FINANCIAL REFORM,
FANNIE MAE
AND APPRAISERS
by Daniel A. Bradley, SRA
Version 2.11
Copyright 2011
-
McKissock L.P.
- P.O. Box 1673
- Warren, PA 16365
- 1-800-328-2008
-Page 1-
SEMINAR OBJECTIVES
By the end of this seminar, you will:
• Describe episodes of economic turmoil that led to
the regulation of the appraisal profession
• Explain key events that led to the recent mortgage,
housing, and credit crisis
• Discuss the specific events which led to the
creation of the Home Valuation Code of Conduct
(HVCC)
• Summarize the appraisal-related provisions in the
2010 Dodd-Frank Wall Street Reform and
Consumer Protection Act
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SEMINAR OBJECTIVES
By the end of this seminar, you will:
• Recall recent changes and clarifications to Fannie
Mae and Freddie Mac requirements
• Articulate recent FHA changes designed to ensure
appraiser independence
• Analyze recent trends in the appraisal profession,
including supply and demand
• Identify alternatives to traditional mortgage lending
appraisals, and some guidelines and requirements
for these types of assignments
• Cite appraisal best practices for promoting
professionalism among appraisers
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BEFORE WE BEGIN…
Throughout this course, we will address some
controversial issues which may engender strong
opinions and emotions. You will have plenty of
opportunities to discuss and participate.
However:
• This is not a four-hour complaint session
• Please maintain a courteous tone, and keep
your comments professional
• Please respect others’ opinions and views,
even if you do not agree with them
• Remember, we are all in this together!
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MANY DIFFICULT QUESTIONS,
NO EASY ANSWERS
• As we go through the course, we will discuss a
number of problems and potential solutions
• There are no easy answers or one-size-fits-all
solutions
• The idea is to make appraisers aware of and
explore a number of options
• The answers may be different for everyone in this
room
• Exploring the problem and becoming aware of
solutions is a good first step
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SECTION 1
A Brief History Lesson
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“Those who cannot
remember the past are
condemned to repeat it.”
- George
Santayana
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“You can clutch
the past so tightly
to your chest that
it leaves your
arms too full to
embrace the
present.”
- Jan Glidewell
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BOY, THE WAY GLENN MILLER
PLAYED…
For most of the 20th century, problems in the mortgage
industry were almost non-existent. Why, you ask?
• Mortgage lending was done mostly by local
banks and depository institutions
• Banks lent their own money, and so were
concerned with the possibility of loss
• Institutions carefully scrutinized borrowers to
make sure they were credit-worthy
• Lenders often valued and/or inspected properties
personally
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SONGS THAT MADE THE HIT
PARADE…
As the lending industry became more profitable,
federally-regulated lenders (particularly S&Ls)
began to take on riskier and riskier loans:
• High-end commercial developments
• Condominium projects
• Proposed subdivisions
• Foreign loans
This culminated in the S&L
Crisis of the 1980s.
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THE SAVINGS AND LOAN CRISIS
• Many S&L institutions failed due to poor lending
practices
• Some had loaned money on overvalued or
nonexistent properties, including:
 Proposed residential subdivisions
 Condominium projects
 Shopping centers
 Apartment and office buildings
Fairly or unfairly, the appraisal industry received
more than its share of blame for the turmoil.
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FIRREA
As a result of the Savings & Loan crisis, Congress
passed the Financial Institutions Reform, Recovery
and Enforcement Act (FIRREA) in 1989.
• This legislation bailed out the failed thrift
institutions
• It created stricter lending requirements for
federally-regulated institutions
• FIRREA required all appraisers completing
appraisal work for federally-regulated financial
institutions to be certified or licensed
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FIRREA SAVES THE DAY!
With the passage of FIRREA, poor lending
practices in America were eradicated, once and for
all.
Our economy and financial system were saved!
Or were they?
As we are about to see, this was
merely Act I in a drama that would
play out 20 years later…
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BUSINESS AS USUAL
As federal depository institutions were dealing with
their new lending rules and regulations, and
appraisers were adjusting to their new status as
licensed and certified scapegoats, things were
quiet for a while as other industry players prepared
to take center stage:
• The secondary mortgage market
• Mortgage brokers
• Subprime lending
• The use of homes as savings
accounts
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CREATING PROBLEMS
• As depository institutions’ share of the lending
market decreased, into the breach stepped the
mortgage broker and the secondary market
• “Other people’s money” was being loaned
• The secondary market assumed much of the risk
for bad loans
• Loose or nonexistent regulations permitted
individuals with questionable histories to work as
brokers or loan officers
• Larger loan amounts meant larger fees and
commissions for lenders, so borrowers were
encouraged to borrow more and more
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CREATING PROBLEMS
• Because mortgage brokers make money only by
closing loans, some attempted to make as many
loans as possible, regardless of quality
• Unscrupulous mortgage brokers encouraged
borrowers to lie on applications
• Low-doc or no-doc loans (“liar loans”) offered by
subprime lenders were magnets for unqualified
or unscrupulous borrowers
• The idea of using a home as a never-ending
source of cash by continuously refinancing was
in its heyday
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THE APPRAISAL WORLD
Many appraisers like to romanticize the lending
boom of 2002-2007, but…
• Mortgage brokers controlled 70-75% of the
lending market
• Many brokers used only those appraisers who
would guarantee values in advance
• “Comp checks” were a way of life
• Pressure was rampant from brokers, lenders,
real estate agents, and others
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HOW WIDESPREAD WAS IT?
In 2006, October Research conducted a nationwide
survey of appraisers on the topic of appraisal
pressure. The results were quite dramatic:
• 90% of appraisers surveyed
indicated they had been
pressured in an effort to influence
their appraisals
• This was a significant increase
from a similar survey in 2003, in
which 55% of appraisers reported
being pressured
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SURVEY SPECIFICS
• 75% of appraisers reported “negative
ramifications” if they did not come in at a higher
value
• 68% said they had lost a client due to their
refusal to inflate values
• 45% reported not being paid for
appraisals they had completed
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SOURCES OF PRESSURE
The October Research survey also asked
appraisers to indicate who was exerting this
pressure.
The leading sources of pressure were:
• Mortgage brokers - 71%
• Real estate agents – 56%
• Home sellers – 35%
• Mortgage lenders – 33%
(Obviously, survey respondents were permitted to
choose more than one.)
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PUTTING IT IN WRITING
Historically, appraiser pressure was implied. During
the “boom” it became much more overt. Some
clients, emboldened by years of successfully
pressuring appraisers, even became willing to put
their pressure tactics in writing!
The following two slides contain
phrases taken from actual
appraisal orders received by a
number of real property appraisers,
including the course author.
These are all real!
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OFFENSIVE APPRAISAL ORDERS
• “Please call loan officer with estimated value
before scheduling”
• “I need a value of $150,000” (at the top of the
page in 48-point type)
• “If minimum value is not possible, do not
appraise the property”
• “I don’t want the appraisal to be done
if the value won’t be at least $72K”
• “This is a comp request. Please
contact me if you can reach $265K
value”
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OFFENSIVE APPRAISAL ORDERS
• “The owners estimate the house to be worth
anywhere between $230-240k; hoping you can
narrow it down a bit to see if we have an order”
• “Money is only paid if the value is more than
$83,000…If not, then the appraisal request is to
be cancelled”
It’s interesting that some of our clients think we
can predict what a property will appraise for before
we actually appraise it! If appraisers could predict
the future with such accuracy, we wouldn’t need to
appraise – we could instead make a nice living
picking winning racehorses or lottery numbers.
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PREDETERMINED VALUES
• It would be silly for a patient to ask a doctor to
guarantee a clean bill of health, over the phone,
before the examination is even scheduled.
• Likewise, it would be ridiculous to ask a title
searcher to guarantee clear title to a property
before even beginning the search process.
• Yet appraisers were (and still are)
expected to provide opinions of
value on properties, free of
charge, without completing even
minimal research or analysis.
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OTHER TYPES OF PRESSURE
Not all pressure on appraisers is value-related.
Sometimes, parties pressure appraisers to:
• Ignore physical or functional deficiencies in a
subject property
• Overlook FHA or VA repair items
• Ignore environmental concerns in a property or
neighborhood
• Misrepresent the subject property’s current use
or highest and best use
• Omit negative comments from reports
• “Tailor” reports to meet the client’s objectives
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THE STORM CLOUDS GATHER
Mortgage loans were being made in record
numbers:
• From 2003-2007, subprime mortgage
originations increased by a factor of almost
300%, from $332 billion to $1.3 trillion
• In 1997, the national mortgage denial rate was
29%; by 2002-2003, it was 14%
• Bond rating agencies incorrectly rated subprime
mortgage-backed securities with AAA ratings;
investors gobbled them up, so lenders pooled
and securitized even riskier loans
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THE PERFECT STORM
These factors led to a record number of loans being
made, and a record amount of indebtedness for
U.S. homeowners:
• Double-digit property appreciation rates
• Pooling and securitization of loans
• Outrageous profits for originating lenders,
especially subprime lenders
• Use of exotic and controversial loan products
such as interest-only loans and ARMs
• The belief that mortgage giants Fannie Mae and
Freddie Mac were “too big to fail”
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A RIPPLE EFFECT
The causes and effects of the crisis are more varied
and detailed than we have time to cover here, but
here is a simplified version of what happened next:
• The value bubble burst, dropping property
values in most areas of the country
• Foreclosures began occurring in record numbers
• MBS offerings became impossible to sell
• The resulting economic recession claimed
property owners’ jobs and led to more
foreclosures
• Lenders began to fail in large numbers
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PRIME FORECLOSURES
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SUBPRIME FORECLOSURES
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ALL LOAN FORECLOSURES
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CUOMO vs. FIRST AMERICAN
Against this backdrop, New York Attorney General
Andrew Cuomo filed a lawsuit against First
American Corporation and its AMC subsidiary,
eAppraiseIT, in 2007. The suit claimed that:
• eAppraiseIT enabled Washington Mutual to
hand-pick appraisers based on who would
provide inflated values
• eAppraiseIT pressured appraisers to inflate
values
• eAppraiseIT’s president knew of these actions,
and had agreed to WaMu’s demands
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ENTER FANNIE & FREDDIE
• November 2007: NY AG subpoenaed Fannie Mae
and Freddie Mac to find out what they knew about
loans they purchased from WaMu and others
• March 2008: HVCC signed between Fannie,
Freddie, the NY AG, and Office of Federal
Housing Enterprise Oversight (OFHEO)
• NY AG dropped investigation of Fannie/Freddie
• Original HVCC was to be effective 1/1/2009
• HVCC was later revised, its implementation date
changed to 5/1/2009, ending 10/31/2010
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FOOTNOTE* FANNIE & FREDDIE
• July 2008: To stabilize the mortgage, housing,
and credit markets, the Federal Housing Finance
Agency (FHFA) was created to regulate Fannie
Mae and Freddie Mac
• September 2008: FHFA placed Fannie Mae and
Freddie Mac in conservatorship
• This conservatorship means the federal
government now controls GSE assets
and operations, and stands
behind approximately $5 trillion in
GSE debt
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SECTION 2
The HVCC and its Consequences
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“Every abuse ought to be
reformed, unless the reform is
more dangerous
than the
abuse itself.”
- Voltaire
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WHAT WAS THE HOME
VALUATION CODE OF CONDUCT?
• It was an agreement - not a law or regulation
• Fannie Mae and Freddie Mac agreed that after
May 1, 2009, they would purchase mortgages only
from lenders who warrant compliance with the
requirements of HVCC
• It established requirements and prohibitions for
lenders when selecting appraisers and procuring
appraisals
• The actual HVCC can be found online at
www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/appcode/pdf/hvcc.pdf
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HVCC: BUSTING THE MYTHS
• It was not a law or regulation
• It applied to lenders, not appraisers
• It did not tell appraisers how to appraise
properties
• It did not mandate the use of AMCs by lenders
• It did not prohibit agents or brokers from
communicating with appraisers
• It did not prohibit a lender from
requesting that an appraiser
provide additional information
or correct factual errors
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HVCC: APPLICABILITY
The HVCC applied only to one- to four-family
mortgages sold to Fannie Mae and Freddie Mac.
It did not apply to:
• FHA or VA loans
• Loans on properties of more than five units
• Commercial/industrial loans
• Non-lending appraisals, such as
relocation, estates, divorces,
eminent domain
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WHAT DID HVCC DO?
• Prohibited lenders from influencing appraisals
through coercion, intimidation, bribery, etc.
• Prohibited a lender from requesting that an
appraiser provide estimated values or
comparable sales at any time prior to the
completion of an appraisal report
• Prohibited lenders from providing an appraiser
with a desired value for the subject (except that
a sales contract may be provided)
• Prohibited lenders from ordering second
appraisals except in specific circumstances
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WHAT DID HVCC DO?
• Prohibited lenders from accepting appraisals if
the appraiser was selected, retained, or
compensated by a third party (like a mortgage
broker or real estate agent), which meant
borrowers could no longer pay appraisers
• Lender loan production staff was not allowed to
select appraisers, order appraisals, or have
substantive communication with appraisers
regarding value
• If staff appraisers were used, the lender was
required to separate the appraisers from loan
production staff
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WHAT DID HVCC DO?
• Required lenders to perform quality control tests
on 10% of appraisals or valuations and report
adverse findings to Fannie Mae or Freddie Mac
• Lenders had to certify that appraisals were
obtained in compliance with the HVCC
• Lenders had to provide borrowers with a copy of
the appraisal report, at no cost, no fewer than
three days prior to loan closing (unless waived)
• Supposed to create an Independent Valuation
Protection Institute (IVPI), a clearinghouse for
complaints against lenders and appraisers;
however, IVPI was never created
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UNINTENDED CONSEQUENCES
• Increased use of AMCs
• Commoditization of appraisals
• Lower fees for appraisers
• Good appraisers leaving the mortgage lending
appraisal business
• Loss of appraiser relationships with mortgage
brokers and certain lenders
• Anecdotal indications that borrowers may be
paying more and/or waiting longer for appraisals
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INCREASED USE OF AMCs
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EFFECTS ON APPRAISERS
• Cannot market to mortgage brokers; previous
marketing efforts and relationships are now
meaningless
• Marketing to real estate agents can only result in
non-mortgage lending assignments
• AMCs can be large and bureaucratic; reaching a
decision-maker can be difficult
• Lottery-type distribution of assignments does not
favor more competent appraisers
• Lenders receive the benefits of using an AMC,
while the appraiser pays by receiving lower fees
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FEES AND QUALITY
Although there are exceptions (maybe
even some in this room):
• Lower appraisal fees usually mean lower quality
appraisals
• More experienced appraisers often refuse to
work for low-fee AMCs
• Appraisals are like any other service – you
typically get what you pay for
• If you pay $100 for an appraisal, you won’t get a
$400 appraisal – you’ll get a $100 appraisal
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AMCs AND FEES
It is unfair to paint all AMCs with a broad brush, just
as it is unfair to make broad, sweeping statements
about appraisers.
• There are hundreds of AMCs throughout the U.S.
• Some pay lower-than-typical fees; yet others do
not
• Many of them are serious about appraisal quality
• Many experienced and competent appraisers
work for AMCs
• How much you charge for an appraisal is a
business decision only you can make
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I READ IT IN THE NEWSPAPER,
SO I KNOW IT MUST BE TRUE!
• More and more competency
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IVPI
• As stated previously, the IVPI does not exist
• An eight-page sample complaint form was
posted on Freddie Mac’s Website in late 2009
• This form may be found at:
www.freddiemac.com/singlefamily/pdf/IVPIHVCC.SampleComplaintForm.pdf
• In May 2010, the FHFA announced that the IVPI
would not be created
• Instead, complaints would be received directly
by Fannie and Freddie and then forwarded to
state authorities, as deemed appropriate
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REGULATORY ENVIRONMENT
• AMCs historically have not been regulated at the
federal level
• Practically anyone can own or operate one
• There are few restrictions on their business
practices
• Reports of AMCs being owned or operated by
debarred appraisers or convicted
felons are common
• In 2009, a push to regulate these
companies at the state level began
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AMC REGULATION BY STATES
At this time, there are over 20 states that have
passed laws regulating AMCs, including:
• Arkansas
• California
• Louisiana
• Nevada
• Florida
• Utah
There are also at least 11 states with AMC regulatory
bills pending.
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HIGHLIGHTS OF THESE LAWS
•
•
•
•
•
•
Arkansas’ law requires AMCs to be bonded
California’s law requires that “controlling persons” of
AMCs must be fingerprinted and submit to a
background check
Louisiana’s law states that an AMC cannot remove
an appraiser from its panel without providing written
notification and opportunity to respond
Nevada’s law establishes a schedule of fines for
AMC violations
New Mexico’s law requires an AMC to pay an
appraiser within 60 days
Utah’s law requires the AMC to disclose to the client
the amount of compensation paid to the appraiser
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OH, THE IRONY!
• The seminal event that led to the
eventual creation of the HVCC was
an appraisal management company
selecting appraisers because they
would provide inflated appraisals,
and pressuring appraisers at the
behest of a lender
• The net result of the HVCC is that
AMCs now have more power and
control over the residential
mortgage appraisal profession than
ever before
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WANT SOME MORE IRONY?
At a time when – more than ever before – the
lending industry needs competent and experienced
appraisers to produce credible value opinions:
• More and more of the
nation’s residential mortgage
lending appraisal work is
being farmed out to the “low
bidder”, with little or no
regard for experience or
geographic competency
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THE FINAL IRONY
In an effort to increase public trust and respect for
the appraisal profession, the AQB has significantly
increased requirements for appraisers, including:
• Increased education requirements, with required
numbers of hours in required topics
• College degree requirements
• Significantly more difficult certification exams
Yet appraisers report that in some areas of the
country, fees for residential appraisals are the
same as or lower than they were 10 years ago!
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FHA APPRAISER INDEPENDENCE
• The HVCC did not apply to FHA loans
• However, in September 2009, HUD issued
Mortgagee Letter 2009-28 (ML 2009-28) which
adopted some HVCC-like requirements
• These requirements went into effect 2/15/2010
• In this letter, HUD reiterated the
importance of appraiser independence
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ML 2009-28
• FHA lenders may not accept appraisals from
appraisers selected, retained, or compensated
by mortgage brokers or commission-based
lender personnel
• FHA does not require use of AMCs
• The lender or AMC must not prohibit the FHA
appraiser from recording in the appraisal report
the amount of the fee the appraiser was paid
• The FHA appraiser must be compensated at a
rate that is customary and reasonable for the
market area
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ML 2009-28
• Commission-based lender personnel may not
have substantive communication with the
appraiser regarding valuation issues
• Lenders may not coerce the appraiser using
payment or prospects of future business
• Lenders may not request the appraiser provide an
estimated value or comparable sales any time
prior to completion of the report
• Lenders may not provide the appraiser with an
anticipated or desired value, or a proposed or
target amount to be loaned to the borrower
• A purchase contract must be provided
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ML 2009-28
• Lenders may not remove an appraiser from an
approved list without written notice to the
appraiser, outlining a “substantive reason”
• Lenders may not request a second appraisal or
AVM, although there are specific exceptions
which may apply
• These requirements also apply to third parties
working on behalf of lenders (AMCs)
• This ML also reminds appraisers of their USPAP
obligations regarding geographic competency
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ML 2009-28
• These requirements were very similar to those
specified in the HVCC
• Many appraisers mistakenly believed the FHA
adopted HVCC
• These are FHA’s requirements; they have
nothing to do with Andrew Cuomo or Fannie
Mae, and they remain in effect even though the
HVCC is gone
• The Dodd-Frank Reform Act did not change any
of these FHA requirements for appraiser
independence
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SECTION 3
The Dodd-Frank Wall Street
Reform and Consumer Protection
Act
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“The hole and the
patch should be
commensurate.”
- Thomas
Jefferson
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H.R. 4173
H.R. 4173, the Dodd-Frank Wall Street Reform and
Consumer Protection Act, was passed by the U.S.
Senate on July 15, 2010.
• Signed by President Obama on July 21, 2010
• Contains 2,319 pages
• Subtitle F of Title XIV addresses appraisal issues
(pages 2205-2250 in the bill)
This is widely considered to be the most significant
modernization of the appraisal regulatory structure
since the passage of FIRREA in 1989.
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BCFP
The “centerpiece” of the bill is the creation of the
Bureau of Consumer Financial Protection.
• The BCFP is autonomous, but will be housed
within the Federal Reserve System
• A Consumer Advisory Board will advise the
Bureau on emerging issues
• A Financial Stability Oversight Council is
established to oversee the BCFP
The director of the BCFP will be appointed by the
President and confirmed by the Senate
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BCFP OBJECTIVES
• Ensure consumers receive timely and
understandable information
• Protect consumers from unfair, deceptive, or
abusive acts or practices
• Address outdated, unnecessary, or unduly
burdensome regulations
• Enforce federal consumer financial laws
consistently
• Ensure the transparent and efficient operation of
markets for consumer financial products and
services
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APPRAISAL PROVISIONS
Interestingly, the “short title” of this bill is the “DoddFrank Wall Street Reform and Consumer Protection
Act.”*
• Title XIV is the “Mortgage Reform and AntiPredatory Lending Act”
• Subtitle F is “Appraisal Activities”
• There are six sections in Subtitle F
* Do you wonder what the “long title” would be?
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SUBTITLE F – SECTION 1471
• Amends Chapter 2 of the Truth in Lending Act
• A creditor may not extend a higher-risk mortgage
to a consumer without first obtaining a written
appraisal on the property
• Appraisals on higher-risk mortgages must be
performed by a licensed or certified appraiser
who makes an interior property inspection
• If the higher-risk mortgage is a re-sale within 180
days, the lender must obtain a second appraisal;
the cost cannot be charged to the borrower
• One copy of each appraisal must be provided to
the borrower, by the creditor, without charge
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SECOND APPRAISALS
• If a higher-risk mortgage is used in purchase or
acquisition where:
 The property was purchased within the last
180 days, and
 The original sale price is lower than the
current sale price,
• A second appraisal must be ordered from a
different licensed or certified appraiser
• The second appraisal must include an analysis of
the difference in sale price, changes in market
conditions, and any improvements made to the
property between the prior sale and current sale
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HIGHER RISK MORTGAGE
What is a “higher-risk mortgage”? It is defined in the
bill as:
• A residential loan other than a reverse mortgage
• Not a “qualified mortgage” defined in Section
129C
• APR exceeds the “average prime offer rate for a
comparable transaction” by 1.5 points or more if
within FNMA loan limits, 2.5 points or more if
exceeding FNMA loan limits, or 3.5 points or
more for a subordinate lien residential mortgage
loan
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A ROSE BY ANY OTHER NAME…
So exactly what is a “higher-risk mortgage”?
It is essentially a euphemism for “subprime loan”!
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CONSUMER NOTIFICATION
At the time of the initial mortgage application, the
lender must provide the applicant with a notification
which states:
• Any appraisal prepared for
the mortgage is for the sole
use of the creditor
• The applicant may choose
to have a separate appraisal
conducted at his or her own
expense
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SUBTITLE F – SECTION 1472
• This section is titled “Appraisal Independence
Requirements”
• Amends Chapter 2 of the Truth in Lending Act
• Prohibits creditors from engaging in any act or
practice that violates appraisal independence,
when providing services in a credit transaction
secured by the consumer’s principal dwelling
• Provides a specific list of acts or practices that
violate appraisal independence
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PROHIBITED ACTS
• Coercion, extortion, collusion, instruction, bribery,
or intimidation of any person, AMC, firm, or other
entity conducting or involved in an appraisal
• Mischaracterizing or suborning
mischaracterization of the appraised value
• Seeking to influence an appraiser to encourage a
targeted value in order to facilitate the making or
pricing of the transaction
• Withholding or threatening to withhold payment
for appraisal services rendered in accordance
with the contract between the parties
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EXCEPTIONS
A mortgage broker, banker, real estate broker, AMC,
or other person is not prohibited from asking an
appraiser to:
• Consider additional, appropriate property
information, including additional comparable
sales
• Provide further detail, substantiation, or
explanation for the appraiser’s value conclusion
• Correct factual errors in the appraisal report
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SOUND FAMILIAR?
If you’re thinking that some of this language sounds
familiar, well, it should! Some of it is virtually wordfor-word from the HVCC.
• The requirements that a lender cannot withhold
or threaten to withhold payment, or engage in
any act or practice that would impair an
appraiser’s objectivity, are in the HVCC
• Likewise, the statement that a lender may ask an
appraiser for additional explanation or
substantiation, or to correct factual errors, is also
from the HVCC
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MANDATORY REPORTING
• Any mortgage lender, mortgage broker, real
estate broker, AMC, or other person involved in a
real estate transaction, who believes that an
appraiser is violating USPAP or any applicable
laws, or is otherwise engaging in unethical or
unprofessional conduct, is required to “refer the
matter to the applicable State appraiser certifying
and licensing agency”
• A creditor who knows that a violation of appraisal
independence standards has taken place may not
extend credit based on the appraisal unless
reasonable diligence has been exercised
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APPRAISAL REPORT
PORTABILITY
• The Dodd-Frank Act states that Federal financial
institution regulatory agencies may issue
regulations that address appraisal report
portability
• Note that the law says “may”, not “must”
• Once put in place, these regulations would
ensure the portability of an appraisal report
between lenders for consumer credit transactions
secured by a 1- to 4-family residence that is the
borrower’s principal dwelling
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CUSTOMARY AND
REASONABLE FEES
• “Lenders and their agents shall compensate fee
appraisers at a rate that is customary and
reasonable for appraisal services being
performed in the market area of the property
being appraised.”
• Evidence for fees may be established by
government agency fee schedules, academic
studies, and private sector surveys
• “Fee studies shall exclude assignments ordered
by known appraisal management companies.”
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WHAT IS CUSTOMARY AND
REASONABLE?
• This requirement applies to both lenders and their
agents (AMCs)
• This language in the bill has been seen as a big
win for appraisers
• Exactly how this is to be implemented or enforced
remains to be seen
• Look for lenders and AMCs to push back against
this requirement in some way
• Are AMCs that are paying $150 for an appraisal
suddenly going to double their fees???
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QUOTES OF THE DAY
• “The wording is such that it is unlikely the fee can
be discounted to reflect the other-than-retail
pricing model.”
• “Our position is that the free market should
determine what constitutes customary and
reasonable fees.”
• “Appraisers will get a raise and the fee issue is
resolved. The downside is that lenders will likely
pass that additional cost on to consumers.”
- Jeff Schurman, Executive Director of the Title and
Vendor Management Association (as quoted in Valuation
Review, July 19, 2010)
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COMPLEX ASSIGNMENTS
• “Customary and reasonable” does not mean that
all appraisals will command the same fee
• The law states, “In the case of an appraisal
involving a complex assignment, the customary
and reasonable fee may reflect the increased
time, difficulty, and scope of the work required for
such an appraisal and include an amount over
and above the customary and reasonable fee for
non-complex assignments.”
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SUNSET OF HVCC
• “Effective on the date the interim final regulations
are promulgated pursuant to subsection (g), the
Home Valuation Code of Conduct announced by
the Federal Housing Finance Agency on
December 23, 2008 shall have no force or effect.”
HVCC Ends!
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SUBTITLE F – SECTION 1473
• Amends the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989
• Requires the ASC to report the results of all
audits of State appraiser regulatory agencies
• Permits the ASC to prescribe regulations limited
to temporary practice, national registry,
information sharing, and enforcement
• In order to prescribe regulations, the ASC must
form an advisory committee of industry
participants, including appraisers
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SUPERVISION OF AMCs
• Provides the ASC with authority to monitor
requirements established by the states for
registration and supervision of AMCs
• Requires the ASC to maintain a national registry
of AMCs that are subject to State regulation or
are operating subsidiaries of federally-regulated
financial institutions
• Federal agencies, including FRB, OCC, FDIC,
NCUA, FHFA, and BCFP (Bureau of Consumer
Financial Protection) shall jointly establish
minimum requirements to be applied by states in
registering AMCs
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REQUIREMENTS FOR AMCs
• Register with and be subject to supervision by
State appraiser certifying/licensing agency (with
exceptions)
• Verify that only licensed or certified appraisers are
used for federally related transactions
• Require that appraisals coordinated by the AMC
comply with USPAP
• Require that appraisals are conducted
independently and free from coercion
• Nothing in this section shall prevent states from
establishing additional requirements for AMCs
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NOT A REQUIREMENT
• Some news sources within the appraisal
profession are reporting that lenders and AMCs
will be required to have only USPAP-compliant
reviews performed by licensed review appraisers
located in the state where the property is located
• This language was in the original bill, but it was
removed in conference committee*
• Lenders and AMCs are permitted to use nonlicensed reviewers, and are not required to
ensure that all reviews conform to USPAP
*HVCC’s Sunset and Other Appraisal Reforms on the
Horizon, klgates.com 7/19/2010
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AMC REGISTRATION
• “An appraisal management company that is a
subsidiary owned and controlled by a financial
institution regulated by a Federal financial
institution regulatory agency shall not be required
to register with a State.”
• This means there will be two parallel tracks for
AMC regulation: one at the state level and the
other at the federal level
• “Owned and controlled” AMCs will be regulated at
the federal level
• Other AMCs will be regulated by state boards
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AMC OWNERSHIP
• An AMC that is owned by a person who has had
an appraisal license refused, denied, cancelled,
surrendered, or revoked in any state shall not be
registered by a State or included on the national
registry
• Any person who owns more than 10% of an AMC
shall be of good moral character and shall submit
to a background investigation carried out by the
State appraiser licensing/certifying agency
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REGISTRY FEES
• FIRREA is amended to increase the national
registry fee from $25 to $40 per appraiser per
year; this can be adjusted to a maximum of $80 at
the discretion of the ASC
• AMCs are also subject to national registry fees of
$25 per appraiser working for or contracting with
the AMC; this can be adjusted to a maximum of
$50 at the discretion of the ASC
• If an AMC has been in business for less than one
year, the registry fee is $25 multiplied by an
appropriate number to be determined by the ASC
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REGISTRY FEES AND USPAP
It is possible (but unlikely) that AMCs are going to
“eat” the $25 per appraiser per year registry fee.
• Many appraisers expect these fees to be passed
on to appraisers by the AMC
• This is not illegal or unethical; however, USPAP
requires an appraiser to disclose that a fee was
paid in order to procure an assignment
This would likely require a disclosure in every
appraisal report prepared for the AMC by an
appraiser who paid the annual fee to the AMC
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WHY THE REGISTRY FEE
INCREASE?
• The increase in the registry fees is made with the
intent of providing grants to State appraiser
certifying and licensing agencies
• Many states are having budget problems
• Some states are “sweeping” accounts of licensing
agencies, and putting the money into the state’s
general fund
• Many licensing agencies find themselves with no
money for investigation and enforcement, even
though they generate significant revenue in
application and renewal fees
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MORE POWER FOR THE ASC
• The ASC shall enforce minimum AQB
requirements for “Trainee Appraiser” and
“Supervisory Appraiser”, in states where these
classifications exist
• The ASC shall have the authority to remove an
appraiser or an AMC from the national registry on
an interim basis, pending the outcome of
disciplinary proceedings
• The ASC has the authority to impose sanctions
against a State agency that fails to have an
effective appraiser regulatory program
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PROFESSIONAL DESIGNATIONS
• FIRREA is amended to state that membership in
a nationally recognized appraisal organization
may be considered as a criterion for appraiser
selection; however, lack of membership may not
be the sole bar against consideration for an
assignment
• The ASC shall monitor each State’s policies,
practices, and procedures and whether the State
has adopted and maintained effective laws,
regulations, and policies aimed at maintaining
appraiser independence
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APPRAISAL COMPLAINT
HOTLINE
• If six months after this law is enacted, there is no
national hotline to receive complaints of noncompliance with USPAP, and complaints
regarding improper influence of appraisers, the
ASC shall establish such a national hotline
• The ASC shall refer complaints to appropriate
governmental bodies, including State appraiser
licensing agencies, financial institution regulators,
or other appropriate legal authorities
• The ASC has the authority to follow up complaint
referrals to determine status and resolution
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NATIONAL COMPLAINT HOTLINE
• As stated previously, the IVPI was never
established as called for in the HVCC
• The ASC complaint hotline will take the place of
the IVPI, and will act as a “one-stop shop”
• As a government agency (as opposed to the IVPI
which was supposed to be an independent, nongovernmental entity), it is likely that the ASC will
have more power and authority
• Complaints against appraisers and AMCs will be
referred to states; complaints against lenders will
be referred to federal regulatory agencies
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AVMs
• An AVM is defined as “any computerized model
used by mortgage originators and secondary
market issuers to determine the collateral worth of
a mortgage secured by a consumer’s principal
dwelling”
• Automated Valuation Models (AVMs) shall adhere
to quality control standards, as per the new law
• Federal regulatory agencies shall promulgate
regulations to implement quality control standards
• These AVM regulations will be enforced by the
Federal financial institution regulatory agencies,
the FTC, the BCFP, and State attorneys general
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BROKER PRICE OPINIONS
• Defined in the law as “an estimate prepared by a real
estate broker, agent, or sales person that details the
probable selling price of a particular piece of real
estate property and provides a varying level of detail
about the property’s condition, market, and
neighborhood, and information on comparable sales,
but does not include an automated valuation model”
• BPOs may not be used as the primary basis to
determine the value of a piece of property for the
purpose of a loan origination of a residential
mortgage loan secured by a consumer’s principal
dwelling
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BPOs ARE NOT OUTLAWED
• There is a misconception that this law has made
BPOs illegal; this is not true
• BPOs may be used as a secondary or ancillary
basis to determine the value of a piece of
property for the purpose of a loan origination of a
residential mortgage loan secured by a
consumer’s principal dwelling
• BPOs can still be used for loan modification, REO
properties, and other non-origination situations
• State laws may come into play; some states have
anti-BPO laws and regulations
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SUBTITLE F – SECTION 1474
• This section amends the Equal Credit Opportunity
Act (ECOA)
• For a loan that is secured by a first lien on a
dwelling, the creditor must furnish a copy of all
written appraisals and valuations promptly upon
completion, but in no case later than 3 days prior
to loan closing
• This is similar to the requirements of HVCC
• The applicant may waive the 3-day requirement
• The borrower may pay the cost of the appraisal,
but may not be charged for the copy of the written
appraisal or valuation (including AVMs or BPOs)
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SUBTITLE F – SECTION 1475
• This section amends Section 4 of the Real Estate
Settlement Procedures Act (RESPA)
• If an appraisal is coordinated by an AMC, the
standard HUD-1 disclosure form may include a
clear disclosure of:
 The fee paid to the appraiser by the AMC
 The administration fee charged by the AMC
• The law states “may include” this disclosure; it
does not say “must include”
• The requirement for mandatory disclosure was
removed in conference committee
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SUBTITLE F – SECTION 1476
• This section requires the Government
Accountability Office (GAO) to conduct a study on:
 Effectiveness and impact of appraisal
methods, types of valuations (including
appraisals, BPOs and AVMs), and appraisal
distribution channels
 The Home Valuation Code of Conduct
 The ASC’s functions pursuant to Title XI of
FIRREA
• This study must be completed 12 months after the
enactment of this Act
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DODD – FRANK WRAP-UP
Obviously, there is more to this 2,319-page bill than
can be covered in this course.
• The major appraisal-related reforms have been
covered in this summary
• As the financial institution regulatory agencies
promulgate regulations, this promises to be a
changing landscape for the next few years
The next 12 to 24 months will be very interesting
for appraisers and regulators.
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FRB INTERIM FINAL RULE
The first major regulation to be promulgated as the
result of Dodd-Frank was the interim final rule
issued by the Board of Governors of the Federal
Reserve System (FRB)
• This was published in the Federal Register on
10/28/2010
• The 60-day comment period on the interim final
rule ended on 12/27/2010
This rule implements the Dodd-Frank amendments
to the Truth in Lending Act (TILA)
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LAWS NEED REGULATIONS
Typically, after a new federal or state law is passed
or amended, there are regulations that must be
promulgated in order to implement the law
• A law is somewhat analogous to a skeleton, and
the regulations are intended to put the flesh and
muscle on the bones
• Regulations are typically more specific and
detailed than the law they implement
Many new regulations will be necessary in order to
implement Dodd-Frank
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INTERIM FINAL RULE
Like Dodd-Frank, the interim final rule is lengthy
and it is not possible to cover it all here
• The rule became effective at the end of the 60day comment period (December 27, 2010)
• The implementation of the “customary and
reasonable fee” portion of the rule was put off
until April 1, 2011
We will summarize the appraisal-related provisions
of this rule on the next several pages
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APPLICATION OF THE RULE
This rule applies to “covered persons” including:
• Creditors
• AMCs
• Appraisers
• Mortgage brokers
• Realtors
• Title insurers
• Other firms that provide settlement services
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APPRAISAL REQUIREMENTS
The appraisal requirements specified in this rule
apply to:
• Consumer credit transactions secured by the
consumer’s principal dwelling
• Closed-end loans
• Home-equity lines of credit (HELOCs)
This scope is broader than the FRB’s Appraisal
Independence Rules that were promulgated in
2008, because HELOCs are included
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VALUATION
The rule uses the term “valuation” in many places,
instead of “appraisal”
• This term “applies to an estimate of the value of
the consumer’s principal dwelling whether or not
a person applies USPAP in preparing such
estimate”
• A “valuation” is prepared by a “natural person”
such as an appraiser or real estate agent
• As such, the term “valuation” would not apply to
purely computer-generated AVMs
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PROHIBITED ACTS
Acts or practices that violate appraisal
independence include:
1. Causing or attempting to cause the value to be
based on a factor other than the independent
judgment of the appraiser, through coercing,
extorting, colluding with, instructing, bribing, or
intimidating a person involved in an appraisal
2. Mischaracterizing or suborning
mischaracterization of the appraised value of the
property securing the extension of credit
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MORE PROHIBITED ACTS
3. Seeking to influence an appraiser or otherwise to
encourage a targeted value in order to facilitate
a transaction
4. Withholding or threatening to withhold timely
payment for an appraisal report or services when
the services were rendered in accordance with a
contract
If these prohibited acts seem familiar to you, it may
be because they are almost identical to the
prohibitions that appeared in the old HVCC
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PROHIBITED
• A covered person may not provide an appraiser
with a “specific value” or “predetermined
threshold”, which includes predetermined
minimum, maximum, or a range of values
• This is “substantially similar” to the FRB’s current
provisions which prohibit a covered person from
“telling an appraiser a minimum reported value
of the consumer’s principal dwelling that is
needed to approve the loan”
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PERMITTED ACTS
A person with interest in a transaction (lender,
mortgage broker, real estate broker, AMC,
consumer, etc.) is not prohibited from contacting an
appraiser and asking him or her to:
• Consider additional, appropriate property
information, including additional comparable
properties
• Provide further detail or explanation of the
appraiser’s value conclusion
• Correct errors in the appraisal report
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COERCION
• Covered persons are prohibited from engaging
in coercion, bribery, or other actions designed to
cause anyone to base a valuation of a property
on factors other than the person’s independent
judgment
• The FRB final rule states that if a creditor is
aware that coercion has taken place, or if the
valuer has an interest in the property or the
transaction, the creditor cannot engage in the
transaction unless the creditor engages in
“reasonable diligence” to determine that the
valuation is sound
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CONFLICTS OF INTEREST
The rule states that a person who prepares a
valuation or valuation management services may
not have an interest in the property or the
transaction
• Employment relationship does not, by itself,
violate this prohibition
• A staff appraiser for a lender or an affiliated AMC
may prepare valuations for the lender as long as
adequate firewalls have been established
between loan production and appraisal functions
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MANDATORY REPORTING
A creditor or settlement service provider who has a
“reasonable basis” to believe that an appraiser has
not complied with applicable laws or USPAP must
report the failure to comply to the appropriate state
licensing agency.
• The duty to report is limited to those failures that
are likely to affect the value of the property
• A “reasonable basis” means the person has
knowledge or evidence that would lead a
reasonable person to conclude that a violation
has occurred
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CUSTOMARY AND REASONABLE
The FRB’s rule also implements the “customary and
reasonable” rates of compensation for fee
appraisers, as specified in Dodd-Frank
• “…a creditor and its agent must pay a fee
appraiser at a rate that is reasonable and
customary in the geographic market where the
property is located.”
This rule specifies two presumptions of compliance
(i.e., “benchmarks”); a lender or AMC is required to
meet only one of the two
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BENCHMARK #1 FOR C&R FEES
1. The fee is “reasonably related to recent rates
paid for appraisal services in the relevant
geographic market”, as long as the lender or
agent has:
• Taken into account specific factors, including,
for example, the type of property and the
scope of work, and
• Not engaged in anti-competitive actions
under state or federal law, such as pricefixing or restraint of trade
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BENCHMARK #2 FOR C&R FEES
2. The creditor is presumed to comply if it
establishes a fee “by relying on rates established
by third party information, such as the appraisal
fee schedule issued by the Veterans’
Administration, and/or fee surveys or reports that
are performed by an independent third party”
• Such surveys and reports must not include
fees paid by AMCs
This language appeared almost verbatim in the
Dodd-Frank Act.
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SUMMARY OF C&R
A creditor or its agent (AMC) is required to meet
only one of the two benchmarks, which are again:
1. A fee that is “reasonably related to recent rates
paid for appraisal services in the relevant
geographic market”
2. A fee that is established by relying on third party
information, such as the fee schedule
established by the Veterans’ Administration
and/or independent fee surveys and reports
which exclude AMC fees
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FINAL WORD ON C&R
According to the FRB rule, “a document signed by a
fee appraiser indicating that the appraiser agrees
that the fee paid to the appraiser is ‘customary and
reasonable’ does not by itself create a presumption
of compliance…or otherwise satisfy the requirement
to compensate a fee appraiser at a customary and
reasonable rate.”
• Lenders and AMCs have already begun asking
for such statements in appraisal reports
• The rule clarifies that such statements do not
create a presumption of compliance
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FRB RULE
This rule contains a number of additional
provisions; not all of them pertain to appraisers
• The “customary and reasonable fees” section
has received the most attention from appraisers
• As we discussed, however, there are other
provisions that are just as important
This rule contains a number of requirements that
are similar or identical to the Home Valuation Code
of Conduct; so the spirit of HVCC essentially lives
on even though it is no longer in effect.
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INTERAGENCY GUIDELINES
The Dodd-Frank Act also required the federal bank
regulatory agencies to issue revised Interagency
Appraisal and Evaluation Guidelines; these were
released 12/2/2010
• The guidelines are intended to replace existing
guidance, specifically:
• 1994 Interagency Appraisal and Evaluation
Guidelines (FIL-74-94)
• Financial Institutions Letters FIL-20-2001,
FIL-84-2003, and FIL-53-2006
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WHAT IS INTERAGENCY?
According to the Interagency Guidelines document,
the guidelines were issued jointly by:
• Office of the Comptroller of the Currency (OCC)
• Board of Governors of the Federal Reserve
Board (FRB)
• Federal Deposit Insurance Corporation (FDIC)
• Office of Thrift Supervision (OTS)
• National Credit Union Administration (NCUA)
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REQUIREMENTS
The Interagency Guidelines apply mostly
to financial institutions; however, some of
them apply indirectly to appraisers
• Borrowers’ ability to repay their loans remains
the primary consideration in the lending decision
• An institution must implement policies and
procedures for appraisals and evaluations
• Examiners will review appraisals and
evaluations to ensure they are consistent with
both the Agencies’ regulations and the
institution’s policies
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APPRAISAL PROGRAM
An institution’s appraisal and
evaluation program should:
• Provide for independence
• Establish appraiser selection criteria and monitor
ongoing appraiser performance
• Ensure that appraisals comply with regulations
• Ensure that appraisals and evaluations contain
sufficient information to make a credit decision
• Maintain criteria for content and appropriate use
of evaluations
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APPRAISAL PROGRAM (CONT’D)
An institution’s program should:
• Provide for receipt and review of appraisal or
evaluation report in a timely manner
• Develop criteria to assess whether an appraisal
or evaluation can be used subsequently
• Implement internal controls for compliance
• Establish criteria for monitoring collateral values
• Establish criteria for obtaining appraisals or
evaluations for transactions that are not
otherwise covered by Agencies’ regulations
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INDEPENDENCE
The institution should maintain standards of
independence between loan production staff and
the collateral valuation program
• Collateral evaluation employees (including those
who order and review appraisals and
evaluations) should have reporting lines
separate from loan production staff
• Appraisers must be independent of loan
production and collection processes
Small institutions must demonstrate “prudent
safeguards” to ensure independence
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INFORMATION, PLEASE
An institution may “exchange information with
appraisers and persons who perform evaluations”
including providing the appraiser with a copy of the
purchase contract
• Consistent with the FRB’s final rule, an institution
may not “directly or indirectly coerce, influence,
or otherwise encourage an appraiser or a person
who performs an evaluation to misstate or
misrepresent the value of the property.”
There are also lists of permitted and prohibited acts
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PERMITTED ACTS
An institution may request an appraiser
or evaluator to:
• Consider additional information about the subject
property, or additional comparable sales
• Provide additional support for the valuation
• Correct factual errors in an appraisal
These permitted acts are consistent with the FRB’s
final rule, as well as the now-retired HVCC
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PROHIBITED ACTS
• Communicating a predetermined, expected, or
qualifying estimate of value, or a loan amount, or
target loan-to-value ratio
• Specifying a minimum value requirement for the
property that is needed to approve the loan
• Conditioning a person’s compensation on loan
consummation
• Failing to compensate a person because the
property is not valued at a certain amount
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MORE PROHIBITED ACTS
• Implying that the current or future retention of a
person’s services depends on the amount of the
appraisal or evaluation
• Excluding a person from consideration for future
engagement because the reported market value
does not meet a specified threshold
Additionally, an institution should not use the threat
of reporting a false allegation of USPAP to a state
enforcement agency as a method of coercing or
influencing an appraiser
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SELECTION OF APPRAISERS
An institution should ensure that:
• The person possesses “education, expertise,
and experience” to complete the assignment
• The work performed by the appraiser is
periodically reviewed by the institution
• The person is capable of being unbiased
• The person is independent and has no interest,
financial or otherwise, in the transaction
• The appraiser is appropriately licensed or
certified (does not apply to evaluations)
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MORE ON SELECTION
• An institution or its agent must directly engage
the appraiser
• Under certain circumstances, an institution can
use an appraisal prepared for another institution
• The borrower or loan production staff is not
permitted to recommend, select, or engage a
person to perform an appraisal or evaluation
• An institution’s use of a borrower-ordered
appraisal violates the Agencies’ appraisal
regulations
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OTHER “SHOULDS”
• If an institution uses an approved appraiser list,
the institution should have procedures for
developing and maintaining the list
• There should be internal, periodic review of the
approved appraiser list (if used)
• An institution should use written engagement
letters when ordering appraisals
• Appraisal or evaluation development work
should not commence until the institution has
selected and engaged a person for the
assignment
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MINIMUM APPRAISAL STANDARDS
The Agencies require that an appraisal must:
• Conform to generally accepted appraisal
standards as evidenced by USPAP
• Appraisal must be an opinion of market value
• An AVM is not considered an appraisal for
these purposes
• A BPO may not be used as the primary basis
to determine the value of a property for the
purpose of loan origination of a residential
mortgage loan
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MORE MINIMUM STANDARDS
The Agencies require that an appraisal must:
• Be written and contain sufficient information to
support the institution’s lending decision
• Analyze and report appropriate deductions for
proposed construction, partially leased buildings,
non-market lease terms, unsold tract
developments
• Be based on the definition of market value set
forth in the regulation
• Be performed by licensed or certified appraisers
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REPORTING
The Interagency Guidelines state:
• USPAP provides various report options, and an
option that merely states, rather than
summarizes or describes the information, may
lack sufficient information and analysis
• “Generally, a report option that is restricted to a
single client and intended user will not be
appropriate to support most federally related
transactions.”
• This appears to prohibit a Restricted Use
appraisal report for an FRT
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EVALUATIONS PERMITTED
For these transactions, an “evaluation” may be
used in lieu of an appraisal:
• Transaction value equal to or less than $250,000
• Business loan with a transaction value of
$1,000,000 or less, under certain conditions
• Involves an existing extension of credit under
certain conditions, such as
• There has been no material change in the
market or the property, or
• No new monies are advanced
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EVALUATIONS
• An evaluation must be consistent with safe and
sound banking practices
• An institution should be able to demonstrate that
an evaluation provides a reliable estimate of the
collateral’s market value
• A valuation method that does not provide market
value is not acceptable as an evaluation
• For example, a BPO provides a sales or list
price, and cannot be used as an evaluation
because it does not estimate market value
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EVALUATION CONTENT
An evaluation should, at a minimum:
• Identify the property’s location
• Provide a description of the property and its
current and projected use
• Provide an estimate of the “as is” market value
• Describe the methods used to confirm the
property’s condition, and the extent to which an
inspection was performed
• Describe the analysis performed and supporting
information used in valuing the property
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EVALUATION CONTENT (CONT’D)
An evaluation should, at a minimum:
• Describe supplemental information considered
when using an analytical method or
technological tool
• Indicate all sources of information used in the
analysis, including external data sources,
property-specific data, photos, description of the
neighborhood, and local market conditions
• Include information on the preparer, such as
name and contact information, and signature
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REFERRALS
• An institution should file a complaint with the
appropriate state appraiser regulatory agency
when it suspects that a state certified or licensed
appraiser has failed to comply with USPAP or
applicable state laws
• As of April 1, 2011, an institution must file such a
complaint
• An institution must file a suspicious activity
report (SAR) with FinCEN (Financial Crimes
Enforcement Network) when suspecting fraud
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INTERAGENCY GUIDELINES
Is this all? No. The guidelines establish many
additional requirements for institutions, including:
• More information on transactions that are
exempted from appraisal requirements
• Use of AVMs for collateral evaluation
• Loan workouts and restructuring
• Tax assessment valuations (TAVs)
There is also a glossary of terms (Appendix D)
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SECTION 4
Recent Fannie Mae Revisions
and Clarifications
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“Nothing in the world is
ever completely wrong.
Even a stopped clock is
right twice a day.”
- Paulo Coelho
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“I can’t change the
direction of the wind,
but I can adjust my sails
to always reach my
destination.”
- Jimmy Dean
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FANNIE MAE ANNOUNCEMENTS
Fannie Mae periodically releases announcements
to inform appraisers and loan originators of
changes in FNMA requirements and policies.
• These are similar to HUD Mortgagee Letters
• Not all of these announcements affect
appraisers
• Can be found at www.efanniemae.com
Announcement SEL-2010-09, released 6/30/10,
outlines changes to appraisal-related policies
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FNMA ANNOUNCEMENT 2010-09
Contents of this announcement:
• Appraisal-related changes to Selling Guide
• Miscellaneous appraisal-related guidance
• Miscellaneous Selling Guide updates
• Other updates of non-appraisal related nature
We will address the appraisal-related issues in this
section of the course.
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INTERIOR PHOTOGRAPHS
• Effective 9/1/10, if an appraisal
involves an interior inspection of
the property, interior
photographs are required to be
included in the appraisal report
• Photos are to include kitchen, all
bathrooms, and the main living
area
• Photos also should include
recent remodeling and updates,
as well as physical deterioration
and deferred maintenance
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LENDER CHANGES TO VALUE
• Lenders are not permitted to arbitrarily change
value opinions in appraisal reports
• If two appraisals are ordered, a lender may not
simply average the two values
• If a lender finds an appraisal to be “deficient”, it
has three options:
1. Contact the appraiser to address the
problems, or
2. Obtain a desk or field review of the original
appraisal, or
3. Order a new appraisal
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REQUEST FOR VALUE CHANGE
• A request for a change in market value must be
based on “material and substantive issues”
• It cannot be made solely on the basis that the
value indicated in the appraisal does not support
the proposed loan amount
• If a desk or field review is ordered, it must
conform to USPAP and must be completed by
licensed or certified appraisers in the state where
the property is located
• A new appraisal must be based on the same level
of inspection as the original appraisal
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APPRAISER SELECTION
These changes are considered mostly clarifications,
although some minor revisions have been made.
• Appraisers must have geographic competency
and access to appropriate data sources
• Fannie Mae does not permit appraisers to obtain
such competency during the assignment
• Fannie Mae’s requirements are therefore more
restrictive than USPAP, and must be followed
when applicable
• This would be an assignment condition
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LENDER RESPONSIBILITY
The Selling Guide has been updated, with regard
to third-party vendors (AMCs), to clarify that:
• Fannie Mae does not require the use of a thirdparty vendor
• The lender is ultimately responsible for
representations and warranties related to value,
condition, and marketability of the property
• The lender must hold the AMC responsible for
compliance with Fannie Mae requirements
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SELECTION OF COMPARABLES
• The appraiser is responsible for selecting
appropriate comparable sales
• If foreclosure sales or short sales are used as
comparable sales, the appraiser must:
 Identify and consider differences
 Consider the property condition
 Consider whether the property has a stigma
• The appraiser must conduct proper research, and
cannot simply assume that a short sale or
foreclosure sale is equal to the subject property
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VERIFICATION
• A list of acceptable data and verification sources
is provided in the Selling Guide
• For new construction, an appraiser can use the
HUD-1 Settlement Statement from the builder’s
file as a verification source, if the sale is recent
and not available from other sources
• The appraiser also must use one sale located
outside the new subdivision, and another sale
that can be either in or out of the subdivision
• The appraiser must verify these other sales from
reliable data sources, other than the builder
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COMMUNICATION
• An employee of a lender or authorized third party
is not prohibited from requesting that an appraiser
provide additional information or explanation, or
correct objective factual errors
• Loan production staff or commission-based
personnel may not have “substantive
communication” with an appraiser regarding
issues that impact valuation
• It is incorrect for the appraiser to indicate that he
or she is not permitted to communicate with the
lender or AMC to correct errors or to address the
lender’s concerns
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OTHER FNMA ISSUES
• Sales and financing concessions should be given
particular attention to ensure they are accounted
for; otherwise, an inflated value may result
• Fannie Mae’s market value definition requires
adjustments for special or creative financing or
seller concessions of the comparable sales
• Personal property, including furniture, vehicles,
boat docks, or art work may not be part of the
security for a single-family mortgage, unless
otherwise specified by Fannie Mae
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SALES CONCESSIONS
Page 4 of the URAR form states:
• Adjustments must be made to the comparables
for special or creative financing or sales
concessions
• No adjustments are necessary for costs that are
paid by sellers as a result of tradition or law
• The amount of the adjustment should
approximate the market’s reaction to the
financing or concessions, based on the
appraiser’s judgment
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2010-09 1004MC GUIDANCE
• The supply of active listings should be based on a
specific date in time
• These numbers should be based on the last day
in the applicable period described
• For example, for the “Current 3-month” period,
the number of listings should reflect the most
recent day in the period (this would be the
effective date of the appraisal)
• It is not appropriate to use a cumulative number
of listings for these periods
• This updated methodology is required as of
9/1/10
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1004MC - INVENTORY
• For the 4-6 month period specified on the
1004MC, the number of listings will reflect those
that were available on the most recent day of this
period (approximately 90-92 days in the past)
• For the 7-12 month period, the number of listings
should reflect those that were available on the
most recent day in the period (approximately 180184 days in the past)
• This assumes data from these prior time periods
is available to the appraiser
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SECTION 5
The Future: Take Back Your
Profession
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“Everyone thinks
of changing the
world, but no one
thinks of changing
himself.”
- Leo Tolstoy
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WHERE WE STAND
Now that HVCC is gone, residential appraising will
not return to the way it was before; certain aspects
of the HVCC are here to stay:
• HVCC-related revisions to the Fannie Mae and
Freddie Mac Selling Guides are not rescinded
• The FHA prohibition on mortgage brokers
ordering appraisals is unlikely to be reversed
• Millions of dollars have been invested in AMCs;
they are not going to give up and go away
• Structural changes within lending institutions are
not going to be undone
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WHERE ARE WE GOING?
Possible changes to independence requirements:
• Allowing mortgage brokers licensed under the
SAFE Act to order appraisals
• Promulgation of new federal regulations as
required by the Dodd-Frank Wall Street Reform
and Consumer Protection Act
• State AMC and appraiser independence laws
At the time of this writing, none of these is
finalized; they are merely possibilities on the
horizon.
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DECLINING NUMBERS
According to the Appraisal Subcommittee, which
maintains a registry of state-licensed and certified
appraisers in the U.S., the number of licensed and
certified appraisers peaked in 2007, and has since
been in decline.
• On the following two pages, there are graphs of
the number of U.S. appraisers, based on
statistics provided by the Appraisal
Subcommittee
• The number of certified/licensed appraisers has
decreased by approximately 5.5% since 2007,
from 121,407 to 114,737
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U.S. APPRAISERS 2001-2010
At
a more than ever before:
140,000
120,000
100,000
• 80,000
More and more competency
60,000
40,000
20,000
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20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
02
20
01
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U.S. APPRAISERS 1993-2010
At a more
140,000
than ever before:
120,000
100,000
• 80,000
More and more competency
60,000
40,000
20,000
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09
20
07
20
05
20
03
20
01
20
99
19
97
19
95
19
19
93
0
-Page 167-
ANALYSIS OF TRENDS
The previous graph indicates that between 1993
and 2002, the number of appraisers remained fairly
stable, with minor year-to-year fluctuations,
generally between 85,000 and 93,000.
• The trend went sharply upward in 2003,
culminating with a peak in 2007
• This was due to a number of factors, most
notably the lending boom and new AQB
certification requirements which began 1/1/2008
• One might conclude that the number of 88,000
to 93,000 appraisers appears to be a more
sustainable number, based on historical trends
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IF WE WAIT…
Although the course author is not a professional
prognosticator, there are some safe bets regarding
the appraisal profession and mortgage industry
over the next several years:
• Appraisers will continue to leave the profession
until more sustainable numbers are reached,
probably in the low ninety-thousands
• Supply and demand factors will cause fees to
reach an equilibrium
• Who will accept a $150 fee when he or she is
booked out for two to three weeks?
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“Change starts when
someone sees the
next step.”
- William Drayton
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“Change your
thoughts and you
change your world.”
- Norman Vincent Peale
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I WENT DOWN TO THE
CROSSROADS…
Many appraisers are finding themselves at a
professional crossroads, as changes in the lending
industry have caused many to re-examine their
business models.
• Appraisers who depended heavily
on mortgage brokers for appraisal
work find themselves scrambling
for new sources of business
• Some appraisers have left the
profession altogether
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LET’S LOOK at the BIG PICTURE
The appraisal profession has historically had little
power to effect changes beneficial to the profession
and its members – why?
• Small industry – traditionally less than 100,000
members
• Lack of unity – no single organization represents
the majority of appraisers
• Interests of the profession often run counter to
those of bigger-money interests, namely the
banking and real estate industries
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DISCUSSION: SOLUTIONS?
Ways in which the appraisal profession can
overcome its power problems:
•
Strengthening existing associations
•
Affiliation with a powerful organization (NAR®)
•
Forming a new association
•
Unionization
Each option has inherent problems which render it
unlikely to happen.
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UNLIKELY SOLUTIONS
• Strengthening an existing association or forming
a new association takes time, money, and large
numbers of appraisers participating, which has
heretofore proven impossible
• Affiliation with a large group like NAR® leads to
representation problems, plus if appraisers’
interests run counter to the larger organization’s
goals… guess who wins?
• Unionization is unlikely to get enough appraiser
members to be effective; appraisers tend not to
run in packs
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CASE IN POINT
• On March 8, 2010, the Appraisal Institute sent a
letter to the Secretary of the Treasury, raising
concerns about the use of BPOs in the Home
Affordable Foreclosure Alternatives (HAFA)
program
• Citing a growing fraud practice called “flopping”,
AI asked the administration to revise HAFA
guidelines to prohibit the use of BPOs for valuing
properties in short sale situations
• “Flopping” involves the purchase of short sale
properties at artificially low prices using deflated
BPO valuations, then re-selling for profit
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A QUICK RESPONSE
• NAR® wasted little time in responding to AI’s
request letter
• On March 12, they sent a letter to the Secretary of
the Treasury in support of the use of BPOs in
valuing foreclosure and short sale properties
• In their press release, they stated that “an
appraisal may not be the best tool” for these
transactions
• They also stated that BPOs are widely accepted in
the real estate industry, and there is no evidence
that appraisers are less likely to engage in fraud
than real estate agents are
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THE CONFLICT
• This example demonstrates the inherent conflict
between what is good for the appraisal
profession and the real estate industry
• The National Association of REALTORS® has
over one million members
• They do have appraisers as members, but
appraisers make up only a small percentage of
the membership
• When these interests conflict, the majority rules
• Appraisers cannot expect someone to stand up
on their behalf if they are unwilling or unable to
do it for themselves
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NEVER SAY NEVER
•
The possibility of the emergence of a large and
powerful lobbying force for appraisers’ interests
is unlikely, to say the least
•
Of course, there are many who disagree with
this statement, so you can never say never
•
The reality is, the appraisal profession lacks
political clout
•
And, because it is not a big-money
profession, it cannot purchase clout
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NOW, A MICRO VIEW
If appraisers are unlikely to effect change at a
national level, then what?
Individual appraisers can change:
• The way they do business
• The types of clients they work for
• The types of services they provide
• How they market themselves and their services
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APPRAISAL COALITIONS
•
Appraisal coalitions have proliferated in a
number of states
•
These are grass-roots lobbying groups which try
to create change at state and local levels
•
Several coalitions have been successful in
getting AMC legislation passed in their states,
including AZ, IL, and NV
•
To find out if there is an appraisal coalition in
your state, visit
www.nationalappraisalcoalition.org
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“It is not
necessary to
change. Survival
is not mandatory.”
- W. Edwards
Deming
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DISCUSSION QUESTION
What are some of the
changes that an individual
appraiser can make to
position himself or herself
better in the current
climate?
Be creative.
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POSSIBLE SOLUTIONS
• Lower your expenses
and overhead
• Develop an appraisal
specialty, such as
eminent domain
• Work for some of the
better-paying AMCs
• Upgrade certification to
general and do
commercial appraisals
• Offer other appraisal
services, such as
appraisal review
• Do REO and short sale
appraisal work
• Find non-lending
clients, like attorneys or
private individuals
• Do forensic reviews or
investigations for state
appraisal agencies or
lenders
• Work for non-FNMA
lenders
Solutions are as varied as the people in this room
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“The entrepreneur
always searches for
change, responds to
it, and exploits it as
an opportunity.”
- Peter F. Drucker
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EXAMINING THE SOLUTIONS
Let’s take a closer look at some of the solutions in
more depth.
Where possible and practical, we will address some
of the competency and regulatory issues related to
these appraisal specialties.
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REO AND SHORT SALES
Throughout the country, foreclosures and short
sales continue to dominate the market.
• Some areas are more active than others, but no
area of the country is immune
• Both foreclosures and short sales provide
business opportunities for appraisers
• Short sales typically need an appraisal before
the lender gives approval
• These types of appraisal assignments are not
subject to FIRREA
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A RIPPLE EFFECT
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REO AND SHORT SALES
As we saw on the previous graph, over 43% of buyside transactions involve some sort of distressed
property, whether short sale or REO.
• REO appraisals often have client-specific
guidelines
• Fannie Mae and HUD are two of the largest
consumers of REO appraisals
• Large banks often get REO appraisals; these
may come direct, or from AMCs
• Smaller, more local banks usually order their
own REO appraisals
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FANNIE MAE REOs
Fannie Mae requirements for REO appraisals
include:
• As-is and as-repaired values
• Three listing comparables included, with
adjustments
• Avoiding use of REO sales unless they represent
the current market
• Itemized list of repairs with estimated cost of
each
• Supplemental REO addendum in report
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HUD REOs
HUD REO appraisals are not
ordered by lenders or HUD offices;
they come from Management and
Marketing (M&M) contractors.
• To find the HUD M&M contractor
responsible for your state, go to:
www.hud.gov/offices/hsg/sfh/reo/mm/mminfo.cfm
• There are special requirements for HUD REO
appraisals, which may be found in Appendix A of
HUD Handbook 4150.2
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HUD REO REQUIREMENTS
• Before inspecting the property, the appraiser
must be provided with a Property Condition
Report from the M&M contractor
• The M&M contractor is responsible for ensuring
the utilities are turned on
• The intended user of a HUD REO appraisal is
the M&M contractor, the lender (under certain
circumstances), and HUD/FHA
• Properties are to be appraised “as-is”
• Appraiser must provide a repair list, with an
itemized cost to cure
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INSURABLE OR NOT?
The appraiser is responsible for rating the property’s
insurability for an FHA mortgage.
• “Insurable” means the property meets FHA
MPRs and needs no repairs
• “Insurable with repair escrow” means the
property needs no more than $5,000 worth of
repairs to meet MPRs
• “Uninsurable” means the property needs
more than $5,000 in repairs to meet MPRs
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NEW LEAD PAINT DISCLOSURE
Mortgagee Letter 2010-17 updated the reporting
requirements for HUD REO appraisals, as of June
1, 2010.
• Formerly, on properties built prior to 1978, the
appraiser was required to condition the appraisal
on a lead-based paint test
• Now, lead-based paint tests are no longer
automatically required
• Instead, appraisers are required to observe the
painted surfaces on pre-1978 homes
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LEAD PAINT – REO APPRAISALS
• If the appraiser observes defective paint
surfaces in a pre-1978 home, the appraiser must
enter an “X” in the physical deficiencies box, and
note all areas affected
• If there are no defective paint surfaces noted,
the appraiser does not need to explain this in the
report
• Again, these new reporting requirements apply
only to HUD REO appraisals, not origination
appraisals
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DIVERSIFICATION
Common sources of non-mortgage appraisal
assignments include:
• Relocation companies
• Trust companies
• Attorneys
• State highway agencies
• Utility companies
• REO companies
• Private individuals
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COMPETENCY ISSUES
• Many of these types of assignments require
specialized knowledge and skill sets
• Assignments for highway departments require
competency in eminent domain work, as well as
familiarity with standards and guidelines
(assignment conditions) issued by state and
federal agencies
• Assignments for attorneys may involve expert
witness testimony, which makes some
appraisers uncomfortable
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RELOCATION APPRAISALS
• These types of assignments typically require
advanced skills
• During the recession, the number of relocations
decreased significantly, making these
assignments more scarce
• Worldwide ERC revised the report form for
relocation appraisals; this form was released in
May 2010
• Additional information is available on the Web at
www.worldwideerc.org
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CHANGES TO ERC FORM
The 2010 ERC Summary Appraisal Report form
incorporates many changes:
• It is now 7 pages long instead of 6
• The definition of “Anticipated Sales Price” has
been modified slightly
• “Reasonable marketing time” has been replaced
with the term “assignment marketing period”
• An extraordinary assumption has been added
which will allow the effective date of the
appraisal to be different than the inspection date
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MORE ERC FORM CHANGES
• There is a new section of the form that covers
condominiums and co-ops
• The market trends section of the form is now
more detailed, covering 2 pages instead of 1
• The market trends section is divided into three
sections:
 Historic Trends
 Current Factors
 Forecasted Trends
• An enhanced summary of pertinent information
has been added on page 6 of the report form
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ERC GUIDELINES
There are nine guidelines for ERC appraisals,
which appear on page 1 of the Summary Appraisal
Report form and are explained in detail in the 2010
Relocation Appraisal Guide by Worldwide ERC.
• Relocation appraisals are different from
mortgage appraisals
• It is inappropriate to use Fannie Mae, HUD, or
other mortgage lending appraisal guidelines
when completing a relocation appraisal
We will briefly cover these nine guidelines in this
section of the course.
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ERC GUIDELINE 1
• Appraisals are “as-is” (although they can be
“subject to” if specifically instructed by the client)
• The appearance of a home will require the
appraiser to consider both condition (repairs,
improvements) and appeal (decoration, design)
• Adjustments for condition and appeal factors
should be based on market impact on anticipated
sales price, not cost to cure
• If the subject is new construction not completed
as of the date of valuation, the appraiser should
value the property using a hypothetical condition
that the improvements have been completed
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ERC GUIDELINE 2
• Develop and support the price the property is
anticipated to sell for during its Assigned
Marketing Period, paying attention to:
 Competing properties
 Pending sales
 Comparable sales
 Supply and demand
 Availability and terms of financing
 Location
 Overall market conditions
 Other pertinent factors
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FORECASTING
The forecasting adjustment is based on two factors:
1. Any change in the value that is anticipated from
the current date to the end of the assignment
marketing period (not to exceed 120 days); this
could be either positive or negative
2. Any reduction in price necessary to sell the
property within the assignment marketing period
It is possible that no forecasting adjustment may be
necessary, if the market is stable and the property
is anticipated to sell within 120 days
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ERC GUIDELINE 3
• “Anticipated Sales Price” is based on cash, or
cash equivalent terms
• Sale prices of comparable sales should be
adjusted for the effect of any sales or financing
concessions
• These are not necessarily mechanical, dollar-fordollar adjustments
• Adjustments for financing concessions should
reflect the difference between what the
comparable sold for with concessions and what it
would have sold for without the concessions
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ERC GUIDELINE 4
• The property is appraised
as though free of all liens
and special
assessments, even if
there are still outstanding
installment payments
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ERC GUIDELINE 5
• Gross living area (GLA) is to be standardized
• Exterior measurements are used, except for
condominiums and co-ops
• Should include habitable, above-grade areas
• Bedroom and bath counts must be located within
the GLA
• Heating, lighting, and ventilation are to be
considered in determining habitable areas
• Finished basements and attics are not to be
included in GLA, even if they contribute to value
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MORE ON GLA
• If a room has a sloping ceiling, only the part of the
room that has a ceiling height of 5 feet or more
should be included in GLA
• If an area is 50% or more above grade, fully
finished, with a design that has the “look and feel”
of above-grade area, the appraiser can opt to
include this area in GLA
• The method of handling partially below-grade
areas must be similarly applied to the competing
listings and comparable sales
• Two-story foyers and other open areas are to be
deducted from GLA
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ERC GUIDELINE 6
• Defines the ratings that are used for the
neighborhood and the property
• These ratings are assigned by comparing the
subject property to competing properties in its
market
 Excellent = (superior)
 Good
= (better than)
 Average
= (comparable)
 Fair
= (not as good as)
 Poor
= (considerably inferior)
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MORE ON RATINGS
• A custom-built luxury home may be rated as
“average” if it is located in a subdivision of other
similar custom homes, and its amenities are
standard and typical for its location
• Likewise, a home that is in need of several
repairs could be rated “average” if its condition
and repair issues are typical for other competing
properties in its market
• This rating scale is significantly different than the
rating scale used for mortgage lending appraisals
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ERC GUIDELINE 7
The report must include the following exhibits:
• Photos of subject front, rear, street, and interior,
as well as any adverse conditions, view, or
marketability issues (positive or negative)
• Photos of competing properties and comp sales
• Dwelling sketch with all measurements and
calculations, and room locations
• Map depicting locations of subject, comparable
sales, and competing listings
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ERC GUIDELINE 8
• The relocation appraiser
should not attempt to
solicit a listing or
generate a referral fee as
a result of the appraisal
assignment
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ERC GUIDELINE 9
• Do not discuss appraisal opinions or reveal
sensitive information to anyone other than the
client
• You cannot provide even a “ballpark” estimate to
the relocating employee
• Deviation from any of the ERC definitions and
guidelines is not permitted without client approval,
and such deviations must be specifically
disclosed in the report
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EMINENT DOMAIN APPRAISALS
Eminent domain appraisal assignments are diverse,
challenging, and potentially lucrative.
• Highway departments, airport authorities, and
utilities often engage appraisers
• Property owners (condemnees) and their
attorneys also engage appraisers
• Appraisers must be aware of any laws and/or
regulations that apply in the development and
reporting of these appraisal assignments
• Remember also the COMPETENCY RULE
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THE YELLOW BOOK
If federal government funds are involved in
acquiring property, the appraisal must conform to
the Uniform Appraisal Standards for Federal Land
Acquisitions, also known as UASFLA, or the “Yellow
Book.”
• If a state highway department is acquiring
property (even if federal highway money is
involved), the appraisal must conform to the
state highway department’s appraisal standards,
not the Yellow Book
• State standards can be very detailed; most even
have their own report forms
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DIVORCES AND ESTATES
Attorneys and private individuals often engage
appraisers for these types of assignments.
• Many of these appraisals are on typical, noncomplex single-family homes, and require no
special competency
• However, for non-complex properties, the
attorney or owner may hire the low bidder
• Expert testimony may (or may not) be required
• Be wary of situations when the attorney assures
you that testimony will not be required – before
you even undertake the assignment
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MARKET VALUE
Many litigation appraisal assignments
have market value as their objective.
• Be sure to use the definition of value (market or
otherwise) that is appropriate for the assignment
• Many courts and jurisdictions have their own
definition of market value
• USPAP requires you to cite the source of the
definition in your report
• Use of the pre-printed definition from the Fannie
Mae URAR form is not appropriate
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PRIVATE INDIVIDUALS
• Assignments for private individuals may require
patience and the ability to explain appraisal
issues and standards to people who have limited
(or no) understanding of appraisal practice
• Even if private individual clients like your work,
they may not have any follow-up business to
give you
• Diversification is not a panacea
• It may be difficult to replace all your traditional
mortgage lending work with appraisals from
other sources
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FORENSIC REVIEWS
The term “forensic” has several meanings; its most
common involves the establishment of facts or
evidence in a court of law.
• As our society becomes more litigious, lawsuits
against appraisers are filed regularly
• In appraisal cases, both plaintiffs and defendants
need experts to prepare reports and testify
• These experts are usually appraisers with an
advanced knowledge of USPAP,
appraisal
theory, and techniques
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STATE AGENCY REVIEWS
Many states use certified appraisers as reviewers
or investigators when pursuing disciplinary cases
against appraisers.
• Find out if your state is one of them
• These assignments generally pay very well
• A high level of knowledge and good expert
witness skills are a must
• Some states do not require their reviewers to
follow STANDARD 3 of USPAP
• As a bonus, you are helping the profession
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SECTION 6
Summary: Best Practices for
Maintaining Your Professionalism
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“The quality of a
person’s life is in
direct proportion to
their commitment to
excellence, regardless
of their chosen field of
endeavor.”
- Vince Lombardi
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APPRAISAL BEST PRACTICES
In summary, rather than provide a list of negative
exhortations (“Don’t do this, don’t do that”), we
believe it is preferable to provide positive
reinforcement.
The next five slides highlight some appraisal “best
practices.”
These can help appraisers improve business and
income, cultivate new business opportunities,
protect an ethical reputation, and limit professional
liability.
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1. PROTECT YOUR REPUTATION
• Treat your ethical reputation like what it is – your
most important professional possession
• You have only one reputation – it takes years to
nurture and build it, but just one bad decision to
destroy it
• Never compromise your ethics for an appraisal
fee, or the promise of future appraisal business
• Avoid cutting corners for low-fee clients
• Associate yourself with professionals; rightly or
wrongly, we are judged by the company we keep
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2. BE A PROFESSIONAL
• If you wish to be treated as a professional, you
must look and act the part
• Dress and conduct yourself professionally
• Continuously improve your knowledge and skills
• Treat other appraisers as professionals, even
though they may be your competition
• Bad-mouthing another
professional to a client or
member of the public is not
how a professional should act
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3. DIVERSIFY YOUR PRACTICE
• As stated previously, there are non-lender
clients out there who really want to know what a
property is worth
• These assignments often require more
knowledge and specialized skills
• To many clients, ethical and competent
performance is more important than a low fee
or a fast turn-around time
• Find these clients – it may take some searching
– and cultivate opportunities to service them
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4. KNOW USPAP
• USPAP sets forth ethical standards and
performance requirements for appraisers
• This is the “measuring stick” that is used in
judging whether an appraiser’s work meets the
recognized standards of the profession
• If you complete every assignment in
compliance with USPAP, you will be able to
defend yourself against whatever is thrown your
way
• USPAP knowledge can be a gateway to other
opportunities, such as forensic appraisal or
review work
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5. GET INVOLVED
• Appraisers often grouse about a perceived lack
of ethics by their peers, but are unwilling to do
anything about it except complain
• If you receive an appraisal report you believe to
be fraudulent or misleading, turn it over to the
appropriate authorities
• If you are competent in appraisal review, contact
your state enforcement agency and offer your
services as a reviewer or investigator
• We cannot expect anyone else to keep our
professional “house” clean – we must do it
ourselves
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“I do the very best I
know how – the very
best I can; and I mean
to keep on doing so
until the end.”
- Abraham Lincoln
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THE END
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It helps us create better courses for you!
We hope you enjoyed the course, and if you
have any questions, please don’t hesitate to
call us at 1-800-328-2008.
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