Here’s What You Need to Know About HR 4173

As you surely know by know, the President recently signed into law the Frank-Dodd Wall Street Reform and Consumer Protection Act (HR 4173).  Title XIV of the legislation, the Mortgage Reform and Anti-Predatory Lending Act, has significant appraisal reforms addressing appraisal independence, oversight of appraisal management companies, and changes to FIRREA.  Below are the highlights of the bill as it pertains to appraisals.

Appraisal Independence

• Provides new appraiser independence requirements under the Truth in Lending Act (TILA) within 90 days of enactment

• Broadens the violations of appraiser independence to include to state: “Any appraisal of a property offered as security for repayment of the consumer credit transaction in which a person with an interest in the underlying transaction compensates, coerces, extorts, colludes, instructs, induces, bribes, or intimidates a person, appraisal management company, firm or other entity conducting or involved in an appraisal, or attempts, to compensate, coerce, extort, collude, instruct, induce, bribe, or intimidate such a person, for the purpose of causing the appraised value assigned, under the appraisal, to the property to be based on any factor other than the independent judgment of the appraiser.
  • An appraiser may consider additional, appropriate property information including additional comparable sales to support an appraisal, provide further detail, or correct errors.

• New conflict of interest standard in TILA that prohibits an appraiser or AMC from having a direct or indirect interest, financial or otherwise, in the property or transaction involving the appraisal.

• Home Valuation Code of Conduct (HVCC) sunsets within 90 days of enactment.

• TILA amendment that any “mortgage lender, mortgage broker, mortgage banker, real estate broker, appraisal management company (AMC), employee of an AMC, or “any other person involved in a real estate transaction involving an appraisal in connection with a consumer credit transaction secured by the principal dwelling of a consumer” who has “a reasonable basis to believe” that an appraiser has failed to comply with the Uniform Standards of Professional Appraisal Practice (USPAP), is violating applicable laws, or is otherwise engaging in unethical or unprofessional conduct must report the matter to the applicable state appraisal board.

• Appraisers are to be compensated at a rate that is reasonable and customary for appraisal services in the market area of the property being appraised.

Changes to FIRREA, ASC and use of BPOs and AVMs

• Appraisal Qualifications Board (AQB) Qualification Criteria for licensed and trainee appraisers becomes mandatory for the states (currently is voluntary).

• The Federal Housing Finance Agency (FHFA) and the new Bureau of Consumer Financial Protection become members of ASC.  The Office of Thrift Supervision is no longer a member of ASC.

• Broker price opinions (BPO) may not be used as the primary basis to determine the value of a property for purchase money transactions.

• Appraisal Subcommittee (ASC) shall monitor state appraisal boards to determine 1) whether states complete investigations, appropriately discipline, and reports complaints to the registry and 2) whether the state as effective appraiser independence laws.

• ASC may impose sanctions on states that fail to have effective appraiser regulatory programs.

• Automated valuation models (AVMs) are required to have quality control standards that 1) achieve a high level of confidence in estimates produced by AVMs, 2) protect against the manipulation of data, 3) seek to avoid conflicts of interest and 4) require random sample testing and reviews.

ASC Oversight of AMCs

• Minimum federal requirements established for appraisal management companies (AMC).

• ASC shall maintain a national registry for AMCs and impose an annual registry fee.

• ASC may remove AMCs (and appraisers) from the registry on interim basis pending state action.

• AMC must register with and be subject to state appraisal board in each state the company operates
  • AMCs that are subsidiaries of financial institutions are not required to register with the states

• May use only licensed or certified appraisers for federally related transactions

• Appraisals must comply with USPAP

• Appraisals must be conducted independently

• AMC may not be registered with a state or be on the registry if directly or indirectly owned by a person who had an appraisal license revoked, refused, denied, cancelled, surrendered in lieu of revocation, and must be of good moral character.

Subprime Mortgages

• A subprime mortgage requires a written appraisal of the property to be mortgaged.
  • The applicant is entitled to one free copy of the appraisal.
  • The applicant must be notified that the appraisal is prepared for the sole use of the creditor.

• Defines subprime mortgage.

FHA Appraisal Training Opportunities Announced

From time to time, the Federal Housing Administration (FHA) offers appraisal training in various cities across the country.  FHA recently announced two such trainings next month in Denver, CO and Birmingham, AL.  The courses are free so if you’re in the area or can get there the registration information is below.  You can keep tabs on upcoming events at FHA here.  We will try to post these trainings as we become aware of them.

August 17, 2010 – This free one-day class discusses FHA appraisal requirements including FHA Appraisal Protocol as well as equips attendees with the knowledge to review FHA property appraisals and determine property eligibility. Learn about the responsibilities of the appraiser and lender. Appraisers will gain an understanding of what to look for during the site visit and how to report readily observable deficiencies. Topics covered include FHA new construction appraisal procedures, manufactured housing, condominiums, income properties, 203(k), declining markets (Form 1004MC), appraisal updates (1004D) and sales concessions along with FHA appraisal review and sanction procedures. FHA. Approved for seven (7) hours of Continuing Education Credit from the State of Colorado. Class size is limited, first-come, first served. On the day of the class, check-in begins at 7:45 a.m. Class begins promptly at 8:30 a.m.  More info HERE.

August 19, 2010 – Birmingham, AL. FHA Appraiser Training. One-day course offers discussion of recent changes and updates to FHA procedures & guidelines for FHA Appraisers. Registration required, no fee. More info HERE.

PEMCO Looking for FHA-Approved Appraisers

Pacific Engineering Management Company (PEMCO, Ltd) was awarded 5 Housing and Urban Development Asset Manager Contracts representing 26 states across the United States.

PEMCO is trying to get the word out that they are accepting Appraiser applications in all of these areas.  You can get information on an appraiser for PEMCO at www.hudpemco.com.

Fannie Mae Announcement Addresses Several NAR Appraisal Concerns

Fannie Mae’s Selling Guide Updates and Additional Guidance on Appraisal-Related Policies, Announcement SEL-2010-09, addresses many concerns raised by the National Association of Realtors (NAR) regarding the Home Valuation Code of Conduct (HVCC) and the appraisal policies of the government sponsored enterprises (GSE), Fannie Mae and Freddie Mac.  The announcement addresses geographic competency, lender changes to the appraisal report, communication under HVCC, and the use of short sales and foreclosures as comparable sales.  NAR had previously called on the GSEs to provide additional guidance on these issues.

The guidance states that Fannie Mae requires lenders use appraisers with geographic competency.  Although USPAP allows an appraiser who does not have the appropriate geographic knowledge to accept an appraisal assignment, Fannie Mae does not allow this flexibility.  Further, the announcement states that appropriate communication with the appraiser is permitted under HVCC and nothing in the Code or in Fannie Mae appraisal policy requires the use of third party appraisal management companies (AMC).

Fannie Mae found that lenders are sometimes reducing the opinion of market value in the appraisal report.  Appraisal policies for Fannie Mae have been updated to provide information on steps lenders may take if an appraisal is found to be deficient.  The lender may request a field or desk review of the report in accordance with the Uniform Standards of Professional Appraisal Practice (USPAP).  The lender may forgo the review and obtain a new appraisal.

Additional guidance is offered by Fannie Mae for the use of short sales and foreclosures as comparable sales.  The appraiser is responsible for determining which comparables are appropriate for the appraisal report and must account for all factors that affect value when completing the analysis.   According to the guidance, the appraiser may use a short sale or foreclosure as a comparable but must identify and consider differences from the subject property and cannot assume the properties are equal.

What is My Home Worth?

In May, we told you about our personal experience getting our home appraised.  Well, the appraiser arrived as scheduled and completed his job in accordance with all the standards and ethics required by an appraiser (as far as we can tell).  We lauded his commitment to the job and time spent asking questions before even visiting the home.

In almost not time, priorities changed and we sought a new appraisal with a new lender. The new appraisal was performed by a different appraiser but our experience was similar to the first.  We had a brief conversation with the appraiser explaining the conditions of the home and upgrades made since it was purchased.  Although this appraiser was late for the appointment it appeared he too worked in accordance with all the standards and ethics required by an appraiser.

The second appraisal reported the home to be worth $50,000 less than the appraisal in May.  That would mean an 18 percent decrease in value in under one month’s time. Of course, both lenders stand by their appraisal.

We understand that markets are tough.  We’re looking at a double dip recession and the global economy is, at best, struggling.  However, 18 percent in one month’s time seems like quite a drop even for the hardest hit markets (the home is not located in the hardest hit markets).

Maybe the neighborhood is spiraling so quickly that within 6 months the value of the home will be down 100 percent.

Maybe two reasonable people looking at the same data can come up with two very different conclusions.

At the end of the day it begs the question: What is my home worth?

Appraisal Foundation in Dispute with Appraisal Institute

Word has been spreading around the campfire for some time about a dispute between the Appraisal Institute (AI) and the Appraisal Foundation.  The dispute came to a head on June 15, 2010, when the Appraisal Foundation held a special meeting of its Executive Committee in Chicago, IL, to consider conduct by AI detrimental to the Foundation.

According to the Foundation, the meeting was held to “consider evidence concerning conduct by the Appraisal Institute that might be viewed as materially and seriously prejudicial to the Foundation and that could result in the possible suspension, expulsion or other sanctioning of the Appraisal Institute.”

After the June 15th meeting, AI President Leslie Sellers wrote a letter to colleagues explaining the AI position.  Mr. Sellers stated that the issue was a discussion possible legislative language that was ultimately rejected by the AI Board of Directors.

The Foundation responded to AI on June 23, 2010, stating that dispute was focused on more than conversation.  While noting several inaccuracies in the AI letter, Foundation Chair, David C. Wilkes, said there is evidence that AI crafted legislation that would harm the Foundation and sought support for the legislation from other Sponsors of the Foundation.

As of today, the Foundation remains in Executive Session so they are still deliberating.  To enjoy the full tit-for-tat read both letters here and stay tuned for more summer fun.

House Offer Includes Sunset of HVCC

In an announcement yesterday, Chairman Frank released the House Offer on the financial reform overhaul bill.  Language in the offer includes consumer protection, risk retention, mortgage reform and anti-predatory lending.

The proposed amendment for Title XIV includes the provision to sunset the Home Valuation Code of Conduct (HVCC). Below are all the proposed amendments for this title.

The House proposes the following amendments to the Base text:

• Add House provision providing emergency mortgage relief for unemployed homeowners (House Bill § 10001, page 1675, line 15 through page 1680, line 4).
• Add House provision for assistance to the neighborhood stabilization program (House Bill § 10002, page 1680, line 5 through page 1683, line 18).
• Add House provision providing for legal assistance for foreclosure-related issues (House Bill § 9115, page 1536, line 21 through page 1540, line 2).
• Amend Senate provision to provide the Department of Housing and Urban Development, the Department of Veterans Affairs, the Department of Agriculture, and the Rural Housing Service to define “Qualified Mortgages” for the loans they insure, guarantee or administer (Senate Bill § 1413, page 1812, line 7 through page 1813, line 9).
• Amend Senate provision to revise the definition of “Mortgage Originator” relating to seller financing (Senate Bill § 1401, page 1782, line 20 through page 1783, line 11).
• Add House provision to sunset the Home Valuation Code of Conduct and improve implementation of appraisal independence standards (House Bill § 4312, page 983, line 15 through page 985, line 15).

Center for Realtor Technology Releases Appraisal Dashboard

NAR’s Center for Realtor Technology (CRT) recently released an Appraisal Dashboard.  CRT takes ideas that come from the field and tries to make useful technology applications from those ideas.  The CRT blog indicates that this tool came from an idea that an appraiser had and took to the Minneapolis MLS; their main tech person then took this idea to CRT who helped create the application.

The Appraisal Dashboard is a PHP based web application that connects to live MLS data that provides a graphical search and display interface.  You can then export the data into the Uniform Residential Appraisal Report or MISMO format.  It is a free NAR member benefit and the software can be downloaded from the link above (along with demos which do a good job of explaining what this “dashboard” is).

Cuomo Suit Allowed to Move Forward

Yesterday, Reuters reported that the New York State Attorney General’s Office (NY AG) may proceed with its case against First American.  You may recall that First American’s appraisal management company (AMC), eAppraiseIT was accused of “having ‘caved’ to pressure from Washington Mutual to use a list of pre-approved appraisers who provided inflated appraisals, in an effort to win more business.”

First American fought the lawsuit claiming that federal law prohibited New York from suing in this situation.  A panel of the New York Appellate Division rejected this claim.  According to Reuters, Justice Luis Gonzalez in writing for the Court stated “‘[e]njoining a real estate appraisal management company from abdicating its publicly advertised role of providing unbiased valuations’ is not covered under federal law.”

If you’re curious the case is Cuomo v. First American Corp et al, New York State Supreme Court, Appellate Division, First Department, No. 1308.

APB Members Named

In a press release today The Appraisal Foundation announced the members of the newly created Appraisal Practices Board (APB).  According to the Foundation, the APB “is responsible for issuing Valuation Recognized Methods and Techniques which are intended to provide support and guidance to those who require knowledge of the approaches to an issue that are recognized and accepted as appropriate and effective.”  The group will commence work on July 1, 2010.

The members are:

Jay Fishman of Bala Cynwyd, Pennsylvania, for a 30-month term (Vice)
Guy Griscom of Houston, Texas, for a 30-month term
Alan Hummel of St. Paul, Minnesota, for a 30-month term
Mark Linné of Bailey, Colorado,  for an 18-month term
Alok Mahajan of Mountain View, California, for an 18-month term
Gary Taylor of Brooksville, Florida, for a 30-month term (Chair)
Jim Vernor of Atlanta, Georgia, for an 18-month term

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