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Washington Report & State News

Third Quarter 2013 Issue

October 15, 2013

 

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.

In This Issue
AI Provides Input on Housing Finance Reform
AI Suggests Revisions to ‘Green’ Policies at White House Meeting 
OCC Updates Commercial Real Estate Lending Handbook
SBA Revises Going Concern Policy
AI, ABA Clarify ASC Policy Statements, Appraiser Complaints
AI, ASFMRA Requests Amendments to Manufactured Housing Appraisals 
AI Helps CFPB Amend Mortgage Servicing Rule
New Jersey Governor Vetoes BPO Legislation
Pennsylvania Appraisers Working to Defeat BPO Legislation
Changes Eyed to Illinois AMC Law
NC Passes AMC Surety Bond Requirement
AI Comments on FASB/IASB Lease Exposure Draft
GASB Fair Value Preliminary Views Gets AI Support 
AI Comments on Proposed 2016-17 USPAP Changes
AI’s Stephens Named to Global Property Standards Group
Revisions to Green Buildings Paper Requested...Again
AI Addresses International Collateral Risk Conference
Conservation Easements Addressed at Land Trust Alliance Rally
AI Participates in ARELLO Annual Meeting
Personal Property Roundtable Attended by AI
AI Exhibits at NAIOP Commercial Development Conference
AI Attends State Energy Conference
Share Your Issues

On Capitol Hill

AI Provides Input on Housing Finance Reform

The Appraisal Institute continues to work with the Senate Banking Committee on issues related to housing finance reforms found in S. 1217, the Housing Finance Reform and Taxpayer Protection Act (known as “Corker-Warner”).

A provision within the current draft that’s causing concern deals with 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. This provision would authorize the new Federal Mortgage Insurance Corporation to write regulations on the manner and form with which loan-level information can:

  • Be accessed by the public, including whether or not to establish a fee for such access;
  • Require that such loan-level information be made available to the public in a uniform manner and in a form designed for ease and speed of access, ease and speed of downloading and ease and speed of use; and
  • Ensure the protection of any personally identifiable information contained in any information, or mix of information, collected and made available for public access.

If enacted, the provision could have a profound effect on real estate appraisals, and could result in a new wave of mortgage fraud. The level of influence the information could also have on the integrity of the appraisal process is another area in which AI has expressed concern and an area in which it will continue to work. Corker-Warner is unlikely to be enacted into law this year.

In the Agencies


Federal Housing Administration Commissioner Carol Galante and Appraisal Institute President-Elect Ken Wilson, MAI, SRA, discuss "green" policies in Washington, D.C.

AI Suggests Revisions to ‘Green’ Policies at White House Meeting

During a July 18 meeting hosted by the White House and the U.S. Department of Housing and Urban Development, the Appraisal Institute asked that policy revisions be made to the Federal Housing Administration’s lender guidelines as they relate to “green” and energy-efficient features. The meeting focused on appraisals and underwriting for green mortgages and the Appraisal Institute was invited by FHA Commissioner Carol Galante to discuss the connection between energy-efficiency and single-family housing finance.

AI President-Elect Ken P. Wilson, MAI, SRA informed attendees that some underwriters have asked appraisers to remove income approach adjustments for green or energy savings and to replace the information with comparable sales that do not exist in the market. AI expressed concern about how much authority underwriters have to question an appraiser’s professional judgment when appraisals that include green or energy-efficiency adjustments are being reviewed, and r#ecommended clarification on this important issue. Attendees generally agreed with AI’s recommendations, and the FHA said it will review those and others related to lender participation in FHA energy-efficiency mortgage and rehabilitation loan programs that are a part of President Obama’s Climate Change Initiative.

OCC Updates Commercial Real Estate Lending Handbook

In August, the Office of the Comptroller of the Currency issued the “Commercial Real Estate Lending” booklet for its Comptroller’s Handbook to replace the “Commercial Real Estate and Construction Lending” booklet issued in 1995.

The new booklet reflects updated guidance that addresses such topics as prudent loan workouts, management of concentrations, stress testing, updated interagency appraisal guidelines and statutory, regulatory developments in environmental risk management and discussions of statutes and regulations governing federal savings associations. Also addressed was significant information related to real estate appraisal examiner issues, including more illustrative examples of expectations relating to property type.

Also of note is a new section related to environmental risk management, which makes clear that banks should have policies and procedures in place to address collateral risk related to cleanup and stigma impacts.

See the new booklet.

SBA Revises Going Concern Policy

In September, the U.S. Small Business Administration released an updated Standard Operating Procedure 50-10 5 F, which establishes guidelines for SBA lenders utilizing SBA credit assistance.

The agency altered its policy related to valuation requirements involving business and intangible assets in situations where there is a change in ownership, a special-use property and a residual business value contribution of more than $250,000 to the loan amount. In these situations, starting in January, the SBA will require lenders to obtain a separate business appraisal from an appraiser holding a designation or certification from one of five business valuation organizations. Previously, SBA allowed qualified real estate appraisers to prepare going concern appraisals with allocation amongst assets if the individual completed an Appraisal Institute offered course on the subject.

While the policy change likely impacts a limited number of transactions, AI has raised concerns about increased risk resulting from the potential double-counting of assets through two different appraisals, lender reconciliation complications and increased costs to borrowers.

AI, ABA Clarify ASC Policy Statements, Appraiser Complaints

The Appraisal Institute and the American Bankers Association on Oct. 2 hosted a conference call briefing in which the two organizations addressed concerns related to the Appraisal Subcommittee’s Federal Appraisal Policies: Hotlines, Complaint Forms and Revised Policy Statements.

Panelists on the call included representatives from the Appraisal Subcommittee, the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency and the Association of Appraiser Regulatory Officials.

The CFPB reported receiving several hundred complaints from appraisers on such issues as appraiser coercion, appraisal management companies, failure to pay, customary and reasonable fees and the use of exclusionary lists.

The OCC, which, during the briefing provided an overview of its complaint intake process through www.helpwithmybank.gov, reported receiving more than 40 complaints through this intake process in many of the same areas as the CFPB, many of which are referred for review to the appropriate supervising officer for the bank. Appraisal related complaints regarding OCC-regulated institutions can be submitted via the site.

Also during the call, the panelists advised appraisers and the lenders who conduct appraisal review work to monitor and understand state appraiser regulatory requirements related to appraisal reviews because some states may now require out-of-state reviewers to obtain licenses. Several interesting statistics were provided by the agencies represented, including the intake of complaints by or against appraisers related to appraisal independence.

The CFPB created a dedicated appraisal-related intake email (Appraisal_Tips@cfpb.gov) for issues related to appraisal independence. Appraisers and other industry participants can also utilize the CFPB “whistleblower” hotline at 855-695-7974. Additionally, industry participants can utilize a new Interagency Appraisal Complaint Forum established by the federal bank regulatory agencies.

If you missed the briefing, a recorded CD of all presentations can be purchased here.

AI, ASFMRA Requests Amendments to Manufactured Housing Appraisals

The Appraisal Institute and the American Society of Farm Managers and Rural Appraisers sent a joint comment letter Sept. 9 to the Consumer Finance Protection Bureau asking that the agency amend its proposed final rule related to Regulation Z and higher-priced mortgage loans.

CFPB’s proposed rule provides three appraisal exemptions: transactions secured by existing manufactured homes and not land, certain streamlined refinancing and transactions of $25,000 or less.

In their letter, the appraisal organizations urged CFPB to reconsider the exemption from the higher-priced mortgage loan appraisal requirements for new manufactured homes when secured by land because there are numerous complicating factors associated with manufactured housing that would require enhanced due diligence. However, the letter did express support for CFPB’s proposal to retain the higher-priced mortgage loan appraisal requirements for transactions secured by a manufactured home and land. Loans involving manufactured housing with land often are more complex transactions than those involving conventional, “stick-built” homes.

Read the joint AI/ASFMRA letter.

 

AI Helps CFPB Amend Mortgage Servicing Rule

The Consumer Financial Protection Bureau on Sept. 13 finalized amendments and clarifications to its January 2013 Mortgage Servicing and Loan Originator Compensation rules and, on the advice of the Appraisal Institute, decided not to alter its definition of valuation.

CFPB originally had proposed changing the definition of valuation by deleting the words “or opinion” from two comments included in the 2013 Final Rule of the Equal Credit Opportunity Act. However, in a July 22 comment letter, AI encouraged CFPB to keep the definition as is. In its letter, AI stated, “We do not support this change to the Final Rule because the most commonly understood term to real estate appraisers is as an ‘opinion of value’ not an ‘estimate’ of value.”

The definition in the final rule, which goes into effect on Jan.1, 2014, now incorporates the phrase “opinion of value.”

Read AI’s letter to CFPB.

In the States

New Jersey Governor Vetoes BPO Legislation

On Aug. 19, New Jersey Gov. Chris Christie vetoed bill S. 2551, legislation that would have significantly expanded the ability of the state’s real estate professionals to provide broker price opinion and comparative market analysis services.

In his veto message to the Legislature, Christie said, “While I appreciate the desire to facilitate additional business for real estate licensees in the state of New Jersey, I am concerned about potential consumer confusion.”

The Appraisal Institute chapters in New Jersey testified in strong opposition to this bill when it was going through the legislative process earlier this year. As passed by the New Jersey Legislature in late June, the bill would have allowed real estate brokers, broker-salespersons and salespersons to perform BPOs for virtually any purpose, except for use in the New Jersey Tax Court or for use in eminent domain proceedings.

View a copy of S. 2551 as passed the Legislature.

Pennsylvania Appraisers Working to Defeat BPO Legislation

The Appraisal Institute’s Pennsylvania chapters continue their efforts to defeat legislation that would significantly expand the ability of brokers, associate brokers and salespersons to provide real estate valuation services in the form of broker price opinions and comparative market analyses.

Following an unsuccessful attempt to reach a compromise on Senate Bill 869, the Coalition of Pennsylvania Real Estate Appraisers sent a letter to the legislation’s Senate sponsor outlining its continued opposition to the bill, specifically stating that the bill “would eliminate several major protections for consumers of valuation services outside of real estate lending (litigation, estate planning, divorce & estate settlement, distressed loan workouts, mark to market accounting, etc.) that are in current law.” The letter also noted, “SB 869 would, for the first time since 1990, allow real estate brokers, associate brokers and salespeople to perform real estate valuation services outside of the real estate sales process (i.e., as part of a listing or purchase), with no valuation education or experience.”

It is likely that the bill will be considered by the Senate in the coming weeks. CPREA has undertaken a full-scale grassroots campaign to defeat this legislation and encourages all appraisers in Pennsylvania to contact their Senators and urge them to oppose the bill.

See more information on the campaign to defeat SB 869.

Changes Eyed to Illinois AMC Law

The Appraisal Institute’s Illinois chapters, along with the Illinois Coalition of Appraisal Professionals, have started to draft legislation that would correct some unintended consequences that resulted from a 2011 law regulating the state’s appraisal management companies.

AI and ICAP hope to resolve problems where AMC registration and oversight requirements are being applied to appraisal firms using independent contractor or employee appraisers but that are not fully owned by Illinois certified appraisers. The law has been interpreted to apply to some large commercial appraisal firms that are located outside of the state, as well as to some small appraisal companies that have ownership structures that may not include certified appraisers exclusively.

The legislation that AI and ICAP will propose will attempt to clarify that appraisal firms that exclusively employ appraisers are exempt from registration and oversight requirements regardless of their ownership structure. The proposal also will attempt to clarify that an AMC is an entity that uses independent contractor appraisers who are part of an appraiser panel to provide appraisal services to third-party clients.

This legislation likely will be introduced in the Illinois General Assembly in 2014.

NC Passes AMC Surety Bond Requirement

On Aug. 23, North Carolina Gov. Pat McCrory signed into law HB 565, which will require appraisal management companies operating in the state to post a $25,000 surety bond. The surety bond is intended to serve as a source of restitution for appraisers who have not been paid by an AMC for their appraisal work. The legislation also authorizes the state’s Legislative Research Commission to study the advisability of establishing a recovery fund to provide restitution to appraisers. The study will examine whether or not the new surety bond requirement is adequate, as well as study other similar consumer protection funds and the financial impact of a recovery fund on AMC licensees.

Standards Setters

AI Comments on FASB/IASB Lease Exposure Draft

The Appraisal Institute submitted a comment letter Sept. 13 to the Financial Accounting Standards Board and to the International Accounting Standards Board commending them on their revised Exposure Draft of the Leases Accounting Standards Update. The letter noted their efforts to continue developing high-quality accounting standards that improve the transparency, usefulness and credibility of financial reporting.

AI also thanked FASB and IASB for their recognition that real estate leases are significantly different from other leases, namely those for machinery and equipment.

The letter also reiterated a call for FASB to adopt an investment property standard similar to International Accounting Standard 40, which has been adopted by IASB.

View a copy of AI’s letter to FASB and IASB.

GASB Fair Value Preliminary Views Gets AI Support

In a Sept. 30 letter to the Governmental Accounting Standards Board regarding its Preliminary Views document on Fair Value Measurement and Application, the Appraisal Institute expressed its support of efforts to modify accounting standards for state and local governmental entities to require the use of a fair value model for the reporting of investments, including investments by governmental entities in real estate assets.

AI stated, “The fair value model provides the most relevant information about the composition, value and recent changes in the value of the real estate investment assets held by state and local governmental bodies. Reporting land and other real estate held as investments at fair value enhances users’ ability to meaningfully evaluate a state or local governmental body’s investment decisions and performance, as well as to evaluate other real estate assets owned by the governmental body.”

In its letter, AI encouraged GASB to treat real estate differently than assets in other tangible and intangible asset classes that are held for investment purposes by governmental bodies, and called upon GASB to develop an Investment Property Standard that is similar in scope to International Public Sector Accounting Standard #16.1.

View a copy of AI’s letter to GASB.

AI Comments on Proposed 2016-17 USPAP Changes

In response to the Appraisal Standards Board’s request for feedback on proposed changes to the 2016-17 Uniform Standards of Professional Appraisal Practice, the Appraisal Institute commented on USPAP’s mixed record on properly addressing appraiser behaviors and practices that make it possible to promote and maintain a high level of public trust in the appraisal profession.

AI complimented ASB’s decision to develop the Scope of Work rule and to eliminate the Departure Rule, noting they were major and substantive positive changes that should allow appraisers to tailor their services to a variety of clients and client needs. The changes also should result in better understanding on the part of clients of the type of service rendered, thereby promoting the public trust.

The comments also noted that “USPAP needs to continue to work toward increasing: a) its flexibility to address emerging issues; b) its understandability for both appraisers and their clients; and c) increasing its enforceability for the protection of the public.” AI pointed out several areas where USPAP is too complex and confusing, including the various dates related to an appraisal, and the terms “intended use” and “intended user.” AI also expressed its continued concern that USPAP does not allow enough flexibility in reporting.

View a copy of AI’s comment letter on USPAP changes.

AI’s Stephens Named to Global Property Standards Group

Appraisal Institute Immediate Past President Sara W. Stephens, MAI, was among 19 real estate experts selected Aug. 7 by the International Property Measurement Standards Coalition to create the first global standard for measuring property.

The Standards Setting Committee includes experts with first-hand knowledge in 50 countries, across five continents. It will act independently and is tasked with the job of drafting and consulting industry on a global standard measurement methodology. Standards Setting Committee members include academics, real estate fund and asset managers, residential professionals, valuers and specialists in development and construction.

Other Letters

Revisions to Green Buildings Paper Requested...Again

On Sept. 19, the Appraisal Institute reiterated its concerns about how the valuation of green buildings is addressed within the purported “voluntary guidance,” a draft of which was released for comment by the Appraisal Foundation’s Appraisal Practices Board.

In its letter, AI requested — as it had in previous comment letters — that APB revise the guidance document to clarify that it should not be used for enforcement purposes. To date, APB has refused to alter disclaimer language found in its “Valuation Advisories,” which has the potential to expose appraisers and lenders to dramatic increases in liability and regulation. AI also expressed several factual concerns relating to the exposure draft.

View AI’s letter to the Appraisal Practices Board.

Meetings of Note


Lance Coyle, MAI, SRA, addresses the International Conference on Collateral Risk hosted by the American Enterprise Institute.

AI Addresses International Collateral Risk Conference

Appraisal Institute Vice President Lance Coyle, MAI, SRA, addressed the International Conference on Collateral Risk hosted by the American Enterprise Institute Aug. 1, in Washington, D.C., where he highlighted the ways in which real estate valuation analysts can provide forecasting and ratings services well beyond point-in-time valuation that’s typically requested by mortgage clients.

Coyle’s presentation built off AI’s Guide Note 12, Analyzing Market Trends, as well as off the article “One Step Further – Implementing the Recommendations of Guide Note 12,”which was authored by Kerry M. Jorgensen, MAI, and Stephen F. Fanning, MAI, and published in the Summer 2013 edition of The Appraisal Journal.

Coyle’s presentation can be viewed online under the “International Perspectives” panel.

Conservation Easements Addressed at Land Trust Alliance Rally

Appraisal Institute Immediate Past President Sara W. Stephens, MAI, hosted a breakout session at the 2013 Land Trust Alliance Rally in New Orleans Sept. 19, during which she talked about understanding conservation easement appraisals and covered the basics of appraisal review. AI Washington staff manned the exhibition hall where they promoted AI Designated Members to local land trusts and individuals for use in situations involving the donation of conservation or historic preservation easements to land trusts.

The meeting also served as an opportunity to highlight AI’s Valuation of Conservation Easement and Historic Preservation Registries and to answer questions about the appraisal process and about existing Internal Revenue Service rules on the use of qualified appraisers in these situations.

AI Participates in ARELLO Annual Meeting

Appraisal Institute staff participated in the Association of Real Estate License Law Officials’ annual meeting Sept. 18-22 in Seattle where they talked with numerous state officials responsible for regulating activities affecting real estate sales professionals, including provisions involving broker price opinions and comparative market analysis. It’s not uncommon for many states to have the same officials regulate both real estate sales professionals and real estate appraisers.

Personal Property Roundtable Attended by AI

On Sept. 24, AI staff attended The Appraisal Foundation’s Personal Property Roundtable where they participated in a discussion on the adoption of minimum qualification standards for personal property appraisers and the adoption of minimum standards for personal property appraisals.

At the conclusion of the meeting, personal property appraisers and those who utilize appraisal services appeared to reach a consensus where The Appraisal Foundation would attempt to create a National Registry of personal property appraisers who meet yet undefined qualification criteria and agree to complete appraisal reports in compliance with USPAP.

TAF will hold another personal property roundtable in early- to mid-2014.

AI Exhibits at NAIOP Commercial Development Conference

Appraisal Institute staff attended the National Association of Industrial and Office Properties’ Development 2013 Conference Oct. 7-9 in San Diego where they promoted the use of qualified valuation experts in development consulting, feasibility analysis, development financing and property tax appeal.

The conference serves as the annual meeting for NAIOP and commercial real estate developers, and it enjoys an attendance of hundreds of commercial property developers, brokers and finance professionals.

AI Attends State Energy Conference

Staff from the Appraisal Institute’s Washington office and from AI’s Colorado Chapter attended the annual meeting of the National Association of State Energy Officials Sept. 15-18 in Denver, as a new affiliate member of that association.

The Colorado Chapter spoke with attendees about work related to the recent Memorandum of Understanding between the chapter, AI and the Colorado Governor’s office related to appraisal research and education.

NASEO represents state energy office officials throughout the U.S., many of whom are responsible for analyzing and addressing property sector and valuation issues.

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 Government Relations Committee or Washington office staff with more information.

 

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