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.

CLICK to Read More

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

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

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.

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.

CLICK to Read More

TAVMA Blog - 10 Reasons for Federal Regulation of AMCs

Jeff Shurman, over at the TAVMA Blog, as recently submitted a post - Ten Reasons Why Federal AMC Oversight is the Better Solution. Please take a look when you have a chance. Here's his list:

1. Compel the federal regulator to create a uniform set of standards for AMCs, which may include or build upon TAVMA’s own Standards of Good Practice in Appraisal Management
2. Compel AMCs to improve quality as needed to meet the agency’s rules and regulations;
3. Flag educational and compliance gaps in AMCs’ systems that they can duly address;
4. Encourage AMCs to invest in IT to meet reporting and compliance rules (compliance, record-retention, performance report generation, etc.);
5. Provide compliant AMCs with a competitive advantage over those that lag in the compliance area;
6. Put AMCs – which at the core act as agents of the lender conducting functions that the lender would otherwise do and be responsible for – under the regulatory auspices of the same entity tasked with overseeing, auditing, and supervising the mortgage lending industry;
7. Ensure compliance of AMC product development efforts to consistent and reasoned standards and guidelines; regulatory clarity leads to innovation;
8. Provide mortgage lenders a meaningful set of standards against which to assess current and potential AMC partners;
9. Level the competitive field while weeding out bad actors; and
10. Eliminate the oft-cited objection that AMCs are unregulated.

Interesting list. Would anyone care to address these one-by-one?

Appraiser Active wonders why TAVMA and AMCs are encouraging Federal Regulation now. It's also interesting, given the increasing number of AMCs being created by unsavory individuals with regulatory agency disciplinary history, that protection of the public does not make the list.

Maybe if the Federal government had not demonstrated such an inability to regulate financial institutions and Government Sponsored Enterprises, we would have a bit more enthusiasm for the TAVMA point of view.

FHFA - Lame Support for HVCC

On Wednesday, July 22, 2009, the Federal Housing Finance Agency (FHFA), released a NOTICE with the title "Strengthening Appraiser Independence and Improving the Valuation Process - Update on Enterprise Implementation of Home Valuation Code of Conduct".

Apparently the release is in response to the drubbing the HVCC has been receiving from nearly every segment of the real estate industry. It's a lame response that glosses over many of the legitimate concerns expressed about the HVCC and the manner of implementation. The FHFA conveniently absolves the GSEs of any responsibility and pats them on the back for their recent actions in issuing alerts to mortgage lenders advocating the use of qualified and experienced real estate appraisers. Appraiser Active is not buying it.

Where was the GSE concern about qualified and experienced appraisers prior to May 1, 2009? As is often mentioned in defense of the HVCC, Fannie Mae, Freddie Mac, the OCC, the FED, the Comptroller of Currency, the FDIC and the NCUA and the OTS all have standards for appraisals, appraisers and maintaining appraiser independence. Who has been asleep at the switch for all these years? Have any heads rolled? We must have missed that.

Completely ignored in the HVCC and any communication from the FHFA, Fannie Mae, Freddie Mac or the New York Attorney General since the announcement of the agreement is any discussion of penalties for the alleged wrongdoers (WAMU, eAppraiseIT) that prompted the investigation and lawsuit. What's up with that?

There is much more to be said. Unfortunately, it's Friday and I've got to get an appraisal out the door TODAY.

Check back for an update to this post.

HVCC - Countdown

Today is April 29, 2009 and we're just two days away from the effective date of the Home Valuation Code of Conduct (HVCC). There are quite few different points of view being expressed by folks about to be affected by the agreement between the Attorney General of New York and the Federal Housing Finance Agency (FHFA), Fannie Mae and Freddie Mac.

The National Association of Mortgage Brokers (NAMB) is not taking the assault lightly and has ramped up their efforts. THIS ACTION ALERT went out to their members recently

Stop the HVCC! We Still Need Your Help! CRITICAL - Take Action Now!
April 24, 2009

Dear NAMB Member:

In addition to what NAMB is doing to save your business, ask yourself, "What can I do to help save it?"

You can pick up the phone and act! It is undeniable that the implementation of the Home Valuation Code of Conduct ("HVCC") will have severe consequences. The deadline is just days away. Regrettably, many of you have not yet contacted your legislators, and time is running out!

THANK YOU to everyone who has contacted their Senator and/or Representatives. You are being heard! NAMB has spoken with several legislators as a result of your calls regarding the HVCC, but we still need your help! Key Republican and Democrat Congressmen have shown their support for NAMB's cause, but we need to keep the momentum going. We can not stop now!

Please contact your Senators and Representatives TODAY, and urge them to stop or delay the implementation of the final rule promulgated by the FHFA, which implements the controversial HVCC. Congressmen Gary Miller (R-CA-42) and Travis Childers (D-MS-1) are taking the lead in this fight. Please ask your legislator to contact their offices today. Every call counts! We are asking you to keep calling until notified otherwise.

FULL TEXT

The National Association of Realtors (NAR) is also seeking a one year delay in the implementation of the agreement. This was sent to their Board of Directors this week, in advance of the May meeting of the Board.

NAR: Delay Cuomo-GSE Appraisal Agreement

The Home Valuation Code of Conduct that Fannie Mae and Freddie Mac agreed to with New York Attorney General Andrew Cuomo should be delayed until May 1, 2010, NAR President Charles McMillan says in letters to the heads of the two secondary mortgage market companies. More guidance is needed, including on enforcement responsibility, and appraisers and others impacted by the changes need time to prepare.

The agreement, approved in December 2008 to reduce the potential for inaccurate appraisals, is expected to have an impact beyond New York state because of the nationwide influence of Fannie and Freddie. For more info contact Jerome Nagy, 202/383-1233.

The Appraisal Institute (AI) does not appear to be fighting the implementation. Instead, their efforts are directed towards preparing their members to compete within the new paradigm, dispelling the myths swirling around the agreement, and educating their membership. Today's Appraisal News Online says:

HVCC Effective Friday; FAQs, Telebriefing, Myths Document among Resources Available

Despite legal maneuvers and rumors of intervention and delay, the Home Valuation Code of Conduct is scheduled for implementation this Friday, May 1, 2009. According to the Code and Fannie Mae and Freddie Mac, mortgage loans originated by lenders from there on out and after must comply with the Code in order to be eligible for sale to the GSEs. Leading up to the implementation date, the Appraisal Institute has drawn appraisers' attention to a variety of resources, including recent FAQs from Fannie and Freddie; a "Myths and Realities" document the organization drafted; and promotion of its May 6 telebriefing on the HVCC with the American Bankers Association.

FULL TEXT

The AI also provides a link to their Home Valuation Code of Conduct - Myths and Realities document HERE.

Appraiser Active has a favorite:

Myth: Use of third party vendors ensures the use of competent appraisers.

Reality: Lenders traditionally have been responsible for ensuring the competency of the appraisers and reliability of the appraisals they use for credit decisions. However, the competency of an appraiser is not measured by scoring compliance with seller servicer guidelines. Processing appraisal orders is a separate function that does not specifically include a review of competency. The function of competency review is best performed by individuals with significant education in appraisal standards and theory.

Further, institutions should consider any potential reductions in quality that might result from outsourcing the appraisal function. To this point, federal bank regulatory agencies recently reminded institutions to consider an appraiser’s competency for any given appraisal assignment.

There's three options for you. Please take one, or ALL, and do something!

They meant for the acronym HVCC to be pronounced "havoc" right?

HVCC Update

Appraiser Active has provided quite a bit of information about the impending May 1, 2009 implementation of the Home Valuation Code of Conduct (HVCC). Most recent was the post describing the NAR effort to urge a one year delay of its effective date.

As of today, there has been no word from Fannie, Freddie or Attorney General Cuomo in response to the NAR letters.

However, we hear there are at least at TWO members of Congress are passing around a letter on the Hill that will also ask for a delay. It sound like NOW would be a good time to contact YOUR member of Congress to ask them to support the delay.

Use this LINK to locate your US Representative and Senators. Use your Zip+4. The contact information for each is provided along with a link to their webpage. At this stage of the game, it's best to a telephone call, fax or email to make your points.

Use whatever you like, the points made the NAR Letters or these suggestions:

• One of the pillars necessary for implementation of the HVCC is the Independent Valuation Protection Institute. Without the IVPI there is no enforcement mechanism, hotline, or means of verifying compliance. Delaying implementation would allow creation of the IVPI or establishing an alternative framework


• Many state legislatures are in the process of enacting laws to regulate Appraisal Management Companies. In other states, the regulatory agencies are in the process of promulgating rules and procedures to deal with Appraisal Management Companies. Delaying implementation would allow these states to finalize their actions


• To this day, the fact that the HVCC resulted from improper influence on appraiser independence by a Federally regulated lender and a rogue Appraisal Management Company cannot be reconciled with the apparent endorsement of unregulated Appraisal Management Companies as the “protector” of appraiser independence by the HVCC. Delay would allow a reconciliation of this glaring conflict. (See Story on New York AG Complaint and link to suit HERE)


• Fannie Mae has adopted policies that protect the brokerage fees from downward negotiation in certain transactions (short sales). Delay of implementation would permit efforts to protect appraiser’s fees from downward negotiation by Appraisal Management Companies. At the very least, it would allow time to arrange for full and transparent disclosure of valuation related fees in closing documents (AMC fee, Appraisal Fee, etc)

They meant for the acronym HVCC to be pronounced "havoc" right?

Lenders Not Yet Ready for HVCC

UPDATE#1 - Fannie HVCC FAQs Below

UPDATE #2 - Freddie HVCC FAQs Added Below

........no kidding, and few if any are ready for the May 1, 2009 deadline.

From HousingWire.com:

Survey: Lenders Not Yet Ready for HVCC

It’s not garnering as much press as it perhaps should, but new appraisal guidelines set forth in the Home Valuation Code of Conduct are set to go into effect on May 1 — and a recent study suggests that while U.S. mortgage lenders are confident their systems will be ready, few say they have actually completed system upgrades designed to ensure compliance.

That’s the finding from a recent survey distributed to more than 1,000 key industry personnel by mortgage technology company FNC, Inc. — the company’s client base includes major mortgage banks as well as regional and community banking outfits.

As the result of legal action almost a year ago, New York Attorney General Andrew Cuomo announced an agreement with Fannie Mae, Freddie Mac, and the Federal Housing Finance Agency (formerly OFHEO) to establish a Home Valuation Protection Program. The program demands significant changes to the real estate appraisal process for residential mortgage transactions and includes the Code of Conduct.

FULL STORY



Since the National Association of Mortgage Brokers (NAMB) has withdrawn their lawsuit against against Federal Housing Finance Agency (FHFA) Director James B. Lockhart over the Home Valuation Code of Conduct (HVCC), there are rumors of some groups seeking a delay in the implementation scheduled for May 1, 2009.



For a number of reasons, I agree with a delay in the implementation of the Home Valuation Code of Conduct. There are just too many unsettled procedural matters with the HVCC

• One of the pillars necessary for implementation of the HVCC is the Independent Valuation Protection Institute. Without the IVPI there is no enforcement mechanism, hotline, or means of verifying compliance. Delaying implementation would allow creation of the IVPI or establishing an alternative framework
• Many state legislatures are in the process of enacting laws to regulate Appraisal Management Companies. In other states, the regulatory agencies are in the process of promulgating rules and procedures to deal with Appraisal Management Companies. Delaying implementation would allow these states to finalize their actions
• To this day, the fact that the HVCC resulted from improper influence on appraiser independence by a Federally regulated lender and a rogue Appraisal Management Company cannot be reconciled with the apparent endorsement of unregulated Appraisal Management Companies as the “protector” of appraiser independence by the HVCC. Delay would allow a reconciliation of this glaring conflict. (See Story on New York AG Complaint and link to suit HERE)
• Fannie Mae has adopted policies that protect the brokerage fees from downward negotiation in certain transactions (short sales). Delay of implementation would permit efforts to protect appraiser’s fees from downward negotiation by Appraisal Management Companies. At the very least, it would allow time to arrange for full and transparent disclosure of valuation related fees in closing documents (AMC fee, Appraisal Fee, etc)

There’s more, but it should be clear that a delay would benefit real estate brokers, appraisers, mortgage brokers and consumers.

UPDATE #1 - Fannie believes they're ready. Fannie HVCC FAQs

My favorite:

Independent Valuation Protection Institute (IVPI)

Q55. What is the status of the IVPI?

The structure of the IVPI has not yet been determined and the IVPI has not yet been established. Therefore, the provisions in the Code regarding the IVPI are not yet effective.

Appraiser Active Question #1

Given the financial condition of Fannie Mae and Freddie Mac, when is the IVPI expected to be funded?

Appraiser Active Question #2

When is the IVPI expected to be created?

Update #2 - Freddie believes they're ready. Freddie HVCC FAQs

Appraisal Subcommittee Hires an Executive Director

For Immediate Release

March 31, 2009

The Appraisal Subcommittee Hires an Executive Director

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

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

Congratulations on the new position Jim!

Undercover Operation Results in Fraud Charges

...via

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

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

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

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

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

FULL STORY

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

Brace For Change

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

From the Contra Costa Times:

Appraisers brace for industry change


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

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

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

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

FULL STORY

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

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

LINK

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

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

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

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

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

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

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

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

It's time to Regulate Appraisal Management Companies

Appraisal Management Companies typically administer a network of certified and licensed appraisers to fulfill real estate appraisal assignments on behalf of mortgage lending institutions. They often recruit, qualify and verify licensure for their panel of appraisers.

One major problem with Appraisal Management Companies is they are completely outside the regulatory loop controlling real estate appraisers and protecting the public. No state or Federal agency is tasked with the regulation of Appraisal Management Companies. In fact, there is a documented case of Florida Appraisal Management Company owned and operated by an individual that surrendered his Certified Residential Appraiser credential for permanent revocation to avoid prosecution for several complaints. This individual, in fact, was the subject of at least 10 complaints by consumers, lending institutions and other appraisers. His discipline prior to the surrender for permanent revocation included fines, probation, completion of education and a period of suspension.

Appraisers, appraisal associations, the Florida Real Estate Appraisal Board and the Florida Association of Realtors believes the failure to regulate Appraisal Management Companies is a danger to the public. Their concern is heightened by the pending implementation of the Home Valuation Code of Conduct discussed in a prior post.

Thankfully, the Florida Association of Realtors has stepped up to the plate and stated their support of an effort to establish regulations for Appraisal Management Companies. During their January 26, 2009 meeting, the Board of Directors of the Florida Association of Realtors passed a motion to support the registration and regulation of Appraisal Management Companies operating in Florida. Draft legislation has been written by a concerned group of appraisers consisting of members of the Appraisal Institute, the National Association of Independent Fee Appraisers and the Florida Association of Realtors. The Florida Real Estate Appraisal Board supports the concept as well.

The Florida Chapters of the Appraisal Institute will take the lead in securing sponsors in the Florida House and Senate. We will do our best to keep you apprised of the progress.

Bank Regulators - Concerned About Home Valuation Code of Conduct

As reported by the Appraisal Institute - Appraisal News Online

Four of the five federal bank regulators have called for the withdrawal of the Home Valuation Code of Conduct and the Home Valuation Protection Program and Cooperation Agreements saying they could “unnecessarily undermine the safe and sound extension of mortgage credit, reduce the availability of mortgage credit to many consumers, and ultimately lead to less reliability and accuracy in real estate appraisals.”

FULLL STORY

There may be some sense out there after all!

Home Valuation Code of Conduct

The Federal Housing Finance Agency (FHFA) has announced the "final" Revised Version of the Home Valuation Code of Conduct (HVCC).

The Code is based on an agreement between the Enterprises, the New York State Attorney General Andrew Cuomo and FHFA to improve the reliability of home appraisals.

The "agreement" was originally between Fannie Mae, Freddie Mac, the Office of Federal Housing Enterprise Oversight and Cuomo. The New York Attorney General made a big splash is THIS ANNOUNCEMENT. The settlement was prompted by an investigation of mortgage and valuation fraud initiated by the New York Attorney General in response to allegations of shady dealings between an Appraisal Management Company, Washington Mutual and a group of appraisers doing contract work for the Appraisal Management Company.

"The integrity of our mortgage system depends on independent appraisers," said Cuomo. "Washington Mutual compromised the fairness of this system by illegally pressuring appraisers to provide inflated values. Every company that buys loans from Washington Mutual must be sure that the loans they purchased are not corrupted by this systemic fraud."

The lawsuit filed last week details a scheme in numerous e-mails showing First American and eAppraiseIT caved to pressure from Washington Mutual to use appraisers who provided inflated appraisals on homes.

E-mails also show that executives at First American and eAppraiseIT knew their behavior was illegal, but intentionally broke the law to secure future business with Washington Mutual. Between April 2006 and October 2007, eAppraiseIT provided over 250,000 appraisals for Washington Mutual.

Due to many problems with the original HVCC, the failure of WAMU, Fannie, Freddie and a myriad of other reasons, the agreement was revised after a comment period. However, it's far from perfect and, if implemented, will have a significant effect on your brokerage business and the relationships you have built.

Here's one take:

An Appraisal Upheaval

by Kenneth Harney

When you apply for a mortgage to buy or refinance a house, should you be concerned that your appraiser is being paid much less than the $300 to $600 you're charged, perhaps half?

Should you know who pockets the rest, or that cut-rate fees are too low to attract the most experienced appraisers?

Should you care that the appraiser might be pushed to come up with a number so quickly -- almost overnight in some cases -- that he or she doesn't have the time to do a proper inspection and accurate evaluation of comparable properties, pending sales contracts and local market trends?

This agreement is not good for consumers, real estate brokers or appraisers. Why?

• Appraisal assignments will be funnelled through an Appraisal Management Company (AMC). Regardless of the definition and explanation at the link above, the reality is many AMCs have established a priority system that looks like this:

COST

SPEED

COMPETENCY

QUALITY

• The HUD-1, Closing Statement, will contain a charge for Appraisal Fee on Line #804. It will not indicate that the fee is the amount paid to an anonymous AMC and that only a fraction of that fee is paid to the appraiser. Doesn't RESPA require transparency by requiring that consumers receive disclosures at various times in the transaction and outlaws kickbacks that increase the cost of settlement services?
• Not one state in the United States Regulates the activities of Appraisal Management Companies.

Here in Florida, a group of professional appraisal associations, appraisers and others is working to protect the public by initiating legislation to regulate the actions of Appraisal Management Companies. Watch this space for more information once the bill is filed. To protect your business and the relationships you have built with related professions, your support is necessary.

December Meeting - Florida Real Estate Appraisal Board

During the second day of the December, 2008 meeting of the Florida Real Estate Appraisal Board, administrative matters were discussed. This included discussion about a number of new rules. Some were advanced and will be published in the Florida Administrative Weekly.

Among those still in discussion are rules pertaining to expanding the Citation Authority of the DBPR and establishing Qualifications for Supervisory Appraisers. Suggested text will be published in the Florida Administrative Weekly to establish what amounts to a "time in grade" requirement for Licensed and Certified Appraisers that supervise trainee appraisers. The minimum time required as a licensed or certified appraiser will be decided at the February, 2009 meeting.

The FREAB also discussed the Proposed Interagency Appraisal and Valuation Guidelines. Comments from the audience were taken. Members of the FREAB will submit comments individually. They also encouraged licensees to submit their own.

At the request of Chair Joni Herndon, the FREAB discussed the need for Florida regulation of Appraisal Management Companies and the Appraisal Management Company Registration and Regulation Model Act. The FREAB adopted a motion to support legislation to amend Chapter 475 Part II to regulate Appraisal Management Companies. The amendments will be based upon the Appraisal Management Company Registration and Regulation Model Act, however neither the FREAB nor the DRE support the sections of the Model Act that regulate fees or provide for mediation between panel appraisers and the AMC.

A task force has prepared preliminary text for the amendments and will work with the Appraisal Associations (primarily the Appraisal Institute) and the Director of the DRE to refine the document to specific amendments to Chapter 475, Part II.

There are Three Vacancies on the Florida Real Estate Appraisal Board.

• One Certified Residential Appraiser
• Two Consumer Members

If you know of an interested qualified individual, NOW is the time to get the application in to the Governor's Appointments Office.

As information becomes available about any of the above, more details will be posted.

Stay Well!!