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Washington Report & State News

June 26, 2020

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. 

CORONAVIRUS NEWS                                                                

The Appraisal Institute continues to monitor how the coronavirus (COVID-19) pandemic affects AI professionals and the rest of the real estate valuation profession, and is updating its website as information becomes available.
 
AI Answers is a series of free webinars produced by the Appraisal Institute that address multiple issues affecting the valuation profession during the COVID-19 emergency. Each episode averages about an hour and is available on AI’s YouTube channel.     
 
Recent topics included residential valuation impacts from COVID-19, federal and state legislative and regulatory updates, value sustainability concepts and an update from The Appraisal Foundation. 
 
Find additional information on how the coronavirus pandemic is affecting AI professionals and the rest of the real estate valuation profession. 
 
ON THE HILL                                                                                
 
Rep. Brad Sherman, D-Calif., and Maxine Waters, D-Calif., chair of the House Financial Services Committee, on May 8 introduced HR 6791, the COVID-19 Safe Home Appraisal Act of 2020. The proposed legislation, which was developed with input from the Appraisal Institute, would waive in-person appraisal requirements during the duration of the COVID-19 emergency. 
 
The circumstances under which in-person appraisal requirements would be waived:
  • When an exterior-only inspection is performed in conjunction with other methods of inquiry, such as information or documentation from the homeowner or borrower, photographs or verifiable videos.
  • When a lender, guarantor, regulating agency or insurer might order an interior inspection at a later date.
  • When a lender certifies that an appraiser rejected an assignment over health and safety concerns related to COVID-19. 
The legislation also addresses situations where stay-at-home orders may prohibit both interior and exterior appraisals, as was initially the rule in Pennsylvania. In such cases, appraisers can perform a desktop appraisal in conjunction with other methods, such as photos and videos from the owner or borrower, and then utilize an extraordinary assumption that the property’s interior quality, condition and physical characteristics are consistent with the exterior view.
 
Additionally, the legislation calls for the U.S. Department of Housing and Urban Development, the U.S. Department of Veterans Affairs and the Federal Housing Finance Agency to issue rules or guidance to ensure that their agencies and Fannie Mae and Freddie Mac make adjustments to single-family mortgage processes to allow flexibility so appraisers can avoid in-person interactions. 
 
No vote has yet been scheduled for the legislation.
 
 
The Appraisal institute’s Washington office continues to work with a bipartisan coalition in the House on legislation to modernize the real estate appraisal licensing system through the creation of a portal for appraisal licensure. The portal would provide appraisers one-stop shopping capabilities when applying for or renewing appraiser licenses and certifications, reducing red tape and administrative expenses.  
 
Legislation could be introduced within weeks. 
 
 
Rep. Peter DeFazio, D-Ore., chair of the House Committee on Transportation and Infrastructure, on June 3 introduced legislation to reauthorize federal highway and rail transportation programs. The INVEST in America Act would be a first step toward reauthorizing the Highway Trust Fund, which is set to expire in September. 
 
The legislation contains several elements of interest to the valuation profession, including:   
  • Improvements to the Transportation Infrastructure Finance Innovation Act loan program to encourage more public-private partnerships for infrastructure projects;  
  • Provisions to encourage high-density, transit-oriented development by requiring localities applying for Federal Transit Administration grants to assess the feasibility of affordable housing construction along mass transit routes;  
  • Authorization of a Vehicles Miles Traveled pilot program as a potential and more sustainable funding source for the Highway Trust Fund than the current and controversial federal “pay-at-the-pump” gas tax;  
  • Revisions to current Capital Investment Grant and TIFIA program cost-share commitments to allow funding for major projects, such as the New York-New Jersey Gateway Program along the Amtrak Northeast Corridor; and
  • Prioritization of Highway Trust Funds with a “fix-it-first” strategy that focuses on repairs and rehabilitation of decaying infrastructure.
Senate action will be necessary to meet the September reauthorization deadline. Extensions of the Highway Trust Fund are possible given the timeframe and current political climate. 
 
 
The Senate on June 3 passed HR 7010, the Paycheck Protection Program Flexibility Act of 2020, which provides some small businesses more time to use PPP funds and allows them to use a larger sum for non-payroll expenses. 
 
The Small Business Administration’s PPP package was enacted in March in the $2.2 trillion Coronavirus Aid, Relief and Economic Security Act, known as the CARES Act, to provide a “covered period” of eight weeks of financial assistance to help sustain small businesses.
 
HR 7010 would extend the covered period to 24 weeks, and allow businesses to spend 60% of the loan on payroll and 40% on non-payroll expenses, such as rent and utilities. Originally, businesses were required to follow a 75/25 allocation. 

IN THE AGENCIES                                                                       

The Federal Deposit Insurance Corp., the Federal Reserve Board, the Office of the Comptroller of the Currency and the National Credit Union Administration in conjunction with state bank and credit union regulators on June 23 jointly issued interagency examiner guidance that outlines supervisory principles for assessing the safety and soundness of institutions during the ongoing COVID-19 pandemic. 
 
Highlights of the guidance include:
  • Acknowledgment that stress caused by the pandemic can adversely impact an institution’s financial condition and operational capabilities, even when institution management has appropriate governance and risk management systems in place to identify, monitor and control risk. 
  • A reminder of the new appraisal deferral policy, and recommendations that examiners evaluate institutions to determine whether they are making their best effort to obtain a credible valuation of real property collateral before a loan closes and how institutions are addressing any appraisal or evaluation backlog.
  • A request that institution underwriting be evaluated for consistency with the principles in the agencies’ Standards for Safety and Soundness and Real Estate Lending Standards that focus on the ability of a borrower to repay a loan, as well as for compliance with other relevant laws and regulations. 
 
The Appraisal Institute on May 18 joined 10 valuation organizations in submitting a letter to the U.S. Department of the Treasury questioning procedural changes related to how the IRS determines violations of the valuation misstatement provisions of Section 6695A of the Internal Revenue Code.
 
The organizations said the changes place “outsized control and responsibility in the hands of examiners or attorneys who may lack any formal valuation training or specialized knowledge as to the subjects of the underlying valuation without a clear process for introducing relevant expertise into the review.”
 
While appraisers would still be involved in the review process, depending on the manager-appraiser arrangement, the review panel has been removed by the IRS. 
 
The organizations said the changes “run counter to the notion of due process and administrative restraint.”

IN THE STATES                                                            

South Dakota Gov. Kristi Noem on March 4 signed HB 1127, legislation that allows appraisers to provide real property evaluations to federally regulated financial institutions. When the law takes effect July 1, the state will join at least 10 others that allow appraisers to provide evaluation services. Several other states are considering similar laws. 
 
Evaluations provided by appraisers must conform to Interagency Appraisal and Evaluation Guidelines. South Dakota’s secretary of the Department of Labor and Regulation will be authorized to promulgate rules relating to “exemptions and standards allowing appraisers to perform an evaluation for a federally insured depository institution.” 
 
 
Many valuation professionals continued to provide appraisal services while stay-at-home, shelter-in-place and non-essential business closure orders were in place due to the COVID-19 pandemic. Those orders are still in place in some states and cities.  
 
Most states specifically recognized appraisal services as essential, while others referenced guidance from the Cybersecurity and Infrastructure Security Agency of the U.S. Department of Homeland Security regarding essential infrastructure services that were allowed to continue. 
 
Initially, CISA’s Guidance on the Essential Critical Infrastructure Workforce: Ensuring Community and National Resilience in COVID-19 Response appeared to only recognize appraisal services provided to financial institutions as essential. However, a March 29 update recognized all commercial and residential real estate services as essential, so appraisers following proper hygiene and social-distancing protocols were able to provide full services, including interior inspections. 
 
However, a few states had more stringent requirements for appraisal services during closure orders.
 
Pennsylvania initially allowed residential and commercial appraisers to only perform exterior inspections, and the guidance was unclear as to whether those appraisals had to serve financing purposes. While guidance for residential appraisers was clarified and slowly expanded to allow interior inspections, guidance for commercial appraisers remained unclear until May 19 when Gov. Tom Wolf released Guidance for Businesses in the Real Estate Industry Permitted to Operate During the Covid-19 Disaster Emergency to Ensure the Safety and Health of Employees and the Public
 
Pursuant to release of this guidance, all residential and commercial appraisal activities, including interior inspections, were permitted statewide for all intended uses (financing and non-financing) as long as health-related protocols were followed.
 
Vermont also originally adopted stringent criteria that prohibited appraisal activities from being performed more than 10 miles from an appraiser’s home. However, on April 17, the state clarified that low- or no-contact real estate-related services, including appraisals, were permitted. 
 
Dallas County in Texas initially prohibited appraisal services, but pressure from appraisers forced officials to quickly change its order and allow those services. 
 
Find more information on essential appraisal services, restrictions and stay-at-home orders on the Appraisal Institute’s Coronavirus Updates page.
 
 
An initiative to change how California assesses real property will be on the November ballot. If the so-called “split-roll” initiative passes, it would amend the state’s constitution to require commercial and industrial properties (except those zoned commercial agriculture) to be taxed on their market value, undoing part of Proposition 13, a landmark law that capped residential and commercial property tax increases. 
 
Prop.13 was enacted in 1978 and requires properties to be reassessed only when sold or redeveloped, which means that some residential and commercial properties in California — including the massive Disneyland Park campus — have not been reassessed in 42 years. Prop. 13 also limits property tax to no more than 1% of the purchase price, with annual adjustments either equal to the rate of inflation or 2%, whichever is lower.
 
The split-roll initiative, officially the California Tax on Commercial and Industrial Properties for Education and Local Government Funding Initiative, would continue to limit tax increases for residential properties, but require new assessments for commercial properties valued at more than $3 million. It could generate up to $12.5 billion in new property tax revenue annually.
 
The new tax revenue would bypass the state’s General Fund, however, and instead be used to compensate for the state’s decreased revenue from personal income tax and corporation tax. Additionally, funds will be allocated to counties to help cover the costs of implementing the initiative. Remaining funds would be split between local governments and special districts (60%) and school districts and community colleges (40%). 
 
The initiative is primarily supported by teachers’ unions and is strongly opposed by business interest groups. 
 
 
Most state legislatures either adjourned early this year or suspended their operations due to the COVID-19 pandemic, and the types of bills being considered were generally limited to ones necessary for the continuation of government functions or related to the coronavirus pandemic. Most state appraiser regulatory agencies also curtailed their operations, and state appraiser boards met virtually with abbreviated agendas. 
 
As such, there have been few appraisal-related legislative and regulatory measures this year, and the ones that passed focused on state compliance with the federal minimum requirements for the registration and oversight of appraisal management companies, including:
Michigan is considering AMC legislation with HB 5481
 
Preparations already are underway to advance a robust legislative agenda for 2021. 

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