Written by Woody Fincham, SRA, AI-RRS, RAA
The Virginia Coalition of Appraiser Professionals and the remaining “network” of appraiser collations (30 in total) hired council to format and send a comment letter to the Board of Governors of the Federal Reserve System, the FDIC and the Office of the Comptroller of the Currency regarding the Comments in opposition to the Notice of Proposed Rulemaking (“NPRM” or “proposed rule”). Of course, to you and I that means the collations have comments regarding the proposed de minimis increase from $250,000 to $400,000. The letter can be viewed here.
There is some good stuff in this letter. Here are some excerpts (underline emphasis mine):
“The Appraiser Organizations believe that the issues raised by the NPRM have broader implications for consumers and residential mortgage sector participants beyond the relatively small number of federally related transactions to which the exemption directly applies. Rather, the outcome of the NPRM will signal to lenders and purchasers of residential mortgages the relative importance of appraisals versus evaluations in the mortgage process, leading those participants to increase their own de minimis exemptions or to increase the use of appraisal waivers.”
“While the NPRM asks a series of questions regarding the proposal to raise the existing exemption by $150,000, the NPRM’s justification for the increase is flawed in two significant ways. First, the agencies ignore the statutorily protected interests of home buyers by assessing the merits of the increase primarily in terms of the NPRM’spotential impact on financial institution safety and soundness, essentially as an exercise in portfolio risk management for individual institutions and for the mortgage sector. From this perspective, the exemption is merely an inflation adjustment that likely would have limited impact on portfolio risk.”
“This approach ignores the consumer-focused provisions added to the residential mortgage origination process by the Dodd-Frank Wall Street Reform and Consumer Protection Act’s (“Dodd-Frank Act” or “Dodd-Frank”) amendments to the Truth-in-Lending Act (“TILA”) and related amendments to the Financial Institutions Reform, Recovery, and Enforcement Act (“FIRREA”).”
The next section is one of my favorite quotes from the document, as appraisers protecting the public trust is our big reason to be around. I love that mention of low-income and first-time homebuyers are highlighted as these folks have ENORMOUS risk in this kind of situation.
“This concern for harm to individual borrowers is the antithesis of the portfolio risk management approach that permeates the NPRM. In the Dodd-Frank regulatory environment, the agencies’ analysis must assess the number and characteristics of the potential homebuyers who will be excluded from the protection of an appraisal, e.g., low-income and first-time buyers. But the agencies’ contrary focus on portfolio-risk management is made clear in the NPRM’s statistical assessment which shows that, although the number of exempt federally-related mortgage transactions would grow by 18 percentage points to 72 percent of such transactions, only 35 percent of the cumulative dollar amount of such transactions would be exempted. Because this number was less than the dollar-
amount volume exempted in 1994, the agencies conclude in the NPRM that the $400,000 exemption would “be less likely to impose a safety and soundness risk” than was the case in 1994.”
“Second, and just as importantly, the agencies assume that an “evaluation” of a home’s value, under Open-ended and nearly non-existent standards could somehow be a meaningful substitute for an appraisal statutorily required to be compliant with the Uniform Standards of Professional Appraisal Practice (“USPAP”)”.
The document goes on to cut the throat of the evaluation debacle:
“Indeed, an evaluation can be completed by a “bank employee or by a third party. Given the lax requirement on who performs the evaluation, it is not inconceivable that a bank, or other interested party in the home’s valuation, could distort the value through the evaluation process. In contrast, the regulatory oversight of the appraisal process ensures that such conflicts of interests are minimized.”
“Moreover, there is no consumer recourse for a faulty evaluation. In the event a potential homeowner or lender receives an inaccurate appraisal, that individual or entity may file an official complaint with a state’s appraiser board. Upon review of the complaint, the board may penalize the appraiser, and in some instances, revoke his or her license to appraise residential properties. In contrast, there is no independent review for faulty evaluations. Instead, consumers are left without remedy and cannot seek judgment from a state or federal agency. Therefore, by increasing usage of evaluations over appraisals, the proposed rule diminishes consumer protection over the home purchasing process, and in particular, limits consumer protection on many middle to low-income home purchasers in favor of appraisals for only high-value residential properties.”
There is even some language in the document that addresses the added cost for Appraisal Management Companies (AMCs):
“Moreover, the true cost to the consumer is not just the cost of the appraisal but also includes the fees associated with the lender utilizing third parties —AMCs—to manage the appraisal process. In their role as the intermediary between the lender and the appraiser, some AMCs charge consumers significant management fees for their retention of the appraiser to conduct the valuation of the home. In fact, these fees can nearly double the cost to the consumer, even while the appraisal fee remains unchanged.”
This document is from a large contingency of appraisal organizations and it is a meaningful document hat focuses on what really matters: the American consumer. Public trust should be at the forefront of the discussion of valuation and whether appraisals should be required for lending purposes on residential homes.
Bravo to the Appraiser organizations.