Legislative Activity Picks up on Capitol Hill

The Appraisal Institute’s Washington office monitors Capitol Hill activity that’s of interest to valuation professionals. Here are updates on a few noteworthy items: 

 

Financial CHOICE Act

The House on June 13 passed HR 10, the Financial CHOICE Act, which is their version of legislation designed to “repeal and replace” Dodd-Frank — although it is not exactly a repeal. The legislation would end bailouts and address many bank concerns, particularly concerns from community banks regarding excessive regulation. 

 

The bill contains three provisions impacting appraisal policy:

 

The Financial CHOICE Act House bill is considered the conservative position on Dodd-Frank relief. AI expects legislation from the Senate to be different than the House approach, although many of the end goals are the same. The two chambers will then have to agree on a final proposal. 

 

GSE Reform

No new legislation to reform the government-sponsored enterprises has been introduced in the House or the Senate because both chambers are busy with other priorities, such as flood insurance reform and, as previously noted, Dodd-Frank reform. However, the Senate Committee on Banking, Housing and Urban Affairs held a June 29 hearing on the Principles of Housing Finance Reform that specifically focused on the secondary mortgage market. The hearing indicates that once flood insurance and regulatory reform are addressed, housing finance reform will become a priority — perhaps as early as this fall or early next year. 

 

High Volatility Commercial Real Estate

HR 2148, the Clarifying Commercial Real Estate Loans Act, is bipartisan legislation introduced April 26. It would exempt certain loans from high volatility commercial real estate (Basel II) requirements, including loans where the “loan-to-value ratio is less than or equal to the applicable maximum supervisory loan-to-value ratio as determined by the appropriate federal banking agency” and where “the borrower has contributed capital of at least 15 percent of the real property’s appraised, ‘as completed’ value to the project.”

 

The current rule requires banks to assign a 150 percent risk weighting to all acquisition, development or construction loans unless the loan qualifies for an exemption from HVCRE treatment. The legislation does not eliminate the agencies' ability to require banks to hold higher capital for HVCRE loans.

 

 

FDIC Clarifies Policy for Evaluations below Threshold Levels

Martin Gruenberg, chair of the Federal Deposit Insurance Corporation, on June 22 testified before the Senate Committee on Banking, Housing and Urban Affairs about several valuation-related initiatives recently undertaken by federal bank regulatory agencies. He also expressed his support for legislative changes that would create another appraisal exemption for rural residential loans. 

 

Specifically, Gruenberg testified about an expected proposal to increase the commercial real estate appraisal threshold level from $250,000 to $400,000 and about a notice from the agencies about utilizing existing outlets available to regulated institutions (reciprocity; temporary practice permits) to deal with purported appraiser shortages in certain markets. 

 

Also highlighted was an FDIC policy found in guidance issued in 2016 — guidance that appears to have largely gone unnoticed — clarifying that evaluations can be used in lieu of appraisals whenever transactions fall below the dollar thresholds in appraisal regulations.

AI Cautions Against Emphasizing Appraisal Costs 

The Appraisal Institute responded July 10 to Fannie Mae and Freddie Mac’s proposed “Duty to Serve Underserved Markets Plans” by suggesting that the government-sponsored enterprises emphasize quality and competency issues relating to collateral risk management rather than reduced appraisal costs. 

 

The GSE’s plans target three areas: manufactured housing, rural housing and affordable housing preservation. Green and energy-efficiency issues are also included. 

 

In its letter to the Federal Housing Finance Agency, which released the proposals for comment, AI stressed that “emphasizing cost and turnaround times over quality will result in increased risk to the enterprises and ultimately to taxpayers.” AI said it would like to work with the agency to ensure that “well-trained and competent professionals help both enterprises achieve their respective goals.” AI also offered to assist in stakeholder meetings and urged wider stakeholder engagement in efforts to update common appraisal forms utilized by the enterprises.

 

Read the Appraisal Institute’s comment letter. 

 

 

AI Expresses Concern about Possible Appraisal Waivers 

The Appraisal Institute was one of several organizations that met with officials from Fannie Mae, Freddie Mac and the Federal Housing Financial Agency on May 23 to discuss concerns about initiatives under consideration that would waive appraisals in purchase and refinance loan transactions.

 

Both government-sponsored enterprises said they are preparing limited appraisal waiver programs, but the size and scope of each program as they pertain to the refinance and purchase loan markets could not be determined, which raises some concern. AI urged officials to further study their proposals and to publicly define the scope of any waiver program to ensure that similar criteria — such as having previous appraisal information on file — is applied by each agency.  

 

AI followed up its meeting with a letter to the government-sponsored enterprises reiterating its position against the waiver. AI has not yet received a response. 

 

 

Interior Issues Final Rule on Indian Trust Appraisals

The U.S. Department of the Interior on June 22 released its final rule implementing the Indian Trust Asset Reform Act, a 2016 federal law intended to offer Native American tribes more authority to manage their assets. The rule takes effect July 26. 

 

Under the final rule, the minimum qualifications for a qualified appraiser include:

Additionally, the Interior Department will not review an appraisal or valuation of Indian property done by a qualified appraiser if the tribe waives the review and the property owner does not object to foregoing the additional review.

 

Read the Appraisal Institute’s September 2016 comment letter to the U.S. Department of the Interior in which it noted several concerns with the rule.

 

IN THE STATES                                                                            

3 States Enact Laws Protecting Appraisers

The governors of Minnesota, Oregon and Tennessee signed legislature that establishes statutes of limitations regarding civil lawsuits against appraisers. Appraisal Institute chapters petitioned for creation of these bills, and chapter members lobbied hard for their passage.

 

The Minnesota and Tennessee laws took effect July 1, while the Oregon law takes effect Jan. 1. 

 

Under the new laws, any action to recover damages against a real estate appraiser must be brought within the prescribed time-period. In Minnesota and Oregon, civil actions against appraisers must be brought within six years from when the appraisal was performed. In Tennessee, the time is one year from the discovery of the act of omission giving rise to the action. However, no action can be brought more than five years after the date the appraisal was performed. Additionally, the state appraiser commission cannot consider a complaint for a disciplinary action that relates to an appraisal that was completed more than three years before the complaint was submitted. 

 

These bills are the direct result of lawsuits and administrative complaints filed against appraisers for appraisals performed many years ago. Many of these lawsuits and complaints have been filed by the receivers of failed financial institutions and other entities that purchased the rights to sue appraisers. Most of the appraisals in question were performed during the real estate boom years ago and have now defaulted. 

 

 

5 States Pass AMC Laws

Hawaii, Maine, New Jersey, Rhode Island and South Carolina recently have enacted new laws requiring the registration and oversight of appraisal management companies. Forty-five states now have comprehensive AMC laws. 

 

The new laws in each of the five states mostly are consistent with the federal minimum requirements established by the federal bank regulatory agencies in 2015. 

 

 

Florida Makes Significant Changes to Appraiser Licensing Law

Florida Gov. Rick Scott on May 23 signed HB 927, legislation that makes two significant changes to the state’s appraiser licensing law. The law takes effect Oct. 1.

 

The first provision defines an evaluation and allows Florida licensed appraisers to perform them. The second provision clarifies that the Florida Real Estate Appraiser Board has the authority to adopt rules allowing for the use of standards of professional practice other than USPAP for nonfederally related transactions. 

 

The Region X Government Relations Committee, under the leadership of Chair Wesley Sanders, MAI, advocated for this legislation, meeting with the state’s Department of Business and Professional Regulation about these two provisions. Additionally, AI professionals in Florida participated in Region X’s ValuEvent on Feb. 14 in Tallahassee, meeting with many legislators to urge support for the provisions.

 

 

Minnesota Updates Appraiser Law

Minnesota Gov. Mark Dayton on May 11 signed HF 593, legislation that makes several important changes to the state’s appraiser licensing and certification law, including issues concerning non-compliance with the appraiser licensing law and background checks. 

 

Under the new law, an allegation of non-compliance with the appraiser licensing law that does not rise to the level of being a disciplinary action is not considered to be a formal complaint. This is an important provision because under current law, all allegations of non-compliance — including frivolous accusations — are complaints that must then be reported by the appraiser when asked if the appraiser has ever been the subject of a complaint. The new law will not require appraisers to report allegations that don’t result in a formal disciplinary action. Likewise, minor disciplinary actions are expunged from an appraiser’s public record five years after an appraiser completes any sanctions.

 

The new law also clarifies that only an applicant for an initial appraiser license must undergo a formal background investigation. Existing credential holders need only disclose at time of renewal if they have been convicted of any crimes involving moral turpitude or that are substantially related to the real estate valuation profession.

 

Importantly, the new law establishes a six-year statute of limitations on civil actions against real estate appraisers for issues not related to fraud or intentional misrepresentation. The statute of limitations accrues from the date on which the appraisal services are performed or completed.

 

The Government Relations Committee of the Appraisal Institute’s North Star Chapter was heavily involved in lobbying for the passage of HF 593, which took effect July 1. This major bill is the second one proposed by the chapter that has been enacted into law in the last two years.

 

OPEN COMMENT REQUESTS                                                    

The Appraisal Institute Board of Directors has directed exposure of a proposed statement of policy on evaluations for input by AI Professionals (AI log-in and password are required). The proposed Statement of Policy states: 

 

The Appraisal Institute (AI) will provide government relations assistance to Appraisal Institute Chapters seeking to change state law to allow certified and licensed appraisers to provide evaluations without complying with USPAP when such is permitted by federal law or regulation provided no such legislation prohibits appraisers to reference appraisal-related designations when performing such services. AI Professionals providing these services shall comply with the AI Standards of Valuation Practice and the Code of Professional Ethics. The Appraisal Institute will continue with any legislative efforts already underway on this issue.

 

Send comments on the proposed policy via e-mail to evalexposure@appraisalinstitute.org. Comments are due within 30 days of the exposure draft’s distribution. Comments will be compiled for distribution to the Government Relations Committee and the Board of Directors. 

 

 

PCAOB Seeks Feedback on Fair Value, Use of Specialists

The Public Company Accounting Oversight Board is seeking comment on two proposals. Comments for both are due Aug. 31.

 

MISMO Seeks Input on Rent Roll Standard

The Mortgage Industry Standards Maintenance Organization released a second public comment period for a proposed data standard for the exchange of rent roll information on commercial property. The proposed standard is designed to provide a consistent set of data points and definitions for use in financing and managing commercial property assets. Comments to MISMO are due July 28.

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