FDIC files appraisal-based complaints against LPS, CoreLogic

5/13/2011)

On May 9, the Federal Deposit Insurance Corp. (FDIC) filed complaints against CoreLogic and Lender Processing Services (LPS) for losses totaling up to more than $283 million based on CoreLogic’s affiliation with eAppraiseIT and in LPS' case, its subsidiary LSI Appraisal LLC, an appraisal management company. In its complaint, the FDIC cites 220 appraisals performed between June 2006 and May 2008 as the cause of the damages claimed against LPS for a total of more than $154 million in losses. The FDIC complaint against CoreLogic alleges that eAppraiseIT was grossly negligent and breached its contract with the FDIC-received Washington Mutual Bank (WaMu) in the provision of appraisal services in 2006 and 2007 relating to 194 residential mortgage loans, resulting in at least $129 million in alleged losses. In its filing, LPS defended itself, saying that “for more than 75 percent of the appraisals identified by the FDIC, LSI was contracted only to provide reviews of appraisals, not to conduct the initial, full appraisals.” For all appraisals subject to this complaint, LPS believes there is no basis for a claim that LSI engaged in gross negligence or breach of contract related to these appraisal services, the filing states. CoreLogic has started to review 194 files selected by the FDIC from the more than 265,000 appraisals and reviews performed by eAppraiseIT for WaMu. “Based on the analysis to date, [CoreLogic] believes that for more than 85 percent of the loans cited in the FDIC lawsuit on which eAppraiseIT provided services to WaMu, eAppraiseIT’s services consisted of reviews of pre-existing, third-party appraisals provided to it by WaMu, with the vast majority being desk reviews,” states the company’s filing. The report also states that under eAppraiseIT’s agreement with WaMu, a desk review does not require any interior or exterior inspection by the reviewer. Rather, the agreement and applicable professional standards recognize that desk reviews are more limited in scope than full appraisals.

Interesting Letter from TAVMA

TAVMA Responds to Fed Regarding Appraiser's On-Line C&R Fee Petition

Re: Interim Final Rule - Customary and Reasonable Fee Stipulation
Download TAVMA C&R Fee Stipulation
Dear Ms. Johnson:
The Title Appraisal Vendor Management Association("TAVMA") wishes to express its views about the misinformation being disseminated by appraisal organizations and publications about the Federal Reserve's Interim Final Rule and Appraisal Management Companies ("AMC's"). TAVMA is a national trade association of real estate settlement services providers including many leading appraisal management companies.
Some appraisers continue to attack AMC's by asserting that the DOD Frank Act, TILA and the Interim Final Rule prohibit consideration of fees negotiated in arms length transaction between AMC's and appraisers. The Appraiser News Online, Volume 12, Number 16, April 20, 2011, reports that "Federal Reserve officials indicated that AMC fees were not to be included in any assessment of recent fees paid to appraisers" under Presumption 1 of the Interim Rule.
TAVMA understands that this statement and the article in which it is contained misrepresent the statements of the Federal Reserve officials who were present at the San Antonio conference. Given the timing of the article, coming as it does with the roll-out by many lenders and AMC's of pricing consistent with Dodd Frank and the Interim Final Rule, such misstatements are causing confusion in the marketplace and are adding unnecessarily to the regulatory burden of those working to comply with the new requirements. TAVMA requests that the Federal Reserve Board and staff take the steps necessary to correct this distortion of its Interim Final Rule.
Similarly, a recent on-line petition directed to the Federal Reserve asserts incorrectly that the fees paid by AMC's to appraisers are not to be considered in the determination of a customary and reasonable fee ( http://www.petitionon line.com/CnR2011/petition.html ). TAVMA strongly disputes the substance of the on-line petition, which takes exception to the Federal Reserve Board's interpretation of TILA Section 129E(i) as allowing consideration of fees paid by AMC's to appraisers in the determination of the "customary and reasonable rate" of compensation for fee appraisers. The petitioners show contempt for others in their profession by declaring that the work of those appraisers who will work for less than the petitioners" is substandard.

The signers of the petition want the Federal Reserve Board to write an exclusion of consideration of fees paid to appraisers by AMC's into Presumption 1 of the Interim Rule; however, the requirement that determination of "customary and reasonable rates" take into account "recent rates paid for comparable appraisal services" would be unnaturally skewed if AMC's and lenders could not consider the fees that they have long been paying for appraisals.

In adopting the Interim Rule, the Federal Reserve Board observed that the customary and reasonable compensation provision that Congress adopted as part of TILA is identical to a requirement included in a 1997 HUD Mortgagee Letter obligating FHA lenders to ensure that appraisers are paid "at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.’” The emphasis is on the marketplace in which AMCs have long had an integral role.
The Dodd Frank Act and the Interim Rule identify a specific type of survey in which AMC fees are not to be considered but this does not hold in other circumstances. To exclude, as the petitioners seek, the fees charged by appraisers in the majority of transactions would deny marketplace realities to the detriment of consumers, lenders, and competition. Such an interpretation of TILA's "customary and reasonable" provision likely would be unconstitutional and violate anti-trust laws, and would not serve the best interests of consumers,lenders or competition.
TAVMA's members are working with lenders and appraisers to comply with the TILA and the Federal Reserve Board's Interim Rule. TAVMA strongly opposes the position taken in the recent petition. The customary and reasonable fee rule that was issued by the Fed has been effective for less than a month. The petitioners should allow a reasonable time for the new rule to be implemented.
On behalf of TAVMA, I appreciate your time and attention to our views.
Download TAVMA C&R Fee Stipulation

AARO Letter to Federal Housing Finance Agency

13200 Strickland Rd.
Suite 114-264
Raleigh, NC 27613 

May 11, 2011

Mr. Alfred M. Pollard
General Counsel
Federal Housing Finance Agency
1700 G Street, NW
Fourth Floor
Washington, DC 20552

Dear Mr. Pollard:

On behalf of the Executive Committee (EC) of the Association of Appraiser Regulatory Officials (AARO) it is my pleasure to take this opportunity to express our appreciation to you individually, the FHFA, Mr. Robert Murphy of Fannie Mae, and Mr. Mark Simpson of Freddie Mac for affording representatives of AARO the opportunity to attend a “train the trainer” seminar introducing the “Uniform Appraisal Dataset” (UAD) in Washington, DC on March 7, 2011.  During the 2011 AARO spring conference in San Antonio, Texas, Mr. Simpson and Mr. Murphy presented introductory information to state regulators about the “UAD” and its intended use. We appreciate their willingness to do so. During both meetings, the AARO attendees applauded the efforts of FHFA to improve consistency within the appraisal reporting process.  The attendees commented that although the forms will not change, the process of requiring consistent data entry within specific form fields will prove beneficial for the appraisers, clients, and other users of real property appraiser services.      

While the AARO attendees at each of the above sessions understand that the development of the forms, the guidelines for completing the forms, and development of the UAD program are totally within the domain of FHFA, Fannie Mae and Freddie Mac, some concerns have been voiced about the program. The Executive Committee echoes the concern of individuals and groups, notably the Appraisal Standards Board (ASB), that the UAD program might result in the development and communication of an appraiser’s analysis, opinions and conclusions in a manner that is not meaningful and that may be misleading. 

Appraiser regulatory agencies have no authority to promulgate the Uniform Standards of Professional Appraisal Practice (USPAP), while the ASB lacks the authority to enforce USPAP.  Enforcement is the responsibility of the state appraiser regulatory agencies by authority of state law and rules. We are particularly concerned about potential problems or complications with enforcement resulting from UAD. Given this responsibility, the Executive Committee of the AARO member jurisdictions urge the FHFA, Fannie Mae and Freddie Mac to understand that the state appraiser regulatory enforcement agencies, clients, intended users and other interested parties will continue to use the Fannie Mae and Freddie Mac preprinted forms, and the UAD process as a means of establishing regulatory compliance. It is important that Fannie Mae and Freddie Mac realize the forms and guidelines they adopt becomes the standard for appraisal reports performed for loan purchase decisions; therefore, the guidelines and policies, including the UAD will most likely become by default the basis for acceptance of appraisal development and reporting by other agencies and clients, and for other purposes outside Fannie Mae and Freddie Mac use.

The Executive Committee of AARO urges the FHFA, Fannie Mae and Freddie Mac to proceed with an abundance of caution before finalizing the development of the UAD and the accompanying policies, specifically Appendix D. AARO and its member jurisdictions stand ready to assist in any way we can with the development of this program.

If you have other questions or require additional information, please contact me.

Sincerely,

Ami Milne-Allen, President
The Association of Appraiser Regulatory Officials

Appraisal Standards Board open letter to Federal Housing Finance Agency

April 29, 2011
Alfred M. Pollard
General Counsel
Federal Housing Finance Agency
1700 G Street, NW
Fourth Floor
Washington, DC 20552

Re: Uniform Appraisal Dataset

Dear Mr. Pollard:

Thank you for the opportunity to meet with you and representatives from the Federal Housing Finance Agency, Fannie Mae, and Freddie Mac on February 17, 2011 and March 10, 2011 to discuss the Uniform Mortgage Data Processing (UMDP) initiative and the Uniform Appraisal Dataset (UAD).
We applaud your efforts to bring about more consistent appraisal reporting. However, in light of our discussions and further examination of the publicly available documents that have been updated on Fannie Mae’s and Freddie Mac’s websites regarding the UAD, we continue to have serious concerns.
It is essential that appraisers develop and communicate their analyses, opinions, and conclusions to intended users of their services in a manner that is meaningful and not misleading. While the Uniform Standards of Professional Appraisal Practice (USPAP) does not dictate the form, format, or style of real property appraisal reports, the substantive content of a report determines its compliance. Each written or oral real property appraisal report must clearly and accurately set forth the appraisal in a manner that will not be misleading and must contain enough information to enable the intended users of the appraisal to understand the report properly.

We are greatly concerned that instructions communicated in documents such as Appendix D: Field-Specific Standardization Requirements will result in unintended consequences and potentially produce misleading reports. Given the prescribed field-specific requirements expressed in the UAD and overall lack of instruction for situations where data is not applicable or unavailable in the normal course of business, appraisers may have to choose between compliance with USPAP or compliance with Fannie Mae and Freddie Mac reporting requirements.

For example, in the Improvements Section of Form 1004/1073, the appraiser must indicate “Yes” or “No” if there has been any material work done to the kitchen(s) or bathroom(s) in the prior 15 years. This may lead to a misleading response if an appraiser is unable to answer “Unknown” when the improvement’s history is, in fact, not known. In the Site Section of Form 1004/1073, the appraiser must provide at least one, but not more than two, view factor(s). According to Appendix D, if a view factor not present on the list materially affects the value of the subject property, appraisers must enter a description of the view associated with the property. This description, however, “must fit in the allowable space.” If there are three or more view factors that materially affect the value of the subject property or if a description that exceeds the allowable space is necessary for a meaningful report, the current instructions in Appendix D will have a detrimental impact on the quality of appraisal reports.

The lack of a robust vetting process prior to the initiative’s announcement, public distribution, and implementation also raises serious concern over misapplication and misinterpretation of UAD requirements. Any adverse effects could impact not only the appraisal profession but also the mortgage lending industry. The unfortunate truth is that many appraisers often take the “easy way out,” opting to simply choose pre-provided options instead of providing clear and accurate descriptions of a property. We believe the UAD would contribute to this mentality, at a point in time where we should be concerned with improved appraisal quality.

In conclusion, we believe that without improved clarification, the reporting requirements in Appendix D coupled with the lack of guidance on the permissibility and procedures to expound on prescriptive statements create an environment conducive to misstatement and misrepresentation. Additionally, we believe state appraiser regulatory enforcement agencies, intended users and other interested parties will likely utilize Fannie Mae and Freddie Mac documents as benchmarks to determine regulatory compliance. Though some are stating that the UAD is expected to become the “industry standard,” it should be made clear that while it may be a lending industry standard, it is a condition imposed on appraisers that may, in some cases, prevent them from clearly communicating the subject property or market characteristics.
While Appendix D may have been intended as a technical document of instruction, it could ultimately result in the creation of an impractical standard by which appraisers will be measured when attempting to determine compliance with Fannie Mae/Freddie Mac assignment conditions.
Should you have any questions or need additional clarification, please contact us at your convenience.

Sincerely,

J. Carl Schultz, Jr.
Chair
Appraisal Standards Board