At a public hearing held at the Internal Revenue Service in Washington, D.C., on January 23, Terry Dunkin, MAI, SRA, past president of the Appraisal Institute, testified in support of proposed regulations issued by the IRS defining the terms “qualified appraiser” and “qualified appraisal” for appraisals prepared for such purposes as conservation easement and historic preservation easements. The proposed regulations recognize the “substance and principles” of the Uniform Standards of Professional Appraisal Practice and professional appraisal designations that are awarded based on “demonstrated competency,” among other things.

In his testimony, Dunkin said the IRS did an exemplary job in developing their proposed rule on noncash charitable contributions. In particular, Dunkin expressed support for greater recognition of USPAP by the IRS, and he encouraged the agency to go one step further and codify that all appraisals should be prepared in “accordance with” USPAP. This would help avoid confusion and bring consistency to the IRS appraisal process, he said.  He also expressed support for the appraisal rules to be applied to estate, gift and income tax rules within the IRS.

Further, Dunkin said that the example of “professional appraisal designation” is illustrative, and not exclusionary, as described by the proposed rule, and that as such, it has the support of the Appraisal Institute. Federal agencies oftentimes provide examples to help illustrate the intent of the agency. The proposed rule recognizes appraisal designations that are awarded based on “demonstrated competency,” and provides as an example designations conferred by the Appraisal Institute.  

Dunkin reiterated many of the comments submitted by the Appraisal Institute during the agency’s public comment period. That November 2008 letter is available at www.appraisalinstitute.org/newsadvocacy/downloads/ltrs_tstmny/2008/AI_on_ANPR_Final.pdf. To view Dunkin’s testimony outline, visit www.appraisalinstitute.org/newsadvocacy/letrs_tstimny.aspx.

The IRS is expected to issue a final rule later this year.

Saddled with the multi-billion dollar portfolio of now-defunct American International Group and Bear Stearns, the Federal Reserve will allow regulators to rewrite qualifying mortgages by giving homeowners more relaxed terms including reducing the loan’s principle, lowering the loan’s interest rate and lengthening the term of the loan. In order to reduce foreclosures on any of the mortgages, the Fed is advocating the reduction of a loan’s principal, particularly for homeowners who have a loan balance greater than 125 percent of the estimated value of their property.

Federal Reserve Chairman Ben Bernanke said that the intent of the policy is “to avoid preventable foreclosures on residential mortgage assets.” His remarks came in a letter to Financial Services Committee Chairman Barney Frank, D-Mass. In a speech in March 2008, Bernanke has previously supported principal reductions stating that they could be an "effective means of avoiding delinquency and foreclosure."

Mortgages affected in the near term will be ones that were placed in special limited liability corporations that the central bank created after bailing out Bear Stearns and AIG. Congressional leaders applauded the Federal Reserve’s proactive response to stem foreclosures. "This is an important advance, and I hope to work with the [Federal Reserve] to strengthen the program," said Sen. Christopher J. Dodd, D-Conn., chair of the Senate Banking Committee. “Until you put a tourniquet on the foreclosure problem in this country, you’re not going to get to the bottom of this financial crisis.”

Among the rules expected to be impacted by a rulemaking delay sought by President Obama, are reforms to the Real Estate Settlement Procedures Act. In his first day in office, President Obama ordered a delay to all proposed or final regulations that would be sent to the Office of the Federal Register until his staff can officially review and approve any such regulations. The memo, which was delivered January 20 from White House Chief of Staff Rahm Emanuel to the heads of executive departments and agencies, also called for the withdrawal from the OFR of all proposed or final regulations that have not yet been published in the Federal Register.

The Obama administration plans to thoroughly review all regulations before they become policy and has asked department and agency heads to consider extending for 60 days the effective date of regulations that have been published in the Federal Register, but that have not yet taken effect.

On Tuesday, January 27, a bill (H.R. 200) that allows cramdowns was approved by the House Judiciary Committee along party lines. Speaker of the House Nancy Pelosi, D-Calif,, gave her support to the legislation that would allow bankruptcy judges to modify troubled mortgages, saying it is a "very high priority and should be passed as soon as possible." Democrats have been considering whether to include the provision in the economic stimulus package making its way through Congress or attempt to pass it as a stand-alone bill. "Either way, I'd like to get it passed as soon as possible," Pelosi said.

Pelosi's comments came January 22, as the House Judiciary Committee debated versions of the legislation, which would allow bankruptcy judges to change the terms of a mortgage by reducing its interest rate, extending its length or lowering the loan balance, known as cramdown provisions. These provisions are banned under existing rules.

However, House Majority Leader Steny H. Hoyer, D-Md., said that the provision has support in both the House and Senate, but its inclusion in economic stimulus legislation would probably make it more difficult for that package to pass in the Senate.

While banking executives privately acknowledge that some type of legislation is likely to pass, they argue that its scope should be limited. "The bankruptcy provisions under consideration are too broad and do not restrict who would be eligible for relief," said Rep. Lamar Smith, R-Texas). "Americans undoubtedly want solutions to the foreclosure crisis. But I do not believe they want solutions that amount to absolving borrowers of their responsibility."

Proponents argue such a change could provide a lifeline to borrowers dealing with mortgage payments they can’t afford, falling home values and other financial woes. Such help, advocates say, would lead to fewer foreclosures and a decline in hopeless borrowers walking away from their homes. However, opponents say it would inject more risk and uncertainty into a turbulent mortgage market and worry about the implications for investors.