New Appraisal Legislation Effective 07/01/2008

[CT Value]

Hi Mike,

Section 14 is the section of the new law that covers anyone engaged in the mortgage business here in Connecticut. Section 36a-485 (6) formerly Section 36-440 of the Connecticut General Statutes defines a mortgage broker as follows: “Mortgage broker” means a person who, for a fee, commission or other valuable consideration, directly or indirectly, negotiates, solicits, arranges, places or finds a mortgage loan that is to be made by a mortgage lender or mortgage correspondent lender, whether or not the mortgage lender or mortgage correspondent lender are required to be licensed under sections 36a-485 to 36a-498a, inclusive;

Since there are so many ways that a mortgage broker could influence an appraisers valuation it is would be almost impossible to cover each scenario therefore the law was designed in a way to hopefully cover all scenarios by saying: A mortgage broker is prohibited from influencing residential real estate appraisals. For the purposes of this section, "influencing residential real estate appraisals" includes, but is not limited to:

It's the "includes, but is not limited to" section that encompasses all of the different scenarios such as: Please comp first, homeowners estimate of value, minimum value needed, STOP and call us immediately if you foresee a value issue, etc. The language within the new law also gives those who will be enforcing it more latitude with respect to it's enforcement.

The intent behind the law is to better protect Connecticut Consumers from predatory lending practices as well as alleviate pressure on appraisers by preventing their valuation from being influenced. As time goes on we may have to revise the law to be more explicit with respect to comp checks or value checks but for now we at least have a law that we can give to mortgage brokers who ask us for these sorts or requests.


Rob

 

[Mike Kennedy]

Ron - thanks. Already posted the Law info on other threads .....with "not limited to" emboldened - assuming exactly what you said above. Just wondering if any additional comments, history of the law, etc. stated the OTHER possible abuses...... in writing.

Thanks.

 

[CT Value]

Hi Mike,
I'm not sure if this is what you are looking for but below is the public testimony that I gave in reference to HB5517 which was the Bill that preceded HB5577. HB5517 eventually evolved and or morphed into HB5577 and the law that we now have today.




Public Testimony RE: House Bill 5517



Over the past few years myself as well as many of my colleagues have noticed a significant increase in the number of "comp check" requests whereby the requestor who is typically a person engaged in the mortgage profession will either call, fax or email an appraisal order whereby they request that we notify them if we believe the value of the subject property will differ from their expectation of value or their client’s expectation of value prior to us performing the appraisal. Below is a list of actual requests and or scenarios that myself as well as many of my colleagues have received over the past few months.



1) Please call with a heads up if we foresee an issue with the value prior to performing the appraisal.

2) Please provide a “ball park” estimate of value prior to performing the appraisal.

3) Some ask if we can reassure them that we will be able get the value needed to make the loan work before placing the actual appraisal order with us.

4) Some request that we notify them whether or not the comps will support their estimate of value prior to us contacting the customer and or performing the appraisal.

5) Some requests indicate: If you feel there is an issue with the value, “STOP” and call us immediately before proceeding with the appraisal.



Upon receiving such a request we politely inform the prospective client that any indication of value, including a “comp check” is in fact an appraisal therefore we are obligated to follow the steps of an appraisal as outlined within USPAP before being able to accommodate their request.

Upon hearing our response the mortgage professional will in almost every instance withdrawal their request for an appraisal with no resulting order. However, before doing so they will typically respond in one of the following ways.





1) Some say that they have heard this before from other appraisers but don’t understand what the big deal is seeing as how it only takes a few minutes to do a “comp check”.

2) Some will try to coerce you into performing the “comp check” by indicating they are launching a big marketing campaign in Connecticut and are anticipating a lot of business as a result. Some also say that they are looking for a “good appraiser” to work with. They will usually go on to say that they promise to pass your name along to the other loan officers they work with if we agree to perform the “comp check” for them.

3) Some say that they don’t want to waste their money or their client’s money on an appraisal if the value isn’t there.

4) Others say that they are having a problem with their current appraiser getting values. Some go on to say that the appraiser will give them one value with respect to the “comp check” but yet appraise the subject property at a lower amount than originally stated without even calling to let them know that there is a value issue.

5) Some say that the loan to value for the loan is very tight therefore they need the highest value possible in order for the loan to work.

6) Others simply indicate that they have called other appraisers in the area who have already performed a “comp check”, however because there is a disparity in the value given by each appraiser they are looking to be reassured that they can get the value needed to make the loan work before deciding which appraiser to place the appraisal order with.



Mortgage professionals requesting “comp checks” and appraisers who comply with these requests are in many cases violating RESPA and or USPAP as well as state license law and are also contributing to “Predatory Lending” as the act of "value shopping" can only serve one purpose which is to find and qualify an appraiser(s) based on who will state and arrive at the highest value then assign the appraisal request to that appraiser thereby enabling the loan to work and further enabling the loan officer and or appraiser to earn their fee and or commission. All the while the unsuspecting homeowner has no idea that the mortgage lender they entrusted with the mortgage is value shopping for an appraiser so that loan officer as well as the appraiser can earn their fee and or commission.



At this time I would respectfully encourage the Committee as well as the Legislature to adopt House Bill 5517 as in doing so you will be further strengthing Connecticut’s consumer protection laws while at the same time protecting Connecticut Consumers from predatory lending practices.



Submitted by:________________________________ Date: ______________



Rob Clermont is a State Certified Real Estate Appraiser

 

[Mike Kennedy]

Excellent summary of the reality - what I'm looking for is the Committees (or the laws') expanded language which specifically incorporates the above ? IMO, your bill should be cloned in every state INCUDING black /white.....language addressing all the above. Absent such specific language - a "grey" area exists. (similar to AO-19 "RAW DATA" which, while clearly demonstrating a $$ Low and a $ High which IS an appraisal, is apparently perfectly acceptable per the ASB as a non-appraisal)

 

[Daystar]

Link to Article

Anyone have the link to article that was written in the Record Journal.

 

[Mike Kennedy]

http://www.myrecordjournal.com/site...&PAG=461&dept_id=592709&rfi=6&ref=patrick.net

 

[Fred]

Rob,
Can you clarify this?

You say to prospective clients -
“Upon receiving such a request we politely inform the prospective client that any indication of value, including a “comp check” is in fact an appraisal therefore we are obligated to follow the steps of an appraisal as outlined within USPAP before being able to accommodate their request.”

and,
“Mortgage professionals requesting “comp checks” and appraisers who comply with these requests are in many cases violating RESPA and or USPAP”

I wondering why you think appraisers either choose to or inadvertently fail to comply with USPAP on appraisals you call “comp checks” and not on other types of appraisal requests. Is your assertion appraisers who serve these clients violate USPAP based on some type of comprehensive review of actual assignments?

 

[CT Value]

Excellent summary of the reality - what I'm looking for is the Committees (or the laws') expanded language which specifically incorporates the above ? IMO, your bill should be cloned in every state INCUDING black /white.....language addressing all the above. Absent such specific language - a "grey" area exists. (similar to AO-19 "RAW DATA" which, while clearly demonstrating a $$ Low and a $ High which IS an appraisal, is apparently perfectly acceptable per the ASB as a non-appraisal)

Mike,

At the beginning of the short legislative session this spring I called John Harkins who is a legislator as well as an appraiser here in Connecticut. When I spoke with John I told him about how mortgage brokers were asking appraisers to do comp checks and how appraisers were doing them. Mortgage brokers were then using those comp checks to shop appraisers for value then assign the appraisal to the appraiser with the highest value. In essence mortgage brokers were qualifying appraisers based on who would arrive at what value or closest to the value that they needed to make their loan work rather than the appraisers credentials and expertise in a particular market or experience with appraising a particular type of property. John in turn took our discussion and asked that HB55117 be drafted. (This bill dealt primarily with the appraiser side of the issue and was aimed as making it illegal for appraisers to allow their valuations to be influenced.) John then notified me that the Bill was raised on the House floor and that it would be going to The Insurance and Real Estate Committee for a public hearing. He then encouraged me to attend the public hearing and give first hand testimony of my experiences as they related to the Bill. I attended the committee meeting and gave the testimony listed above in my previous post. At the end of my testimony there was a brief question and answer session where I gave further testimony about how the bill only dealt with one side of the issue meaning the appraisers. The issue and as I saw it was really two fold. Mortgage Brokers who make these requests and appraisers who comply with them. While the Bill addresses the appraiser portion of the issue it does not address the mortgage broker side of the issue. The chairman then stated something to the effect........ It sounds like we should be doing something more on the banking side to prevent mortgage brokers for making these sorts of requests to appraisers, is that correct. He then asked if in my opinion if we were having a problem with mortgage brokers or banks to which I replied the problem in my experience has been with the mortgage brokers and not so much the banks. I also stated something to the effect that by implementing something that prohibited mortgage brokers from making these requests would help strengthen our consumer protection laws. HB5517 later died in committee as it called for two additional staff persons to implement the provisions of the Bill. For anyone who is interested in viewing the original bill and it's history you can click here http://www.cga.ct.gov/ and enter the Bill number which was 5517.

Shortly thereafter a revised appraisal component was raised as Amendment 5938 to House Bill 5577 which was a larger Bill dealing with Responsible Lending. In my opinion this may be the better bill as it deals with the mortgage broker side of the issue.

I'm sure the amendment as well as HB5577 were discussed in committee however I couldn't find the minutes on-line anywhere.

I think the problem with having specific language is that when you make it too specific mortgage brokers will just call it something else by a different name in an attempt to circumvent the law.


Rob

 

[Fred]

I think the problem with having specific language is that when you make it too specific mortgage brokers will just call it something else by a different name in an attempt to circumvent the law.

You are on to something there. Comp check is just a label for something that is likely an appraisal. I remember when they were called pencil searches and lookups.

 

[Mike Kennedy]

Section 8 of RESPA prohibits individuals from giving or accepting any item of value in exchange for referrals of settlement service business related to a federally related mortgage.

The above was also included in my letter to the ASB......requesting a statement as to whether or not - a verbal or written "comp check" requested from/delivered by a licensed Appraiser to place/accept a "full" appraisal order for a mortgage loan was a "thing of value".

Was this aspect also addressed in CT ? If so, how? If not, why not?

Thanks.