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Federal Reserve Board Proposed Changes to Reg Z - Appaiser Coercion

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Rich Heyn

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Certified General Appraiser
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Michigan
The Federal Reserve Board is proposing changes to Reg Z that among other things would prohibit creditors and mortgage brokers from coercing a real estate appraiser to misstate a home’s value. I'm told that very few public comments have come in from the appraiser community so I thought I would pass this link along. The comment period is still open.

http://www.federalreserve.gov/newsevents/press/bcreg/20071218a.htm
 

Randolph Kinney

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So with out these proposed changes to prohibit coercion, it must have been Okay to do so.

Strange how the laws and regulations work.

The following protections would apply to all loans secured by a consumer’s principal dwelling, regardless of the loan’s APR:
  • Lenders would be prohibited from compensating mortgage brokers by making payments known as “yield-spread premiums” unless the broker previously entered into a written agreement with the consumer disclosing the broker’s total compensation and other facts. A yield spread premium is the fee paid by a lender to a broker for higher-rate loans. The consumer’s written agreement with the broker must occur before the consumer applies for the loan or pays any fees.
  • Creditors and mortgage brokers would be prohibited from coercing a real estate appraiser to misstate a home’s value.
  • Companies that service mortgage loans would be prohibited from engaging in certain practices. For example, servicers would be required to credit consumers’ loan payments as of the date of receipt and would have to provide a schedule of fees to a consumer upon request.
It does not define coercion nor does it say how the government intends to enforce this new prohibition or what remedies would be availabe if coercion is used.
 

Ross (CO)

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Colorado
I also received an email from J. this morning with the shared link. I must admit that the actions and decisions of the Fed. Res. Brd. are not in my thoughts on a regular basis.

There is (only) one pertinent line in the link, near the middle, which parlays a specific relationship to the appraiser community....as it says....."Creditors and mortgage brokers would be prohibited from coercing a real estate appraiser to misstate a home's value". -- (I see before sending my reply that Randolph has highlighted this line.)

Hasn't such prohibition of coercion ALREADY been an understood and expected reality for the manner in which any creditor or mortgage broker would interact with an appraiser ? ! What has the national appraiser community been telling everybody for so many years now ? Despite the numerous states (but not all) which have introduced legislation to put a damper on this coercion......it still comes down to any enforcement at the state level. Such enforcement is recognizably impotent.

Many have been wondering when a true and substantial expression of concern would come from the Federal level, from a higher echelon of those who "care", to make it crystal-clear what the manifestations of coercion, influence and manipulation would look like. The physical evidence of years of malfeasance.......is overwhelming !
 

Terrel L. Shields

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Arkansas
More feel good legislation than teeth to arm the appraiser in his defense against the forces of evil lenders.
 

Caligirl

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Certified General Appraiser
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California
So with out these proposed changes to prohibit coercion, it must have been Okay to do so.

Strange how the laws and regulations work.

It does not define coercion nor does it say how the government intends to enforce this new prohibition or what remedies would be availabe if coercion is used.

Exactly *where* would they like us to send 'proof' of various forms of coercion, etc. so this law can be enforced immediately.

For example, here's an interesting thread. http://appraisersforum.com/showthread.php?t=132429
 

Tucson Appraisals

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Arizona
I posted a suggestion to prevent Loan Officers from being allowed to employ the "comp check" game.
 

Randolph Kinney

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Retired Appraiser
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North Carolina
I posted a suggestion to prevent Loan Officers from being allowed to employ the "comp check" game.
There is no enforcement by government on any of these noted problems dealing with "hit the number" schemes from coercion to comp check.

We have lenders and AMCs that order an appraisal with the HO's estimate of value. Is that a comp check or coercion to "hit the number"? Please call if the value is in doubt or stop, do not continue.

Really, this is not a problem to the lending community and the regulators. It can't be. How is it everybody just discovered today, "Hey! People are trying to coerce and corrupt the appraiser."
 

Elliott

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Certified General Appraiser
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Oregon
There must be a reason its called Regulation Z.....

Zzzzzzzzzzzz Zzzzzzzzzzz

I can't wait until I call a MB on coercion, boy will
sparks fly.
 

David B

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Certified Residential Appraiser
State
Maryland
How many mb's/lo's can even spell "Z"?
 

Riick

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Certified Residential Appraiser
State
Delaware
Lots of TALK -- no TEETH in the proposed "rules"

B. Coercion of Appraisers
—§226.36(b)


The Board proposes to prohibit

creditors and mortgage brokers from
coercing appraisers to misrepresent the
value of a consumers principal
dwelling. The Board also proposes to
prohibit creditors from extending credit
when creditors know or have reason to
know, at or before loan consummation,
that an appraiser has misstated a
dwellings value. The regulation would
apply to all consumer credit
transactions secured by a consumers
principal dwelling.

Discussion
Some responses to the Boards request
for public comment urged the Board to
address coercion of appraisers, even
though the Board did not specifically
request comment on that issue. For
example, the National Association of
Attorneys General and many consumer
and community groups cited inflated
appraisals as a problem in the home
mortgage market. A lender trade
association suggested that the Board
require appraisers to report instances of
improper pressure and ban inflation of
appraisals. Appraiser trade associations
and several consumer and community
groups urged the Board to prohibit
coercion of appraisers as an unfair or
deceptive act or practice. Also,
testimony before Congress has cited data
that suggests that appraisers frequently
are subject to coercion.64
Pressuring an appraiser to overstate,
or understate, the value of a consumers
dwelling distorts the lending process
and harms consumers. If the appraisal is
inflated on a home purchase loan, a
consumer may pay more for the house
than the consumer otherwise would
have. Inflated appraisals also may lead
consumers to think they have more
equity in their homes than they really
have, and consumers may borrow or
make other financial decisions based on
this incorrect information. For example,
a consumer who purchases a home
based on an inflated appraisal may
overestimate her ability to refinance and
may take on a riskier loan than she
otherwise would have. Moreover, the
consumer would not necessarily be
aware that an appraisal had been
inflated or appreciate the risk that
appraisal inflation entailed. Understated
appraisals, though perhaps less
common, can cause consumers to be
denied access to credit for which they
were qualified.
Inflated appraisals of homes
concentrated in a neighborhood may
affect other appraisals, since appraisers
factor the value of comparable
properties into their property valuation.
For the same reason, understated
appraisals may affect appraisals of
neighboring properties. Thus, inflated or
understated appraisals can harm
consumers other than those who are
party to the transaction with the inflated
appraisal. Moreover, these consumers
are not in a position to know of the
practice or avoid it.
State legislatures and enforcement
agencies have addressed concerns about
parties who exert undue influence over
appraisersproperty valuations.65
Several states have banned coercion of
appraisers or enacted general laws
against mortgage fraud that may be used
to combat appraiser coercion.66 In 2006,
forty-nine states and the District of
Columbia (collectively, the Settling
States) entered into a settlement
agreement with ACC Capital Holdings
Corporation and several of its
subsidiaries, including Ameriquest
Mortgage Company (collectively, the
Ameriquest Parties). The Settling States
alleged that the Ameriquest Parties had
engaged in deceptive or misleading acts
that resulted in the Ameriquest Parties
obtaining inflated appraisals of homes


value.



To settle the complaints, the

Ameriquest Parties agreed to abide by
policies designed to ensure appraiser
independence and accurate valuations.
Also, the Attorneys General of New
York and Ohio recently have filed
actions that allege, among other
violations, the exertion of improper
influence over appraisers.

The Boards Proposal
To address the harm from improper
influencing of appraisers, the Board
proposes to prohibit creditors and
mortgage brokers and their affiliates
from pressuring an appraiser to
misrepresent a dwellings value, for all
closed-end consumer credit transactions
secured by a consumers principal
dwelling. The proposed regulation
defines the term ‘‘appraiser’’ as a person
who engages in the business of
providing, or offering to provide,
assessments of the value of dwellings.
Further, the Boards proposed
regulation prohibits a creditor from
extending credit if the creditor knew or
had reason to know that a broker had
coerced an appraiser to misstate a
dwellings value, unless the creditor
acted with reasonable diligence to
determine that the appraisal was
accurate.

For example, an appraiser
might notify a creditor that a mortgage
broker had triedand failedto get the
appraiser to inflate a dwellings value.

If, after reasonable, documented
investigation, the creditor found that the
appraiser had not misstated the
dwellings value, the creditor could
extend credit based on the appraisers
valuation. The proposed commentary
states that, alternatively, the creditor
could extend credit based on another
appraisal untainted by improper
influence.

The commentary to the proposed
regulation gives examples of acts that
would violate the regulation: implying
to an appraiser that retention of the
appraiser depends on the amount at
which the appraiser values a consumers
principal dwelling; failing to
compensate an appraiser or to retain the
appraiser in the future because the
appraiser does not value a consumers
principal dwelling at or above a certain
amount; and conditioning an appraisers
compensation on loan consummation.

The commentary also lists examples of
acts that would not violate the
regulation: requesting that an appraiser
consider additional information for,
provide additional information about, or
correct factual errors in a valuation;
obtaining multiple appraisals of a
dwelling (provided that the creditor or
mortgage broker selects appraisals based
on reliability rather than on the value
stated); withholding compensation from
an appraiser for breach of contract or
substandard performance of services or
terminating a relationship for violation
of legal or ethical standards; and taking
action permitted or required by
applicable federal or state statute,
regulation, or agency guidance.

A regulation under HOEPA that
expressly prohibits creditors and
brokers from pressuring appraisers to
misstate or misrepresent the value of a
consumers dwelling would provide
enforcement agencies in every state with
a specific legal basis for an action
alleging appraiser coercion.

The Board requests comments on the potential
costs and benefits of its proposed
appraiser influence regulation. The
Board seeks specific comment on the
appropriateness of proposed examples
of actions that would or would not
violate the proposed regulation.


 
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