Appraisers and Regulators Give Congress an Earful

On June 28, 2012, two panels of witnesses appeared before the Insurance, Housing and Community Opportunity Subcommittee of the U.S. House Committee on Financial Services. The hearing, held in room 2128 of the Rayburn House Office Building, started at 10:00 A.M. and continued for two hours.

The topic of the hearing, "Appraisal Oversight: The Regulatory Impact on Consumers and Businesses" was addressed in written testimony, oral presentations, questions and answers. The panel members, and links to the written testimony, are listed below.

Panel I Mr. William B. Shear, Director, Financial Markets and Community Investment, Government Accountability Office Mr. Don Rodgers, President, Association of Appraiser Regulatory Officials Mr. James R. Park, Executive Director, Appraisal Subcommittee, Federal Financial Institutions Examination Council Panel II Mr. David Berenbaum, Chief Program Officer, National Community Reinvestment Coalition Mr. David Bunton, President, Appraisal Foundation Mr. Francois K. Gregoire, 2011 Chair, National Association of Realtors, Appraisal Committee Mr. Don Kelly, Executive Director, Real Estate Valuation Advocacy Association (REVAA), on behalf of REVAA and the Coalition to Facilitate Appraisal Integrity Reform  Ms. Karen J. Mann, President, Mann & Associates Appraisers, on behalf of the American Society of Appraisers Ms. Sara Stephens, President, Appraisal Institute   C-Span covered the hearing. The entire presentation is available below. Panel II starts about 50 minutes into the video.

AMC Indemnification Clauses - Comments From Peter Christensen

Back in August, Appraiser Active posted about NAR President, Ron Phipps'  letter to the heads of the Department of Housing and Urban Development, Federal Financial Institutions Examination Council, Veteran's Administration and the Federal Housing Finance Agency encouraging the bar of indemnification clauses used by Appraisal Management Companies (AMCs).  Robert  Freedman provided some context in a later post on the Speaking of Real Estate blog.

Needless to say, the issue is has not yet been resolved. In the November issue of REALTOR Magazine, there is a piece written by Peter Christensen about indemnification clauses. Follow this link to his post on the Appraiser Law Blog. Peter links to the REALTOR Magazine article too.

Among many other things, indemnification clauses and appraiser independence are on the agenda for the NAR Appraisal Committee meeting next week during the NAR Annual Conference in Anaheim, California. The NAR Appraisal Committee meets Friday, November 11, 2011 from 2:00 - 4:00 P.M. at the Anaheim Marriott Hotel in Grand Ballroom F. See you there!

NAR Statement on Appraiser Independence

Next week, the National Association of Realtors meets in Washington, D.C. for their Mid-Year governance meetings. The NAR Appraisal Committee will meet on Wednesday, May 11, 2011 at 8:00 A.M. We will meet in the Virginia Suite A and B in the Marriott Wardman Park Hotel.

The agenda is full, and it will be a challenge to cover it all in the 2 hours allotted, but we will do our best. One item, not on the agenda, but sure to be a topic of discussion, is the recently released Statement on Appraiser Independence.

NAR Statement on Appraiser Independence

April 2011

"In recent months interference in the appraisal process has unnecessarily put at risk a sustainable housing recovery. Our member appraisers are dealing with changes in the real estate market due to economic conditions in the country, their long time business relationships with market participants have been destroyed and their business models have been shattered. The latest blow is their enduring the consequences of the implementation of aspects of the Dodd-Frank Act.

Appraisers are being asked to include distressed transactions as comparable sales, to complete the appraisal in an unreasonable and unrealistic short time span, and to comply with a scope of work not justified by the fee being offered. In some situations appraisers are required to provide as many as eight comparable sales and/or listings. NAR believes this is interference in appraiser independence, causing harm to the real estate recovery, and harmful to consumers.

This month, compliance with the Federal Reserve's interim final rule amending Regulation Z (Truth in Lending) became mandatory. Early reports indicate that some appraisal management companies may be misinterpreting the reasonable and customary fee requirements of the statute and the interim rule. Although NAR has not commented on the customary and reasonable fee language of the statute or the interim rule, we are concerned that unfair treatment of our member appraisers will further erode their businesses and impact the quality of appraisal reports, adding risk for consumers and lenders.

NAR 2010 President Ron Phipps said "asking for up to 10 comps, reducing turnaround times, and expanding the scope of the assignment without appropriately adjusting the fee is adding unnecessary risk to an already fragile mortgage market system. We must maintain an environment where our independent appraisers are treated fairly as they are the lynchpin of the mortgage transaction." NAR has long advocated for an independent appraisal process and enhanced education requirements to promote public trust in the appraisal profession. NAR wants to ensure the consumer is provided the service bargained for along with a well-supported, credible opinion of value."

Much more will be discussed. If you are a member of the National Association of Realtors, and happen to be attending the meetings, or are in the DC area, stop by. We encourage your participation.

Pick a Number, any Number - Who to Blame?

This story is getting huge distribution, but the spin offered by bloggers and commenters on news sites really varies.

Special Report: What's a home worth? Pick a number, any number

 WASHINGTON (Reuters) – Aaron and Beth Stiner are renters, but not by choice and not because they can't afford to buy a house. They had a move-up home in Phoenix selected and good credit scores. They even had buyers lined up for the home they were selling. Then they entered appraisal hell.

 
The first appraisal on their chosen home came in at $295,000, a figure that both the Stiners and the sellers agreed upon. The lender didn't like it, and ordered up a second appraisal. Based on comparable homes that were in a different neighborhood, the new appraisal came in $25,000 lower -- too low to allow the loan to go through.
 
They switched lenders and got another appraisal that, at $290,000, would have allowed the deal to go through. Their new lender was skeptical, and ordered up another appraisal. At the same time, the home they were selling was appraised three times, with each subsequent valuation falling.
 
Four months later, the Stiners and their buyer both gave up. Together, they were out $1,600 for seven appraisals. "As a result, we are now renting our home out, and renting the home we wanted to buy," says Beth. "We were frustrated and we weren't going to keep doling out cash for new appraisals. It felt like a game."

Read the full story HERE.

During the build up to the boom time and housing bubble, the loan originiators and lenders were pushing and shopping for the highest number from the appraiser. It's now come full circle; if the lender doesn't like the number the first appraiser delivers, they start shopping for a lower number.

Interference with the objectivity of the appraisal process is not acceptable, no matter the direction folks are pushing the appraiser. Although it has been, and continues to be fashionable to blame the appraiser, take a close look at the story. It's the lender shopping for a "value" to their liking. By what "standard" are the appraisals being evaluated?

Federal Reserve Releases Final Interim Rule For Comment - Customary and Reasonable Appraisal Fees

It's HOT off the press! Here is the Interim Final Rule and Request for Public Comment from the Board of Governors of the Federal Reserve System to amend Regulation Z, Truth in Lending.


For immediate release:

The Federal Reserve Board on Monday 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. Public comments are due 60 days after the interim final rule is published in the Federal Register, which is expected soon.

The Board is publishing for public comment an interim final rule amending Regulation Z (Truth in Lending). The interim rule implements Section 129E of the Truth in Lending Act (TILA), which was enacted on July 21, 2010, as Section 1472 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. TILA Section 129E establishes new requirements for appraisal independence for consumer credit transactions secured by the consumer’s principal dwelling. The amendments are designed to ensure that real estate appraisals used to support creditors’ underwriting decisions are based on the appraiser’s independent professional judgment, free of any influence or pressure that may be exerted by parties that have an interest in the transaction. The amendments also seek to ensure that creditors and their agents pay customary and reasonable fees to appraisers. The Board seeks comment on all aspects of the interim final rule.

HERE is a link to a pdf of the rule. I have also posted a copy of the pdf on SCRIBD. That is available after the jump.

Most appraisers have been expressing interest and concern about how the Federal Reserve Board of Governors would deal with the section of the law addressing Customary and Reasonable Fees. There's quite a bit to chew on in there. To save time, read pages 57 - 59 for an overview, and pages 124 - 130 for the rule.

What do you think?

CLICK to Read More

Freddie Mac - Appraiser Independence Requirements Announced

On the same day Fannie Mae announced their Appraiser Independence Requirements, Freddie Mac issued a Single Family Seller/Servicer Guide Update letting the world know of their Appraiser Independence Requirements.

In their release, Freddie states :

Effective October 15, 2010 we are adopting appraiser independence requirements that maintain the spirit and intent of the Home Valuation Code of Conduct (HVCC). Freddie Mac has worked with the Federal Housing Finance Agency and Fannie Mae to develop appraisal independence requirements to replace the HVCC, which is expected to sunset this month.

Here's the Freddie Mac Appraiser Independence Requirements:

Freddie Mac Appraiser Independence Requirements 10-15-2010

Fannie Mae - Appraiser Independence Requirements Announced

As expected, Fannie Mae has issued an Announcement, SEL-2010-14, with their new Appraiser Independence Requirments.

After H.R. 4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law, many folks cheered the sunset of the Home Valuation Code of Conduct (HVCC). Appraiser Active took a more cynical view. It looks like we were right on the money. Here's what Fannie has to say in their release:

The Appraiser Independence Requirements replace the Home Valuation Code of Conduct (HVCC). These updated requirements maintain the spirit and intent of the HVCC and continue to provide important protections for mortgage investors, home buyers, and the housing market.

The HVCC is being replaced by the Appraiser Independence Requirements; however, all conventional, single-family mortgage loans with application dates on or after May 1, 2009, must additionally comply with the HVCC until the earlier of the release of the Interim Final Rules by the Federal Reserve as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or November 1, 2010.

For those with an interest, the Fannie Mae Appraiser Independence Requirements:

Fannie Mae Appraiser Independence Requirements 10-15-2010