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Summer 2023 Washington Report

The Appraisal Institute’s Washington Report & State News 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.

  1. Bipartisan Legislation Targets Appraisal Licensing Modernization 
  2. AI Lobbies Lawmakers on Modernizing Appraisal Licensing System
  3. ASC Holds Second Hearing on Appraisal Bias 
  4. Agencies Release Proposed Rule on Quality Control Standards for AVMs 
  5. Federal Banking Agencies Release Proposed Guidance on Reconsideration of Value 
  6. Agencies Update CRE Loan Workout Guidance
  7. Arizona and Florida Enact Appraiser Statutes of Repose 
  8. Adoption of PAREA Continues to Grow in the States
  9. Washington State Adopts Evaluations Law
  10. Texas Enacts Limitation on Indemnification in Government Contracts
  11. Multiple Valuation Issues Under Consideration in State Legislatures 

IN THE AGENCIES                                                                       

The Portal for Appraisal Licensing Act, known as the PAL Act, was reintroduced in the House of Representatives April 20. The bipartisan legislation is intended to modernize the real estate appraisal licensing system by reducing costs and cutting red tape for appraisers and those who use the services of appraisers.   
HR 2771 is co-sponsored by Reps. Barry Loudermilk, R-Ga.; David Kustoff, R-Tenn.; Josh Gottheimer, D-N.J.; and Ritchie Torres, D-N.Y.  The legislation would modernize the real estate appraisal licensing system by establishing the Portal for Appraisal Licensure, a cloud-based nationwide licensing system for appraisers that would be similar to the regulatory structures enacted for other industries, such as insurance and mortgage originators.
The PAL Act would authorize the Appraisal Subcommittee to work with state appraiser regulatory agencies to utilize the platform for:
  • Coordinating with stakeholders to establish and maintain the system,
  • Licensing management and establishing consistent application and renewal procedures, 
  • Coalescing education renewal periods for certified and licensed appraisers,
  • Conducting a common background check for states where they are required, and
  • Sharing information in real-time across state lines.
The Appraisal Institute views the PAL Act as an opportunity to fix a costly and inefficient system, lower costs and bolster the appeal of the profession. 
The legislation currently enjoys bipartisan support with a dozen co-sponsors. Similar legislation has not yet been introduced in the Senate, but AI is hopeful that will soon change. 
More than 120 Appraisal Institute Professionals went to Capitol Hill May 18 to urge congressional support for regulatory relief and appraisal modernization.  
Attendees of AI’s annual Leadership Development and Advisory Council conference, held May 17-19 in Washington, talked to lawmakers about HR 2771, the Portal for Appraisal Licensing Act, legislation that would help reduce costs and red tape for appraisers and those who use appraisal services by modernizing the real estate appraisal licensing system. 
AI Professionals asked members of the House of Representatives to co-sponsor the legislation, and sought original co-sponsors in the Senate, where there currently is no companion bill.
The Appraisal Subcommittee on May 17 held its second hearing to address appraisal bias, focusing on the current regulatory framework for the valuation profession, including appraisal standards, appraiser qualifications criteria, barriers to entry to the profession and valuation practices. The ASC heard from witnesses from the Appraisal Standards Board, the Appraiser Qualifications Board, the Association of Appraiser Regulatory Officials, the Fair Housing Alliance and a practicing appraiser. 
The discussion primarily concentrated on the perceived barriers to entry to the valuation profession and alternatives to the mentor-trainee model, such as the Practical Applications of Real Estate Appraisal, or PAREA, and the practicum model. ASC members were supportive of an alternative path to entry, but expressed concern about the costs associated with PAREA and requested more information. 
Following the hearing, the Appraisal Institute sent a letter to the ASC about its version of PAREA, writing, “we understand that to make AI PAREA work as an effective model it is important to make it available at a reasonable price. As a nonprofit organization, we do not have the luxury of pricing programs at a loss, at least not without negative financial consequences. AI PAREA is the largest venture undertaken by the Appraisal Institute in its 90-year history. The payback period for this project is reasonable under financial and project management standards.”
AI also reiterated its offer to brief the ASC on AI PAREA and encouraged the ASC to approve grant funds for PAREA scholarships, writing, “to strengthen the effort, we request that the ASC direct states to give priority for the scholarships, grants, etc., to aspiring appraisers who are part of communities that have historically been underrepresented in the appraisal profession.” 
The ASC has stated a goal of holding four such hearings, with appraisal methodology being a potential future area of focus. 
The Office of the Comptroller of the Currency, the Federal Reserve, the Federal Deposit Insurance Corp., the National Credit Union Administration, the Consumer Financial Protection Bureau and the Federal Housing Finance Agency on June 1 released a proposed rule for automated valuation models. 
The proposed rule would implement quality control standards as mandated by Section 1125 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 for the use of AVMs by mortgage originators and secondary market issuers to value single-family and one- to four-unit multifamily homes. Specifically, it would require that quality control standards apply when AVMs are used to make determinations of collateral value as opposed to other uses, such as monitoring value over time or validations.
The rule would require covered Institutions to adopt policies, practices, procedures and control systems to ensure that AVMs used in the covered transactions adhere to quality control standards in order to:
  1. Ensure high-level confidence in estimates,
  2. Protect against data manipulation,
  3. Avoid conflicts of interest, 
  4. Provide random sample testing and reviews, and 
  5. Comply with applicable nondiscrimination laws. 
The agencies propose to allow each covered institution the flexibility to create its own quality control standards that are appropriate for its size and the risk and complexity of its covered transactions. The proposed rule leans heavily on existing guidance from the Interagency Appraisal and Evaluation Guidelines issued in 2010. The IAEG includes a section on AVMs that the agencies are proposing to adopt as the base quality control standards. Additionally, the agencies are proposing that an antidiscrimination statement be included with the quality control standards. 
This proposed rule is the last to be released following mandates established by Dodd-Frank, and is a part of the Action Plan released last year by the federal Interagency Task Force on Property Appraisal and Valuation Equity, or PAVE.
The Appraisal Institute is preparing comments on the proposed rule.  
The federal banking agencies on June 8 released proposed guidance to address reconsiderations of value for residential real estate transactions. The guidance addresses policies that financial institutions may implement that allow consumers to provide them with information that may not have been considered during an appraisal or when deficiencies are found in an original appraisal. 
The issuance of guidance on RoV was a significant part of the PAVE Action Plan released last year, and the Appraisal Institute believes an RoV process can be beneficial to borrowers, underwriters and appraisers to ensure fair and accurate appraisals. 
The proposed guidance explains how financial institutions may create or enhance their existing RoV processes while maintaining consistent safety and soundness standards, complying with applicable laws and regulations, preserving appraiser independence and remaining responsive to consumers. 
The Appraisal Institute currently is reviewing the proposed guidance but sees some similarities to the recent proposed Mortgagee Letter from the Federal Housing Administration, for which AI co-signed a comment letter in February. As the federal banking agencies and other government agencies finalize their RoV policies, AI believes it is imperative to align the agencies as closely as possible to ensure consistent protocols and procedures are used by participating mortgage lenders. 
Comments are due in early August. 
The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corp. and the National Credit Union Administration in consultation with state bank and credit union regulators, published on June 29 the final policy statement on Prudent Commercial Real Estate Loan Accommodations and Workouts. This bulletin rescinds the 2009 bulletin, Commercial Real Estate Loans: Guidance on Prudent CRE Loan Workouts. 
The updated policy statement builds on existing guidance that calls for banks to work prudently and constructively with creditworthy borrowers during times of financial stress. It includes new information on short-term loan accommodations, addresses relevant accounting changes on estimating loan losses and provides examples on how to classify and account for loans modified or affected by loan accommodations or loan workout activity.
Appraisal Institute Professionals are encouraged to review the policy statement, as it represents a summary of existing requirements and guidance on CRE loan workout collateral valuation expectations, including appraisal and evaluation documentation and appraisal review expectations. AI intends to host a web briefing on this matter, which should be available for viewing on AI’s YouTube channel later this summer.  
IN THE STATES                                                                            
Efforts to limit real estate appraiser liability are advancing in the states as Arizona Gov. Katie Hobbs signed HB 2230 on April 18 and Florida Gov. Ron DeSantis signed HB 213 on June 12. Both bills limit the length of time during which a civil action can be initiated against an appraiser. The states became the 12th and 13th, respectively, to enact appraiser-specific statutes of repose.
In Arizona, the law establishes a four-year limitation on lawsuits against appraisers for legal claims such as negligent misrepresentation, professional malpractice and breach of the standard of care. The four-year period is calculated beginning from the date on which the real estate appraisal or appraisal service giving rise to the action was completed or should have been completed. The limitations established by HB 2230 do not apply to claims alleging fraud or gross misrepresentation. 
The Florida law requires that any action to recover damages against an appraiser or appraisal management company must be filed within two years of the date that the alleged act or omission giving rise to the suit is discovered or should have been discovered. But in no case may an action be initiated more than four years from the date the appraisal services or appraisal management services were performed. The provisions do not apply to any action alleging fraud. The new limitations will apply to appraisals and appraisal management services performed on or after July 1, 2023; any action that accrued before that date must be filed by July 1, 2024.   
The Arizona law will take effect Aug. 11 while the Florida law took effect July 1. 
Forty-two states have indicated that they will accept the Practical Applications of Real Estate Appraisal, known as PAREA, as an alternative way for appraisers to satisfy their experience requirements necessary to become licensed. 
Twenty-one states are considered 100% PAREA ready and will accept a Certificate of Completion from an Appraiser Qualifications Board-approved PAREA program. The other 21 states still need to put in place regulations and policies that apply to PAREA. The Appraisal Institute continues to work in the remaining 13 jurisdictions to ensure that they will accept PAREA.
California, the District of Columbia, Missouri and New Hampshire are considering proposed rules related to PAREA, and the Appraisal Institute is aware of at least 15 other states and jurisdictions that are in various stages of the process of drafting the necessary rules and regulations. 
See all AI PAREA-related statutes and regulations.
Washington Gov. Jay Inslee on May 15 signed HB 1797, legislation that allows real estate appraisers to complete evaluations for federally regulated financial institutions. It was amended to include a “trigger” mechanism whereby the bill will not take effect until the state adopts administrative rules related to fair housing and valuation bias established by the Department of Licensing that require appraisers and appraiser trainees to complete nondiscrimination and fair housing training as dictated by the Appraiser Qualifications Board. 
Texas Gov. Greg Abbott on May 23 signed SB 1766, legislation that prohibits in contracts the inclusion of language that requires a licensed appraiser to indemnify a governmental agency from all liability associated with the provision of appraisal services. The law takes effect Sept. 1. 
While most state legislatures have concluded their work for the year, 18 are still in session and considering measures affecting Appraisal Institute Professionals and the valuation profession. In all, AI’s Washington office has monitored more than 100 state legislative proposals this year and continues to work with its chapters, regions and state coalitions to help shape public policy. Of note: 
  • Massachusetts is still looking at a package of valuation-related bills, including S 147, which would make licensing mandatory in the state; H 276, which says a civil lawsuit against an appraiser can only be filed by the client and named intended users; and H 336, which would update real estate appraiser record retention requirements. 
  • North Carolina continues its review of HB 48, a measure that would disapprove the state’s Appraisal Board rules incorporating AI PAREA that were adopted last year. 
  • New Jersey is considering several valuation-related bills. AB 1519 and SB 777 are companion measures that would impose new penalties against real estate appraisers who are found to have engaged in discriminatory conduct. They also would require materials related to appraisal bias be distributed to property owners and prospective purchasers. AB 4647 and SB 3318 would direct the New Jersey Appraisal Board to accept AI PAREA. SB 3317 and AB 4648 would impose mandatory continuing education requirements related to fair housing and appraisal bias. 

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