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Q4 2019 Washington Report

Nov. 15, 2019

The Appraisal Institute’s Washington Report and State News quarterly e-newsletter summarizes 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 THE AGENCIES                                                                      

The Federal Housing Finance Agency has paused Fannie Mae and Freddie Mac programs that address appraisal innovation and modernization in order to focus on taking the government-sponsored enterprises out of conservatorship, the Appraisal Institute reported Nov. 11. The pause also gives the FHFA time to gather more information on the valuation profession and the GSEs’ modernization efforts. 
 
While there is no official announcement of the pause, the move is consistent with comments from FHFA Director Mark Calabria about Fannie Mae and Freddie Mac, especially about preventing them from competing with each other for market share while in conservatorship. Calabria, speaking at the Mortgage Bankers Association conference in Austin, Texas, in late October, reportedly said that he wanted the GSEs to leave conservatorship with the same market share they had when taken in, and that once they’ve exited, they can compete. 
 
Testing of so-called ”hybrid” or bifurcated appraisals is expected to continue while the FHFA gathers additional industry and stakeholder feedback. Pre-existing and narrowly focused appraisal waiver programs also will continue. However, some elements of the appraisal modernization plan that involved data will now only involve a desktop appraisal or a full interior inspection appraisal. Joint development of the Uniform Appraisal Dataset and the Uniform Collateral Data Portal is unaffected by the pause. 
 
The information gathering and review process may involve a request for information early next year in which input will be sought on an array of issues related to the valuation process. 
 
 
Nearly 60 people who expressed interest in a valuation career attended an Oct. 24 “How to Become a Real Estate Appraiser” workshop at the Chicago Urban League. They met with representatives from the Appraisal Institute, Fannie Mae and Altisource, and learned about the profession and the multiple career opportunities available to appraisers. 
 
The workshop is part of the Appraisal Diversity Pipeline Initiative, for which AI serving as co-lead with Fannie Mae. The initiative is intended to introduce individuals to the practice of residential valuation and to foster diversity with the profession.

ON THE HILL                                                                                

Rep. Maxine Waters, D-Calif., and Sen. Sherrod Brown, D-Ohio, on Sept. 24 submitted a letter to the Appraisal Subcommittee seeking answers about its July decision to grant a waiver of appraiser certification and licensing to the state of North Dakota. The letter expressed “surprise and concern” about the “unprecedented” waiver.
 
Waters chairs the House Financial Services Committee and Brown is ranking member of the Senate Banking, Housing and Urban Affairs Committee. 
 
“It is so concerning that the ASC, the primary federal organization with oversight over appraisal and appraiser standards, has acted to waive appraiser qualification requirements with minimal justification,” the letter stated, noting that appraisals are essential to safety and soundness and consumer protection. The letter explains that the move is unprecedented because the ASC has not granted any waivers since the Federal Financial Institutions Examination Council first fully implemented appraisal rules. In granting this one, the ASC ignored the objections of the North Dakota Real Estate Appraiser Board.  
 
The letter directs the ASC to answer the following questions:
 
  • What types of data does the ASC consider when granting a waiver under Title XI? Has the ASC established a policy to determine minimum standards for reliability for any data submitted to be considered as part of the ASC’s waiver consideration? If not, should the ASC establish such standards?
  • In the event there is a conflict between data sets submitted in official comments on a waiver request, how does the ASC resolve such conflicts?
  • Do any ASC member agencies have access to data that could inform deliberations about granting a waiver under XX? If so, did any of the agencies supply such data in the process of deciding whether to grant or deny this waiver request? If not, should any of the ASC member agencies maintain such data?
  • The median sales price of a single-family home was $238,800 in the Bismarck, North Dakota, market, the most expensive in the state, according to the National Association of Realtors. The approved waiver would impact single-family home transactions below $500,000, more than twice the median-home value. What percentage of North Dakota federally related single-family transactions do you expect to be eligible for the waiver? Did the ASC consider market prices and the percentage of exempt transactions when setting the waiver terms?
  • What percentage of North Dakota federally related commercial transactions do you expect to be eligible for the waiver? Did the ASC consider market prices and the percentage of exempt transactions when setting the waiver terms?
  • Does the ASC expect that appraisals performed by individuals who are not licensed or certified appraisers will still be compliant with the Uniform Standards of Professional Appraisal Practice and meet any other standards established by regulators?
  • Will consumers, financial institutions and regulators have the same oversight and recourse available if their appraisal is performed by an individual who is not a certified or licensed appraiser as they would have if their appraisal were performed by a certified or licensed appraiser? If not, how will any oversight or recourse differ?  
The Appraisal Institute raised these concerns with Waters, Brown and their Republican counterparts as soon as a temporary waiver request was made by Tri-Star Bank in Tennessee in March 2018 (and denied in April 2018) — more than a year before the North Dakota request. The letter could serve as a first step in closing the temporary appraisal qualification waiver loophole.  
 
 
While the furor continues over the Appraisal Subcommittee’s granting of a waiver of appraiser qualification and licensing to the state of North Dakota, it’s important to note that the final order as it relates to appraisals for federally related residential transactions expires in December. The expiration coincides with the release of an amended rule from the federal banking agencies that raises the residential appraisal threshold from $250,000 to $400,000. 
 
The ASC granted the temporary waiver for certain federally related residential transactions under $500,000, and that part of the waiver only applies until such time as the federal banking agencies issue a rule increasing the appraisal threshold for residential transactions. The rule took effect Oct. 9, so the waiver is set to expire the first week of December.  
 
The part of the waiver pertaining to federally related commercial transactions under $1 million will remain in effect, although its application has been hindered by an opinion from the North Dakota attorney general stating that the practice of appraisal requires a credential from the North Dakota Real Estate Appraiser Board. As a result, the temporary waiver may have limited applicability in federally related transactions in the state.
 
Separate but related to this issue, the North Dakota Department of Financial Institutions on Nov. 6 convened a meeting in Bismarck with various stakeholders to begin discussions between the real estate finance industry and the valuation profession. Such discussions are a condition of the final order granted by the ASC.
 
The meeting was attended by representatives from the ASC, the Federal Deposit Insurance Corp., the Conference of State Bank Supervisors, the North Dakota Real Estate Appraiser Board and appraisers, including Rex Garrison, MAI, SRA, AI-GRS. Garrison is from Tennessee, and he discussed the work that has been done in his state to address financial industry concerns after TriStar Bank requested a temporary waiver. Attendees confirmed the discussions were productive and a necessary step toward identifying long-term solutions to stakeholder and appraiser concerns.
 
 
The Appraisal Institute on Sept. 20 applauded the U.S. House for passing legislation that addresses residential appraisals. One bill calls for full consumer disclosure of appraisal management company fees in the homebuyer’s Closing Disclosure Form while the other bill would allow state-licensed appraisers to perform appraisals for mortgages insured by the Federal Housing Administration.
 
“These two bills will have a very positive impact on consumers and appraisers,” said Appraisal Institute President Stephen S. Wagner, MAI, SRA, AI-GRS. “We look forward to their passage in the Senate and eagerly anticipate them being signed into law by the president.”
 
The Appraisal Reform Act (HR 3619), which passed Sept. 19, requires full consumer disclosure of AMC fees, separating them from the appraisal fee in the homebuyer’s Closing Disclosure Form. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 authorized, but did not require, separation of appraisal and AMC on these loan documents.
 
“This legislation would increase consumer awareness around the appraisal process,” Wagner said. “The Appraisal Institute recommended and supported this provision, and we are extremely gratified to see the legislation passed by the House.”
 
The bill amends the Financial Institutions Reform, Recovery and Enforcement Act of 1989, known as FIRREA, to provide the Appraisal Subcommittee with the authority to modify annual registry fees for AMCs, to maintain a registry of trainees and to charge a lower trainee registry fee. It also allows grants to states to assist appraiser and potential appraiser compliance with the Real Property Appraiser Qualification Criteria.
 
The Homebuyer Assistance Act of 2019 (H.R. 2852), which passed Sept. 10, would allow state-licensed appraisers to perform appraisals for mortgages insured by the FHA. In amending the National Housing Act, the bill would require compliance with existing appraiser education requirements.
 
“We support this bill because it addresses long-standing concerns about the implementation of pre-existing FHA appraisal requirements, which differ from those of Freddie Mac and Fannie Mae and of the conventional market,” Wagner said.
 
During his testimony at a June 20 Capitol Hill hearing, Wagner told the House Financial Services Committee’s Housing, Community Development and Insurance Subcommittee that the Appraisal Institute supports passage of both bills.
 
HR 2852 was sponsored by Rep. Brad Sherman, D-California, and co-sponsored by Reps. Sean Duffy, R-Wisconsin, and Van Taylor, R-Texas. A vote has not yet been scheduled on a similar bill in the Senate.
Sponsored by Rep. William Lacy Clay, D-Missouri, H.R. 3619 was co-sponsored by Reps. Sean Duffy, R-Wisconsin, and Emanuel Cleaver, D-Missouri. There is no corresponding legislation in the Senate, but discussions are ongoing, and legislation addressing registry fees is expected to be introduced soon.

STANDARDS SETTERS                                              

The National Council of Real Estate Investment Fiduciaries released its Agricultural Appraisal Guidelines Sept. 11. Developed by members of the NCREIF Farmland Committee with input from the Appraisal Institute and other organizations, the guidelines are intended to provide clearly defined standards for appraisers but are not intended to replace any current valuation requirements. 
 
“Many hours have been dedicated by multiple members of our committee to develop these guidelines,” said Rich Matheson, chair of the NCREIF Farmland Committee and a farmland portfolio manager for a U.S. state pension fund. “The primary goals are to assist the agricultural appraisal community by clarifying the content, analyses and data that institutional investors need, as well as help further the growing demand for the agriculture asset class.”
 
The Appraisal Institute on Oct. 30 hosted a webinar on the guidelines with the people involved in developing them, including Matheson; Matt Marschall, MAI, senior vice president, Land Services and National Practice Leader, Land Valuation with CBRE; and Erik Roget, director, UBS Farmland Investors. 
 

IN THE STATES                                                            

California Gov. Gavin Newsom on Sept. 18 signed AB 5, legislation that reclassifies some workers as employees rather than independent contractors for the purposes of state wage and hour laws. The law takes effect Jan. 1.
 
While provisions of the law are designed to ensure that workers in the gig economy receive overtime pay, sick leave, unemployment insurance and other benefits, independent fee appraisers, especially those who work for valuation firms and appraisal management companies, may also be affected.
 
The intent of the law is to codify the findings of the Supreme Court of California in the case of Dynamex Operations West Inc. vs. Superior Court of Los Angeles. In this case, the court rejected the existing method of classifying a worker (the Borello test) and established a new, three-part test (the ABC test) to determine if a worker is an employees or an independent contractor. 
 
Under the Borello test, the right to control the means and manner by which work is performed is the most important factor to consider when classifying a worker as an independent contractor. Under the ABC test, a worker can be classified as an independent contractor when: 
 
     A) The worker is free from the control and direction of the employer in connection with the
     performance of the work; and
     B) The worker performs tasks that are outside the usual course of the hiring entity's business; 
     and 
     C) The worker is customarily engaged in an independently established trade, occupation or 
     business of the same nature as the work performed for the hiring entity. 
 
All three parts of the ABC test must be satisfied for a worker to be classified as an independent contractor. 
 
The legislation includes a lengthy list of occupations and professions that are exempt from the ABC test, including lawyers, accountants and real estate brokers and salespersons. However, there is no exemption for independent fee appraisers engaged by valuation firms or AMCs. There is an allowance for a “bona fide business-to-business contracting relationship” if an entity formed as a sole proprietorship, partnership, limited liability company, limited liability partnership or corporation provides services to another business and the service provider can satisfy the business operation requirements. 
 
Fee appraisers and entities that engage appraisers are advised to review the provisions of the legislation to determine what impact, if any, they have on those engagements. Independent fee appraisers and their employers may be able to structure their engagements to meet the requirements for a “bona fide business-to-business contracting relationship.” However, the penalties and potential liability for misclassification of workers are substantial and may be applied retroactively.
 
 
California Gov. Gavin Newsom on Oct. 8 signed AB 1482, legislation that establishes statewide rent control. When the law takes effect Jan. 1, the state will start to regulate annual rent increases, limiting them to 5%, plus the local rate of inflation. The law applies to multifamily buildings once they reach 15 years old. 
 
Critics of the legislation argue that it could affect the value of existing multifamily properties and discourage new construction
 
 
Colorado, Illinois and Ohio are among the states that have reconciled waiver valuation restrictions with appraiser licensing laws. Other states are currently attempting to do so. Here, the Appraisal Institute addresses the issue of valuation waivers and explains how appraisers can provide them. 
 
The federal Uniform Relocation Assistance and Real Property Acquisitions Policies Act, known as the Uniform Act, requires state and federal agencies that are engaged in the acquisition of real property for projects receiving federal funding to have the properties appraised prior to negotiations with the owners. 
 
However, the legislation allows for a waiver valuation in two instances: 
 
     1. When property is donated and the donor releases the agency from its obligation to appraise the 
         property, and 
     2. When property is purchased and the acquiring agency determines an appraisal is unnecessary
         because the transaction is uncomplicated and the value of the property is estimated to be $10,000
         or less. A federal agency funding a project may exceed the $10,000 threshold — up to a maximum
         of $25,000 — if the agency offers the property owner the option to have the property appraised.
 
A waiver valuation is not an appraisal and typically cannot be prepared by an appraiser because it is not required to comply with the Uniform Standards of Professional Appraisal Practice. Because an agency is required to obtain a waiver valuation prepared by an individual who has “sufficient understanding of the local real estate market,” waivers typically are prepared by federal or state agency employees who have completed a minimum level of appraisal training and have demonstrated competence in completing valuations for use in real property acquisitions by government agencies. 
 
However, many state appraiser licensing laws contain an exemption from licensing requirements for employees of federal, state or local government agencies, so those employees are not required to be licensed to provide an opinion of the value of real estate — appraisal or waiver valuation. They also are not required to comply with USPAP because the preparers are not required to hold a state-issued appraiser credential. 
 
There might be circumstances where an agency has to utilize an appraiser, but since most state laws require credentialed appraisers to comply with USPAP, they are prohibited from providing waiver valuations. Some states have attempted to address this issue with appraiser licensing laws, which clarify that an appraiser may provide a waiver valuation and not be subject to other licensing law provisions, including the requirement to comply with USPAP. 
 
Examples of state laws applicable to appraisers who provide waiver valuations: 
 
     Colorado - 12-10-602. Definitions
 
     (c)  "Appraisal,” "appraisal report” or "real estate appraisal" do not include a federally authorized waiver
            valuation, as defined in 49 CFR 24.2 (a)(33), as amended.
     (b)  "Real estate appraiser" or "appraiser" does not include:
 
          (VI)  A right-of-way acquisition agent, an appraiser who is licensed and certified pursuant to this
          part 6, or any other individual who has sufficient understanding of the local real estate market to be
          qualified to make a waiver valuation when the agent, appraiser, or other qualified individual is 
          employed by or contracts with a public entity and provides an opinion of value that is not
          represented as an appraisal and when, for any purpose, the property or portion of property being
          valued is valued at twenty-five thousand dollars or less, as permitted by federal law and 49 CFR
          24.102 (c)(2), as amended;
 
     Illinois - 225 ILCS 458/5-5 Necessity of license; use of title; exemptions
 
          (e-5) For the purposes of this Act, valuation waivers may be prepared by a licensed appraiser
          notwithstanding any other provision of this Act, and the following types of valuations are not
          appraisals and may not be represented to be appraisals, and a license is not required under this Act
          to perform such valuations if the valuations are performed by (1) an employee of the Illinois
          Department of Transportation who has completed a minimum of 45 hours of course work in real
          estate appraisal, including the principals of real estate appraisals, appraisal of partial acquisitions,
          easement valuation, reviewing appraisals in eminent domain, appraisal for federal aid highway
          programs and appraisal review for federal aid highway programs and has at least 2 years’ 
          experience in a field closely related to real estate;
 
     Ohio - 5501:2-5-06 Real property acquisition
 
          (a) When an appraisal is determined to be unnecessary, the agency shall prepare a waiver
          valuation. Persons preparing or reviewing a waiver valuation are precluded from complying with
          standard rules 1, 2, 3 and 4 of the "Uniform Standards of Professional Appraisal Practice" (USPAP),
          as in effect in the 2018-2019 edition, as promulgated by the Appraisal Standards Board of the
          Appraisal Foundation.

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