you know your risk of being sued by the FDIC for overvaluation in hindsight is eliminated by "coming in low" on the appraisal. That means more loans don't get made. 

The FDIC has taken over more than 200 banks since the beginning of the mortgage crisis. When the FDIC takes over a failed bank, it usually sells off the banking assets to an existing lender but retains all of the potential legal claims against the failed lender's directors, officers, mortgage brokers, accountants, lawyers, appraisers, AMCs, etc. The FDIC is now in the business of suing these parties, blaming them for its failed banks' bad lending practices.

Read the whole thing...

Sorry for the light posting lately. I've been swamped with appraisal and consulting assignments, and have been working on getting HB 303 and S 2210 (Regulation of Appraisal Management Companies) passed in the Florida Legislature. Both are on the 2nd Reading Calendar as of today.
 
Expect more information soon.

Appraisal Management Regulation Bill Advances in Florida Senate - UPDATED

Scroll for UPDATE.

Proposed legislation to regulate Appraisal Management Companies cleared the Regulated Industries Committee in the Florida Senate April 8, 2010. Bills introduced by Senator Lee Constantine (S2210), and Senator Mike Fasano, (S1552), were consolidated with a Committee Substitute.

Senator John Thrasher, of Jacksonville, FL, offered an amendment to the Committee Substitute. The amendment increases the size of the Florida Real Estate Appraisal Board from 7 to 9 members. The two additional members of the FREAB will be representatives of the appraisal management industry.

This is certainly a poke in the eye from the AMC stakeholders. More than likely, the amendment was suggested by the folks from LPS. The company is headquartered in Jacksonville. The deputy general counsel and chief compliance officer for Lender Processing Services, Donald Blanchard, is taking the lead for the AMC stakeholders and actively promoting amendments to weaken the effort to regulate AMCs in the Sunshine State.

Check out Don Blanchard's profile on LinkedIn. Prior to taking the position at LPS, he was Deputy General Counsel, EVP for Countrywide Financial Corp. He also served as president of TAVMA.

It remains to be seen if this amendment will survive through appropriations. Additional board members cost money. We'll keep you posted.

UPDATE - 4/9/2010

HB 303 - Regulation of Real Estate Appraisers and Appraisal Management Companies, was passed by the House General Government Policy Council with amendments similar to those offered in the Florida Senate Regulated Industries Committee. The General Government Policy Council was the last committee stop for the bill on the House side of the Legislature. Consideration by the full House of Representatives is the next step.

At the request of the Department of Business and Professional Regulation, HB 303 was amended to make the effective date July 1, 2011. This will allow time for the Florida Real Estate Appraisal Board to adopt the necessary rules to enact the legislative requirements.

Great American Realtor Days

The odometer on my car indicates I've been racking up the miles in 2010. Expert witness assignments accounted for two trips to West Palm Beach and three to Jacksonville. Two weeks ago, it was a drive to the state capital, Tallahassee, to provide testimony in support of HB 303 - Regulation of Real Estate Appraisers and Appraisal Management Companies. Another trip to Tallahassee is in order.

Early tomorrow, I'll make the 260+ mile trek up yonder for Great American Realtor Days. On Wednesday morning, it will be time to attend the Florida Senate Committee on Regulated Industries meeting. S1552 and S2210, both addressing the Regulation of Appraisal Management Companies in Florida, will be heard by the committee.

The Florida Association of Realtors has identified the Regulation of Appraisal Management Companies as a legislative priority this year. Take a look at their talking points. It's nice to know I will not be the only one speaking to legislators in favor of this effort.

Revised Talk Pts