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Washington Report & State News

Second Quarter 2014

April 15, 2014

The Appraisal Institute’s Washington Report and State Newsquarterly 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.

In This Issue

GSE Rural Appraisal Guidance Tackles Recent Congressional Inquiries
AI Wary of Appraisal Provision in GSE Reform Proposal
Senate Considers Tax Credit Extensions
SBA Mulls Update on Going Concern Appraisals
AI Addresses ‘Green’ Issues at White House Appraisal Roundtable
Regulators Propose Supervision Requirements for AMCs
IRS Examines Façade Easements; Sanction Appraisers
Borges Named to Appraisal Subcommittee Advisory Post
Gov. Christie Vetoes BPO Legislation … Again
NJ Bill Proposes to Eliminate State Appraisal Board
AI Supports Less Burdensome Background Check System
Maryland Removes References to USPAP Advisory Opinions
AI Compiling Appraisal Review Credentialing Requirements
Use of Appraisal Firms Questioned, Restricted
2014 Meetings in Review
Coyle Talks Fundamental Values, Market Analysis and Strategic Initiatives
‘Green’ Valuation Addressed at Environmental Bankers Association Conference
AI, OCC Focus on Appraisal Reviews at American Bankers Association Conference
Public Policy Sessions at AI 2014 Annual Meeting
Notes Available for Conservation Valuation Stakeholders Forum
Use of AI Green Addendum on the Rise
Share Your Issues

ON THE HILL                                                                               

GSE Rural Appraisal Guidance Tackles Recent Congressional Inquiries

On March 25, Fannie Mae and Freddie Mac released guidance for lenders relating to rural appraisal issues. The timing, tone and tenor of the document leads the Appraisal Institute to believe that proponents seeking to pursue appraisal exemptions may be targeting government-sponsored enterprise reform legislation as a way to address rural appraisal requirements relating to loans sold to the GSEs.

If that is the case, it would address issues well beyond those related to loans held in bank portfolios.

As AI noted earlier this year, several members of Congress, particularly in the Senate, expressed concern about rural appraisal issues and were likely to introduce legislation that addressed bank and credit union concerns. Their concerns centered on appraisal requirements that were imposed on lenders and how that affected the loans banks held in their portfolios. There also was concern that an appraisal exemption would be proposed.

A GSE reform bill has been introduced in the Senate and may come up for a vote before the Senate Committee on Banking later this year. That bill still faces a complicated road to enactment in Congress, but it is one that appraisal professionals should pay close attention to for both its overall importance and its potential impact on risk management and real estate.

AI Wary of Appraisal Provision in GSE Reform Proposal

Rep. Maxine Waters, D-Calif., the ranking member of the House Financial Services Committee, introduced her view of what an overhauled housing finance market should look like when she released a proposal March 27 to unwind Fannie Mae and Freddie Mac.

Unlike competing proposals floating around the House and the Senate, the one from Waters would replace the government-sponsored enterprises with a new lender cooperative that would issue government-backed securities and establish a new regulator, the National Mortgage Finance Administration, to oversee both the cooperative and the Federal Home Loan Banks. It also would eliminate the GSEs' affordable housing goals and capitalize several housing trust funds with a user fee of 10 basis points. On top of the trust funds, the legislation includes a broad mandate to serve rural and other underserved communities.

However, the Waters’ plan calls for the creation of a database for the collection, public use and dissemination of uniform loan-level information on eligible mortgages relating to loan characteristics, borrower information, loan data and the quality and consistency of appraisal and collateral data on eligible mortgages.

AI believes that if enacted, the legislation could have a profound effect on real estate appraisals and could result in a new wave of mortgage fraud. The level of influence that the information could have on the integrity of the appraisal process is another area in which AI has expressed concern and will continue to monitor.

The Waters’ plan has to compete with the GSE Reform plan introduced by Financial Services Committee Chairman Jeb Hensarling, R-Texas, earlier this year.

Senate Considers Tax Credit Extensions

The Senate Finance Committee met April 3 to amend the Expiring Provisions Improvement Reform and Efficiency Act. The markup, which is expected to take several weeks to complete, will allow the committee to vote for amendments and then send the legislation to the full Senate for a vote. The bill would address both retroactive implementation of major tax extenders that expired last year and the temporary provisions that are set to expire at the end of this year.

The list of amendments includes a two-year extension of incentives to make charitable contributions of conservation easements and several real estate-related amendments that extend tax credits for empowerment zones, low-income housing tax credits and a tax credit for solar projects.

SBA Mulls Update on Going Concern Appraisals

The U.S. Small Business Administration, responding to Congressional inquiries related to going concern appraisal requirements found in the Jan. 1 version of Standard Operating Procedure 50-10F, said it was reviewing the issue with other agencies and stakeholders and would provide additional guidance and possibly an update to the SOP, as appropriate. No timetable was given. View the SBA response to members of the House Committees on Small Business and Financial Services here.

This issue remains a top-level concern for the Appraisal Institute. Contact Bill Garber, the Appraisal Institute’s director of government and external relations, at bgarber@appraisalinstitute.org for more information.

IN THE AGENCIES                                                                       

AI Addresses ‘Green’ Issues at White House Appraisal Roundtable

On March 11, the Appraisal Institute participated in the U.S. Department of Housing and Urban Development’s Green Mortgage Appraisal Roundtable at the White House to help identify ways in which the mortgage appraisal process can be improved.

The Appraisal Institute was represented by 2014 President Ken P. Wilson, MAI, SRA, and representatives from AI’s Washington office.

Meeting attendees also heard from Sandra Adomatis, SRA, who discussed ways in which the valuation profession has advanced relative to the appraisal of high-performance homes. She also talked about key issues that still require attention by policymakers, lenders and real estate agents, including limited data, inadequate populating of energy-efficiency fields in data systems, a lack of standardized reporting of energy ratings and information, a lack of mortgage industry knowledge and weaknesses within the appraisal ordering process.

green-white-house
2014 AI President Ken P. Wilson, MAI, SRA, and Sandra Adomatis, SRA, at the White House to discuss ‘green’ appraisals.

Meeting participants generally agreed that more attention should be paid to bridging the gap in green

and energy-efficiency information, and that more education for all parties involved in these transactions would address many issues relating to the mortgage process.

This roundtable followed a similar one that the Appraisal Institute attended last July.
 

View Adomatis’ presentation at the Green Mortgage Appraisal Roundtable.

Regulators Propose Supervision Requirements for AMCs

Six federal agencies jointly issued a proposed rule March 24 that would implement minimum requirements for state registration and supervision of residential appraisal management companies.

Under the proposed rule, participating states would require that an AMC:

  • Register in the state and be subject to its supervision;
  • Use only state-certified or licensed appraisers for federally related transactions, such as real estate-related financial transactions overseen by a federal financial institution regulatory agency that require appraiser services;
  • Require that appraisals comply with the Uniform Standards of Professional Appraisal Practice;
  • Ensure selection of a competent and independent appraiser; and
  • Establish and comply with processes and controls reasonably designed to ensure that appraisals comply with the appraisal independence standards established under the Truth in Lending Act.

The proposed rule also would require that a state’s certifying and licensing agency have certain authorities, including the authority to:

  • Approve or deny initial AMC registration applications and applications for renewals;
  • Examine the AMC and require it to submit relevant information to the state;
  • Verify that appraisers on the AMC’s appraiser network or panel hold valid state certifications or licenses;
  • Conduct investigations of AMCs to assess potential violations of appraisal-related laws;
  • Report an AMC’s violation of appraisal-related laws, as well as disciplinary and enforcement actions, and other pertinent information about an AMC’s operations to the Appraisal Subcommittee of the Federal Financial Institutions Examination Council.

The proposed rule would allow participating states 36 months to implement the minimum requirements after the rule takes effect. An AMC that is a subsidiary of a financial institution and regulated by a federal financial institution regulatory agency is required to meet the same minimum requirements as other AMCs but it would not have to register with the state.

The Appraisal Institute’s Government Relations Committee is reviewing the proposed rule and will respond to the agencies’ request for comment. An initial review indicates the proposing agencies did a good job in identifying a strong definition of AMCs that clearly differentiates them from appraisal firms. Other issues under review relate to specific authorities granted to state appraiser regulatory agencies, including the extent that boards can enforce appraisal independence requirements, including issues relating to customary and reasonable fees.

Read a copy of the proposed AMC rule.

IRS Examines Facade Easements; Sanction Appraisers

The IRS announced March 19 that its Office of Professional Responsibility had entered into a settlement agreement with a group of appraisers from the same firm accused of aiding in the understatement of federal tax liabilities by overvaluing façade easements for charitable donation purposes. Under the settlement agreement, the appraisers admitted to violating relevant sections of Circular 230 related to due diligence and submitting accurate documents to the government.

The Appraisal Institute believes this is the first use of Circular 230 penalties against appraisers.

The appraisal firm was not named, but terms of the settlement agreement allowed the IRS to issue its announcement.

The appraisers agreed to a five-year suspension from valuing façade easements and undertaking any appraisal services that could subject them to penalties under the Internal Revenue Code. The appraisers also agreed to abide by all applicable provisions of Circular 230.

Failure to comply with terms of the settlement would result in the appraiser's disqualification, which would include a ban from presenting any evidence or testimony in administrative proceedings before the U.S. Department of the Treasury and renders any appraisal given after disqualification without probative effect.

Borges Named to Appraisal Subcommittee Advisory Post

On March 25, Richard L. Borges, II, MAI, SRA, immediate past president of the Appraisal Institute, was named to an advisory committee of the Appraisal Subcommittee. Borges will participate in the agency’s exploration of new rulemaking powers granted to it under the Dodd-Frank Act in specific areas, such as state enforcement and reciprocity. The first meeting of the advisory committee is scheduled for this month. See a list of advisory committee members.

IN THE STATES                                                                           

Gov. Christie Vetoes BPO Legislation … Again

Legislation that would have significantly expanded the ability of New Jersey real estate brokers and salespersons to offer broker price opinion services did not become law because of a Jan. 21 “pocket veto” by Gov. Chris Christie. This is the second time Christie has vetoed BPO legislation.

In his first veto message in August, 2013, Christie noted his concerns about “consumer confusion,” and the impact on “sellers struggling to determine when and why to use broker price opinions, comparative market analyses or appraisals.” Because the 2nd veto of this bill was a “pocket veto”, the governor provided no rationale for his decision.

Current New Jersey law allows brokers, broker-salespersons and salespersons to prepare BPOs only as part of the real estate sales process. Additionally, brokers, broker-salespersons and salespersons may offer limited real estate valuation services to state or federally regulated financial institutions when an appraisal by a certified or licensed appraiser is not required by federal law.

The provisions of S. 3058 would have allowed brokers, broker-salespersons and salespersons to offer BPO services for virtually any purpose, including property tax appeals, litigation support, financial institution portfolio valuation and distressed loan workouts, among other things.

View a copy of S. 3058.

NJ Bill Proposes to Eliminate State Appraisal Board

A bill pending in the New Jersey state legislature would abolish the State Real Estate Appraisers Board and transfer regulation of appraisers to the state’s Real Estate Commission. Bill A2387 was unanimously passed by the Regulated Professions Committee March 13.

The Appraisal Institute’s New Jersey chapters testified in opposition to the bill at a hearing before the Assembly Regulated Professions Committee. Previously, AI had strongly expressed its concerns over the bill in a March 6 letter to the committee.

In its letter, AI stated that “placing the responsibilities for regulating real estate appraisers with the same commission members and agency staff that are charged with regulating sales and financing-related activities will undoubtedly create conflicts of interest or the appearance of such conflicts.”  

The federal Appraisal Subcommittee also submitted written comments to the bill’s sponsors and stated that there would be “significant concerns about compliance with Title XI” if A2387 becomes law.

Echoing the ASC’s comment in relation to Title XI, the Appraisal Institute’s letter warned that, “There is a significant risk that the New Jersey appraiser regulatory program could be determined by the ASC to not be in compliance with Title XI” and that significant sanctions could be imposed upon the state’s appraiser regulatory program.

The bill’s sponsor has agreed to meet with the Appraisal Institute and other interested stakeholders to attempt to work out a mutually acceptable compromise prior to bringing the bill to the floor for a vote.

View a copy of A2387.

AI Supports Less Burdensome Background Check System

The Appraisal Institute twice testified in March before committees of the Maryland General Assembly in favor of SB 1106, a bill that would require new applicants for an appraiser’s license to undergo a reasonable criminal background check.

The first testimony was offered before the Senate Finance Committee March 13, and was provided by Thomas Weigand, SRA, a member of AI’s Maryland Chapter. The second testimony was provided March 27 by AI staff before the House Economic Matters Committee.

In its testimony, the Appraisal Institute stated, “Not only is this bill good public policy, but it is also is included in the ‘Real Property Appraiser Qualification Criteria’ issued by the Appraiser Qualifications Board that will become effective Jan. 1, 2015.” AI warned that, “If the provisions of SB 1106 are not enacted into law prior to Jan. 1, 2015, any person who is issued a new real estate appraiser credential after that date will be ineligible to perform appraisals for federally related transactions. In addition, the Commission risks the imposition of sanctions by the federal Appraisal Subcommittee for having appraiser licensing and certification requirements that are less stringent than those issued by the AQB.”  (Note:  The AQB has proposed extending the date by which a state must have a background check requirement in place until Jan. 1, 2017. That decision is still pending).

AI also called upon the Maryland legislature and Commission of Real Estate Appraisers, Appraisal Management Companies and Home Inspectors, as well as state legislatures and appraiser regulators nationwide, to adopt a streamlined background check system that is similar to the National Mortgage Licensing System. Existing appraiser credential holders have expressed concern that they could be subject to numerous, costly and time-consuming background checks when applying for licenses by reciprocity or temporary practice permits. A system similar to NMLS would allow new and existing credential holders to simultaneously satisfy multiple state background check requirements using a single comprehensive fingerprint-based background check.

The legislature concurred with AI’s position on the underlying bill, and it was passed unanimously by the full Maryland Senate March 17 and the House of Delegates April 1. It currently is awaiting the governor’s consideration.

Hear the testimony before the Senate Finance Committee, see a video of the testimony before the House Economic Matters Committee and read a copy of SB 1106.

Maryland Removes References to USPAP Advisory Opinions

On April 8, the Maryland Commission of Real Estate Appraisers, Appraisal Management Companies and Home Inspectors completed action on rulemaking that removed the Advisory Opinions and Frequently Asked Questions of the Uniform Standards of Professional Appraisal Practice from being incorporated by reference into the state’s appraiser licensing and certification laws. The move addresses the Appraisal Institute’s long-standing concerns about increased regulatory burdens placed on professional appraisers.

Prior to this rule change, the AOs and FAQs were considered by the Commission to be part of USPAP. As such, the contents of the AOs and FAQs potentially could have been used by the Commission as the basis for disciplinary action against an appraiser. This was true even though USPAP specifically states that the AOs and FAQs are a “form of guidance issued by the ASB” and are not part of USPAP.

Maryland was one of a handful of states that incorporated the AOs and FAQs into its regulations that adopted the provisions of USPAP by reference. The Appraisal Institute had pointed out this anomaly in testimony before the Commission in 2012 and at that time requested the removal of the references to the AOs and FAQs from the Commission’s regulations.

AI Compiling Appraisal Review Credentialing Requirements

The Appraisal Institute has nearly completed its compilation of state laws relating to when an appraiser who performs an appraisal review for a property in another state must be credentialed in the state where the property is located.

The document is being prepared as a result of a 2013 policy change by the Appraisal Subcommittee that, for the first time, allowed state appraiser regulators to require out-of-state reviewers to be credentialed in their state when reviewing appraisals for federally related transactions.

Prior to the change, ASC Policy Statement 5 was clear that, “For federally related transactions, the review appraiser need not register for temporary practice or otherwise be subjected to the regulatory jurisdiction in which the appraisal was performed, so long as the review appraiser does not perform the technical review in the State within which the property is located.” This language was included in the policy statement after some state agencies sought to require appraisers to register for temporary practice if the appraiser was certified or licensed in another State and was authorized to change a value in the appraisal.

This language was removed from the policy statement last June, and the policy change has had the effect of granting states the ability to require out-of-state appraisers to obtain a credential in the state where the property is located if reviewers provide their own opinion of value for a subject property, including concurring with or dissenting from the original appraiser’s value opinion.

This policy change has caused great confusion in the marketplace as there currently is very little information available to review appraisers that states definitively when a credential issued by the state where the subject property is located is required. Additionally, an increasing number of states already require or are considering requiring reviewers of appraisals for non-federally related purposes to obtain a credential in the state where the property is located.

Look for more information about this new AI document in a future edition of the Washington Report and State News quarterly e-newsletter.

Use of Appraisal Firms Questioned, Restricted

The Appraisal Institute has heard from several Designated members that at least one large national residential mortgage lender recently modified its policy to restrict contract appraisal management companies from using appraisal firms of a certain size. The lender allegedly feared its primary bank regulator might raise questions about individual appraiser engagements and payment of customary and reasonable fees.

AI is unaware of any issues that would warrant such a move from a financial institution

New guidance was released by the Office of the Comptroller of the Currency relating to third-party relationships, but the guidance established broad expectations relating to oversight that can be accomplished in a variety of ways. Payment of customary and reasonable fees by AMCs to appraisal firms also is not an issue under the plain language definition of “Fee Appraiser” in the Dodd-Frank Act — a fact that was affirmed in a newly proposed rule on minimum requirements for AMCs, which is out for comment until June 9 and clearly distinguishes between AMCs and appraisal firms.

AI appreciates hearing from valuation professionals on issues of this nature. Please contact the Washington office (contacts are included in the “TIP LINE” section below) to share any legislative- or regulatory-related business concern.

MEETINGS OF NOTE                                                                  

2014 Meetings in Review

The Appraisal Institute continued its extensive industry and stakeholder outreach during the past quarter with leadership participation at the Mortgage Bankers Association Commercial Real Estate Finance meeting in Orlando, Fla., Feb. 2-5; the Pension Real Estate Association meeting in Boston March 19-20; the International Valuation Standards Committee meeting in London March 27-28; and the Association of Appraiser Regulatory Officials meeting in San Francisco April 11-13.

Coyle Talks Fundamental Values, Market Analysis and Strategic Initiatives

Appraisal Institute President-Elect, M. Lance Coyle, MAI, SRA, addressed the Collateral Risk Network’s meeting in Fort Lauderdale, Fla., in early February, talking about fundamental value and market analysis issues. Coyle also spoke at the National Council of Real Estate Investment Fiduciaries Valuation Committee meeting in March where he discussed AI’s new strategic initiatives.

‘Green’ Valuation Addressed at Environmental Bankers Association Conference

Bill Garber, the Appraisal Institute’s director of government and external relations, spoke to the Environmental Bankers Association conference in Orlando, Fla., in February; he addressed the overlap between appraisal and environmental issues. Also at the conference, Dr. Tom Jackson, MAI, and Mitch Kreeger, MAI, presented on measuring environmental impacts while Brian Ginter, Candidate for Designation, addressed the issue of integrating appraisal and environmental functions within banks.

Garber also presented a March webinar on green and energy-efficiency valuation issues for a network of Habitat for Humanity program participants.

AI, OCC Focus on Appraisal Reviews at American Bankers Association Conference

AI President Ken P. Wilson, MAI, SRA, along with Bill Garber and officials from the Office of the Comptroller of the Currency, addressed the American Bankers Association Real Estate Conference in Charleston, S.C., April 7 with their presentation on the importance of appraisal reviews in community banks. View their presentation.

Public Policy Sessions at AI 2014 Annual Meeting

There will be a number of sessions at the 2014 Appraisal Institute Annual Meeting related to federal and state public policy issues. The Annual Meeting will be held Aug. 4-6 in Austin, Texas.

The following public policy-related sessions currently are scheduled:

  • An Update on and Experiences with Fannie Mae Appraisal Practices
  • Unraveling the Mystery of Fannie Mae Appraisal Guidelines
  • Valuation for Financial Reporting
  • Update on Valuation for Financial Reporting Related Accounting Standards & Issues
  • Appraisal Views of the Federal Financial Institution Examining Agencies
  • What’s New at the OCC: CRE Lending Handbook and Third Party Arrangements
  • Working with Federal Agencies: Form Contracting to Hot Buttons
  • The New FHA Appraisal Manual: What You Need to Know
  • Regulatory Changes from a State Regulator Perspective
  • Appraisal Management Company Emerging Issues
  • Real Estate Valuation Policy Update

More information on the AI Annual Meeting, including keynote speakers and general sessions, and the registration form is available here.

OTHER ITEMS OF NOTE                                                           

Notes Available for Conservation Valuation Stakeholders Forum

The meeting notes from the Appraisal Institute’s Conservation Valuation Stakeholders Forum, held last December in Washington, D.C., are available here. The notes may be of interest to appraisal professionals involved with conservation issues. For more information, contact AI’s Washington office at 202-298-6449.

Use of AI Green Addendum on the Rise

Use of the Appraisal Institute’s Residential Green and Energy Efficiency Addendum is growing thanks in part to recent licensing agreements between AI and RESNET, an industry group that developed the Home Energy Rating System, known as HERS, and that trains energy raters. This licensing agreement enables energy raters to complete fields within the Green Addendum using information from a HERS report. Such information may be helpful to appraisers in the analysis of green and energy-efficiency market issues.

AI has heard that many home builders are completing the Green Addendum once they finish a home, and that some local energy-rating organizations are making use of a new writable PDF version available here

AI also has noticed that recognition for the Green Addendum has dramatically increased within federal and state agencies based on how often staff has fielded questions related to it.

TIP LINE                                                                                        

Share Your Issues

Do you have relationships with critical policymakers, or are you aware of a burgeoning issue of opportunity or concern? Please contact any member of the AI Washington office staff with more information.

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