Third Quarter 2015
July 17, 2015
The Appraisal Institute’s Washington Report and State News quarterly e-newsletter is intended to summarize AI’s recent federal and state legislative, regulatory and related activities in representing the interests of Designated members, Candidates for Designation, Practicing Affiliates and Affiliates.
ON THE HILL
The Appraisal Institute in a May 18 letter to the Senate Committee on Banking, Housing and Urban Affairs expressed concern with two provisions contained in regulatory relief measure S 1484, the Financial Regulatory Improvement Act, that impact appraisers. Measure S 1484 was approved by the Banking Committee May 21 and awaits Senate floor action.
The first provision would exempt nonprofit organizations who accept in-kind appraisal services from having to pay appraisers customary and reasonable fees. The second provision would indemnify lenders, real estate agents and others from defamation lawsuits brought by appraisers who have been referred to state appraiser regulatory agencies.
In its letter, AI contended that changes to the customary and reasonable fee provisions also should address underlying inconsistencies with the Interim Final Rule on appraisal independence issued by the Federal Reserve Board in 2010. Further, AI expressed concern about the potential impact on appraisal independence resulting from a loss of legal protections afforded real estate appraisers.
AI expects the provision related to in-kind appraisal services will be modified to clarify the intent of the underlying provision and not change the underlying provision of the Truth in Lending Act. The provision related to indemnification remains problematic, and AI will continue its outreach.
The Senate Committee on Finance released its Business Income Tax Bipartisan Working Group report in July in which it offered opinions on how to proceed with individual income tax provisions — of particular interest to appraisers is a provision on conservation contributions.
The report noted that the provision has the potential to invite abuse through inflated valuations — the same concerns expressed by the Appraisal Institute and the Internal Revenue Service. AI maintains that the best way to protect taxpayers is by hiring qualified appraisers.
The Bipartisan Working Group is considering two options to address the conservations contributions:
Make permanent the conservation contribution deduction.
Make the conservation contribution deduction permanent — but with rules in places, which is a similar approach to what was taken in 2006.
The Appraisal Institute on July 9 joined a coalition of manufacturers, builders, business groups, energy efficiency organizations and housing advocates by signing a letter to House Energy and Commerce Committee Chairman Fred Upton, and ranking member Frank Pallone in support of a provision in HR 2177, the Energy Savings and Industrial Competitiveness Act.
Section 433 of the bill addresses energy efficiency underwriting, and contains much of what is known as the “SAVE Act.” The measure, which was introduced in previous sessions of Congress, is intended to improve the mortgage underwriting process used by federal mortgage agencies by ensuring that energy costs are included in the underwriting process. Such assignments would now require use of qualified appraisers and ensure appraisers have access to building information — including plans, specifications and energy ratings from mortgage lenders and builders — to properly analyze the effects of high-performance improvements in the marketplace.
More than 100 Appraisal Institute professionals went to Capitol Hill May 21 to urge congressional support on two issues that could significantly impact the valuation profession, the Appraisal Institute reported.
Attendees of AI’s annual Leadership Development and Advisory Council Conference, held May 20-22 in Washington, lobbied lawmakers and their staffs on issues related to appraisal thresholds and appraisal regulatory burdens.
In accordance with the Economic Growth and Regulatory Paperwork Reduction Act, federal banking agencies are reviewing whether or not to raise the appraisal requirement threshold, which currently stands at $250,000 for residential loans and $1 million for business loans. The Appraisal Institute will strongly suggest that lawmakers support the current thresholds.
Arguments in favor of raising the threshold cited the need for regulatory relief for lenders in rural areas, a shortage of appraisers in rural areas and the increased cost of appraisals. However, AI will counter those arguments by noting:
Real estate appraisals are an important element of basic risk management practices, protecting both property owners and taxpayers;
Competently prepared appraisals help mortgage lenders make safe and sound decisions by understanding the value of collateral at loan inception;
There is no need to loosen fundamental safety and soundness requirements as the country moves on from the financial crisis;
There is widespread confusion about existing exemptions to appraisals, particularly, that the $250,000 threshold is greater than a majority of all loans and the vast majority of rural loans. Additional confusion surrounds renewal and refinancing loans where there already is flexibility to perform evaluations instead of appraisals;
AI does not see a shortage of appraisers nationally, nor does it believe it is sound policy to tailor national policy around one area, specifically a real estate market experiencing rapid growth. Rather, rapid growth increases the importance of appraisals because real estate is prone to market cycles;
Loans backed by government agencies and Fannie Mae and Freddie Mac would still generally require appraisals for residential loans, despite the threshold being raised; and
Appraisal fees have fallen in recent years, particularly for residential appraisals, and when adjusted for cost of living, the fees have shown a significant drop.
During their meetings on Capitol Hill, AI professionals told lawmakers about the importance of appraisals in basic risk management, and how raising the threshold would not provide much relief for lenders because most rural loans fall under the current threshold, and loans being sold on the secondary market require appraisals. Additionally, lawmakers were asked to sign on to a letter addressed to federal banking agencies that urged them to promote sound lending by maintaining the appraisal threshold at $250,000 for residential loans and $1 million for business loans.
Appraisal Regulatory Burdens
Since the inception of the 114th Congress, multiple hearings have been held in the House Financial Services Committee related to lender regulatory burdens, and while AI supports open discussions on industry regulations, it asks that regulatory burdens on appraisals also become part of those discussions.
The Appraisal Institute’s concerns include:
While appraisers are regulated by the states, they also face significant federal oversight, constantly evolving standards and qualifications and client enforced overlays;
Individual appraisers often work in several states and are faced with regulatory obligations that include background checks for renewals, reciprocity licenses and temporary practice permits in many situations;
Where appraisals are not required by federal law, evaluations are instead performed. However, rigid appraisal standards prevent appraisers from providing evaluations even though they are the most qualified to perform them; and
Attempts are being made to turn appraisal methods and techniques into a set of homogenous rules that would treat all markets the same, even though techniques that work in urban areas don’t necessarily apply to rural areas and only further illustrates the importance of professional judgment on behalf of appraisers.
IN THE AGENCIES
The Appraisal Institute joined real estate and mortgage finance associations in support of the Consumer Financial Protection Bureau’s proposal to delay implementation of the TILA-RESPA Integrated Disclosures rule until to Oct. 3. The rule currently is set to take effect Aug. 1.
AI understands the CFPB is working on the development of a frequently asked questions document to address issues with the final rule, and AI has requested staff working on the FAQ to provide examples of several ongoing appraisal concerns. Among those concerns: how appraisal management company fees would be disclosed separately from appraisal fees on the new Closing Disclosure form, which currently is authorized by the final rule but not explained in any CFPB guidance material. Additionally, AI has requested that the CFPB acknowledge that changed circumstances occur frequently in appraisal assignments given that the scope of work of the assignment is difficult, if not impossible, to determine prior to visiting a subject property.
AI is planning a webinar on the Integrated Disclosures rule in September; final details will be announced via email.
The Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the Consumer Financial Protection Bureau, the Federal Reserve and the Office of the Comptroller of the Currency released on April 21 its final rule on minimum requirements for state registration and supervision of appraisal management companies, as required by the Dodd-Frank Act.
States will have 36 months from the release of the rule to set up AMC registration and supervision systems.
Highlights of the rule include:
Independent Contractor Definition: The rule revises the standard used to determine if an appraiser is an independent contractor based on whether or not the appraiser is treated as an independent contractor by the AMC for federal income tax purposes.
AMC/Appraisal Firm Distinction: The rule distinguishes between AMCs and appraisal firms based on their respective use of fee appraisers and employees. Each employee appraiser must pay a registration fee to the state or states where they practice. An AMC only will be subject to a registration fee once state registration and supervision regulations become effective pursuant to Dodd-Frank. The rule also provides coverage for “hybrid” firms, meaning entities that both hire appraisers as employees to perform appraisals and engage independent contractors to perform appraisals.
AMC Panel Threshold Size: The rule clarifies that when the number of appraisers is counted for the purpose of determining the size of an AMC’s panel threshold, that the count be based on the number of appraisers listed on the roster who potentially are available to perform appraisals and not on the number of appraisers actually engaged to perform appraisals.
Trainee Appraisers Not Barred: The rule clarifies that AMCs may engage appraisers who use trainee appraisers to assist on assignments.
View a copy of the Appraisal Institute’s comment letter
to the federal agencies on their proposed rule addressing “Minimum Requirements for Appraisal Management Companies.” (log-in required).
In related news, the Appraisal Subcommittee is expected to issue a request for comment in the Federal Register in the coming weeks that would outline several options for assessing fees on AMCs on an AMC Registry. Options under consideration include flat fees or fees assessed by the total number of appraisers who performed an assignment for the AMC in the previous year.
The U.S. Small Business Administration on May 1 issued revised appraisal policies for change-in-ownership transactions involving special-purpose properties. The SBA removed requirements for business valuation credentials and repositioned such scenarios as real property-centric valuation scenarios.
Under the revised policies, a lender must obtain an independent appraisal performed by a certified general real property appraiser who has experience appraising the specific business property type in question in situations where a loan financing the acquisition is more than $250,000 or when there is a close relationship between the buyer and the seller and the business operates from a special-purpose property.
Specifically, the going concern appraisal experience requirement stipulates that a real estate appraiser must have completed within the last 36 months at least four going concern appraisals of special-use property equivalent to the property being appraised.
In an effort to assist SBA lenders in finding appraisers experienced in valuing special-purpose properties, AI has added functionality to its “Find an Appraiser
” tool. A new "SBA Going Concern" option will help SBA lenders seeking to comply with SOP 50-10 5(H) to identify general certified real property appraisers who have completed at least four appraisals on a specific property type in the past 36 months.
AI professionals with experience valuing special-purpose properties should update their AI Find an Appraiser profile
so they can be positioned as a go-to source for SBA lenders.
The Appraisal Institute at a May 4 field hearing at the Federal Reserve Board in Boston asked regulators to educate bankers about the appraisal exemptions (which some bankers may misunderstand) instead of raising the current $250,000 appraisal threshold.
The outreach hearing was one in a series related to the Economic Growth and Regulatory Paperwork Reduction Act, and federal agencies are reviewing the current appraisal threshold as part of it.
AI representatives at the hearing reported that many banks said they actually have embraced appraisal requirements rather than reject them, as has been reported by some bank advocates. Strong appraisal requirements are helping them make better loans and avoid bad ones.
The federal bank regulatory agencies are holding at least two more outreach hearings: Aug. 4 in Kansas City, Missouri, and Oct. 19 in Chicago.
The Appraisal Institute on June 2 announced it has joined the U.S. Department of Energy’s new Better Buildings Accelerator, which will focus on finding ways to expand energy efficiency in the residential sector.
AI and 31 other partners will focus on expanding awareness of homes’ energy efficiency and streamlining the processes used to help consumers improve the efficiency of their homes.
The Better Buildings Home Energy Information Accelerator supports the president’s Climate Action Plan with a goal to accelerate investment in home energy-efficiency improvement projects across the country, according to the Energy Department.
The Home Energy Information Accelerator brings together leaders in real estate and energy efficiency to expand the availability and use of reliable home-energy information at relevant points in residential real estate transactions. The Energy Department said Accelerator partners will develop and demonstrate replicable, sustainable approaches that make energy-related information — such as a home’s efficiency certification or its estimated energy usage — easily available through multiple listing services and other reports.
Better Buildings Accelerators convene leaders across sectors and building types to address persistent barriers that stand in the way of greater efficiency. As Better Buildings Home Energy Information Accelerator partners share their successes with the market, resources will be posted in the Better Buildings Residential Program Solution Center. The Solution Center is an online tool designed to help organizations explore the solutions tested and proven by partners.
As a cornerstone of the president’s Climate Action Plan, Better Buildings aims to make commercial, public, industrial and residential buildings 20 percent more energy efficient over the next decade. This means saving hundreds of billions of dollars on energy bills, reducing GHG emissions and creating thousands of jobs, according to the Energy Department. Through Better Buildings, public and private sector organizations across the country are working together to share and replicate positive gains in energy efficiency.
The U.S. Department of Housing and Urban Development announced April 30 that stakeholder concerns have delayed by three months the implementation of the revised Single Family Housing Policy Handbook. Policies in the handbook now will take effect Sept. 14.
The delay will give participants time to prepare for upcoming changes, as well as other major revisions happening in the industry, including the TILA-RESPA Integrated Disclosure Rule, which had its implementation delayed two months.
The Appraisal Institute in an April 24 letter to the U.S. Department of Transportation, applauded the Federal Aviation Administration for its first-ever exemption of a real estate company to utilize unmanned aircraft to provide aerial views of real estate listings.
AI sees the operation of drones as a great opportunity for appraisers to provide even more comprehensive valuation reports to their clients. Appraisers depend on information and data to develop an opinion of value, and the perspective that drones provide may be of great assistance.
Additionally, AI offered to assist the FAA in developing policy and procedure manuals for aerial site inspections of residential, commercial and industrial real estate.
The Appraisal Institute’s manager of federal affairs, Brian A. Rodgers, attended a June meeting in Washington of the Public Company Accounting Oversight Board’s Standing Advisory Group that largely focused on the work of specialists in the audit process and the potential need for changes to PCAOB standards.
Related to those issues, the PCAOB’s comment period for its Staff Consultation Paper No. 2015-01, The Auditor’s Use of the Work of Specialists, is coming to a close at the end of July. AI expects to submit comments to the PCAOB, and will post them the online when they’re available.
The consultation paper discusses potential revisions to audit guidelines related to the use of specialists, including appraisers, either employed by or engaged by audit and accounting firms. An article from AI’s The Appraisal Journal is cited in the paper, which explores such topics as reviewing the professional qualifications of the specialist being used.
IN THE STATES
Texas Gov. Greg Abbott on June 9 signed into law Senate Bill 1007, legislation that contains many revisions and additions to the state’s current appraiser licensing and certification law, the Appraisal Institute reported. The provisions in the bill will take effect Jan. 1, 2016.
SB 1007 includes provisions related to three high-priority issues for the Appraisal Institute:
The bill will allow the Texas Appraiser Licensing and Certification Board to adopt rules relating to the standards for the development of an appraisal and the conveyance of an appraisal report that are “recognized as substantially equivalent to” the Uniform Standards of Professional Appraisal Practice.
The bill clarifies that an appraiser who is certified by a jurisdiction other than Texas can perform a review of an appraisal of real property in Texas without a Texas appraiser credential if the appraiser does not offer an opinion of value as part of the review process.
The bill grants the TALCB maximum flexibility to adopt rules to implement the Appraiser Qualifications Board’s requirements that states have processes in place to ensure that applicants for appraiser credentials do not have a background that would call into question the public trust.
Also included in the bill are provisions that: A) require members of the Texas Appraiser Licensing and Certification Board to undergo training prior to being permitted to vote or deliberate on matters before the Board; B) limit the ability of the TALCB to conduct an investigation of an appraiser or appraisal management company to no later than the fourth anniversary of the date an alleged violation occurred; and C) ensure the confidentiality of information or material prepared or compiled by the TALCB in relation to a pending complaint, investigation, or audit.
SB 1007 was fully supported by the Foundation Appraisers Coalition of Texas, which includes all eight Appraisal Institute Texas Chapters.
Legislation under consideration in California to modernize the state’s appraiser regulatory system already was passed by the State Assembly and the Senate Business, Professions and Economic Development Committee and currently is pending in the Senate Appropriations Committee, the Appraisal Institute reported July 10.
If AB 624 becomes law, it would allow state-certified appraisers to use standards of valuation practice other than the Uniform Standards of Professional Appraisal Practice when performing non-federally related appraisal work.
Any alternative standards of valuation practice would need to be reviewed and approved by the California Bureau of Real Estate Appraisers before use. Clients also would have to agree to the use of alternative standards of valuation practice, which would have to be disclosed within the body of the appraisal report. Additionally, appraisers utilizing alternate standards of valuation practice still would be required to comply with USPAP’s Ethics, Competency, Scope of Work and Record Keeping rules.
The Appraisal Institute’s California Government Relations Committee said the legislation is designed to allow appraisers to “respond to market and consumer demand,” and noted, “international lenders may need appraisal work done in compliance with international appraisal standards or those of their home countries, rather than USPAP-compliant appraisals.”
AB 624 is similar to legislation that was enacted into law in Texas and is under consideration in several other states.
Appraisal Institute President M. Lance Coyle, MAI, SRA, appeared before the Tennessee Real Estate Appraisers Commission on July 13 to offer suggestions on how the state can modernize and update its appraiser regulatory system.
Coyle suggested changing the Tennessee Appraiser Licensing and Certified Appraisers Law so that state-certified appraisers are permitted to utilize standards of valuation practice other than the Uniform Standards of Professional Appraisal Practice when performing appraisals in the state for non-federally related work.
“Appraisers around the country have been telling us that requirements to comply with USPAP when providing any valuation service, regardless of the client and intended use, are restraining their ability to be able to effectively meet market and consumer demands,” said Coyle. “The global real estate economy already utilizes a range of valuation standards that may be more appropriate to the valuation questions posed by international companies and investors.”
Coyle also noted, “Accountants in Tennessee are permitted to use the standards that are most appropriate for the type of work being performed (and) appraisers should be afforded similar standards flexibility while still being required to uphold the highest ethics and competency requirements.”
The state already recognizes that USPAP compliance may not be appropriate in all valuation scenarios. In 2010, the Tennessee attorney general released an opinion that allows a state-certified appraiser to complete an evaluation for a federally related transaction without having to comply with USPAP. Additionally, Tennessee allows state-certified appraisers to serve as advocates and to receive contingent fees when providing “specialized services.”
Legislation currently under consideration in Illinois would establish an appraisal management company recovery fund, the Appraisal Institute reported July 10. HB 3333 would authorize the Department of Financial and Professional Regulation to impose a fee of up to $500 upon AMCs operating in the state at the renewal of their registration.
The fee would be suspended once the recovery fund reached $500,000 and would be reinstated if the fund dipped below that amount.
The fund would be used to provide restitution to appraisers who have suffered pecuniary losses as a result of an AMC voluntarily or involuntarily ceasing to do business in Illinois or if an AMC has been determined as being bankrupt by a federal bankruptcy court. An appraiser seeking recovery would be required to obtain a final judgment from a court or the debts of the AMC would have to be discharged in a bankruptcy proceeding. The fund also would be used to pay any expenses, fees or fines owed by the AMC to DFPR.
This provision was added as an amendment to the bill when it was being considered in the Senate, and as a result, HB 3333 currently is awaiting concurrence from the House of Representatives as to the AMC recovery fund amendment.
The Florida Real Estate Appraisal Board formed an industry workgroup to review the state’s appraisal management company law in light of the new Minimum Rules for Appraisal Management Companies that were published in the Federal Register June 9, the Appraisal Institute reported.
The workgroup, which was scheduled to first meet July 10, will review the appraiser panel size, the regulatory program’s management of the AMC Registry and the “opt-in” or “opt-out” choices provided to state regulatory agencies to determine whether an AMC registration and oversight program should be maintained.
Under the federal minimum rules, states are given the option to maintain an AMC registration and oversight program; if a state opts not to have an AMC program, then most AMCs will be prevented from participating in federally related transactions within the state.
The Louisiana Real Estate Appraisers Board on June 4 entered into a Stipulations and Order with an appraisal management company (that we choose not to name), to resolve a complaint over allegations that the firm violated state law requiring AMCs to compensate appraisers at a customary and reasonable rate.
The case had been scheduled for a June 4 adjudicatory hearing before the LREAB.
In its complaint, the LREAB alleged that the AMC did not utilize an objective, third-party fee study to establish its reasonable and customary fees, nor did it review the specific parameters of each assignment (property, scope of work, work quality, timeframe, appraiser qualifications, appraiser experience and professional record) to ensure that the amount of compensation paid to appraisers was reasonable (La. Admin Code. tit. 46, pt. LXVII, § 31101 (A)(1) and (3).
In the Stipulations and Order, the AMC agreed not to contest the complaint brought by the LREAB. In addition, the AMC agreed to:
Follow the current Louisiana fee schedule for a period of 12 months beginning 30 days after the effective date of the Order;
Submit a quarterly report to the Board for a period of 12 months beginning 60 days after the end of the quarter beginning July 1 that lists all appraisal orders made in Louisiana, the fee paid to the appraiser and the date a payment was made; and
Pay administrative costs of $5,000.
In response to the resolution of this case, Joseph Mier, SRA, AI-RRS, president of the Louisiana Real Estate Appraisers Coalition, stated, “We hope that this will help to advance transparency for the appraisal industry in the future. Appraisers are reminded to report any violations of the current AMC laws and rules to the LREAB so that the law is adhered to fairly across the board for everyone.”
INSIDE THE INSTITUTE
The Appraisal Institute on July 1 posted the documents it has sent to and received from The Appraisal Foundation in recent weeks regarding issues facing the valuation profession.
Share Your Issues
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