Each depositor insured to at least $250,000 per insured bank



Home > Regulation & Examinations > Comment on Financial Reform Implementation




Comment on Financial Reform Implementation


September 10, 2010

I appreciate the your taking the time to heed the cries of the people that these rules and regulations are affecting. Many times, regulators ignore the guidance of those with boots on the ground experience.

This is not my first letter to the Federal Reserve, I wrote comments along these same lines in November of 2008. Things have not changed. I'm including my prior letter, which is also in your archives, since it all still applies.

My next comment would be on "Customary and Reasonable Fees". This was a nice attempt towards appraiser independence. Unfortunately, the appraisal management companies and those who will only pay minimal fees always find a loophole in the wording. This is an example taken from an email I received just the other day:

An Important Message from XXX Regarding Dodd-Frank

As you all know, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law not long ago. For appraisers, the most important section is Title XIV, which among other things stipulates that appraisers should be paid "customary and reasonable" fees.

As a result, we have received numerous inquires asking what the impact of Dodd-Frank might be on the industry in general, when it will be officially implemented into practice, and how XXX plans to ensure that it pays its panel appraisers the "customary and reasonable" fee for their market area.

In case you haven't seen the official language, HR4173, Section 1472, sub-section (i) Customary and Reasonable Fee, item 1 - IN GENERAL, states: "Lenders and their agents shall compensate fee appraisers at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised. Evidence for such fees may be established by objective third-party information, such as government agency fee schedules, academic studies, and independent private sector surveys. Fee studies shall exclude assignments ordered by known appraisal management companies."

Please rest assured that we at XXX plan to take a proactive approach. We are actively engaged with key individuals in the appraisal industry and in Washington D.C., in an ongoing effort to gain maximum clarity on the complex appraisal-realted issues within the Dodd-Frank Act as quickly as we can. When the smoke clears and we have the desired clarity on the relevant portions of the law, we will communicate what we know to you, our valued panel appraisers.

Until then, our existing fee schedule applies.

Please know that we feel extremely fortunate to have a panel that consists of the best appraisers throughout the United States, and we look forward to continuing our mutually beneficial professional relationship for many years to come!

I bolded two of the important sentences. Fee studies ordered by known appraisal management companies will just show that low fees are customary. The only people on their panel of valued appraisers are the ones that will accept orders at a minimal fee. What good did all that do?

Fees should not be mandated by anyone but the appraiser. The appraiser, according to USPAP, is supposed to determine the scope of work required to complete the assignment, and at that point would be able to determine the fee necessary. Not all properties are the same, and not all assignments require the same work. In the example below, we went through two appraisers because the first appraiser saw the extensive work required for that type of property and asked for a fee increase, the appraisal management company cancelled the order with him and sent it to another appraiser who accepted a lower fee.

BPO's are still a problem as well. My husband and I have currently stepped away from the silliness in the appraisal profession and are working real estate agents. We are helping our client in the short sale process for two rural, complex properties. In speaking with our negotiator on one of the two properties, he stated he had an appraisal on the smaller property for $500,000. The next day, we had a call from an agent wanting to see the interior of the other property so he could do his "appraisal". Knowing that no one had seen the interior of the first property, we told the negotiator that we wanted new appraisals on both properties by State Certified Real Estate Appraisers. We knew that the original number had come from an agent doing a BPO. These properties are both complex rural properties. The appraisal for the larger property came in considerably lower than the number given on the smaller property. So what is it that the banks gain by using inexperienced agents and relying on BPO's for the sale of a property?

In this case, the BPO over valued the property considerably. But whose fault is it since real estate agents are not trained in the valuation of property. They are trained in PRICING properties. Appraisers are trained in the valuation of property.

Another example from last month: A local bank representative called me asking for an appraisal on a property. All they wanted was something limited and cheap because they were foreclosing on the property and regulations state they have to have an appraisal in their file – but they didn't care what it was or said, just needed an appraisal from an appraiser. I did a bit of research first, and saw they did something a few months earlier and asked why they didn’t use the appraisal that was done then. She responded that they didn't get an appraisal, they had a letter from a local real estate broker that stated in his opinion the property was worth $ X. This is what they relied on to make a financial decision. The dollar amount was twice what the county assessor valued the property at, and was double what any of the current listings in the area were. There hadn't been any sales in the last couple years, which is probably why he did a letter and not a BPO. But this is the type of thing that got us (as an industry) into this mess.

Yet in Federal Regulations, it states all that is needed in the file is an evaluation of the property, which allows for BPO’s and AVM's. When in reality, what is needed is an appraisal (by a state licensed or certified appraiser).

I don’t know how many times I've heard, "your appraisal isn't as high/low as the AVM/BPO" Since when did the real estate appraisal become a rubber stamp approving of an AVM or BPO neither of which are trained in the valuation of property. Why is it that I have to defend my appraisal report based on the opinion of someone with no education in the appraisal process?

The fact of the matter is, no matter how much regulation is in place, no matter what kind of new rules are drafted, if they are not properly enforced it does not matter. Many of the things that have happened in the past may not have happened if the rules and regulations in place were properly enforced. It is all meaningless without enforcement.

Again, thank you for your time and if you have any questions I would be more than happy to talk with you.

Sincerely,

Billie Hiser and Gary Lott
Independent Appraisal Group




Last Updated 9/23/2010 FinReformComments@fdic.gov