The Consumer Protection Act is a bill which passed the U.S. House on December 11, 2009 and has been introduced to the Senate for consideration. This 1705-page bill is supported by President Obama and is a response to the recent financial crises.  It seeks to address a myriad of concerns – from predatory lending to unregulated derivatives. This bill is expected to be signed into law in some form.

See the HR4173 bill here:

http://docs.house.gov/rules/finserv/111_hr_finsrv.pdf

42 pages (pp. 983–985 & 1623–1662) of this bill have specific implications to the appraisal industry; I read them and encourage you to do the same!

Top 15 Things You Should Know about this bill, in my opinion:

• Appraiser Independence – Within 60 days of the law taking effect, new appraisal independence requirements for residential loan purposes are required (p. 983).

• HVCC Gone! - HVCC will be gone or in the language of the bill “the HVCC shall have no force or effect”.  A licensed mortgage loan officer may, “select, retain and compensate” the appraiser subject to the Appraiser Independence requirements (pp. 984-985).

• Subprime loans – A residential property securing a sub-prime loan must have a written appraisal with an interior inspection (p. 1623).

• Copy of Report – The consumer will be entitled to a copy of the appraisal report by the lender with a statement that “any appraisal prepared for the mortgage is for the sole use of the creditor, and that the applicant may choose to have a separate appraisal conducted at their own expense” (p.1625).

• Mandatory Reporting – Any lender, real estate broker, AMC or mortgage broker is required to report an unethical, USPAP violating, unprofessional appraiser to the State Board (p. 1629).

• Mandate – The Appraisal Subcommittee is now charged with a formal “consumer protection mandate”.  It is to report to Congress each year concerning its activities, including audits of State appraiser regulatory agencies (pp. 1632-1634).

• National Appraisal Process Study – Within 18 months of the law taking effect, a comprehensive study is to be done by the Comptroller General on possible improvements to the appraisal process, including the following: AMCs, independent appraisers, BPOs, AVMs, FHA using only certified appraisers, and enforcement actions against appraisers for the past ten years (p. 1658).

       Stay tuned for Part 2 of Things You Should Know about the Consumer Protection Act of 2009.  Items covered in Part 2: AMC regulation, including annual fees and the NEW (and surprising) federal definition of an AMC!

The major changes under the new RESPA rules took effect on January 1, 2010.  A notable departure from the old form is the revised Good Faith Estimate.  It gives the borrower a summary of the terms of the loan as well as the settlement costs.  Under the new law, if the charges, including appraisal fees, from the GFE are outside of a 10% tolerance level compared to the charges under the Settlement Statement, the lender is unable to collect those charges from the borrower.

Appraisal fees generally do not change when the correct appraisal type is ordered. There are instances where an increase in fee is necessary due to an extraordinary amount of work required to complete a “non typical” residence (i.e. oceanfront mansion, sprawling ranch or historic property).  In these cases, the increase is not 10% but more likely 30 to 100%!  Appraisers rarely bother to increase a fee by 10%.

How can appraisers and lenders avoid an appraisal fee dispute?

First, HUD allows a tolerance of 10%, however, the 10% is not specific to the appraisal fee, but to the aggregate fees charged in block 3. If the other charges in the block are accurate, an increase of 50% of the appraisal fee (or $175), is allowed and the lender takes no loss.

Second, according to HUD FAQ (page 17),dated December 30, 2009, “after the GFE is issued, it is determined that an additional service such as an additional pest, structural or other inspection, upgraded appraisal, certification or survey is required…” HUD answer, “This could constitute a changed circumstance” – Upgrade of appraisal fee would be allowed not subject to the 10% tolerance.

Third, at the time of application, an interview with the borrower to determine whether the property has any unusual characteristics or amenities would allow the opportunity for a quick call to the appraiser for a fee quote, saving time and preserving relationships.

Communication between lender and appraiser is the key to avoiding problems and staying in compliance.

The Warren Group CEO Tim Warren spoke at the Connecticut Mortgage Bankers Association’s Expo in the Sun on Friday, January 15, giving his predictions for this year’s real estate market. The Warren Group tracks real estate transactions throughout New England and publishes the Banker and Tradesman.

Mr. Warren noted that sales volume has declined for four straight years; there was also a parallel decline in the median housing price over the past three years. This decrease in business has produced changes in the mortgage lenders themselves, many of them merging or going out of business. Fifty percent of the top 20 mortgage lenders (CT & MA) in 2004 are different than the top 20 of 2009, he noted.

The biggest winners in this shake-up are local and regional lenders. The community banks have seen their market shares increase.

As for the housing market, Warren sees an increase in sales volume in 2010 and a corresponding trend toward home value stabilization by the first quarter of 2011. Issues that could derail that stabilization are high unemployment, poor consumer confidence, higher interest rates, and the market reaction to the end of the government’s home buyer’s tax credit at the end of April, says Warren.

The mortgage industry rollercoaster has been in steep decline over the past four years. Perhaps 2010 is the bottoming out, and in 2011 we’ll hear the click-clicking of the housing recovery on its way up.

A recent study of the Commonwealth of Massachusetts appraisal licensure database shows an alarming drop in the number of appraisers training for the profession.  A drop of 70% in real estate appraiser trainees over the past three years has been recorded.

The number of General Certified Appraisers has remained consistent over this period.   Licensed and certified residential appraisers have also remained constant, varying only slightly.

The number of appraisal trainees licensed by the state dropped from 1,635 in March 14, 2007 to 485 as of January 14, 2010.  A gradual decline is noted over the past three years due to the current economic recession and the mortgage industry’s discomfort with appraisal reports being completed by trainees.

Appraisers will testify that there still are too many licensed/certified appraisers chasing too few orders, and trainees are not considered when appraisals are assigned.  Many lenders are requiring a supervisory appraiser inspect the property with the trainee. In these economic times, not many licensed appraisers want to inspect property with trainees and supervise the appraisal process when they could do the work themselves.

 The lack of appraisers in training is not a current problem, but an aging appraiser population and an improved future economy may push demand above the current capacity of licensed appraisers. It takes time to become a licensed appraiser, a trainee is required to have two years of experience, pay licensing fees, complete course work and pass an exam – no small feat.  A potential shortfall of appraisers could lead to higher appraiser fees, dissatisfied lenders, and the reliance once again on automated valuation methods. This trend stands watching…