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A Letter from John Russell

Since the April 1 implementation date of the interim appraiser independence regulations, almost all of the conversation has centered on the first presumption of compliance and its glaring loophole which allows AMCs to continue to cram down fees paid to appraisers. The loophole, found in commentary that accompanied the interim rules released by the Federal Reserve, runs directly counter to the plain language and spirit of the enabling Dodd-Frank Act legislation. In a joint letter sent by ASA, NAIFA, AI, and ASFMRA, we noted as much back in January, saying:

While the second presumption specifically excludes assignments ordered by known appraisal management companies, the first presumption specifically “does not require that a creditor use third-party information that excludes appraisals ordered by AMCs.” While this statement could be read to clarify the previous comment found in that paragraph that stipulates “use of a fee survey or study is not required,” a literal interpretation of this statement would create a significant departure from the intent of the legislation – defining customary and reasonable fees as appraisal assignments absent the involvement of AMCs.

The result of this loophole has been mixed. We’ve seen evidence that some AMCs have continued to engage in fee cram downs, some going so far as to lower fees further under the first presumption. There have been some AMCs, however, who have complied with the spirit of Dodd-Frank and not taken advantage of the loophole, an act that deserves recognition in this space. Regardless of how many AMCs take the high road, however, even one AMC continuing to cram down appraisal fees is one too many. It not only impacts the life and livelihood of real estate appraisers who rely on AMC assignments to make a living, but affects the morale and esteem of the profession as a whole when our peers are denigrated by having to accept anything less than an acceptable fee for the critical collateral valuation function they perform.

And while I’d like to say a solution is imminent, the political reality here in Washington is cloudy at best. The ongoing uncertainty surrounding the Consumer Financial Protection Bureau, and its intended director Elizabeth Warren, makes implementation of a final rule appear months off. Without the voice of this new regulator being heard on such an important regulation, it’s unlikely that the other regulators with a stake will move forward absent the CFPB’s input.

Obviously, such a prognosis does nothing to lift the spirits of those who have felt the brunt of yet another end run to avoid paying appraisers the full and fair fee deserved for their services. I can’t begin to tell you of the myriad emails and phone calls that have come in since April 1, each one seemingly bleaker than the last, and it pains me personally to see so many hard working men and women have to endure what, in the end, is the result of what happens inside the Beltway. ASA and NAIFA continue to work toward seeing this loophole fixed as quickly as possible, and until that happens will not cease to press the various regulators for a speedy resolution to this seemingly interminable problem.

Regards,
John D. Russell, JD
Director of Government Relations  

Interagency Appraisal and Evaluation Guidelines 

    An appraiser's guide to violations of the rule

The Federal Reserve's Interim Final Rule placed responsibility on the shoulders of lenders for the actions of their third-party vendor managers.

For example, under the interim final rule, a creditor and its agent must pay a fee appraiser at a rate that is reasonable and customary in the geographic market where the property is located. A creditor/lender cannot hide behind its AMC agent when the agent fails to provide prompt payment to an appraiser. Rather, the creditor is fully liable for the actions of its agent.

Likewise, a creditor is responsible for the selection of appraisers and for compliance with the appraiser independence requirements of the Rule. This applies regardless of the nature of the agreement between the creditor and its agent.

Here are a few suggestions if an appraiser is subjected to violations of the Rule

1. Research the creditor/client. Is it a financial institution like a bank or credit union? Or is it an independent mortgage company?

2. Is the creditor an FHA approved mortgagee, if it was an FHA appraisal?

3. Write to the creditor detailing the situation and asking for appropriate relief (payment, etc.).

4. Send copies of your letter to the appropriate financial institution regulator and/or the Federal Trade Commission.

5. Send copies of the letter to the AMC, and if the AMC is headquarted in a state the licenses AMCs to the state board, and to that state's Attorney General.

The appropriate agency to receive your concern about a creditor's compliance with the Truth in Lending Act (TILA), including the creditor or the creditor's agent paying an appraiser a customary and responsible fee, is the agency that enforces TILA for the creditor. 

If the agent or appraisal management company (AMC) is affiliated with a federally-regulated creditor, the appropriate agency to receive complaints against the AMC is the affiliated creditor's federal regulator. 

For more information log onto the Federal Reserve System - National Information Center website: http://www.ffiec.gov/default.htm.

If the agent (or AMC) is not affiliated with a federally-regulated creditor, as in the case of an independent mortgage company, contact the Federal Trade Commission.

 

The Appraisal Foundation and the US Department of Energy to Collaborate on Issues Relating to Green Building Valuation

APPRAISAL FOUNDATION RELEASE
June 13, 2011

  

Washington, DC — The Appraisal Foundation, the Congressionally authorized source of appraisal standards and appraiser qualifications in the United States, is pleased to announce that it has signed a Memorandum of Understanding (MOU) with the U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, to collaborate on a series of activities focusing on energy efficiencies and the valuation of green buildings.

 

The Appraisal Foundation, a non-profit organization established in 1987, is dedicated to the advancement of professional valuation and serves as the parent organization for three independent Boards: the Appraisal Practices Board (APB), the Appraiser Qualifications Board (AQB), and the Appraisal Standards Board (ASB). 

 

A principal component of the MOU is that the generally accepted standards of the appraisal profession, the Uniform Standards of Professional Appraisal Practice (USPAP), are applicable to green valuations.

 

Collaborative activities between The Appraisal Foundation and the Department of Energy will include: 

• Engaging the appraisal community on energy efficiency and green valuations.  
• Development of additional guidance from all three of the Foundation’s independent Boards relating to applicability of the existing standards to the valuation of green buildings. This guidance could take on a number of forms such as USPAP Frequently Asked Questions or Advisory Opinions from the ASB, and voluntary guidance from the APB on recognized valuation methods and techniques.  
• Development of one or more databases, through the Department of Energy, to provide data on energy performance for specific building types and upgrades, to the valuation arena. Data of this type has historically been sparse and/or difficult to collect, whereas this new initiative is intended to be of great assistance to the valuation community.  
• Development of educational course curriculum, through the Department of Energy and based on the guidance of the Foundation’s APB, relating to energy performance and sustainability in commercial buildings.

 

The importance of energy efficiency is gaining traction throughout the marketplace. On June 13, the issue was raised with President Barack Obama as part of the Council on Jobs and Competitiveness meeting and is a component of his Better Buildings Initiative.

 

Examples of the importance of education on energy efficiency and green valuations in the appraisal community include:

 

• Energy efficient items result in lower operating costs for commercial properties, thereby increasing the net income potential for the property.  Since income potential is the primary factor considered by investors when buying commercial properties, this translates into a higher value potential for the property. 
• Some municipalities and local jurisdictions are starting to require a certain level of energy efficiency for their commercial properties.  Because many existing buildings do not meet the new standards, investors are likely to place a premium on those properties that do comply, thereby resulting in higher values for properties of these types. 
• The increasing costs related to energy consumption make less efficient properties less desirable to many potential buyers, including owner occupants.  Because the appraiser’s job is to “mirror the marketplace,” any premiums placed on properties due to their energy efficiency should be recognized by appraisers when providing opinions of value.

 

In the fall of 2011, The Appraisal Foundation will post an informational video introduction to green buildings and their valuation on the eLibrary section of its website.

 

For more information on the Foundation’s collaboration  with the Department of Energy or upcoming work in the area of green valuations, please visit The Appraisal Foundation’s web site at http://www.appraisalfoundation.org/. 

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