Appraiser Income

To comply with FNMA and FHA guidelines, all new construction orders must have at least one sale outside the builder’s control. This is best demonstrated by a resale within the subject’s development (listed as “resale/non-builder”) or a sale by a competing builder (listed as “builder name”) within the development or within a competing development. The sale should be documented on the grid in your appraisal. Please note that this is a binding requirement and may not be skipped.

The engagement letter states for all Builder products, the listed comparables in the appraisal must show at least one sale outside the control of the builder (i.e. from a different builder). Note: To identify Builder products, Builder will be included in the product name on the engagement letter.

Source: May 15, 2012 – Fannie Mae Single Family Selling Guide page 577

Note: To comply with UAD, enter the numeral zero (0) in the dollar amount field when the builders differ from the subject.

Please immediately begin displaying the builder name on the grid for all Builder orders.

Editor’s Note: Lawmakers got an ear full from appraisers last month in Washington. This time, it appears Congress is listening.

Appraisers Talk, Congress Listens
by David Brauner and Isaac Peck
http://www.workingre.com

After last month’s Congressional hearing, rest assured that Capitol Hill is well aware of appraisal industry issues, including customary and reasonable fees, unreasonable turn-time demands, geographic competency, the lack of transparency with respect to AMC fee splits, continued appraiser independence pressures, the efficacy (or lack thereof) of the Universal Appraisal Dataset, and a peek behind the curtain at internal disagreements among the industry’s power players over how best to regulate you and your business.

Also underlined time and again is the importance of licensed and competent real estate appraisers to the soundness of the real estate and banking sectors of our economy.

The June 28 hearing was an opportunity for the appraisal industry to provide input on appraisal regulations and their impact on the still lagging single-family real estate market. Members of the Congressional Committee (Insurance, Housing and Community Opportunity Subcommittee of the U.S. House Committee on Financial Services) included: Rep. Judy Biggert, (R-IL), Chairman; Rep. Gary G. Miller, (R-CA); Rep. Luis V. Gutierrez, (D-IL), Ranking Member Rep. Al Green, (D-TX).

The hearing, Appraisal Oversight: The Regulatory Impact on Consumers and Businesses, was addressed by two panels. The first panel included government officials from federal regulatory agencies. The second represented independent professional organizations and associations, including the National Association of Realtors (NAR), the Appraisal Foundation (TAF), the Appraisal Institute (AI), the American Society of Appraisers (ASA), and the Real Estate Valuation Advocacy Association (REVAA).

Panel members:
Panel I
William B. Shear, Director, Financial Markets and Community Investment, Government Accountability Office
Don Rodgers, President, Association of Appraiser Regulatory Officials
James R. Park, Executive Director, Appraisal Subcommittee, Federal Financial Institutions Examination Council

Panel II
David Berenbaum, Chief Program Officer, National Community Reinvestment Coalition
David Bunton, President, Appraisal Foundation
Francois K. Gregoire, 2011 Chair, National Association of Realtors, Appraisal Committee
Don Kelly, Executive Director, Real Estate Valuation Advocacy Association (REVAA), on behalf of REVAA and the Coalition to Facilitate Appraisal Integrity Reform
Karen J. Mann, President, Mann & Associates Appraisers, on behalf of the American Society of Appraisers
Sara Stephens, President, Appraisal Institute

Highlights
Astonishingly, Rep. Gary Miller (R-CA) characterized the Home Valuation Code of Conduct (HVCC) as a “disaster” and said he is equally disappointed with attempts by Congress and other government agencies to fix the problems. He noted that the disastrous effects of HVCC were immediate, but unfortunately, attempts to redress them by government have not been as quick. He went on to say that much of the worst of HVCC is institutionalized now by Fannie Mae and Freddie Mac, and its successor Federal Finance Housing Agency (FHFA), and Federal Housing Administration (FHA).

His negative assessment of HVCC is a far cry from FHFA leadership, and others in high places, who insisted over the years that the Code was/is effective at improving the quality of appraisals and the independence of appraisers. The fact that appraiser reality is now commonly accepted in Washington, D.C., despite the years of misdirection, is a clear vindication and positive development for rank and file appraisers.

“Low” Appraisals
In his comments, Rep. Miller seemed to blame HVCC for “low appraisals,” killed deals and a stifled housing recovery- all due to the inability of parties involved in the real estate transaction to communicate freely with each other. He said that if the lender and buyer agree, they should “be able to move forward in the marketplace.” This led to a discussion on how low fees paid to appraisers by AMCs is leading to lower quality appraisals. Regarding HVCC and its aftermath, Rep. Miller said, “We messed up. We’re not happy with what we did but we’re equally not happy with you (regulators and others) not listening to us wanting to correct what we did. We have got to fix it.”

All sides were ably defended, including AMCs, by their representative Don Kelly. He made the argument that AMCs provide value to appraisers in many areas, including marketing and quality control, and characterized the assertion that AMCs select appraisers based on low fees and quick turn-around times as being “based on anomalies and hearsay.” In contrast, the appraiser panelists, while disagreeing over some issues, were united in testifying that the AMC model, in its current form, is driving good appraisers out of the business and hurting appraisal quality.

The Congressional Panel seemed to have the Appraisal Subcommittee (ASC) in its crosshairs, with direct questions to the panels about how well the agency is doing its job- especially as it pertains to its unfinished business of implementing appraisal provisions in Dodd-Frank. Most agree that there is a “pressing need” for speedy implementation of Dodd-Frank. Chairwoman Judy Biggert (R-IL) asked a “yes or no” question whether the Subcommittee is effective. Answers from the panel ranged from a resounding “yes,” from Bunton of TAF, to Stephens from AI, who answered, “A good look should be taken at the way the whole entire system is set up.”

The rift between TAF and AI also was apparent with respect to the Appraisal Practices Board (APB), now part of TAF. Bunton defended the newly created Board. Stephens said about APB, “Appraisal practice is not aided by more rules.” Stephens charged the Board with attempting to limit the ability of the independent appraiser to exercise their own judgment in the appraisal process by strictly dictating appraisal methodology. The friction between the AI and TAF came to a head in Sept. 2010 when AI resigned from TAF.

Transparency
There were clear calls on behalf of consumers for transparency on closing documents with respect to separating AMC and appraiser fees. Gregoire said that consumers are entitled to an appraisal report that is commensurate with the fee they pay. “Consumers should get what they’re paying for. If the lender wants to use an AMC to broker appraisals, then let the lender pay for that service. Don’t make the appraiser pay for it and don’t make the consumer pay for it, the lender is the one who benefits from that service, let the lender pay for it,” Gregoire said.

Regarding customary and reasonable fees, Kelly said appraiser fees today are market driven- a function of supply and demand and that, after all, appraisers agree to whatever fee they are paid. Berenbaum and others argued that low fees are hurting consumers because they lead to lower appraisal quality. Both Stephens and Gregoire pointed out that most AMCs prioritize low fees and turn-around time, which leads to appraisers traveling great distances, many times out of their area of geographic competence, when there are more qualified and experienced people in the area who will not accept the low fee.

Given the questions posed by the Committee and their statements, it’s possible this story is not fully written yet. You can listen to the hearings here: http://www.c-span.org/Events/C-SPAN-Event/10737431981/

In one of the few government cases to accuse banks of wrongdoing in the housing crisis, a residential appraiser testified that he was dropped by Washington Mutual during the housing boom because he didn’t inflate home values, Reuters reported June 20.

Alfred Lama said he suddenly stopped receiving assignments from appraisal firm eAppraiseIT in April 2007. When he inquired as to the reason, he was told that his name was not on a list of appraisers provided by WaMu’s sales office. “The sales people were going to have certain control. If you weren’t making the numbers for the loans, you weren’t going to get work,” Lama testified, Reuters reported.

Lama was testifying in state court June 19 and 20 in a case initiated by New York Attorney General Eric Schneiderman who alleged that eAppraiseIT and its former parent company, First American Corporation, succumbed to pressure from WaMu to inflate home appraisals, Reuters reported.

Homes that were appraised for more than their value enabled mortgage companies to issue bigger loans, which is among the causes cited by experts for the housing bubble and subsequent financial crisis.

At the time, eAppraiseIT was the appraisal management unit of real estate services company First American Corporation. First American has since divided into two companies; First American Financial Corporation and CoreLogic Inc.; eAppraiseIT currently is a unit of CoreLogic.

According to Reuters, Lama testified that he performed appraisals for WaMu, eAppraiseIT’s largest client, for more than 10 years, and that between July 2005 and July 2006 alone he completed more than 350 appraisals.

Appraisal management companies are supposed to provide a buffer between bank loan employees and individual appraisers to curtail pressure or conflicts of interest, according to documents filed in the case, Reuters reported.

However, eAppraiseIT hired former WaMu staff and provided some authority to resolve situations when appraised values were lower than the purchase price, the documents showed, Reuters reported.

Court papers also stated that WaMu loan originators allegedly pressured appraisers to modify valuations upward, and in Feb. 2007 eAppraiseIT allegedly gave in to WaMu’s demand to use appraisers chosen by the bank’s loan employees.

“The sales people finally got their way at WaMu,” witness Sabina Senorans, a WaMu sales office staff member wrote April 27, 2007, in an email that was placed into evidence, Reuters reported. “The appraisal list that eAppraiseIT…is using has been totally scrubbed. But instead of keeping good appraisers, they went for BADddd [sic] ones.”

According to Reuters, Schneiderman alleges that eAppraiseIT initially resisted pressure from WaMu but then agreed to “roll over,” according to an email from former eAppraiseIT President Anthony Merlo to First American.

Patrick Smith, an attorney for eAppraiseIT, stated that every appraisal was completed in accordance with professional standards. “The state will be unable to prove that a single appraisal in this case was either improperly prepared or in any way inflated,” Smith said during a break in the trial, Reuters reported.

According to Reuters, First American tried to dismiss the case arguing that only federal law governs appraisals. In late 2011, however, New York state’s highest court ruled that the state could pursue the lawsuit.

Washington Mutual failed in September 2008 due to significant losses from billions of dollars of risky homes. JPMorgan Chase bought its lending business, Reuters reported.

The case is People of the State of New York v. First American Corp., New York state Supreme Court, New York County, No. 07-406796.

Republished from Appraisal Institute Website

The Government Accountability Office released a report June 28 that scrutinized real estate valuations in the wake of the recent mortgage crisis. The report, Residential Appraisals — Regulators Should Take Actions to Strengthen Appraisal Oversight, was produced using data from Fannie Mae, Freddie Mac and five of the biggest mortgage lenders.

The report revealed that valuations received through broker price opinions and automated valuation models take less time and are less costly than traditional appraisal reports, but traditional appraisal reports are still mandated for almost all first-lien residential loan originations due to their greater reliability.

Almost all appraisal reports utilize the sales comparison approach, which bases the property value on recent sales of similar properties. Fannie, Freddie and the Federal Housing Administration all require the use of comparable properties in appraisals.

The report noted that appraisal management companies are becoming more prominent because of regulations that prevent conflicts of interest in the appraiser selection process. However, the expanded use of AMCs has caused doubt about their oversight and impact on appraisal quality — namely that they give higher priority to low cost and speed than quality and competence.

Federal regulators and Fannie and Freddie claim that they hold lenders responsible for ensuring that AMCs’ policies and practices meet their requirements; however, lenders typically don’t directly review the operations of the AMCs they use.

The Dodd-Frank Act requires state appraisal licensing boards to supervise AMCs. The law also mandates that federal banking regulators, the Federal Housing Finance Agency and the Consumer Financial Protection Bureau create minimum standards for states to apply in registering AMCs. However, the GAO indicated that federal regulators had yet to finish rulemaking to establish state standards.

Dodd-Frank broadened the role of the Appraisal Subcommittee, which oversees state appraiser regulatory programs, monitors requirements relating to appraisal standards for federal financial institutions, maintains a National Registry of state-certified and licensed appraisers and monitors and reviews operations of the Appraisal Foundation. However, the ASC has been restricted in meeting its responsibilities under Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, the report noted.

“For example, ASC has not clearly defined the criteria it uses to assess states’ overall compliance with Title XI,” the report stated. “In addition, Title XI charges ASC with monitoring the appraisal requirements of the federal banking regulators, but ASC has not defined the scope of this function – for example, by developing policies and procedures – and its monitoring activities have been limited. ASC also lacks specific policies for determining whether activities of the Appraisal Foundation (a private nonprofit organization that sets criteria for appraisals and appraisers) that are funded by ASC grants are Title XI-related.”