August 5th, 2010 by Jonathan Asker, SRA
This last section deals with automated valuation models (AVMs), RESPA, Broker Price opinions (BPOs), and a GAO study which is to be performed.
- AVMs are defined and come under the supervision of the regulators
- BPOs are not to be used as the primary basis for determining the value of a property for a residential property.
- Borrowers to get a free copy of their appraisal report.
- RESPA is amended to require the disclosure to the consumer what the AMCs pay their appraisers and the administration fee charged.
- General study to be done by the Government Accountability Office (GAO) within 12 months on effectiveness of the following:
The three approaches of value.
AVMs, BPOs, licensed/certified appraisers
Distribution channels including AMCs and fee appraisers
HVCC
Appraisal Subcommittees ability to monitor the State boards
Of the establishment of a national repository of appraisals
In short, the government will be taking a close look at the mortgage industry in relation to collateral assessment. They will be taking a look at everything to determine what is working and what isn’t. If this doesn’t give you pause, I think you have too much faith in government!
August 4th, 2010 by Jonathan Asker, SRA
In Part I (see blog) I wrote about Financial Reform and its implications to the appraisal industry, specifically the independent fee appraiser. Continuing with Things you need to know: This section (1473) of the bill deals with the Appraisal Management Companys (AMCs).
The bill gives the States 36 months to set up AMC regulations and a board to oversee them.
1. Management: to monitor the States AMC activity
a. Registration and supervision of AMCs
b. National registry of AMCs under State supervision
2. Minimum requirements of an AMC:
a. Register with each State it operates
b. Verify its appraisers are licensed or certified
c. Require that appraisals conform to USPAP
d. Require that appraisals are completed with appraisal independence guidelines
e. AMCs cannot be owned by an appraiser who has a revoked license
f. States may add to minimum requirements
3. AMCs owned by a bank are not required to register with the States (Landsafe, RELS)
4. New Definition of an AMC – According to the bill, an AMC is defined as an entity that oversees a network or panel of more than 15 certified or licensed appraisers in a State, or 25 or more nationally within a given year. The activity of an AMC is to manage the process of having an appraisal performed including recruitment, selection, training, review and contracting with appraisers.
5. Federal Appraiser Registry Fee – An annual registry fee of not more than $40, such fees to be transmitted by the State agencies to the Council on an annual basis.
6. Federal AMC Registry Fee for each appraiser — An annual fee of $25 to $50 per appraiser will be paid to the Council. If you are a national AMC with 12,000 appraisers on your panel, you are looking at $300,000 to $600,000 in annual fees!
7. Grants will be made to the State boards by the Appraisal Subcommittee with the registry fees to provide funds for enforcement. States have been spending the licensing fees generated at a State level for their general fund, leaving no money for the local State board. This law attempts to fix the lack of funding.
8. The Appraisal Subcommittee will monitor the State Boards to ensure funding, staffing, complaint processing, and appraiser discipline and maintain an effective regulatory program. They will have the authority to impose sanctions and even suspend a State board that fails to effectively regulate appraisers in their State.
9. Appraisers will enjoy license reciprocity in each State if their license is in good standing.
10. A national hotline will be set up for appraisal independence and USPAP violations.
The AMCs will be regulated and supervised; fees paid to the Appraisal Subcommittee will be rebated back to the States in the form of a grant to be used exclusively for supporting the State Boards’ function of supporting effective appraisal practice. We can expect the State Appraisal Boards to be more active in disciplining appraisers as the Feds are looking over their shoulders!
July 30th, 2010 by Jonathan Asker, SRA
Things You Need to Know! Part I
This landmark bill was signed by the President on July 21, providing the appraisal profession with the most sweeping changes in 20 years. Although the bill is now law, the regulations that are specific to our profession may take years to be fully enacted. The bill must now be interpreted by the regulators and guidelines must be written. The changes to come are not completelyclear, but I’d like to explain the general components of the bill in three parts.
Part One Sec. 1472
Appraisal Independence requirements will be most likely be jointly issued by the Federal Reserve, Comptroller of the Currency, FDIC, NCUA and FHFA and others by October 30, 2010. We do not know the implementation date of the requirements, just that they will be revealed by this date. Included in this portion of the bill:
It is illegal…
- to coerce, extort, collude, instruct, induce, bribe or intimidate an appraiser or AMC.
- to withhold payment from an appraiser
- for a lender to provide a targeted value
It is legal to…
- ask an appraiser to consider additional information such as comparables
- ask an appraiser provide further information, to explain the value conclusions
- correct errors in the appraisal report.
Note: The mortgage banking lobby attempted to have language submitted in the bill that would expressly allow the mortgage broker or loan originator to order an appraisal directly. This was not added to the bill and the bill remains silent on the issue. The regulators will be deciding this issue as they interpret the bill.
Other important items include:
A. Regulators are charged with ensuring the portability of appraisals between lenders
B. The appraiser is to be paid a customary and reasonable fee (see “Customary and Reasonable Fee” 7/16/10 blog)
c. Sunset the HVCC by October 29, 2010 (See “Sunset the HVCC – Revolution Complete?” 3/12/10 blog)
D. Penalties for violating appraiser independence: $10,000 first time offense for each day that violation continues
E. Mandatory reporting of appraisers to State board for violations of USPAP.
As mentioned, the effect on the appraisal profession will be influenced by what the regulators decide to codify. I feel the overall intent and effect will be to support the profession with higher fees and strong protection from undue influence. Simply put, it is a big win for the appraisers and unbiased appraisal reporting.
July 23rd, 2010 by Jonathan Asker, SRA
History has demonstrated that fierce foes have become fast friends in relatively short periods of time once their differences have been resolved. Consider the combatants of WW II – Germany and Japan are now America’s close allies after that brutal war.
I have a feeling that real estate appraisers will be ready to make peace with Appraisal Management Companies (AMCs) in the coming months.
It has been a passionate conflict, mostly coming from the appraisers’ side. Appraisers contend that AMCs took away clients, slashed fees, demanded impossible requirements, and asked them to appraise outside of their territories. This has been a contentious spat in which the AMCs rarely assaulted the appraisers, at least publicly.
I believe the time is soon approaching in which a truce will be declared by appraisers, and it has to do with money. The appraisers have many concerns but the principle issue is the lowering of their fees when AMCs came to prominence with the enactment of the HVCC.
The Dodd-Frank Financial Reform Bill states that appraisers must be paid “Customary and Reasonable Fees” (see previous blog). Suddenly, AMCs will be paying the appraisers the same fee their standard clients pay, thus forging a new and surprising bond of friendship between appraisers and AMCs.
What about the other issues? AMCs are doing a better job in hiring geographically competent appraisers. And although AMCs do follow strict Fannie Mae and USPAP guidelines, and it has been an adjustment to many appraisers, the appraisers have been adjusting…and higher fees will expedite the adjustment.
So, does the Dodd-Frank Reform Bill help appraisers get their old clients back? Many appraisers lost clients due to the HVCC, but although the new Financial Reform Bill sunsets the HVCC, its basic tenets will be retained in the new legislation. In other words, contact with those clients may still be forbidden if the new regulators deem this so.
The war is over and appraisers are left with a new friend, one who will now provide a steady source of work at a “Customary and Reasonable Fee”.
In Bogey’s immortal words, “I think this is the beginning of a beautiful friendship.”
July 16th, 2010 by Jonathan Asker, SRA
Yesterday the Senate passed the Dodd-Frank Financial Reform bill and it heads to Obama for his signature next week. This 2,300 page bill has 40 pages related the appraisal profession, specifically addressing the topic of appraisal independence.
Practices deemed as violating appraisal independence are:
- Instructing, inducing, bribing or intimidating an appraiser
- Influencing an appraiser to a targeted number
- Withholding timely payment to an appraiser
Included in the appraisal independence section, the bill states customary and reasonable fees must be paid to the appraiser or appraisal company by the lender or appraisal management company (AMC). These fees are to be determined by an objective third party such as academic study, professional polling or government fee schedules and MUST NOT include current AMC fees.
This is a very big win for the appraisers! If any client of yours is not paying the customary fee for your area, the FDIC will be instructing them to start paying it within 90 days of enactment.
Click on this link to view an appraisal fee poll taken by an appraisal professional organization:
http://www.mercuryvmp.com/documents/Free_AFR_February_2010.pdf?ClickID=AFRDOWNLOAD&ClickThruEmail=&ClickThruCustomerNumber=0
One word of caution! If you have an appraisal company “that oversees a network or panel of more than 15 certified or licensed appraisers in a State or 25 or more nationally with in a given year…” you will be classified as an AMC.
More money for the professional appraisers. .. This will help the profession keep experienced appraisers and attract new professionals. Lenders will not be harmed as the appraisal fee is typically passed on to the consumer in the application process. The Dodd-Frank Bill is the most significant, appraisal related legislation in decades.
June 22nd, 2010 by Jonathan Asker, SRA
Washington, DC – Chairman Frank, on behalf of the House conferees, released the House offer on the titles listed below. The issues will be subject to debate when the House-Senate Conference Committee convenes in room SD-106, Dirksen Senate Office Building, at 12:00 p.m. June 22. 2010.
- 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).
Barney Frank has scheduled the sunseting of the HVCC for debate today at 12 noon. The Senates version of this bill did not include any reference to the HVCC. The Committee hopes to finish this conference before the July 4th recess, vote on the revised bill and have it on the President’s desk for signing soon after.
The HVCC may be on life support!
April 9th, 2010 by Jonathan Asker, SRA
On April 1st, Congressman Barney Frank, who stewarded The Consumer Protection Act of 2009 through the House of Representatives in December, stated a financial reform bill should reach the White House by the end of May.
Frank is working with Senator Dodd, chairman of the Senate Banking Committee, on reconciling the House bill and Senate version, which has not been voted on. This is a comprehensive bill affecting many in the financial sector, including the real estate appraisal profession.
The 1702 page House version, dedicates 42 pages to the appraisal profession while the Senate version only requires a study of appraisal related issues within one year. This is where reconciliation comes in!
No one knows how Frank and Dodd will negotiate the items to be included in the final version, but it is obvious the real estate appraisals will be discussed.
It is very possible there will be sweeping changes in our industry by summer – HVCC sunseted? AMC regulated? See my previous blog on 15 Things you Should Know about The Consumer Protection Act of 2009, to see the possibilities.
April 7th, 2010 by Jonathan Asker, SRA
If you are an appraiser and have other appraisers working for you – look out! They’re back! In desperate need of tax dollars to fund economic stimulus, unemployment benefits and health care, both state and federal government are fanning out looking for the misclassification of labors.
Many appraisers hire other appraisers to complete work as independent contractors, not paying benefits, worker compensation, and unemployment or payroll taxes. If this is you, watch out. There is a two-pronged attack aimed at you.
According to Obama’s 2011 labor budget proposal http://tiny.cc/19u6v the misclassification workers are costing the federal government $7 billion over the next ten years. The president is asking for $25 million for 100 additional enforcement personnel.
The IRS launched a program in February of 2010 to target 6000 companies over the next three years for this very project.
In 2004 the Commonwealth of Massachusetts enacted a law that creates the presumption that workers are employees, not independent contractors. To be an independent contractor the worker must meet a rigid three-factored test that is harder to satisfy than the traditional IRS Twenty Factor Test http://tiny.cc/psj73.
Massachusetts Three Factor Test http://tiny.cc/e6jmw
- Freedom from control – you don’t make requirements regarding how the appraisal is completed
- The service provided is outside of the usual course of business – if they appraise for you- you can’t do the same thing
- A worker must be engaged in an independent trade or business, present himself to the public as being able to appraise for others – can’t work exclusively for you.
The penalties are stiff for misclassifying your appraisers. You may have gotten away with it for years, but a prudent employer would be wise to hire a labor attorney before the hounds are at your door.
April 1st, 2010 by Jonathan Asker, SRA
Remember the early 1990’s political refrain, “It the economy, stupid!”? Bill Clinton swept to the presidency with this phrase defeating a successful president.
I feel like shouting “its jobs, stupid!” at the top of my lungs. My business is directly in real estate finance but I see the whole economy still languishing as Washington has diverted attention away from the true solution to our economic funk.
The top priority should be getting the economy moving and to do that we need our government to concentrate on job creation and fostering an environment where Americans feel comfortable investing in new businesses.
Without jobs, no income. No income, no mortgage, no mortgage, no house. No house, no appliances – and so on and so on.
Please… before our government spends more money, put all effort into job creation, because without jobs, no taxes— and someone is going to have to pay for Washington’s spending spree.
March 12th, 2010 by Jonathan Asker, SRA
It would be easy to argue that the HVCC has changed the appraisal industry more since the securitization of mortgages than any other government fiat or economic condition. One regulatory swipe by an ambitious New York Attorney General and the mortgage industry was forever changed.
There is talk in Washington of “sunseting the HVCC” as quoted in the Consumer Protection Act of 2009 (CPA 2009) less than a year from its implementation. Why? It is grossly unpopular with real estate broker, appraiser and bank lobbyists. They blame the HVCC for depressing housing prices and hurting the economy in general. The House passed the CPA 2009 in December of 2009 and the Senate is hoping to produce their version of the bill at anytime.
What will happen if the HVCC is retired? I don’t think much!
• It is apparent that the HVCC was designed to create appraiser independence from lender pressure. The majority of lender pressure was brought to bear by some unscrupulous Mortgage Brokers who have since been regulated out of business by various government edicts.
• Banks have been forced to comply with these rules as well and have established policies to separate the sales force from the collateral assessment analysis (appraisers). Although the regulations may go too far in banning all contact with appraisers, good policies are in effect now that may not be quickly changed once the HVCC is abolished. Banks may modify their policies, but in this environment of deteriorating collateral and bank losses it may seem unwise to go back to the old system.
If the HVCC goes away, new independence assurances will replace it. The mortgage industry will not return to its old ways. The HVCC may have had a short shelf life but the effects will be felt many years into the future. I can hear Pete Townsend now. “Meet the new boss… same as the old boss”.
