The ongoing firestorm of government rules is blurring borders, with federal regulators now aiming their regulatory rifles at the appraisal industry. The policies have prompted detailed comments and discussions. In other appraisal news, the government-sponsored housing enterprises fired off several updates, while another factor in the valuation of hotels has been added.
In January, the CFPB issued a final rule on appraisal-related amendment changes to Regulation B. That same month, the bureau and five other federal regulatory agencies released a final rule on appraisals for higher-risk mortgage loans. Both effective Jan. 18, 2014, these rules sparked industry-wide response when initially proposed.
“We support providing appraisal reports, automated property valuation results, and any broker price opinions that creditors produce or obtain in connection with mortgage loan applications,” an Oct. 15, 2012, American Financial Services Association and Consumer Mortgage Coalition letter said.
This letter, which addressed the CFPB’s Reg B amendment requiring creditor-provided appraisal reports and other property valuations to applicants, pointed out, however, some alarming items. Chief concerns included the basis for defining valuations, the timing and information provided in initial appraisal disclosures, the allowable charges associated with valuation costs.
A 135-page letter, the AFSA, CMC and Mortgage Bankers Association listed several issues concerning the rule on appraisals for higher-priced mortgage loans despite revealing they “strongly support the proposal to prevent flipping.”
“The main complexity of the proposed rule relates to the fact that Congress defined higher-risk mortgage based on the spread of the annual percentage rate over the average prime offer rate,” the letter stated.
Though these policies can cause lender confusion, appraisal management company MountainSeed Appraisal Management LLC provides an educational approach for helping lenders manage their way through appraisal compliance policies.
“We spend a lot of time learning about the regulations that impact our clients because one of the things that we’ve found is that our clients are worried about the biggest possible fittings like loan officer compensation or the ability to repay or risk protection,” MountainSeed Advisors LLC Chief Legal Officer Nathan Brown said. “They don’t necessarily have the resources to dive into the appraisal regulations the way that we have. One of the things that we’ve found is that there’s a tremendous benefit to being able to help our clients understand this piece of the world and this piece of the regulations.” (after this story was published, Brown indicated that he said “We spend a lot of time learning about the regulations that impact our clients because we sense that our clients are worried about the biggest topical biddings like loan officer compensation or the Ability-to-Repay Rule or risk retention.” Also, he clarified that he was speaking on behalf of MountainSeed Appraisal.)
In December, the Appraisal Subcommittee published comments received on its proposed policy statement amendments that implemented changes the Dodd-Frank Wall Street Reform and Consumer Protection Act made to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 and instituted the ASC’s revised 2009 compliance review process. Among the comments, a CMC and Independent Community Bankers of America letter suggested ASC guideline compliance should serve as the baseline for reciprocity, review appraisers needing credentials in states where properties exist was unnecessary and ASC policy statement three needed revision to clarify intent.
Also in December, US Appraisal Group President and CEO Dione Spiteri’s article, The Top Myths and Misconceptions in the Appraisal Process Dispelled for Clients, revealed misconceptions clients had concerning the appraisal process and tips for how mortgage professionals could address these concerns with borrowers.
“With more people getting into the market, with varying levels of educations about the home buying process, opportunities for misinformation, and therefore dissatisfaction, can be high,” Spiteri wrote. “Consumers are likely to be disappointed if they do not understand why their appraisal amount did not come in as expected, are not made aware of the need to pay for an appraisal again in certain circumstances, or simply do not understand the process and what to expect.”
As well, the American Enterprise Institute hosted the Reengineering the Appraisal: A Return to Market Fundamentals conference last year in August. The conference addressed current appraisal practices and their contribution to the housing market problem, needs for reform to address appraisal-related issues and identification of trade-specific best practices.
Though regulatory discussions dominated appraisal compliance news, the GSEs unveiled an armory of Uniform Appraisal Dataset compliance data mines.
In Jan., Fannie Mae and Freddie Mac used the UAD Update for announcing several UAD compliance warning edits and updates and Uniform Collateral Data Portal Release notifications. Ten UAD compliance warnings edits will convert to fatal UAD edits in the UCDP. These changes will affect four Fannie and Freddie forms. June 2013 is the target conversion implementation for the first set of data fields. The other data fields do not have a set date but are scheduled for the second half of 2013.
Other recent Fannie-specific activities include activating UCDP appraisal messages, changing the appraiser’s state license number data field required for loan deliver to fatal severity, initiating monthly feedback on submitted appraisals, and providing details on the July 23, 2012, Uniform Loan Delivery Dataset Mandate.
In final news, commercial real estate appraisers have a new option for hotel appraisals that could have industry-wide implications.
The Appraisal Journal article New Option in Hotel Appraisals: Quantifying the Revenue Enhancement Value of Hotel Brands, offers an in-depth look at a hotel brand value study that quantifies revenue generation from a hotel’s brand. The authors — independent real estate appraiser an Source Strategies President A. Scruggs Love and Source Strategies Vice President Bruce H. Walker — conclude this study provides a system for objectively including hotel brand value in the appraisal process.
“This could have a tremendous impact on ensuring a fair valuation of hotels throughout the entire country,” Texas Hotel and Lodging Association President and CEO Scott Joslove said. “Many states do not allow property taxes to apply to the intangible value of a hotel. Ensuring accurate assessment of the intangible value of a hotel can impact property taxes by thousands of dollar each year. This study shows that depending on a hotel’s brand affiliation, the intangible value of the property can be as high as 50 percent of its market value.”
