Appraisal guidance released by federal banking regulators will force financial institutions to cut back on their use of automated valuation models, according to one technology provider. On some agency loans, mortgage servicers will no longer be allowed to utilize only one real estate broker for all of their price opinions. Real estate appraisers wrote a letter to the Federal Reserve demanding that appraisal management companies be required to disclose their fees to consumers.
The federal financial regulatory agencies -- including the Federal Reserve, the Federal Deposit Insurance Corp., the National Credit Union Administration, the Office of the Comptroller of the Currency and the Office of Thrift Supervision -- issued final guidance for Interagency Appraisal and Evaluation Guidelines on Dec. 3. The guidance replaces 1994 guidelines.
"The guidelines incorporate the agencies' recent supervisory issuances on appraisal practices, address advancements in information technology used in collateral valuation practices, and clarify standards for the industry's appropriate use of analytical methods and technological tools in developing evaluations," the OCC said in a statement accompanying the guidance. "The guidelines emphasize that financial institutions are responsible for selecting appraisers and people performing evaluations based on their competence, experience, and knowledge of the market and type of property being valued."
The new standards update and consolidate regulators' recent supervisory issuances on prudent appraisal practices, Patton Boggs LLP wrote in its newsletter. They also address advancements in information technology used in collateral valuation practices and clarify standards for the industry's appropriate use of analytical methods and technological tools in developing evaluations.
"In promoting prudent credit decisions, the guidelines direct institutions to develop demonstrably independent processes for obtaining property values, adopt standards for appropriate communications and information-sharing with appraisers and people performing evaluations, and maintain strong internal controls to ensure reliable appraisals and evaluations," the newsletter said.
Patton Boggs said lenders should have in place appraisal evaluation programs that ensure independence for those who order, perform or review appraisals or evaluations. Lenders should establish selection criteria for appraisers and utilize procedures to monitor and evaluate their ongoing performance. Among several other recommendations were documenting enough information to support credit decisions; maintaining timely delivery and review of appraisals; and developing guidelines about when appraisals can be used again.
(read full set of guidelines)
Default valuation provider Integrated Asset Services LLC warned last month that Interagency Appraisal and Evaluation Guidelines (FIL-82-2010) from the Federal Financial Institutions Examination Council will have a major impact on institutions that rely on AVMs. The guidance reportedly requires that a property's actual physical condition be provided along with the economic and market conditions that impact the estimate of market value -- eliminating the use of analytical methods or technological tools like AVMs as a substitute for an appraisal.
"Given the additional requirements imposed by the regulators, lending institutions will need to look at so-called 'hybrid' AVMs for certain applications," Integrated President Ryan Tomazin suggested in the news release. "These next-generation models integrate a professional third-party inspection into the analytics to deliver a current view of subject and neighborhood condition, condition-adjusted value, and market price trends."
A December statement from Fannie Mae indicated that four providers of broker price opinions were added to the secondary lender's approved list. The notice said that servicers will be required to utilize at least two different BPO providers as of Feb. 1. The diversification requirement is an effort to limit risks arising from the concentration of BPO orders with a single BPO provider.
Fannie said reimbursements are now limited to $80 for an exterior BPO and $105 for an interior BPO.
In LL-2010-15, Fannie announced updates to the implementation dates and requirements for loan delivery and appraisal data under the Uniform Mortgage Data Program. The lender letter is a formal notice of the Washington, D.C.-based company's appraisal data requirements under the program.
Bulletin No. 2010-31 outlined Freddie Mac's requirements for the Uniform Appraisal Dataset and the Uniform Collateral Data Portal. The UAD "standardizes key appraisal data elements for a subset of fields on four of the primary appraisal report forms used by the GSEs," while the UCDP "is the joint portal through which Sellers will electronically submit certain appraisal report forms to the GSEs."
Freddie said that the UAD is required on appraisals with effective dates of Sept. 1, 2011, or later. The UCDP requirements impact conventional loans with appraisals and loan applications dated Dec. 1, 2011, or later and delivery dates of March 19, 2012, or later.
Four appraisal trade groups were behind a Dec. 27 letter to the Federal Reserve asking that AMCs be required to disclose their fees to borrowers. The Fed was also urged to reconsider how language in the Dodd-Frank Act that requires AMCs to pay appraisers "customary and reasonable" fees is interpreted.
The groups -- including the Appraisal Institute, the American Society of Appraisers, the American Society of Farm Managers and Rural Appraisers, and the National Association of Independent Fee Appraisers -- claim to represent more than 35,000 members.
"Under current interpretations of the Real Estate Settlement Procedures Act, consumers are led to believe the 'appraisal fee' being paid to a creditor is for a property appraisal, when in fact it is for the appraisal as well as appraisal management services," the associations said. "We believe the RESPA policy that compels consumers to pay for both the appraisal fee and the AMC fee as a bundled fee is in dire need of reexamination."
A Sept. 28 letter from the American Financial Services Association, Consumer Mortgage Coalition, Financial Services Roundtable and Housing Policy Council had urged the Federal Reserve Board to hold off on its rulemaking until appraisal fee studies were completed by the Government Accountability Office and PWC. The groups said that lenders have been improving appraisal quality, much of the improvement accomplished "through technology advances funded to a large extent by AMCs," and the Fed shouldn't mess with these advances that have proven to improve quality and cost-effectiveness.
New appraisal regulations set to be mandated in April under the Dodd-Frank act will mean that "lenders, appraisal management companies, appraisers and investors are going to have to adjust the way they do business to account for the new regulations," according to Coester Appraisal Group Chief Executive Officer Brian Coester. The Rockville, Md.-based AMC and MortgageDaily.com advertiser issued a statement explaining that the biggest difference is that the new regulations impact originations for all federally related transactions. Only agency production was previously impacted.
Coester Appraisal Group Operations Manager Frank Novak said that the new regulations reduce requirements to a single set versus previously having to deal with multiple regulations including the Home Valuation Code of Conduct, FHA rules and federal bank requirements.
Solidifi US President Griff Straw said in a recent press release that appraisal guidelines in the Dodd-Frank act vindicate appraisers after years of being blamed for the mortgage industry's problems. He said the days of commoditized appraisals are gone -- as is the fee splitting that occurred on during the 18 months HVCC was in effect. Straw said appraisal quality was hurt and turnaround deteriorated as a result of fee splitting.
Solidifi is also a Mortgage Daily advertiser.