California Introduces AVM legislation

[hastalavista]

This is hot of the press; just received via Valuation Review email. I'll summarize:

A bill is under consideration by the California House of Representatives (HB 2416) that would provide that a California Finance Lender licensee can collect a fee for an AVM not to exceed the AVM's cost. The proposal also requires a written statement stating an AVM is not an appraisal but a "computerized property valuation system" that is used to derive a real property value.

• Purpose of the bill is to make sure that borrowers are not up-charged for the AVM, and lender can only charge what it costs them to obtain the AVM.
• Only one fee can be charged per loan (different loan, new fee).
• Borrower, upon request, can obtain copy of AVM.

There's one part of the article that may be somewhat problematic for appraisers: Per the article, if a fee for an AVM result has been paid, within the one-year period, then an appraisal fee minus the amount that has been paid for the AVM may be charged for the appraisal on the same property.

I read this to mean that if the lender is charging for the AVM, and then decides to get an appraisal, the lender must subtract the AVM fee off of the appraisal fee. How this is going to work with IC/Fee appraisers remains to be seen. I assume that the likely event will be:
1. Lender eats the fee.
2. Lender makes appraiser eat the fee.
3. Won't apply to IC/Fee appraisers, as they are 3rd party providers.

 

[moh malekpour]

The bill

Denis,
here is the bill:


BILL ANALYSIS



AB 2416
Page 1

CONCURRENCE IN SENATE AMENDMENTS
AB 2416 (Torrico)
As Amended August 17, 2006
Majority vote

-----------------------------------------------------------------
|ASSEMBLY: |73-0 |(May 31, 2006) |SENATE: |40-0 |(August 24, |
| | | | | |2006) |
-----------------------------------------------------------------

Original Committee Reference: B. & F.

SUMMARY : Provides that a California Finance Lender (CFL)
licensee may collect a fee, not to exceed the actual cost, for
an automated valuation model (AVM) result in lieu of an
appraisal. Specifically, this bill :

1)Prevents a borrower from being charged for both an AVM result
and full appraisal for the same transaction.

2)Specifies that only one fee may be collected for providing the
AVM on the same property unless the borrower has obtained a
new or additional loan and for more than one year has elapsed
since the prior AVM result.

3)Provides that if a fee for an AVM result has been paid, within
the one-year period, then an appraisal fee minus the amount
that has been paid for the AVM may be charged for the
appraisal on the same property.

4)Provides that a licensee shall provide notice to a borrower of
their right to receive a copy of the AVM result, and that the
borrower shall submit their written request no later than 90
days after receiving notice.

5)Mandates that a licensee has 15 days to mail or deliver a copy
of the AVM after receiving a written request from the
borrower.

6)Provides for a specified notice informing the borrower of
their right to request the results of the AVM.

7)Requires a written statement stating that an AVM is not an
appraisal but a computerized property valuation system that is
used to derive a real property value.








AB 2416
Page 2


8)Defines "AVM" as a computerized property valuation system that
is used to derive a real property value.

9)Makes other technical and conforming changes.

The Senate amendments :

1)Clarify that that if a fee for an AVM has been paid and
subsequently an appraisal is required on the same real
property within one year, then the borrower may be charged for
the appraisal, minus the amount paid for the AVM.

2)Define "AVM" as a computerized property valuation system that
is used to derive a real property value.

3)Provide that a borrower pays for the AVM result, not the
actual AVM product.

4)Make non-substantive, technical changes.

5)Require a written statement stating that an AVM is not an
appraisal but a computerized property valuation system that is
used to derive a real property value.

EXISTING LAW :

1)Provides, under the Real Estate Appraisers' Licensing and
Certification Law, for the licensing and regulation of real
estate appraisers. (Business & Professions Code Section 11300
et seq.)

2)Defines "appraisal" as a written statement independently and
impartially prepared by a qualified appraiser setting forth an
opinion in a federally related transaction as to the market
value of an adequately described property as of a specified
date supported by the presentation and analysis of relevant
market information. (Business & Professions Code Section
11302(b).)

3)Establishes the CFL law which provides for the Department of
Corporations (DOC) to license, oversee, and regulate
businesses making consumer loans and/or commercial loans.
(Financial Code Section 22000 et seq. All further references
are to the Financial Code.)








AB 2416
Page 3


4)Allows DOC to specify the form an applicant must fill out and
the information required in order for an applicant to obtain a
CFL license. (Section 22101.)

5)Requires CFL applicants, at the time of filing the
application, to pay DOC a fee of $100 for investigating the
application and a $200 application fee. The investigation fee
and application fee are not refundable if an application is
denied or withdrawn. (Section 22103.)

6)Provides that only one fee for appraising the same real
property may be collected unless the borrower has obtained a
new or additional loan and more than one year has passed.
(Section 22317.)

AS PASSED BY THE ASSEMBLY, the bill was substantially similar to
its current form.

FISCAL EFFECT : Violations of the CFL law constitutes a
misdemeanor; local law enforcement costs not reimbursable.

COMMENTS : According to the author, this bill seeks to clarify
the use of AVMs as appraisals and to allow CFL licensees to
recoup the cost of an AVM. An AVM is a computerized property
value system designed to replicate conventional appraisal
methods through the use of demographics, property
characteristics, sales prices, and price trends to calculate a
value for the specific property.

Technological valuation science has been around for over a
decade, but recently has been used more by lenders in lieu of a
full appraisal. Some lenders also use AVMs to double-check
traditional appraisals, and Freddie Mac, uses an AVM to trip-up
scammers who attempt to rip off lenders or novice buyers with
inflated home prices (Do Prices Compute, Orange Country
Register , July 12, 2005).

Standard & Poor's (S&P) monitored the use of AVMs in 2004 and
found that 9% of first lien transactions were valued using AVMs,
while 94% of second lien market transactions used AVMs. S&P
also conducted a study of one million transactions conducted
with AVMs and found that the average hit rate, meaning the rate
at which the system returns a value, was 53% to 84% between 13
different valuation systems.








AB 2416
Page 4


S&P and Fitch Ratings evaluate and rate AVM services and how
they are processed. Traditionally, Fitch discounted non-full
appraisal values by as much as 10-15% for properties located in
soft or weak regions. Just this week, Fitch revised its stance
and will no longer reduce property valuation unless a lender's
non-full appraisal program could increase a pools loss exposure.
However, Fitch was clear that they will apply the discount to
lenders who do not disclose their AVM guidelines and
methodologies.

Currently, AVM systems are grouped into three types: Hedonic,
Home Price Index (HPI), and Hybrid. Hedonic models are
property-specific and require property characteristics and
location to determine the value. HPI models use price trend
data cultivated from zip codes and county levels. The HPI model
assumes that the subject property behaves similarly to others in
this zip code and price tier. The third type of AVM, the hybrid
model, uses of combination of Hedonic and HPI systems.


Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081


FN: 0016552

 

[Brad Ellis]

Denis,

The most expensive AVM on the market cost no more than $15 in any sort of volume. I doubt very much that it would influence an appraiser's fee.

Brad

 

[hastalavista]

Denis,

The most expensive AVM on the market cost no more than $15 in any sort of volume. I doubt very much that it would influence an appraiser's fee.

Brad

Agreed regarding the price/cost-

(however, any hit to the margin hurts the bottom line:new_smile-l: !)

I guess it may be more of a philosophical question, and many lenders automatically run some sort of AVM on a property to decide if an appraisal is necessary or not.

So, if that is the case, do they currently charge the borrower for that AVM run? If so, and if this law is passed, would the lender then require the appraiser to discount his/her fee so as not to "double charge" the borrower, or, would the lender "eat" the fee?

I have enough of my own cost of business expenses... as much as I like you, Brad, I'd hate to be forced to absorb your costs too! :laugh:

 

[Fred]

"Computerized"?? :Eyecrazy:

Anyone doing any non computerized appraisals? Shut off your computer for a month and see how many appraisals you can do.

I can't wait for that to get tested in court.

 

[moh malekpour]

Bill Text

BILL NUMBER: AB 2416 AMENDED
BILL TEXT

AMENDED IN SENATE AUGUST 17, 2006
AMENDED IN SENATE JUNE 28, 2006
AMENDED IN ASSEMBLY MAY 4, 2006

INTRODUCED BY Assembly Member Torrico

FEBRUARY 23, 2006

An act to add Section 22317.2 to the Financial Code, relating to
loans.



LEGISLATIVE COUNSEL'S DIGEST


AB 2416, as amended, Torrico Consumer loans: automated valuation
model fees.
Existing law, the California Finance Lenders Law, provides for the
licensure and regulation by the Commissioner of Corporations of
those engaged in making consumer loans and makes a willful violation
of the law a crime. Under existing law, an appraisal fee may be
charged by a licensee on any loan made that is secured by real
property if specified requirements are satisfied. Existing law
provides that only one fee for appraising the same real property may
be collected unless the borrower has obtained a new or additional
loan and more than one year has elapsed since the prior appraisal.
This bill would authorize a licensee to collect a fee for use of
an automated valuation model result prepared by a 3rd party not to
exceed the actual cost paid to the 3rd party for a written automated
valuation model result in lieu of an appraisal, as specified. The
bill would also authorize a licensee to charge a reduced appraisal
fee for appraising the same real property one year after collecting a
fee for an automated valuation model result if the borrower has
obtained a new or additional loan. The bill would require a licensee
in a loan transaction secured by real property to provide notice, as
specified, to a borrower that, upon request, the borrower is entitled
to receive a copy of the automated valuation model result, provided
he or she has paid for the automated valuation model result.
Because a willful violation of the bill's requirements by a
licensee would be a crime, the bill would impose a state-mandated
local program.
The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: yes.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


SECTION 1. Section 22317.2 is added to the Financial Code, to
read:
22317.2. (a) A licensee may collect a fee for use of an automated
valuation model result prepared by a third party not to exceed the
actual cost paid to the third party for a written automated valuation
model result in lieu of the appraisal provided for in Section 22317.
The borrower shall not be charged for both an automated valuation
model result and an appraisal as defined in Section 22317 for the
same property in a single transaction. Only one fee for providing an
automated valuation model result or an appraisal for the same real
property may be collected unless the borrower has obtained a new or
additional loan and more than one year has elapsed since the prior
delivery of an automated valuation model result or an appraisal.
However, if a fee for an automated valuation model result has been
paid, an appraisal fee minus the amount that has been paid by the
borrower for the automated valuation model result may be charged for
an appraisal for the same real property within one year if the
borrower has obtained a new or additional loan. The fee is not
included in charges as defined in this division or in determining the
maximum charges that may be made under this article.
(b) A licensee in a loan transaction secured by real property
shall provide notice as described in this section to a borrower of
the borrower's right to receive a copy of the automated valuation
model result, provided he or she has paid a fee for the automated
valuation model result. A borrower's written request for a copy of an
automated valuation model result shall be received by the licensee
no later than 90 days after (1) the licensee has provided notice of
the action taken on the application, including a notice of
incompleteness, or (2) the application has been withdrawn.
(c) The licensee shall mail or deliver a copy of an automated
valuation model result within 15 days after receiving a written
request from the borrower, or within 15 days after receiving the
automated valuation model result, whichever occurs later.
(d) Where the loan is proposed to be secured by
residential real property, the notice of the borrower's
right to a copy of the automated valuation model result shall be
given in at least 10-point boldface type, as a separate document in a
form that the borrower may retain, and no later than 15 days after
the licensee receives the written application. The notice shall
specify that the borrower's request for the automated valuation model
result must be in writing and must be received by the licensee no
later than 90 days after the licensee provides notice of the action
taken on the application or a notice of incompleteness, or in the
case of a withdrawn application, 90 days after the withdrawal.
The notice shall also include the following statement: "An automated
valuation model is not an appraisal. It is a computerized property
valuation s ystem that is used to derive a real property
value." An address to which the request should be sent shall be
specified in the notice. Release of the automated valuation model
result to the borrower may be conditioned upon payment of the fee.
(e) This section does not apply to automated valuation model
results obtained by licensees on property owned by the licensee, nor
to automated valuation model results obtained by the licensee in
anticipation of modifying any existing loan agreement if the licensee
does not charge for the use of the automated valuation model result.

(f) For purposes of this section, an "automated valuation model"
is a computerized property valuation system that is used to derive a
real property value.

(g) Nothing in this section authorizes the use of an automated
valuation model result in lieu of an appraisal that is required under
state or federal law.

SEC. 2. No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of the
Government Code, or changes the definition of a crime within the
meaning of Section 6 of Article XIII B of the California
Constitution.

 

[Mike McCool]

So I guess I'll stop asking the MB's to run an AVM instead of contacting me for a free comp check.

 

[Brad Ellis]

Denis,

I did not read anything in there that requires me to cut your fee- only that I cannot charge the borrower for both.

If a loender chooses to try the AVM route- and that would normally be done only for a HELOC or a second, then they ought to eat the cost if it does not work.

I have had these done for my HELOC and for my 2nd and have never been charged even though they could have done so..

Brad