New Appraisal Legislation Effective 07/01/2008

[Fred]

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".

I believe that the ASB already noted that doing an appraisal is not "payment of undisclosed fees" in an earlier FAQ.

 

[CT Value]

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?

Steven,
When I wrote the appraiser portion of my testimony regarding comp checks I had AO-19 and FAQ#130 in mind. Below is the thought process behind the mortgage broker side of my testimony.

In many cases comp checks precipitate predatory lending as they are used by mortgage brokers to shop around for values and in turn qualify an appraiser based on who will arrive at what value. In Connecticut like with most states a mortgage broker has a certain amount of time to provide the homeowner with a copy of their appraisal. There is no copy to give when a verbal appraisal is given. The homeowner typically has no idea that the person they entrusted with their mortgage is shopping for an appraiser just so they can earn their fee/commisson. Value shopping for an appraiser in an attempt to find an appraiser who will arrive at a value that will make the loan work and failure to provide a copy of the appraisal to the homeowner are both enforceable RESPA violations so I'm told by the Department of Banking here in Connecticut.


Rob

 

[CT Value]

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?

Steven,
Sorry, I just realized that I didn't answer the third part of your question.

I've seen appraisers violate different sections of USPAP for different reasons over the years from comp checks where the data is filtered to the re-addressing an appraisal to even writing an appraisal that advances the cause of the client. In many cases the appraisers just don't know what they are doing is wrong while in other cases they know it is wrong but do it anyway out of fear of loosing the client. But then again who knows what their true motive for violating USPAP really is. I think that if you were to ask our Appraisal Commission who is charged with the task of enforcing USPAP violations they would probably tell you that most violations stem from incompetence and those appraisers who are incompetent don't even realize the extent of their own incompetence.

This much I do know...... when violating USPAP becomes common place among appraisers it eventually leads to the type of anarchy like we have seen with appraisers doing comp checks here in Connecticut. Even though many see the wrong in doing comp checks they do them anyway as it is the only way they are able to compete for a mortgage brokers business.

The solution in my opinion is more enforcement on the State level. The State should be spot checking appraisers and mortgage brokers more than they do today. There should also be more of an attempt by appraisers to educate themselves on USPAP as well as the profession they have chosen to be in. None of us are infallible and most of us will probably violate USPAP or some other provision of appraising at some point but those who are willing to take the time to educate themselves are less likely to make the same mistake twice or even in the first place.

Rob

 

[Fred]

Steven,
When I wrote the appraiser portion of my testimony regarding comp checks I had AO-19 and FAQ#130 in mind. Below is the thought process behind the mortgage broker side of my testimony.

In many cases comp checks precipitate predatory lending as they are used by mortgage brokers to shop around for values and in turn qualify an appraiser based on who will arrive at what value. In Connecticut like with most states a mortgage broker has a certain amount of time to provide the homeowner with a copy of their appraisal. There is no copy to give when a verbal appraisal is given. The homeowner typically has no idea that the person they entrusted with their mortgage is shopping for an appraiser just so they can earn their fee/commisson. Value shopping for an appraiser in an attempt to find an appraiser who will arrive at a value that will make the loan work and failure to provide a copy of the appraisal to the homeowner are both enforceable RESPA violations so I'm told by the Department of Banking here in Connecticut.


Rob

Rob,
I would be my understanding that the so-called "comp check" does not have the intended use of establishing collateral value for a loan, and thus fall outside the scope of some mortgage law and regulation. As far as I understand it, the intended use of a so-called preliminary, limited, desktop or comp-check appraisal is the for someone like MB's to asses the feasibility of the deal. There are no other intended users, except the MB. The borrower is, as far as I can tell from your posts, not paying for this service, so when you said "their" appraisal, I don't see how you can claim this is the borrowers appraisal (they didn't order it, they didn't pay for it, they didn't engage in any deal based on it). It would be a RESPA violation to fail to provide a report copy if the borrower paid and if this is the appraisal that supported the loan.

I am also wondering if you think RESPA and Connecticut law limit the market to one opinion of value. Let's say, the first appraiser makes an error. Are mortgage brokers precluded from getting a second appraisal and sending along the loan documents with the second appraisal?

 

[CT Value]

Steven,
I don't believe there is anything in Connecticut law that precludes a mortgage company from ordering multiple appraisals. However, I would think that in those instances when multiple appraisals are ordered the homeowner is given a copy of each appraisal and not just the one that is used to make the deal work. I would think the same holds true for the end lender who is funding the loan. It would seem reasonable anyway.

Even though a comp check or desk appraisal may be used by mortgage brokers to assess the feasibility of a deal and irrespective of whether a fee was charged the concern arises when multiple requests are made of multiple appraisers for the purposes or intent of value shopping. The difficult part has always been to prove that value shopping was the underlying motive for placing the request in the first place. However, when it can be proven then it would fall under the category of predatory lending which is enforceable by the Department of Banking here in Connecticut.

It would also seem that in those instances when appraisers comply with these requests, they then have to rationalize whether it's their credentials or their value that was the determining factor in getting the assignment. It would also seem that the mortgage broker is less concerned with the appraisers credentials and more concerned with their value as it's the appraiser's value and not their credentials that is the obstacle in getting the loan approved. Appraiser's also need to ask themselves whether they are promoting and preserving the public's trust by allowing their valuation to be a determining factor in whether they receive the appraisal assignment.

Since there is no way to measure how often value shopping by way of comp checks occurs it seems that the only way to stop it is to do what we have done which is to prevent the practice from occurring in the first place.

I think in the end it boils down to what's best for the consumer as well as the end lender. Does the consumer really want their mortgage broker value shopping for an appraiser? Does the end lender really want the mortgage broker who is sending them the loan value shopping for an appraiser?

Rob

 

[Fred]

The difficult part has always been to prove that value shopping was the underlying motive for placing the request in the first place. However, when it can be proven then it would fall under the category of predatory lending which is enforceable by the Department of Banking here in Connecticut.

I suppose if appraisers were all doing their jobs, value shopping wouldn’t lead anywhere very often, and if appraisers were charging for all services, value shopping would become uneconomical for MBs. Another aspect of this is, if the first appraiser misses something and refuses to re-appraise, is sick, went on vacation, has retired, etc.; the client looking for another appraiser is, in effect, “value shopping.”

Does the consumer really want their mortgage broker value shopping for an appraiser?

I think when they want the loan badly enough, the buyer will scream at you right along with the MB, and the seller. How about Mr. Subprime paying $1,000/month that he can’t afford much longer, about to reset to $1,500/month, at which he will be soon foreclosed out, but who can refi out to $700/month on a long-term fixed if the value appraisal comes in high enough. Do you think he wants an accurate appraisal or one that gets him to $700/month so he can keep the house and not lose everything put into it so far?

Does the end lender really want the mortgage broker who is sending them the loan value shopping for an appraiser?

Usually not. Maybe they should realize the risk MB transactioin is higher than those originated by in house LO's. and price accordingly.

 

[George W Dodd]

Rob,
I would be my understanding that the so-called "comp check" does not have the intended use of establishing collateral value for a loan, and thus fall outside the scope of some mortgage law and regulation. As far as I understand it, the intended use of a so-called preliminary, limited, desktop or comp-check appraisal is the for someone like MB's to asses the feasibility of the deal. There are no other intended users, except the MB. The borrower is, as far as I can tell from your posts, not paying for this service, so when you said "their" appraisal, I don't see how you can claim this is the borrowers appraisal (they didn't order it, they didn't pay for it, they didn't engage in any deal based on it). It would be a RESPA violation to fail to provide a report copy if the borrower paid and if this is the appraisal that supported the loan.

I am also wondering if you think RESPA and Connecticut law limit the market to one opinion of value. Let's say, the first appraiser makes an error. Are mortgage brokers precluded from getting a second appraisal and sending along the loan documents with the second appraisal?

And we wonder why the profession is in the mess it's in. Look how the author attempts to justify that a lender's request for a "comp check" is outside of regulatory authority. Certainly it would be in lender's (wells fargo or others) benefit to exempt "comp check" as services and/or conditions for doing and/or continuing the assignment. Resulting in compliance only on the Appraiser's part. Interesting.

The answer to the "what if the Appraiser makes and error" is already addressed and most recently in the FEDs Regulation Z. A deficient appraisal report must be returned to the Appraiser for correction.

 

[George W Dodd]

I suppose if appraisers were all doing their jobs, value shopping wouldn’t lead anywhere very often, and if appraisers were charging for all services, value shopping would become uneconomical for MBs. Another aspect of this is, if the first appraiser misses something and refuses to re-appraise, is sick, went on vacation, has retired, etc.; the client looking for another appraiser is, in effect, “value shopping.”

I think when they want the loan badly enough, the buyer will scream at you right along with the MB, and the seller. How about Mr. Subprime paying $1,000/month that he can’t afford much longer, about to reset to $1,500/month, at which he will be soon foreclosed out, but who can refi out to $700/month on a long-term fixed if the value appraisal comes in high enough. Do you think he wants an accurate appraisal or one that gets him to $700/month so he can keep the house and not lose everything put into it so far?

Usually not. Maybe they should realize the risk MB transactioin is higher than those originated by in house LO's. and price accordingly.

Again we hear that it's the Appraisers fault for not doing their job. The lenders are not responsible. The lenders are only providing what the consumers wants. If the Appraisers did do anything wrong then the lenders would stop asking for them to do something wrong.

 

[Mike Kennedy]

I believe that the ASB already noted that doing an appraisal is not "payment of undisclosed fees" in an earlier FAQ.

They also avoided addressing whether or not the time, knowledge, education, equipment, and other operating expenses incurred while providing professional appraisal services demanded by customers for free from a licensed appraiser - BECAUSE he/she IS a licensed appraiser acting AS a licensed appraiser - which would normally be billable at an hourly rate in any other profession, make the service provided a "Thing of Value". If not, why not.

 

[Renee Healion]

BECAUSE he/she IS a licensed appraiser acting AS a licensed appraiser - which would normally be billable at an hourly rate in any other profession, make the service provided a "Thing of Value". If not, why not.

You know, Mike, we are the Rodney Dangerfields of all this. As a group we do not value our own work and many of our clients feel the same way about us all. Others are forced to deal with us indirectly and they loathe us. I am used to all of that.Those characters, after all, are nervous lest their oxen be gored.

But what is just piling up on me and not going away are the ones who should know better. One example, probate judges. They are supposed to be impartial so I don't give them a pass as I do the partisans mentioned already. I know some judges and like most of them. Some are just adding to their resumes but many are compassionate people who take on heartbreaking work. In this state, the law has long proscribed real estate agents from pronouncing on value except in pursuit of a listing. Most probate judges are lawyers. Lawyers should know the law. In spite of the law here, some judges advise people to get opinions of value from real estate agents and brokers in cases where it is clear that there is not going to be a listing.

They see the relatively meager cost of appraisers' services as something they should spare someone (just like an LO). In a recent case, a conservator has to sell the real property in a modest estate for the benefit of the elderly owner. The judge, a very thoughtful person, tells the conservator that an appraisal fee is not allowed. (But he will shell out thousands of the estate to a listing agent without a thought.) The acceptable price will be what--the assessment. (Even the mass appraisal total value is not likely going to properly address the value.) Okay, thank you, I have to grind my molars some more now.