Appraisal concerns were at the top of the agenda this week as NAR President Charles McMillan on Monday met with the New York State Deputy Attorney General and his staff to express industry concerns over the Home Valuation Code of Conduct. The HVCC agreement, which secondary mortgage market companies Fannie Mae and Freddie Mac have entered into with the New York Attorney General to curb faulty appraisals, has generated widespread concern. The agreement influences practices for assigning appraisals throughout the country because Fannie and Freddie apply it to all of the mortgages they handle. McMillan was also meeting on the issue with the head of the Federal Housing Finance Agency, which regulates the two secondary mortgage market companies. Separately, a post in the NAR Voices of Real estate blog on the state of the market generated more than 180 comments in just over a week, many from real estate professionals and others who shared their concerns over appraisals.
http://www.realtor.org/government_affairs/gapublic/gses_hvcc_announced
Representatives Travis Childers (D-MS) and Gary Miller (R-CA) co-sponsored legislation, HR 3044, that will institute an 18-month moratorium on the Home Valuation Code of Conduct (HVCC). According to HousingWire.com, Childers' concern is how the code is negatively impacting small businesses. The article states that "[l]ocal appraisers contacted his office saying the code negatively affects their business, according to Ben Lincoln, legislative director at Childers’ Washington, D.C. office."
Last Friday, Steve Brown posted the following to the Leadership Blog. Steve discusses appraisals as well as some other challenges the housing market is facing:
Click here
The Appraisal Institute reports on a finding by Global DMS that the number of lenders directly ordering appraisals is roughly the same as the number of lenders using AMCs. According to the report, AMCs may be suffering from client dissatisfaction, particularly when the result is increased fees to consumers and decreasing fees to appraisers.
Global DMS stated that large lenders have been using AMCs but smaller lenders might find it more economically beneficial to order appraisals in-house.
Said the article "One big reason for the boom in AMC business is due to a lack of lender understanding about the new rules covered in the HVCC. A common lender misconception is that all appraisal orders must be outsourced in order to be in compliance with the Code. This, however, is not true."
For more information on the HVCC visit www.realtor.org/hvcc.
Though the first paragraph may seem a bit misleading since HVCC didn't give rise to AMCs, they've been around for years, there is an interesting point by the author regarding the creation of national policy.
Continue reading "Interesting Letter to the Editor in the Wall Street Journal" »
Included is an article posted on June 11, 2009. Share your feedback!
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Fannie Mae released Lender Announcement 2009-19, Miscellaneous Underwriting, Eligibility, and Property-Related Updates, which, among other things, clarifies some issues with the 1004 Market Conditions Addendum. Readers may recall that the 1004MC Addendum was released in Announcement 08-30 and went into effect earlier this year.
Says the announcement: "To add clarity, Fannie Mae has added several shaded areas to the form to recognize that all the requested data may not be available from the data sources used by the appraiser and therefore the information may not be provided. The lack of completion of these areas is acceptable as long as the appraiser provides an explanation as to why these sections of the form are not complete. However, if the data is available, the appraiser must include the data in the analysis."
Announcement 09-19 also clarifies time adjustments and modifies the requirement for "Median List-to-Sale Price Ratio".
Today's Wall Street Journal reports on the impact appraisals are having on the real estate transaction, whether it be a sale or refinance. The article covers all the current hot topics of the appraisal industry: HVCC, AMCs, and appraiser pressure.
The article focuses primarily on how these factors are influencing the ability to sell or refinance. Making things more difficult is the fact that values are hard to determine in today's market. One woman's home appraised at over $600,000 two years ago and just recently re-appraised at $250,000, according to the Journal. Prices are volatile and lenders are pressuring appraisers to be more conservative.
The Journal noted that HVCC prevents some abuses at the expense of flexibility. AMCs are cutting into appraiser fees and one appraiser acknowledged that he received an assignment 100 miles away in an area where he has little knowledge of the neighborhoods.
Announcement 09-14: Electronic Appraisal Reports, Enhancements to the Loan Delivery File Format, and Mortgage Fraud Reporting, states that effective March 1, 2010, Fannie Mae will require the submission of electronic appraisal reports in the MISMO XML standards. Fannie will support conversion from other XML standards to MISMO XML. Further instructions will be announced in the fourth quarter of 2009.
Fannie Mae previously released Announcement 09-11, which includes changes to the loan delivery file and Form 1003 as required by the Federal Housing Finance Agency.
In the coming months, Fannie Mae said it will announce a series of other policies intended to improve loan quality. This will include the "implementation of a robust collateral valuation analysis process, enhanced credit policy guidance, improvements to Fannie Mae's quality control processes, and additional guidance on lender quality control."
The National Association of REALTORS today reports that existing homes sales increased in April, particularly for lower cost homes. According to NAR, 4.68 million single-family, townhomes, condominiums, and cooperatives sold in April. This represents a 2.9 percent increase (seasonally adjusted) over March but still below the 4.85 million unit-level of April 2008. Distressed properties accounted for 45 percent of all sales and, according to NAR, this continues to distort median sales price, which is down more than 15 percent below 2008.
Chief Economist, Lawrence Yun, said “Because foreclosed properties will likely be released into the market over the rest of year, it is critical that distressed homes be quickly cleared from the market." Mr. Yun also called on the Federal Reserve to restore liquidity to the jumbo market by purchasing these loans under TALF.
Read more on NAR's Existing-Home Sales here.
It started this past weekend with Ken Harney's article in the Washington Post "New Appraisal Rules Come with Costs". Mr. Harney reported that the cost of an appraisal for the consumer increased approximately $125 (from $325 to $450) as of May 1, 2009.
Now news from Silicon Valley is trumpeting a similar tune. According to an article by Sue McAllister the average appraisal runs $350-$600 up from $250-$400.
Lenders can implement the HVCC in a variety of ways. The most common way is to hire a third party AMC to manage appraisal services. An AMC is a business and a business costs money to operate. It's fair to say that some of the costs are passed on to the consumer. Of course, lenders could implement firewalls internally and still maintain compliance with the Code. This cost might too be passed on to the consumer - though it's not clear what this cost would be for the consumer.
On Saturday, May 16, 2009, the NAR Board of Directors adopted policy that supports the regulation of appraisal management companies, primarily through FIRREA and the existing appraisal regulatory infrastructure. NAR President Charles McMillan hinted at such a policy in March when he testified before the House Financial Services Subcommittee on appraiser independence.
NAR's Policy: That NAR supports the empowerment of federal mortgage regulators to adopt standards for real estate appraisal management companies and promulgate licensing requirements of said companies to the states through the Financial Institutions Reform and Recover Enforcement Act (FIRREA) and other similar legislation.
NAR's Rationale: Appraisal management companies are not currently regulated at the federal level and regulation at the state level varies. Regulation would ensure that AMCs operate within the same basic guidelines and standards as independent appraisers. Further, this allows AMCs to be regulated within the existing appraisal regulatory structure, which avoids the need to create additional layers of government bureaucracy.
A group of homeowners in West Valley, AZ today filed suit against KB Homes and Countrywide contending the two conspired to inflate the selling price of homes during the peak of the housing market and even as prices began to decline. According to one article, the 7 plantiffs are claiming customers lost billions and the scheme contributed to increased foreclosures and defaults.
The suit focuses on 2 states and traces activities back to 2006. According to the National Law Journal, plantiffs are "alleging Los Angeles-based KB Home steered home buyers to Countrywide, which then steered them to LandSafe Appraisal Services, a wholly owned subsidiary of Countrywide. LandSafe then used appraisers who would arrive at inflated values by selecting properties that weren't comparable, relying on pending sales instead of completed sales, and using false statements about the housing markets in Arizona and Nevada, the suit alleges."
This is the second case filed against Countrywide this year. Both suits were brought by Hagens Berman Sobol Shapiro, which is located in Seattle, WA.
QUESTIONS REGARDING 2010-11 REVISIONS TO THE ETHICS RULE
The Appraisal Standards Board recently adopted changes to the Conduct section of the ETHICS RULE that will become effective January 1, 2010 for the 2010-11 edition of USPAP. The specific language that has been adopted, and which has initiated questions and concerns is:
If known prior to accepting an assignment, and/or if discovered at any time during the assignment, an appraiser must disclose to the client, and in the subsequent report certification: 1) any current or prospective interest in the subject property or parties involved; and 2) any services regarding the subject property performed by the appraiser within the three year period immediately preceding acceptance of the assignment, as an appraiser or in any other capacity.
Comment: Disclosing the fact that the appraiser has previously appraised the property is permitted except in the case when an appraiser has agreed with the client to keep the mere occurrence of a prior assignment confidential. If an appraiser has agreed with a client not to disclose thathe or she has appraised a property, the appraiser must decline all subsequent assignments that fall within the three year period.
The goal of maintaining public trust makes it important that the client have knowledge regarding an appraiser’s prior services associated with the subject property in advance of engaging that appraiser. The ASB has compiled the following list of questions and answers:
Question 1: I heard about the changes to the Conduct section of the ETHICS RULE and I am concerned. Is it true that I will not be able to reappraise a property for three years after a prior appraisal?
Response 1: No. The revised ETHICS RULE that goes into effect on January 1, 2010, will require appraisers to disclose any services regarding the subject property provided as an appraiser or in any other capacity during the three years prior to the new assignment. It does not include any prohibition against reappraising a property.
Question 2: I occasionally receive requests to appraise a property that I have appraised in the past. With the changes to the ETHICS RULE, I will be required to disclose any assignments that I performed within the three years prior to the date of acceptance of the assignment. Is such a disclosure not a violation of an appraiser’s responsibility under the Confidentiality section of the ETHICS RULE?
Response 2: Generally, no. The Confidentiality section of the ETHICS RULE prohibits, with some exceptions, the disclosure of “confidential information or assignment results prepared for a client.” The mere fact that an appraiser appraised a property is not confidential information as defined in USPAP. However, the appraiser must be careful not to disclose confidential information from a previous assignment in the new assignment.
Continue reading "Appraisal Foundation - February Q&A" »
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