Thursday, July 14, 2011

New GAO Report Released - Residential Appraisals

The GAO has released their latest study of the Real Estate Appraisal Profession and the appraisal regulatory structure. This full title of the report is RESIDENTIAL APPRAISAL - Opportunities to Enhance Oversight of an Evolving Industry. It's just out, and I've not had a chance to read it all, or very closely, but it looks like the Evolving Industry referred to is Appraisal Management.

Here's a LINK to the GAO site for the document. The full document is also posted vai SCRIBD after the jump. Let me know what you think in the comments. Here are a couple of interesting excerpts:
In contrast with appraisals, BPOs do not have standard requirements and are generally not considered a credible valuation method for mortgage originations. According to some mortgage industry participants, a key disadvantage of BPOs is that real estate brokers and agents who perform them are not required to obtain training or professional credentials in property valuation, and the BPO industry lacks uniform standards. At least one industry group has developed standards of practice for BPOs, which are reportedly used by some BPO providers, but adherence to these standards is voluntary. Similarly, the industry has not adopted standardized BPO forms, resulting in differences in the content and quality of BPO reports, according to some mortgage industry participants. Additionally, BPOs provide somewhat different information than appraisals—a sales price or listing price rather than the property’s market value. The enterprises do not permit lenders to use BPOs for mortgage originations, and guidelines from federal banking regulators state that BPOs do not meet the standards for an evaluation and cannot be used as the primary basis for determining property values for mortgages originated by regulated institutions.

In the section with observations about AMCs, you'll find this:

  • Selecting appraisers. Appraiser groups said that some AMCs select appraisers based on who will accept the lowest fee and complete the appraisal report the fastest rather than on who is the most qualified, has the appropriate experience, and is familiar with the relevant neighborhood. They said that, with many experienced appraisers departing from the industry, less experienced appraisers, who are often willing to accept lower fees, are left to perform most of the work.
  • Reviewing appraisal reports. According to some appraisal industry groups, some AMCs’ appraisal reviews overemphasize how close the appraiser’s value conclusion is to an expected value generated by an AVM, at the expense of other important elements of the appraisal, such as the appropriateness of the comparable sales. One group noted instances in which AMCs told appraisers which comparable sales to use when the appraisers’ original value conclusions were not consistent with AVM-generated values.
  • Establishing qualifications for appraisal reviewers. Representatives of an appraisal industry group told us that some AMC reviewers may lack the expertise necessary to identify problems with quality. They noted that in some states appraiser licensing and certification requirements do not address qualifications for appraisal reviewers.
Read and Comment!

Tuesday, July 12, 2011

U.S. House Committee on Financial Services - Hearing, July 13, 2011 - UPDATED

UPDATED - VIDEO LINK ADDED

Tomorrow, July 13, 2011, the U.S. House Committee on Financial Services, Subcommittee on Insurance, Housing and Community Opportunity, will hold a hearing at 2:00 PM in 2128 Rayburn House Office Building.

The get together, entitled “Mortgage Origination: The Impact of Recent Changes on Homeowners and Businesses” has two panels of "witnesses" representing a wide array of government agencies and interest groups. These include the Federal Reserve, HUD, the Appraisal Subcommittee on the side of the government.

Interest groups to be represented include appraisers, mortgage bankers, mortgage brokers, Realtors, appraisal management companies and Hispanics. As is the custom, most of the witnesses have submitted written testimony in advance of the hearing. Some of it is interesting, some thoughtful. Portions are pandering, and some will infuriate. Most likely, you don't have time to read it all, but here are a couple of interesting excerpts:

Sara W. Stephens, MAI, CRE, representing the Appraisal Institute, includes these thoughts about Reasonable and Customary Fees:

Unfortunately, the Federal Reserve Board issued a rule that fails to implement the plain language and public policy intent of defining reasonable and customary fees as those not involving appraisal management companies – a retail fee, if you will. In our view, the reason Congress included this provision in the Dodd-Frank Act is to help ensure that appraisers receive adequate compensation for the education, experience, and time necessary to prepare credible appraisal reports. While the price of any service will always be a factor, quality and competency and transparency to the consumer should come first. Business models that helped fuel the fundamentally unsound run-up of the past decade placed far too much emphasis on pricing and bundling of services and focused scant attention on appraisal quality. Congress got it right; unfortunately, the Federal Reserve got it wrong.

National Association of Realtors representative, Steve Brown, has this to say about appraisals:

REALTORS® support and encourage credible, independent appraisals and valuations of real property, which are critical to the health of the overall real estate industry. A trustworthy valuation of real property 1) ensures the real property value is sufficient to collateralize the mortgage, 2) protects the homebuyer, 3) allows secondary markets to have confidence in the mortgage products and mortgage backed securities, and 4) builds public trust in the real estate profession. Professionally developed valuations provide an independent, objective analysis of real property. Valuations that are not credible or not independent harm communities and result in unintended consequences. The purchase of a home is the largest investment most people make. A valuation that does not properly reflect the owner’s equity and may require the owner to pay increased fees or inject unneeded additional liquidity into a collateralized loan to meet higher lending requirements. Valuations of real property that are too high give a false sense of security to homeowners seeking access to the equity in their homes and to lenders making a determination as to the security of their loan. Valuations that are too low may create a downward cycle of economic deterioration for neighborhoods and communities and cause increased cash requirements on lenders.
 and, Don Kelly, speaking for both the Real Estate Valuation Advocacy Association (REVAA), on behalf of REVAA and the Coalition to Facilitate Appraisal Integrity Reform provides some views of the landscape from the perspective of AMCs: 
Fair is a coalition of five of the nation's largest AMCs, which operate networks of individual appraisers and appraisal firms for the completion of appraisal reports (These five AMCs include: 1. LSI, a division of Lender Processing Services, Inc; 2. ServiceLink Valuation Solutions, LLC, a Fidelity Natioinal Financial, Inc. company; 3. Valuation Information Technology, LLC d/b/a Rels Valuation; 4. CoreLogic, Inc.; and 5. PCV/Murcor. Rels Valuation is an affiliate of CoreLogic, Inc. and Wells Fargo Bank).

There are significant benefits for both an appraiser and a lender when they work with an AMC......
That's as much as I can take on that one. You'll have to follow the LINK to read the rest of Don's comments.

If there ever was a time to contact your member of Congress, this is it.

UPDATE - VIDEO LINK ADDED

It's a long hearing, almost 3 hours. To save time, check Marc Savitt at 1:35, Sarah Stephens at 1:40 and her discussion of appraisal fees at 1:42. Don Kelly talks at 1:46 and tries to justify the AMC support of unreasonable fees at 2:46.

Monday, July 4, 2011

AMC Independence Clipped in Florida - July, 2011

Despite the efforts of the Florida Legislature and Appraisal Management Companies, the regulation of Appraisal Management Companies became effective July 1, 2011. The Florida Real Estate Appraisal Board posted the following on their site:

Regulation of Appraisal Management Companies – Effective July 1, 2011


On July 21, 2010 President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Act requires State regulatory agencies to regulate Appraisal Management Companies (AMC). Florida’s regulatory program for AMCs was created in 2010 when House Bill 303 was signed into law. It became Chapter 2010-84 and amends Section 475, Part II, Florida Statutes..
The Department of Business and Professional Regulation has added information about the registration and regulation of Appraisal Management Companies to their FAQ site.

FS 475.6235 states in part, A person may not engage in appraisal management services for compensation in this state advertise or represent herself or himself as an appraisal management company, or use the titles appraisal management company, appraiser cooperative,appraiser portal, or mortgage technology company, or any abbreviation or words to that effect, unless the person is registered with the department as an appraisal management company under this section. However, an employee of an appraisal management company is not required to obtain a separate registration.
Additional guidance answers the question: Should I close my business while waiting for my license to be issued?


As of July 1, 2011, it is essential for an appraisal management company to immediately file an application to register with the Department; however, you can continue to operate while the Department and/or the board is considering your application for approval. Once approved, you will receive your license in the mail. An application that is denied must comply with the terms of the Final Order issued by the board.

The Department of Business and Professional Regulation, Division of Real Estate, and the Florida Real Estate Appraisal Board continue to develop the program to meet the needs of our customers. Please refer to the FAQs for AMCs and check back for more information weekly.
As of today online registration is not available. A printable application is available HERE.

There's bound to be some growing pains, but the regulation of AMCs is great for Florida consumers and real estate appraisers. Thanks to the Director of the Division of Real Estate, Juana Watkins, and her staff for putting in the extra hours to make sure the information and applications were available on the effective date of the law. Great Job!