Appraisal Institute

Washington Report & State News

Nov. 2, 2018

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.  

ON THE HILL                                                                                

The Appraisal Institute is urging its professionals to contact their legislators regarding two bills that potentially could see floor action in November and would amend the appraisal threshold for the Small Business Administration’s two largest loan programs. 
 
The legislation, S. 3552 and S. 3553, would tie the appraisal threshold to the commercial real estate threshold level established by the federal bank regulatory agencies, and AI believes Congress should continue to specify a threshold level in the SBA statute. That level was raised earlier this year to $500,000, up from $250,000, but even that action is threatened by a rule proposed by the National Credit Union Administration that seeks to raise the threshold level to $1 million. 
 
 
 
Reps. Jeb Hensarling, R-Texas, and John Delaney, D-Md., released on Sept. 6 a discussion draft bill to reform the government-sponsored enterprises and the housing finance system currently backed by Fannie Mae and Freddie Mac. The bill would repeal the GSEs’ charters and adopt a system allowing qualified mortgages to be securitized through Ginnie Mae. 
 
The bill would establish a new non-government, not-for-profit mortgage security exchange to develop common “best practices” standards for the private securitizing, pooling and servicing of mortgages, and operate a publicly accessible securitization outlet to match loan originators with investors. The bill would require the transfer to the exchange of historical loan-level data and the underwriting technologies used by the GSEs, and grant public access to this information. The exchange would set and maintain the basic recordation, disclosure and transparency “best practices” standards for the mortgage industry.
 
Many of the concepts within the discussion draft were the focus of a hearing in the House Financial Services Committee on Sept. 6. Read the testimony and view full archived hearing.
 
The discussion draft is currently under review by the Appraisal Institute Government Relations Committee.
 

IN THE AGENCIES                                                                       

The National Credit Union Administration on Oct. 3 released for public comment its proposal to increase the appraisal threshold level for non-residential loans to $1 million, up from $250,000. The proposal also incorporates the rural exemption from appraisals found in the regulatory reform package signed into law earlier this year. 
 
The Appraisal Institute sees this proposal as likely setting up an “arms race” between the NCUA and the federal banking agencies, which recently increased the appraisal threshold to $500,000. If adopted, the federal banking agencies would face great pressure to establish a corresponding threshold level — despite having more experience with commercial real estate risk issues and having already studied the issue for years before settling on the $500,000 threshold level earlier this year. Nearly all Small Business Administration loans would then be subject to a no-appraisal or evaluation loophole. 
 
AI plans to comment on the proposal and encourages all AI professionals do the same by the Dec. 3 comment deadline, sharing any experiences with credit union clients in commercial real estate or business lending. The NCUA accepts comments via email to regcomments@ncua.gov. Include “Real Estate Appraisals” in the Subject line, and keep in mind, the NCUA posts all received comments to the agency’s website for the public to view. 
 
 
The Appraisal Subcommittee stated in a Sept. 7 letter to North Dakota Gov. Doug Burgum, the North Dakota Department of Financial Institutions and the North Dakota Bankers Association that it cannot accept the state’s request to waive USPAP-compliant appraisals for federally related transactions, writing:
 
“Under section 1119(b) of Title XI, the ASC may waive any requirement relating to the certification or licensing of a person to perform appraisals for FRTs, but the ASC does not have the authority to waive the statutory requirement that a USPAP-compliant appraisal be conducted for an FRT. Nor does the ASC have the authority to permit the use of an evaluation in lieu of an appraisal for an FRT.”
 
The ASC noted it would consider a temporary waiver request for a requirement relating to the certification or the licensing of a person to perform appraisals — once it receives the correct supporting documentation. 
 
The ASC’s response is consistent with the view held by the Appraisal Institute and nearly 30 valuation organizations that on Aug. 13 submitted a letter to the ASC opposing North Dakota’s appraisal waiver request.
  
North Dakota has not responded to the ASC letter as of Oct. 31, but is expected to resubmit a request that focuses on the ASC’s temporary waiver request authority.
 
 
The Federal Housing Administration on Sept. 28 announced in mortgagee letter 2018-06 that it will require lenders that originate new Home Equity Conversion Mortgages, known as reverse mortgages, to provide a second property appraisal under certain circumstances. The requirement took effect Oct. 1 and ends Sept. 30, 2019, unless extended. 
 
The FHA will perform a collateral risk assessment of the appraisal submitted for use in all HECM originations. Based on the outcome of that assessment, the FHA may require a second appraisal to approve the HECM. The mortgagee must not approve or close an HECM before the FHA has performed the collateral risk assessment and, if required, obtained a second appraisal. When a second appraisal is required and offers a lower opinion of value, the mortgagee must use the lower value in originating the HECM.
 
The Appraisal Institute has long heard of concerns about HECM loans from within the FHA, but in a public call in September, the FHA Commissioner Brian Montgomery shared the impetus behind the change, stating, “out of the 134,000 appraisals inputted into its automated valuation model, approximately 50,000 — about 37 percent — were inaccurate by at least 3 percent.”
 
 
The IRS on Sept. 10 announced five large business and international division compliance campaigns, including one focused on syndicated conservation easement transactions.
 
The increased enforcement follows the IRS having categorized such transactions as potential tax shelters and therefore require disclosure statements provided to them from both investors and material advisors — including appraisers. This new effort is expected to enhance IRS enforcement of the disclosure requirements, as well as the structure and easement valuation requirements of the transactions themselves.

IN THE STATES                                                            

Alaska Gov. Bill Walker on July 25 signed SB 155, legislation that enacts a comprehensive oversight and regulatory program for appraisal management companies operating in the state. Alaska is the 48th jurisdiction to enact an AMC law; Massachusetts, New York, the District of Columbia and the four U.S. territories have no AMC laws. 
 
SB 155 mostly is consistent with the federal minimum requirements for the registration and oversight of AMCs promulgated by the Appraisal Subcommittee in 2015. AMCs operating in Alaska will be required to post a $50,000 surety bond, and must separately state the fees paid to an appraiser and the fees charged to a borrower. The legislation also appears to require AMCs to adopt a “cost-plus” model whereby the full fee paid by the borrower for an appraisal goes to the appraiser completing the service. 
 
It is a class B misdemeanor, punishable by up to 90 days in jail and a $2,000 fine, for any entity to provide AMC services without holding the proper registration. This includes registrations that may have lapsed. 
 
 
California Gov. Jerry Brown on Sept. 29 signed SB 70, legislation that allows the state’s appraisers to name intended users other than a client in a restricted appraisal report. 
 
State-certified real estate appraisers in California are required to comply with the Uniform Standards of Professional Appraisal Practice and therefore cannot provide a restricted appraisal report in situations where it may be shared amongst intended users other than the client or clients who engaged the appraiser. Examples include attorney/adviser, accountant/auditor and a taxing authority. 
 
When SB 70 takes effect Jan. 1, state-certified real estate appraisers in California will be able to produce a restricted appraisal report that identifies one or more intended users in addition to the client. The appraiser must first obtain the client’s consent, and the intended use of the appraisal cannot be for A) a mortgage lending transaction engaged by a federally regulated bank, B) the purchase or refinance of a residential dwelling of one to four units or C) a broker investment transaction, where users may not be well enough versed in the subject matter to properly understand information contained in a restricted appraisal report. 
 
Additionally, appraisers producing a restricted appraisal report that names multiple intended users must clearly identify all users and state that the opinions and conclusions set forth in the report may not be properly understood without additional information in the appraiser’s work file. It also must be stated that there may be assumptions in the restricted appraisal report that the appraiser has not verified and that could impact the appraised value of the subject property. 
 
The law likely will most benefit appraisers engaged for tax appeals, financial reporting and estate and tax — the types of assignments where users of the appraisal services are informed enough to understand a restricted appraisal report but do not need all the information and analysis required for an appraisal report.
 
The Appraisal Institute sees SB 70 as a commonsense measure that allows appraisers to better meet client needs and to compete with unlicensed service providers who are not subject to the same limitations to appraisal report provisions. It also might encourage more real estate valuation professionals to become state certified since the scope of services they can provide will no longer be arbitrarily restricted. 
 
The provisions in SB 70 will expire Jan. 1, 2020 unless further extended by the California legislature. 
 
The legislation was sponsored by Sen. Patricia Bates (R-Laguna Niguel) and strongly supported by the Appraisal Institute’s California Government Relations Committee, which consists of the state’s five AI chapters.  
 
 
Illinois Gov. Bruce Rauner on Aug. 13 signed HB 5502, legislation that eliminates a requirement that individuals pass an examination to become an associate real estate appraiser trainee, along with a few other changes to trainee requirements. 
 
The bill eliminates a provision that prevented trainees from renewing their credential more than twice; they previously had to obtain their license or certification within a maximum of 6 years. Additionally, the bill requires the Illinois Department of Financial and Professional Regulation to employ at least one investigator who holds an active certified appraiser licenses for every 2,000 licensees in the state. 
 
The bill was sponsored by Rep. Tony McCombie, a state-certified residential appraiser in both Illinois and Iowa. The law takes effect Jan. 1. 
 
 
The Illinois Department of Financial and Professional Regulation has pending disciplinary actions against numerous appraisers who failed to complete their required 28 hours of continuing education prior to applying for a license renewal. 
 
The IDFPR recently changed the regulations so as to establish an early warning system for licensees that should help alleviate the possibility that they will face a publicly reportable disciplinary action for the minor infraction of continuing education requirements. 
 
The regulations now require licensees seeking renewal to complete their CE by the June 30 CE completion deadline. The IDFPR will conduct audits to verify compliance, and if a deficiency is  discovered, the licensee will have until Sept. 30 to submit evidence of compliance. Licensees must pay an administrative fee (not a fine) of $100 per credit hour for courses completed after June 30 but before Sept. 30.
 
If the licensee submits an application for renewal but fails to submit satisfactory evidence of compliance with CE requirements or fails to pay any administrative fee by the Sept. 30 renewal deadline, the regulation states, “the failure shall be evidence of a violation of Section 1455.310(e) regarding unprofessional conduct.”
 
 
The Appraisal Subcommittee on Oct. 1 granted one-year extensions to 26 states regarding requirements for having compliant appraisal management company registration programs in place to enable AMCs to continue engaging in federally related transactions. 
 
The Dodd Frank Act, with the approval of the FFIEC, allows the ASC to extend by one year the implementation period established by the federal “Minimum Requirements for Appraisal Management Companies” if the ASC finds that states have made substantial progress in establishing an AMC program that meets the requirements of Title XI.
 
Some states that were granted a one-year extension already have AMC regulatory programs in place. However, statutory or regulatory changes may be required for the programs to be compliant with federal requirements. States that were granted an extension will not be reviewed by the ASC for compliance until Aug. 10, 2019. State that have AMC regulatory programs will not be reviewed by the ASC for compliance or begin collecting and remitting AMC national registry fees to the ASC until June 4, 2020. 
 
The U.S. District Court for the District of New Jersey on Sept. 28 issued partial summary judgment in favor of a group of review appraisers employed by a federally regulated financial institution who alleged they were misclassified under the Fair Labor Standards Act and were not paid overtime compensation to which they were entitled.
 
The court stated in its opinion granting partial summary judgement that the plaintiff appraisers were misclassified as exempt from overtime pay and that they do not qualify for the FLSA’s “learned professional” exemption because they were not required to “complete any specific, intellectual or academic instruction” and that “appraisal certifications are more skin to skills acquired through experience and supervised training.” 
 
The court refused to grant summary judgment to either party regarding whether the FLSA’s “Administrative” or “Highly Compensated” exemptions applied to the plaintiff appraisers. The court also denied granting summary judgment on matters related to the applicable statute of limitations and whether the plaintiffs are entitled to liquidated damages under the FLSA. 
 
 
 
Several states are in the process of adopting regulations to enact the changes made by the Appraiser Qualifications Board to the Real Property Appraiser Qualification Criteria that took effect May 1. While some states chose to adopt the changes in their entirety, some, including Washington, are adopting only certain provisions. 
 
For example, Washington proposed modifying the college-level education requirements for the state-licensed real estate appraiser credential and state-certified residential real estate appraiser credentials to match the AQB qualification criteria. Additionally, the state wants to provide a pathway for state-licensed residential appraisers to upgrade to state-certified residential without the required college-level education. 
 
However, Washington has chosen to retain the existing experience hour requirements — although the state wants to shortening from 24 months to 12 months the minimum time in which experience must be gained for the state-licensed credential. The AQB minimum requirement for experience necessary to obtain the licensed residential credential is no less than six months. 
 
 
The Appraisal Institute reported Oct. 22 that eight pieces of legislation affecting the valuation profession are pending in five states and the District of Columbia. The proposed legislation includes: 
 
District of Columbia 
LB 810 enacts a comprehensive appraisal management company oversight and registration program. 
 
Florida
The state’s Real Estate Appraisal Board published a Notice of Development of Rulemaking to implement a 2017 law that allows appraisers to perform evaluations. The board voted to establish an evaluation task force to further review the matter. 
 
Massachusetts
H 1975 clarifies that only the client and the intended user of an appraisal have standing to civilly sue an appraiser or to file a complaint with the state appraiser regulatory agency. 
 
H 2000 establishes a statute of limitations on disciplinary actions against appraisers of five years after the date of the appraisal report, or two years from the date of final disposition of a judicial proceeding in which an appraiser provided testimony related to the appraisal assignment. 
 
H 4566 establishes a comprehensive AMC registration and oversight program.
 
S 2246 makes it mandatory for appraisers to be licensed if they’re providing an opinion of value for real estate in the commonwealth.
 
New York
AB 10831 establishes a comprehensive AMC registration and oversight program. 
 
Texas
The Texas Appraiser Licensing and Certification Board is considering whether to allow appraisers to perform evaluations. 
 
A rule proposed in May would have permitted appraisers licensed and certified in Texas to perform evaluations that didn’t comply with the Uniform Standards of Professional Appraisal Practice for commercial real estate transactions with a value less than $500,000. The Appraisal Institute on June 11 submitted a comment letter in support of this proposal. However, the rule was withdrawn and the issue was remanded to the enforcement committee with instructions to reconsider the issue in light of proposed changes to USPAP. 
 
The TALCB’s Enforcement Committee met Oct. 10 to further discuss this issue.  Prior to the meeting, the Foundation Appraisers Coalition of Texas offered additional suggestions for modifications to the proposed rule, including a requirement that appraisers performing evaluations comply with the Interagency Appraisal and Evaluation Guidelines.

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