Jeremy Bagott on Cindy, the Stakeholders, and Tax Exempt Status:
"*** FOR IMMEDIATE RELEASE ***
SOARING HOME PRICES AND A PAIR OF SHAPE-SHIFTING NONPROFITS
VENTURA, Calif. (Sept. 20, 2024) – Earlier this year, the director of the Consumer Financial Protection Bureau
called this organization a pay-to-play outfit based on the way its paid sponsors select its trustees. Meanwhile, an allied nonprofit is in turmoil after its recently ousted CEO is
telling financial reporters of the group’s infiltration by special interests. Both nonprofits are little-known to the public but may be having an outsized effect on America’s housing inflation.
The obscure organizations are known as the Appraisal Foundation and Appraisal Institute. The former creates a set of continually changing standards by which homes used as collateral are valued in federally backed mortgages. The latter is one of its primary sponsors and enablers.
If the allegations are true, these two organizations are clearly at odds with their stated missions, the missions they report to the Internal Revenue Service in filings used to support their tax-exempt status. Stick around to the end to learn what you can do to report such organizations.
For the past five years, both have been working to subvert a primary bulwark in America’s government-backed home mortgage system – its corps of appraisers. The resultant stifling of appraisers has emboldened and allowed the further politicization of mortgage giants Freddie Mac, Fannie Mae and the FHA. The marginalization of appraisers has also stimulated historic housing inflation as fewer buyers and sellers are sent back to renegotiate unsupported sale prices. It has also created great hidden risks to individuals and institutions holding U.S. mortgage-backed securities.
As Rohit Chopra of the Consumer Financial Protection Bureau points out, the Appraisal Foundation operates outside government constraints and oversight, though it creates standards that are enforced as binding law. In recent years, particularly since the start of the pandemic, the work of these two organizations has resulted in the sidelining of appraisers in federally backed housing transactions.
According to accounts by both Chopra and the recently ousted Appraisal Institute chief executive Cindy Chance, both nonprofits are working in ways that are at loggerheads with their respective stated missions.
“Nonprofits live or die by their ability to achieve tax-exempt status at the federal and state level,” said appraiser and author Jeremy Bagott. “The IRS Form 990 is the document in which the nonprofit tells the public of its purpose, chronicles its good deeds and reports its financials.”
Revocation of tax-exempt status is considered a death sentence for many such organizations. It would require the organization to pay income taxes on revenue, including donations.
“When you have people in roles for long periods of time, who are friends for years, and they work in the regulatory space and then in the nonprofit advocacy space, and then in the for-profit space, and all of these interests get entangled, it is a situation that is ripe for corruption and self-dealing,” Chance, the recently cashiered CEO of the 16,000-member Appraisal Institute,
wrote in a recent email to reporter Sasha Jones of the real estate publication Bisnow. Chance, an ethicist and Ph.D. who was once the managing director of Georgetown University’s Kennedy Institute of Ethics, was brought in as an outsider. She was on the job only 13 months.
Special interests that reap an inherent benefit from limiting – or outright eliminating – appraisals in government-backed mortgages and shifting risks to taxpayers are the nonbank lenders, banks, homebuilders, Realtors and fintechs. Recent additions to the group are appraisal management companies, known in the industry as AMCs. They are intermediaries that have come to broker appraisals between banks and borrowers at considerable mark-ups. They, too, attempt to steer federal mortgage policy, although their aims differ.
The day after Chance’s damning email to Bisnow, the Appraisal Institute’s president, Sandra Adomatis, issued an extremely narrow denial. “Let me be very clear: No board members own or operate an AMC.”
“The Appraisal Foundation’s governance structure features a pay-to-play mechanism,” wrote Chopra, “whereby paying sponsors selected about half its trustees.” It is now playing a shell game with its “partners” and “sponsors” to continue to bamboozle observers. “The Appraisal Foundation has essentially renamed Sponsors ‘Partners,’ whose nominees will almost certainly be added to the board of trustees. Currently, 11 out of 12 partners are former sponsors. That means most or all partner-nominated trustees will be selected by these sponsor-partners.”
As Chopra points out, the Appraisal Foundation’s conflict-of-interest policies place no ban on employees of the nonprofit using their positions to endorse a product, service or enterprise. Nor are there bans on an employee using his or her position for the private gain of friends, relatives or persons with whom the employee is affiliated in a nongovernmental capacity, which includes nonprofit organizations of which the employee is an officer or member.
There is also no ban on officers giving preferential treatment to any private organization or individual, including any person or organization with which the employee has or seeks employment or business relations. Employees of the nonprofit may participate in matters that have a direct and predictable effect on the financial interests of the employee’s spouse, minor child, or general partner. Its employees may solicit or accept gifts given because of the employee’s official position or from a prohibited source, which includes, among others, any person or organization that does business or seeks to do business with the organization.
The Chicago-based Appraisal Institute
provides the following required mission statement in its 2022 Form 990 to the Internal Revenue Service: “Our mission is to empower valuation professionals through community, credentialing, education, body of knowledge and ethical standards.” The Washington, D.C.-based Appraisal Foundation provides its required mission statement in its 2022
filing as “To advance the valuation profession by setting standards of excellence, promoting education and upholding the public trust.”
If a cabal on either organization’s board or among its staff is acting on behalf of special interests to promote the waiving of appraisals or eliminate the use of appraisals or discredit the appraisal profession, its filings would be fraudulent.
“If the allegations are true, both organizations are in violation of their respective advocacy missions as stated in their IRS filings,” said appraiser and author Jeremy Bagott. In the interest of full disclosure, Bagott is a member of the Appraisal Institute."
Jeremy Bagott,
community for the discussion of real estate appraisal. Register a free account to be able to post and unlock additional forums and features.
