Friday, December 31, 2010

All the Best for 2011

Fortunately, for me, 2010 is ending with a flurry of activity. Folks are calling in with requests for valuations for estate purposes, and several lawyers have inquired about engaging me for expert witness assignments. Unfortunately, that has kept me from posting here on Appraiser Active. My resolution for 2011 is to post more regularly, and to follow up on promises of information.


Friday, December 24, 2010

Merry Christmas

Appraiser Active wishes you a Merry Christmas. We hope you have a chance to visit St. Petersburg some winter. It's expected to be about 70 degrees later today, although the temperature is only 51 at 9:45 A.M.

Tuesday, December 14, 2010

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?

Sunday, December 5, 2010

Trying to Catch Up

It's been over a month since posting. Please do not take that as an indication nothing is going on; things are hopping! Over the past 30+ days, I've attended the meetings of the National Association of REALTORS® and NAR Appraisal Committee in New Orleans, finished up a big appraisal review assignment for a potential class action lawsuit, completed a few single family and condominium appraisals, and put a dent into examining 52 cases for the Florida Real Estate Appraisal Board's Probable Cause Panel.

The picture with this post shows what 52 cases looks like.

Every day, I wake up hoping to have some time to make a few comments here, and post some information. The time flys by. Although I'm still up to my eyeballs in files and have two appraisals due tomorrow before noon, I did some updating to the site by adding a few links to section on the left of this page.

Over there you will find a link to the Interagency Appraisal and Evaluation Guidelines released by the
Office of the Comptroller of the Currency, Treasury (OCC); Board of Governors of the Federal Reserve System (FRB); Federal Deposit Insurance Corporation (FDIC); Office of Thrift Supervision, Treasury (OTS); and National Credit Union Administration (NCUA). I also added a link to Fannie and Freddie's Appraiser Independence Guidelines, and the "redlined" version of TITLE XI as amended by the Dodd - Frank Act.

For your reading pleasure, the ASC produced "red lined" version of Title XI is reproduced after the jump.

As soon as the FREAB Probable Cause Panel meeting is over, I hope to provide an update of some of the goings on during the NAR Appraisal Committee meeting and NAR Board of Directors. Some good things for appraiser members of NAR are coming up.

Friday, October 29, 2010

Ken Harney Weighs in on the FRB Interim Final Rule (TILA Section of Dodd-Frank)

If there is one national columnist with his ear close to the ground and regularly checking the pulse of the real estate and real estate appraisal professions, it's Ken Harney, of the Washington Post. In his latest column, Ken examines the Interim Final Rule released by the Board of Governors of the Federal Reserve System. The rule provides the implementation language for Appraiser Independence standards and Customary and Reasonable Fee requirements included in the Dodd-Frank Act amendments to the Truth in Lending Act (TILA).

Ken interviews a few appraisers, including Pat Turner (VA), Leslie Sellers (President of the Appraisal Institute) and yours truly. Although none of us talked with each other prior to the interview, it looks like we share the same concerns. Consumers, borrowers, and real estate agents should be concerned as well.

So what sort of changes are you likely to see? Experienced appraisers say probably not enough, at least in the proposal's current form.

"It's just a rehash of the [code]," says Pat Turner, a Richmond area appraiser and critic of the Fannie-Freddie rules.

Leslie Sellers, president of the 26,000-member Appraisal Institute, a professional group based in Chicago, says the Fed's proposals include important core principles of freedom from coercion and outside influence on valuations but don't lessen the current system's tilt toward cut-rate fees and short turnaround times over appraisal quality.

Frank Gregoire, past chairman of the Florida Real Estate Appraisal Board and incoming chairman of the National Association of Realtors' appraisal committee, says that "until the federal banking agencies decide to enforce some of the words they're putting on paper, the public can expect business as usual."
There's more, so please CLICK HERE and read the whole thing.

I've got more to say, but it's Friday night, and my wife, Fran, and I are headed out for some seafood ;-)

Monday, October 18, 2010

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?

Saturday, October 16, 2010

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

Saturday, October 2, 2010

Washington, D.C. Events: AARO, NAR - Valuation Summit

There are two major appraisal/valuation related events in Washington, D.C. this week. First, the Association of Appraiser Regulatory Officials (AARO), along with The Appraisal Foundation and the Appraisal Subcommittee, is holding a joint conference October 1 - 5, 2010. Their Agenda is full, and packed with interesting speakers and timely topics. AARO president, Bruce Fitzsimons, has invited me to attend. As a former regulator, and current Honorary Member of AARO, it will be great to see long time friends (and foes) from the appraisal regulator world.

Immediately following the AARO Joint Conference, the National Association of REALTORS® is hosting a Valuation Summit October 5 - 6, 2010. Several folks from the AARO Conference will be making appearances for panel discussions. Once again, it will be great to see long time friends and acquaintances like NAR President Vicki Cox Golder, NAR President-Elect Ron Phipps, Kentucky Real Estate Appraisers Board Executive Director Larry Disney, Steve Fritts from the FDIC, and Jacqueline Doty from Freddie Mac. Having crossed swords with him during the negotiations over the Florida AMC Regulation Bill during the 2010 Legislative session, it will be interesting to hear what former TAVMA President Don Blanchard has to say.

By far, the most entertaining portion of the day will be the last session. I've been asked to moderate the panel discussion among Dave Bunton, Jim Park and Bruce Fitzsimons. It would be great if we could arrange for a webcast!

Here's the agenda.

Valuation Summit Final Agenda

Appraisal Associations Comment on Dodd-Frank Rulemaking

Back in August, shortly after the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law, Appraiser Active commented on the rule making. Quite a few individuals have commented, along with some associations, like TAVMA.

Here is a copy of the comment letter submitted by the appraiser professional associations. It's certainly comprehensive, and provides some ideas for your comments.

Joint Letter to Federal Reserve TILA Appraisal Provisions

Friday, September 17, 2010

Fannie Mae Announcement! - More of the Same

In a breathtaking SELLING POLICY UPDATE, Fannie Mae announces:

"Selling Notice: New Appraiser Independence Requirements Being Developed"

Fannie Mae has issued the following Notice (the entire text of the Notice is included in this e-mail):

Fannie Mae is working with the Federal Housing Finance Agency (FHFA) to develop and adopt appraiser independence requirements that will replace the Home Valuation Code of Conduct (HVCC). Until the revised requirements are released, the existing HVCC provisions in the Fannie Mae Selling Guide continue to apply. Updated requirements are expected to be substantially similar to the current provisions.

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, HVCC will sunset when interim final regulations are released to implement the appraisal independence-related provisions of the Act, which is expected to occur on or about October 21, 2010.

Fannie Mae is committed to supporting strong appraiser independence requirements. The revised requirements will maintain the spirit and intent of HVCC, and continue to provide important protections for mortgage investors, home buyers, and the housing market.

The revised appraiser independence requirements will be based on Fannie Mae's experience under the HVCC and will continue to support the integrity of the appraisal process. As part of the process to develop the revised requirements, Fannie Mae has received input from key industry participants.

Fannie Mae expects to announce the revised appraiser independence requirements in an upcoming Selling Guide announcement.
No surprise in this release. About a month ago, in a post providing my view of H.R. 4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act, this prediction was made:

Modifications to the TILA include the appraisal independence standards, portability of appraisals, customary and reasonable appraisal fees and sunset of the HVCC. Although it may appear as though appraisers will benefit from this section of the new law, it’s a bit early to get our hopes up. In all likelihood, the new rules for selection and retention of appraisers will look much like the HVCC.
Let's see if my low expectations for the balance of the "reforms" are on target.

More on The Appraisal Foundation Side - Jonathan Miller Interviews David Wilkes

Sure, this is inside baseball, but it IS important to appraisers and the appraisal profession. Jonathan Miller has an regular feature on his blog, MATRIX, and iTunes, The Housing Helix. He interviews a variety of folks about timely topics of interest to anyone involved in real estate. This week's podcast is with David Wilkes, Chairman of The Appraisal Foundation Board of Trustees.

It's important to hear about the kerfuffle from The Appraisal Foundation's point of view. Mr. Wilkes answers some tough questions and pulls no punches. It's worth your time.

Tuesday, September 14, 2010

Appraisers, Dust Off the Crystal Ball - UPDATED - Realty Trac Release

Scroll down for UPDATE

Although residential real estate markets are local, granular and segmented, they are most certainly subject to national events and circumstances. These days, appraisers' clients are looking for an explanation of the condition of the current market in the appraisal report, and are less interested in reading about what "has happened in the area.

Here's a couple of articles with a national view. It might be wise to consider the implications in your local market.

From the Wall Street Journal:

Banks Plans for Foreclosed Homes Will Drive Market

The speed at which house prices fall over the next few months could depend less on mortgage rates and Americans' appetite for home buying than on how banks decide to manage the huge number of foreclosed homes they own or may take from delinquent borrowers in the near future.

Unlike home owners, banks often are much quicker to slash prices to unload properties quickly.

The upshot is that, the more homes being sold by lenders, the faster prices tend to fall. That pattern was clear over the past two years: Price declines that began four years ago accelerated rapidly in 2008 as banks dumped foreclosed properties at fire-sale prices. By January 2009, the share of distressed sales had soared to 45% of all sales nationally; it was even higher in hard-hit markets such as Phoenix, according to analysts at Barclays Capital.
The Home Affordable Modification Program has fallen short of its goals. So far, fewer than 500,000 loans have been modified, below the target of three million to four million. Yet the program served as a "closet moratorium" on foreclosures that stanched the flow of bank-owned homes to the market, said Ronald Temple, portfolio manager at Lazard Asset Management.

The result: The share of distressed sales fell by November to 25% of home sales, and prices stabilized. After rising in the winter, the distressed share fell to 22% in June, before bouncing to 30% in July.

The problem is that these measures are wearing off. Demand plunged this summer after tax credits expired, and unsold homes are piling up. More foreclosures could move onto the market as borrowers fall out of the loan-modification program.

"We see the perfect storm brewing with rising supply and falling demand," said Ivy Zelman, chief executive of research firm Zelman & Associates and one of the first to warn of trouble five years ago. She estimated that distressed sales could account for half of the market by year-end if traditional sales didn't rebound

Read it all HERE.

And from the Huffington Post?:
Home Prices Set to Fall Further

Speaking at the Barclays Capital 2010 Global Financial Services Conference, Capital One CEO Richard Fairbank was pessimistic about the housing market and about consumer demand -- but optimistic about his bank's prospects.

Fairbank, in remarks that were broadcast on the web, was asked by an audience member whether there will be a double-dip in the housing market. He chose his words carefully. "I think we feel very cautious about the housing market," Fairbank said. "I think that even despite some of the recent months where home prices have gone up, I think it's a very plausible case for home prices to go back down again."

Full article HERE.

It would be wise to pay close attention to changes in housing supply in your local market, as well as the source of that supply.

Be careful out there.

UPDATE - Realty Trac News Release: Foreclosure Activity Increases 4 Percent in August

It looks like the Crystal Ball was working. In a press release, Realty Trac notes:
“The trend lines of decreasing default notices and increasing bank repossessions converged in August, with virtually the same number of new default notices and bank repossessions for the month — a clear indication that the clogged foreclosure pipeline is being carefully managed on both ends by lenders and servicers,” said James J. Saccacio, chief executive officer of RealtyTrac. “On the front end, seriously delinquent loans are rolling into foreclosure at an unusually slow rate, while on the back end the dammed-up inventory of properties already in foreclosure is moving to REO in steady stream rather than a flood — presumably to prevent further erosion of home prices.”
Full release HERE.

Friday, September 10, 2010

The Appraisal Foundation Comments on AI Resignation

In the interest of equal time, HERE is a link to a communication from The Appraisal Foundation explaining what happened between them and the Appraisal Institute.

Below is a brief series of Q&A designed to reflect The Appraisal Foundation’s position with respect to the September 7, 2010 decision by the Appraisal Institute to withdraw as a Sponsor of The Appraisal Foundation.

Question: Why did the Appraisal Institute choose to withdraw as a Sponsoring Organization of The Appraisal Foundation?

Answer: Obviously, only the Appraisal Institute can provide their full reasoning for this decision. However, the simple response to this question is the Appraisal Institute was unwilling to accept sanctions imposed by The Appraisal Foundation as a result of their conduct as a Sponsoring Organization.
Question: What did the Appraisal Institute do or not do that The Appraisal Foundation objected to?
Answer: In simplest terms, The Appraisal Foundation expects its Sponsoring Organizations to communicate with it first regarding any matters that have a direct or indirect impact on our organization. The Appraisal Institute failed to comply with this expectation.
Read it all HERE

My only comment: Do you find the format of communications from the Appraisal Foundation as annoying as I?

Tuesday, September 7, 2010

It's ON!! - Appraisal Institute Withdraws Sponsorship from TAF

The letter speaks for itself. Although Appraiser Active has not had much to say on the kerfuffle between the Appraisal Institute and The Appraisal Foundation, that does not mean I do not have any opinions on the matter. My belief that The Appraisal Foundation has morphed into a behemoth far beyond what had been envisioned by the original Appraisal Sponsoring Organizations is well known.

This action by the Appraisal Institute will have far reaching and lasting consequences. I applaud their testicular fortitude.

The Foundation, not so much. IMNSHO, their actions are typical of the bullying tactics usually reserved for comments to state appraiser regulatory boards.

AI Withdraws Sponsorship from TAF

Monday, September 6, 2010

TAVMA to FED: Please Delay Rule on "Customary and Reasonable Fee" -UPDATED

It was inevitable, but the plea from TAVMA's Executive Director, Jeff Schurman to Federal Reserve Board Chairman Ben S. Bemanke is remarkably lame and pitiful.

In an August 25, 2010 letter to the Federal Reserve Chairman, TAVMA begs the FRB to delay consideration of  the “customary and reasonable” fee provision that would be part of the proposed interim final rule required by Title XIV of the Dodd-Frank Wall Street Reform and Consumer Protection Act. As Appraiser Active described in a recent posts (HERE and HERE), The Federal Reserve has the chore of  translating the legislative language into interim rules that will govern how brokers, lenders, appraisers and appraisal management companies will operate. Final rules will be developed by the federal banking agencies.

TAVMA is concerned about this section of the Dodd-Frank Act:
....and goes on with this claim:
(1) In General.-Lenders and their agents shall compensate fee appraisers at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised. Evidence for such fees may be established by objective third party information, such as government agency fee schedules, academic studies, and independent private sector surveys. Fee studies shall exclude assignments offered by known appraisal management companies.
At present it is unclear whether the “customary and reasonable” provision should be adopted in the 90 day interim final regulations. TAVMA believes that the effective date should be delayed under Title XIV Section 1400(c)(3) until after a formal rule making process. Additionally, we believe that the provision should not be adopted yet, because the “customary and reasonable fees” requirement is not an appraisal independence requirement. Further, the fee provision was added late in the Congressional Conference Committee process and never received any meaningful legislative discussion or clarification.
It's amusing to read TAVMA's claim that AMC compensation of appraisers is the "predominate fee model now in use." The only reason it may be is because of the Home Valuation Code of Conduct. Appraisal Management Companies did not gain their share of the market by competition with appraisers; it was handed to them on a silver platter. TAVMA, your "predominate fee model now in use" is not market based, has no relationship to reality, and the new statutory requirement to ignore it in the determination of customary and reasonable for appraisal services is one of the few high points in the dismal legislation. Quit whining!

Of course, this bothers TAVMA and the 58 "appraisal transaction management companies" counted among its members. TAVMA says:
The wording of 129E(i) Appraisal independence requirements, “Customary and Reasonable Fees” seems to either ignore or outright reject FHA’s and HUD’s prior interpretation; however, it fails to provide any direction or guidance about what the term means and/or how it is to be calculated other than that fees negotiated with AMCs should be excluded from the determination, i.e., that market participants should ignore the predominate fee model now in use. It is unreasonable given this history and marketplace realities to expect the FRB to formulate a definition of “reasonable and customary fees” within the few weeks leading up to the October 20, 2010 effective date of the interim, final rule.
TAVMA's plea to Bernake becomes REALLY desperate with their offering of this reason for delay:
Appraiser Trainees. Fee parity (non-negotiated fees) will create a preponderance of “experienced appraisers,” which on one hand is good in that the most experienced appraisers will compete on quality and service for assignments; however, what will be the impact on appraiser-trainee development? Will appraisal firms have any motivation to train new appraisers, and will less experienced appraisers be able to compete for appraisal work if fees are not a factor?
Where was all this concern for appraiser-trainees in the past? How many appraiser readers of this post are willing to provide engagement letters or orders from TAVMA members with the wording "Trainee Appraisers cannot sign the appraisal", or word to that effect.
TAVMA, get off your knees and get with the program.

My fellow appraisers, it's time to fire up the letter writing machine and let Ben Bernake know what the real story is.

More on this subject, along with a slew of comments at Appraisal Scoop. Brian Davis has a particularly good one:
Maybe someone can explain to me why we need studies and surveys on customary and reasonable fees when appraisal fees have been reported for years on the HUD closing statements? I've always assumed that the information on the HUD form was collected and databased somewhere?

If this hasn't been done in the past . . .it could certainly be implemented NOW. The HUD form shows exactly what the borrower was CHARGED for the appraisal . . . right?
Well said, Brian. This aint brain surgery.

UPDATE - From several sources comes this tidbit:

The direct contact person at the Federal Reserve Board where you can send a letter to discuss your personal AMC and Customary and Reasonable Fee situations, or anything else having to do with appraiser independence. (Can include Stips and mandatory comparable requirements and mandatory Cost Approach).

Please do so in the next few days, as new appraisal regulations are being drafted now, with implementation set for October, or perhaps sooner.

Here is the contact information for the person at the Fed that is handling the Interim rulemaking on appraiser independence (including customary & reasonable fees):

Ms. Sandra Braunstein, Director
Division of Consumer and Community Affairs
Federal Reserve Board
1709 New York Avenue, NW
Washington, DC 20006

I strongly suggest you provide your own letter in your own words, rather than rely on ‘template’ content from another source. Keep it short and to the point.

Monday, August 23, 2010

Dodd-Frank Wall Street Reform and Consumer Protection Act - Now, the Rules

In support of one of my observations about H.R. 4173, Dodd-Frank Wall Street Reform and Consumer Protection Act, the following quote from an editorial in today's New York Times is offered:

Read the whole thing.
The Federal Reserve must now translate the legislative language into rules that will govern how brokers, lenders, appraisers and investors behave from now on. Given the Fed’s long history of putting the financial industry first and consumer protection second, Congress will need to keep a close eye on the rule-making process.

The expectation that Congress will "keep a close eye" on anything is a stretch, however. WE must keep a close eye on the rule-making.

Although the FED will be writing the interim rules, all the Federal Banking Regulatory Agencies will be participating in the final rules. The FDIC has issued a statement announcing an "Open Door Policy for Regulatory Reform Rule-making." Time to subscribe to their emails and notices.

Tuesday, August 17, 2010

H.R. 4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act

My world was much different in the late 1980’s. Although I had been in the real estate and appraisal profession for a decade, political activity did not interest me. Here at Gregoire & Gregoire, we had been using a networked mini-computer for appraisal reporting since 1983, but I did not have an email account or address. I did not surf the web. Our clients were savings and loan associations, FHA lenders, loan discount companies (purchasers of privately originated first and second mortgages), real estate brokers, and several lawyers. All our research was completed through examination of paper and microfiche records. We went through Polaroid SX-70 film packs by the case and always kept a spare camera or two in the back seat or trunk of the car. Life was good. A career in the appraisal profession, at least here in the Sunshine State, was one coveted by many.

In-person networking with other appraisers was a regular activity, and usually accomplished at the monthly meetings of the local chapter of the Society of Real Estate Appraisers. My memory may be a little foggy, but I do remember sitting down with a few appraiser friends after a Society meeting to discuss the pending implementation of Title XI of the Financial Institutions Reform Recovery and Enforcement Act (FIRREA). Unlike most of my peers, I was not enthused or optimistic about the new law. It was difficult to see any upside for me or the profession by involving the federal government in appraisal regulation. I lost the argument with my friends, shouted down with comments about “professionalism” and “national standards”.

About 20 years after that discussion, technology has influenced many of the actions involved in the research, development and reporting of appraisals. Our ability and means to research and communicate has improved exponentially, and personally, my interest in regulation, government, and politics has become an obsession. The nature of some folks within the sphere of real property, loan origination, lending and banking is, unfortunately, just as it was. A mere 25 or so years after the disintegration of the savings and loans that prompted FIRREA, the country finds itself in the midst of an even worse financial mess. In response to crisis, and true to form, Congress has once again sprung into action to save us all. Their solution is H.R. 4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Sunday, August 15, 2010

Work in Progress - Post on H.R. 4173 The Dodd-Frank Bill

In between appraisal reports, speaking to groups about market conditions, and working on Holly Benson's Campaign for Florida Attorney General, I've been writing an opinion piece about the appraisal related sections of H.R. 4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act. (848 page pdf)

It's near completion. Copies have been circulated among some columnists, bloggers, appraisal regulators, and trusted appraisers for comment. Portions may be posted on some other sites as quotes, but the entire piece should appear here on Appraiser Active within the week.

Check back soon!


Friday, August 13, 2010

For Friday the 13th - A Little Bit of Humor

My close friends know I harbor a few superstitions. One of them has to do with Friday the 13th. I never plan anything of significance for this day. Although I'm in the middle of several important assignments, there is no way my signature will be affixed to a document with today's date.

Instead, I offer this video about BPOs or Broker's Price Opinions.

Hat tip to Cherolyne Fogarty from Walk the Talk Presentations.

Thursday, August 5, 2010

Time For Politics - Holly Benson for Florida Attorney General - UPDATED!

Although Appraiser Active enjoys readers from across the United States and has visits from each continent (except Antarctica), I am a Florida State-Certified Appraiser and interested in the future of the Sunshine State. Since I'm "On a Quest to Improve the Profession" it's important to be involved in the political process. We appraisers and real estate practitioners have a chance to help elect a candidate with firsthand knowledge of our professions as Florida Attorney General.

As a member of the Florida Real Estate Appraisal Board (FREAB) from 2000 until early 2008, I had the opportunity to work with 5 different individuals that served as Secretary of the Department of Business and Professional Regulation (DBPR). Not all of them were interested in real property appraisal and real estate brokerage. Holly Benson, appointed as Secretary of DBPR in late 2006, distinguished herself by taking an interest.

Although the DBPR is a huge state agency, responsible for licensing and regulating over 1,000,000 in the state of Florida, Holly made it a point to attend several meetings of the FREAB during her term as Secretary. Her attendance was not merely to update the members of the board on activities of the DBPR. She watched the board in action, listen to the discussion during rule making and the deliberation when disciplinary cases were considered. Holly Benson assisted the FREAB by assuring we were able to meet standards of performance required by the Appraisal Subcommittee. Our requests for action did not fall on deaf ears.

Because so many appraiser disciplinary cases involved mortgage fraud, Holly learned of many of the schemes and heard of the losses and consequences suffered by lenders and the public due to illegal behavior by real estate insiders. If elected Attorney General, she is ready to use this experience to prosecute the wrongdoers.

Florida has just passed a bill to regulate Appraisal Management Companies. There will be some conflicts with H.R. 4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act. It includes changes to the Appraisal Subcommittee, and calls for more responsibilities and power to be vested in the Appraisal Foundation. Florida Real Estate Appraisers will benefit if the Attorney General has firsthand knowledge of the federal influence on appraiser regulation.

As Secretary of DBPR, Holly Benson was instrumental in reducing bureaucratic red tape, enhancing customer (licensee and public) service, and streamlining procedures. We need a Pro-Business candidate as Florida's Attorney General.

There are plenty of reasons I'm supporting Holly Benson for Florida Attorney General, and working hard to assure she prevails in the August 24, 2010 Primary. I hope you take the time to visit her site, Holly Benson for Florida Attorney General, learn a bit more about her background and join me in casting a vote for her in the primary.

Although an army marches on its stomach, political campaigns run on cash. There's a CONTRIBUTE button on that site. Every bit helps. Don't be shy about $25.00, $50.00, or $100.00. It will be worth it to have a friend of appraisers as Attorney General of Florida. She will help in our quest to improve the profession.

UPDATE 8/15/2010 --

Earlier today we proudly represented Holly Benson during the Pinellas County GOP Victory Picnic. We had an opportunity to talk to the over 300 people attending about Holly's plan for Florida as the State Attorney General. Here's my wife, Fran Strayhorn, ready to talk about Holly.

NOTE:  This is NOT a Paid Political Advertisement. It has not been paid for or approved by any candidate.

Wednesday, July 21, 2010

Two Favorites: Fannie Mae and Countrywide

It's rare to post a video here on Appraiser Active, but CBS News has a story that WILL NOT make you feel all warm and fuzzy.

Now, what we need is to get a look at the appraisals used to value the collateral for those loans. It would also be interesting to take a long, leisurely look at the workfiles; particularly the communication between the loan origination staff and the appraiser. Do you reckon there may have been a little bit of pressure?

Are you as curious as I am?

Friday, July 9, 2010

More on Fannie Mae Update to Appraisal Policies

Just a little over a week ago, Appraiser Active POSTED about Fannie Mae updating their Selling Guide and Appraisal Policies. We linked to the June 30, 2010 Fannie Mae Announcement and offered a few comments about items of interest.

Three items on that list are worth more discussion:

  • Lender changes to the appraised value and guidance on addressing appraisal deficiencies
  • Appraiser selection criteria
  • Market Conditions Addendum to the Appraisal Report (Form 1004MC)
In this week's The Nation's Housing column, Ken Harney lets consumers know about some of the shenanigans going on behind the scenes while borrowers are gnawing their fingernails, waiting for their mortgage loan to be underwritten and approved.

Picture this: You've signed a contract to sell your house. Your buyers say they have nailed down the right mortgage. All is well. But then the appraisal comes in low -- $25,000 to $50,000 under what was agreed upon in the contract.

The lender insists on cutting the mortgage amount to reflect the lower appraised value. You refuse to negotiate anywhere near the price indicated by the appraisal, and suddenly -- poof! The whole deal is off. You, the buyers and the agents involved are all left sputtering over the appraisal that scuttled the transaction.
This scenario is not unusual in many markets across the country, say home builders, brokers and appraisers.

Here's one little-publicized reason why: Lenders unilaterally may be lowering the numbers on the appraisals submitted to them, in order to avoid accusations that the loans they sell to giant investors Fannie Mae or Freddie Mac are based on inflated appraisals -- even slightly inflated.
Fannie Mae, in their Announcement, links to language in the Selling Guide to make it clear that such actions by the lender or underwriter are NOT PERMITTED.

Changes to the Appraised Value

The lender is responsible for ensuring that appraisal reports are complete and that any changes to the report are made by the appraiser who originally completed the report. If the lender has concerns with any aspect of the appraisal that result in questions about the reliability of the opinion of market value, the lender must attempt to resolve its concerns with the appraiser who originally prepared the report. If the lender is unable to resolve its concerns with the appraiser, the lender must obtain a replacement report prior to making a final underwriting decision on the loan. Any request for a change in the opinion of market value must be based on material and substantive issues and must not be made solely on the basis that the opinion of market value as indicated in the appraisal report does not support the proposed loan amount. For information concerning the process lenders must follow to address a change of the opinion of market value, see Guidance on Addressing Appraisal Deficiencies, below.

Lenders must pay particular attention and institute extra due diligence for those loans in which the appraised value is believed to be excessive or where the value of the property has experienced significant appreciation in a short time period since the prior sale. Fannie Mae believes that one of the best ways lenders can reduce the risk associated with excessive values and/or rapid appreciation is by receiving accurate appraisals from knowledgeable, experienced appraisers.
That guidance certainly differs from reports we've heard from the field and relayed to Ken:

In other situations, we have seen out of state reviewers and "Chief Appraisers" for certain lenders contact appraisers with their concerns about value, suggest alternative comparable sales and "more credible" value estimates. These comments are based on first hand, personal experience.
Typically, Gregoire says, the lender orders a low-cost electronic valuation -- based on publicly available statistical data, with no onsite inspections -- to review the accuracy of what was submitted by the appraiser. If there's a discrepancy between what the computer says and what the appraiser reports, the lender's underwriters sometimes simply cut the number -- even if this means knocking the real estate transaction off track. Or they demand an immediate explanation from the appraiser.
The fact that Fannie decided to specifically address this in the Selling Guide seems to indicate the practice of arbitrarily changing the opinion of value must be fairly widespread.

Ken also addresses the Fannie guidance on Appraiser Selection Criteria:

Fannie also makes it clear that the use of an Appraisal Management Company is not required to comply with the HVCC.
Fannie's new guidelines also attempt to clarify other issues that have arisen during the past year, including the widespread use of inexperienced appraisers who are unfamiliar with local market conditions. Real estate agents, builders and mortgage brokers have complained to Congress that rules adopted by Fannie and Freddie last year encouraged lenders to use "appraisal management" companies to value properties.

Those companies, in turn, often pay appraisers deeply discounted fees -- half off traditional prevailing rates in some cases -- and require them to complete their assignments far faster than normal turnaround times. Critics have said that low-budget appraisers working for management companies frequently travel long distances to do their valuations, have minimal access to local data, and make excessive use of foreclosures and short sales as comparables

Fannie's letter attempts to clarify its "appraiser selection" standards. Top on the list: Appraisers should be experienced, "have the requisite knowledge" about local market conditions and have access to all local data sources. Fannie also emphasized that the demonstrated experience of an appraiser should always trump fees or turnaround times -- a clear swipe at management companies that bid out their work on the latter two criteria.
Specific guidance is in the Selling Guide, page 476

  • neither the Home Valuation Code of Conduct (HVCC) nor Fannie Mae requires the use of a third-party vendor;
  • lenders are ultimately responsible for representations and warranties related to the value, condition, and marketability of the subject property; and
  • lenders must hold the AMC responsible for complying with Fannie Mae’s requirements.
The clarification about the lender's use of AMCs is welcome. More than likely, many lenders believed the use of an appraisal broker absolved them of any responsibility for the appraisal report, or assuring the qualifications of the appraiser. It's nice to see Fannie actually mention "qualified" in reference to appraisers working for AMCs.

There is still a BIG question about the use of Review Appraisers. This section of the Selling Guide requires an inspection of the subject property by the appraiser signing the report. The section of the Selling Guide that addresses lender/underwriter changes to value opinions outlines the procedures the lender must follow if they do not have faith in the original appraisal. One of those is an Appraisal Review.

Although Fannie has not spelled it out, in reading all the sections together, I believe the Review Appraiser would have to meet the same, "USPAP Plus", Competency Standard the new language makes clear.

That leaves the Fannie Mae 1004MC. There's plenty to discuss about the "new" guidance. My concern is that it will result in a misleading report, or misleading information about the condition of the current market. It's worth a post of its own.

Stay tuned.

UPDATE - Thanks to Jonathan Miller (MATRIX) for the mention and link!

Thursday, July 1, 2010

Fannie Mae Updates Selling Guide and Appraisal Policies

Fannie Mae has issued an Announcement, dated June 30, 2010, titled Selling Guide Updates and Additional Guidance on Appraisal-Related Policies. The Announcement includes:

  • Appraisal-related policies that update the Selling Guide
  • Miscellaneous appraisal-related guidance (no impact on the Selling Guide)
  • Miscellaneous Selling Guide updates
  • Updates to Special Feature Codes
  • Updates to Mortgage Insurance Codes
The last 3 will not be of much interest to appraisers, but the first two include information of interest and importance. As a result of these changes, the online Fannie Mae Selling Guide has been updated, and now carries a June 30, 2010 date. Use this LINK or the Fannie Mae Selling Guide Link in the Links Section.

You will be interested in:
  • Inclusion of interior photographs in the appraisal report
  • Lender changes to the appraised value and guidance on addressing appraisal deficiencies
  • Appraiser selection criteria
  • Sources of comparable market data
  • Selection of comparable sales
  • Communication under the HVCC
  • Seller concessions
  • Treatment of personal property
  • Market Conditions Addendum to the Appraisal Report (Form 1004MC)

Monday, June 28, 2010

Conference Committee Agrees to Appraisal Changes - UPDATED AGAIN

Scroll for UPDATE

After an all night session, the House and Senate Conferees declared the Conference Report passed early in the morning of June 25, 2010. Their report will now be filed with the House and Senate for consideration.

The bill is "only" 2315 pages; it will not be posted here. However, Subtitle F, referencing appraisal activities, is only 39 pages, so here it is for your reading pleasure.

HR 4173 Subtitle F Appraisal Activities

Within the document you will find amendments that mandate an "onsite" appraisal for certain high risk mortgages, wording to establish Appraiser Independence Standards, a requirement that appraisal fees conform to customary and reasonable standards, and a sunset of the HVCC.

There is also language to establish minimum requirements for AMCs, require states to register AMCs, exempt bank owned AMCs from state registration and an increase in the ASC Registry Fee.

The Appraisal Foundation, particularlly the Appraiser Qualifications Board, is granted even more power and control.

Mixed bag, in my opinion.

Your Comments?

UPDATE - 6/29/2010 Wall Street Journal: Finance Bill's Fate Uncertain in Senate

2ND UPDATE - 6/29/2010 The Hill:  Wall Street bill back to conference

There's nothing in the Hill story about the appraisal provisions in the bill. It's all about the politics of getting the Conference Bill passed by the Senate.

Wednesday, June 9, 2010

Court - Suit Against First American May Proceed

A state appeals court ruled that New York can proceed with its lawsuit accusing First American Corp. of inflating home values under pressure from Washington Mutual Inc.

According to a recently posted story, in a unanimous decision, presiding justice Luis Gonzalez wrote for a four-justice panel of the New York State Appellate Division:

 “The attorney general claims that defendants engaged in fraudulent, deceptive and illegal business practices by allegedly permitting eAppraiseIT residential real estate appraisers to be influenced by nonparty Washington Mutual,” presiding justice Luis Gonzalez wrote in today's unanimous decision. “We conclude that neither federal statutes, nor the regulations and guidelines implemented by the OTS, preclude the Attorney General of the State of New York from pursuing litigation.”
Additional stories HERE , HERE HERE and HERE.

EAppraiseIT gave in to demands for higher appraisals to secure more of Washington Mutual's business, Attorney General Andrew M. Cuomo said when he sued in 2007.  States including New York began investigations of the mortgage industry in 2007 as foreclosures rose nationwide.

This should be interesting.

HERE is the decision.

HERE is the Cuomo press release about the investigation.

In light of the language in H.R. 4173 that exempts bank owned/controlled AMCs from state regulation, isn't it interesting that First American (now Core Logic) is the partner with at least two big bank AMCs? First American is the alleged culprit in a huge fraud and now stands to benefit by escaping state attempts to regulate AMC activity.

Saturday, June 5, 2010

Exempt Bank Owned AMCs? What are They Thinking?

Although discussion of the Wall Street Reform and Consumer Protection Act of 2009 has faded from the front page of the newspapers, in today's Washington Post, Ken Harney offers a column outlining some possible benefits to consumers and what he believes will go to the President's desk affecting housing and mortgage finance.

Of most interest to Appraiser Active is this:
Real estate appraisal improvements. The House bill would give the new consumer protection agency oversight on home mortgage appraisals and the power to create rules and standards to guarantee "appraiser independence" from pressures by lenders, realty agents and others. It also would require that once the new rules are adopted, the controversial "Home Valuation Code of Conduct" mandated last year by Fannie Mae and Freddie Mac be terminated. The code has been criticized by consumers, realty agents, builders and appraisers for encouraging lowball appraisals and the use of inexperienced appraisers willing to work for low fees. The Senate bill does not have appraisal provisions, but a bipartisan push is under way to convince conferees to adopt the House version.
None of the "appraisal improvements" were included in the Senate amendment to the House Bill, H.R. 4173. Some of the "appraisal improvements" are worthwhile, others not so. Among the most meaningful are amendments to FIRREA that will require states to regulate Appraisal Management Companies. (If you follow the link, start at Sec. 9503 and use the FORWARD button under the THIS DOCUMENT tab at the bottom of the page to read all the text)

Unfortunately, the above amendments also include this provision:


`(b) Exception for Federally Regulated Financial Institutions- The requirements of subsection (a) shall not apply to an appraisal management company that is a subsidiary owned and controlled by a financial institution and regulated by a federal financial institution regulatory agency. In such case, the appropriate federal financial institutions regulatory agency shall, at a minimum, develop regulations affecting the operations of the appraisal management company to--

`(1) verify that only licensed or certified appraisers are used for federally related transactions;

`(2) require that appraisals coordinated by an institution or subsidiary providing appraisal management services comply with the Uniform Standards of Professional Appraisal Practice; and

`(3) require that appraisals are conducted independently and free from inappropriate influence and coercion pursuant to the appraisal independence standards established under section 129E of the Truth in Lending Act.

This is preposterous!

Several states have already enacted laws to regulate Appraisal Management Companies. I’m not sure of the exact language for other states, but the bill to regulate Appraisal Management Companies recently signed into law here in Florida does not exempt ANY Appraisal Management Company from registration and regulation.

Based on comments and conversations with appraisers here in Florida and from around the country, the worst Appraisal Management Company offenders for fee abuse, unreasonable turn time demands and interference with appraiser independence are those owned or affiliated with regulated banking or financial institutions. EXAMPLE, EXAMPLE, EXAMPLEEXAMPLE.

The failure of banks to properly throttle their lending practices helped to get us in this mess, and now the proposal is to let them run Appraisal Management Companies without state regulation?

It’s important to convince the Conference Committee to strike that exemption for bank owned and operated Appraisal Management Companies. Otherwise, the public can expect nothing more than the same "close scrutiny", "attention to detail", and "rigorous oversight" the Federal Banking Agencies exhibited prior to the current fiasco.

We cannot trust the regulation of bank owned/controlled Appraisal Management Companies to Federal Agencies.

The Senate has appointed their conferees:

Dodd; Johnson; Reed; Schumer; Shelby; Crapo; Corker; Gregg; Lincoln; Leahy; Harkin; Chambliss.

We're still waiting for the House to name their participants to the conference, but Barney Frank is sure to be there.

It's time to fire up the professional associations and the public to write their Senators, Representatives and the bill conferees to make sure bank owned AMCS are NOT EXEMPT from state regulation.

Thursday, June 3, 2010

CRT Announces "Appraisal Dashboard"

On May 27, 2010, the Center for REALTOR® Technology announced "Appraisal Dashboard". Here's a portion of what their blog post has to say:

This project was made possible through a 6 month collaboration with RMLS of Minnesota, Live Valuation and the Center for REALTOR Technology. It was actually inspired by an appraiser getting the ear of Ed Newman from RMLS, who then got the ear of CRT who then got real jazzed up about this. This all coincided with some fortuitous events that led us to choose Live Valuation — who by the way, has one amazing programmer (Kannan), which you will soon agree to after you see the demo and the functionality, and the all out pure slick of this application.
So what the heck is the Appraisal Dashboard? Well, the basic summary is, it is a PHP web application that interfaces with live MLS data (MLS authentication and access required) and provides a visual search interface. The data can be exported (again, please refer to your particular MLS data rules/regs) into various formats that can be used with the Uniform Residential Appraisal Report and the MISMO format.
That's all I have for now. We have not yet tried the application, but should be able to find some time in the near future.

Cost? FREE for members of the National Association of REALTORS®. Yet another benefit of membership; this one specifically for Appraiser Members!

Rather than the link in the blog post, use THIS LINK for the video demos.

Saturday, May 29, 2010

The Greatest Spectacle in Racing - UPDATED: Pre-Race Ceremony

This is reposting from last year.  This year, I am in Indianapolis for the race. We will be watchng from the infield, turn 3.

If there is one thing that captures my attention more than real estate valuation, it's racing. If it involves anything with four wheels and an internal combustion engine, I'm interested. Formula 1, American LeMans, NASCAR, NHRA, Grand-Am, Sports Car, Land Speed Record, you've got my attention.

It started when I was in 2nd grade when my Dad would pile the family into the Country Squire Station Wagon for a short drive up the road to the local 1/4 mile track, Sunshine Speedway. They ran jalopies, modifieds and stocks. It was LOUD. The cars were FAST. The action was AWESOME! We would be picking rubber off our arms and out of our hair all the way home.

I followed NASCAR religiously from the time I was 7 years old. My early favorite drivers included Fireball Roberts, Curtis Turner, Fred Lorenzen, David Pearson and Cale Yarborough. In 1963, I got hooked on the Indy 500. That was the first year Jimmy Clark ran the race in a rear engined, Ford Powered Lotus. I devoured the newspaper for stories about anything related to the race, particularly that rear engined Lotus.

Of course, Jimmy did not win in 1963, but he did finish the race. He took the pole in 1964, but didn't win until 1965. Although no driver has commanded my attention as much as Clark, the race continues to be a rite of spring for me and my family. So, isn't it amazing that my two oldest children ended up living and working in Indianapolis! I fulfilled a long time dream and attended my first 500 back in 2005; watched it from the infield! We were able to make it back to the rain shortened 2007 race, but missed 2008.

For this years' Indianapolis 500, we will be among several hundred thousand race fans, enjoying all the antics and activites of the infield. Look for us in Turn 3. Something special will happen just before the race.


Thursday, May 20, 2010

IT'S OFFICIAL! - IVPI is Vaporware

According to a story posted on RealEstateRama, in a letter from FHFA Acting Director Edward J. DeMarco to New York Attorney General Andrew Cuomo, Fannie Mae and Freddie Mac, now in conservatorship, will not be funding the Independent Valuation Protection Institute (IVPI).

Back in December, Appraiser Active said:

If you were inclined to give Freddie Mac (and Fannie Mae) the benefit of the doubt, our suggestion is to avoid holding your breath waiting for the IVPI. Why don't these folks come clean and admit wishful thinking will not make it happen?
Instead,we get this:

“As conservator of Fannie Mae and Freddie Mac, our priority is to keep the Enterprises focused on the important role they play in supporting the mortgage market,” said DeMarco. “The need for a complaint process is being addressed in a way that we believe is more practical than with the Institute.”

Fannie Mae and Freddie Mac will deploy a complaint process to address suspected code violations including a mechanism for providing pertinent information to state and federal regulatory and enforcement departments. The process will be put in place within the next few weeks.
Press Release and Letter HERE.

In my opinion, it's LATE, it's LAME, not in compliance with the agreement signed among the New York Attorney General, Fannie Mae and Freddie Mac, fails to address the role of Appraisal Management Companies and DOES NOT provide a means for appraisers to complain about non-compliant tactics and actions by AMCs.