Tag Archives: FIRREA

HEY ASB, STAY THE EXPLETIVE DELETED OUT OF THE EVALUATIONS WORLD!!!

August 1, 2019 – I was bombarded throughout the day with appraisers emailing me the ASB announcement that they are going to consider drafting standards for Evaluations.  Their announcement is full of blatant lies.  It is typical of what the Fake News Media puts out.  Therefore, I will list their lies and provide the actual truth below.  Too many people who have no to minimal experience with evaluations put out Fake News all of the time.  It is criminal.  I have ordered and performed evaluations since essentially the beginning of their existence in 1992.  The truth follows….

LIE #1 – “Currently, there are no uniform standards for appraisers to follow when conducting an evaluation, ” – THE TRUTH – Since October 1994, there have been uniform standards for appraisers to follow when conducting an evaluation.  These standards were updated in the December 2010 Interagency Appraisal and Evaluation Guidelines.  And get this, these requirements apply to not only appraisers, but NON-appraisers!!!  USPAP only applies to appraisers.

LIES #2 and #3 – “, which leads to greater risk to the safety and soundness of the real estate transaction and diminished protection for consumers….With the increased use of evaluations in the marketplace lenders and consumers are being exposed to an unnecessary level of risk not seen since the 1980s when national appraiser qualifications and appraisal standards had not yet been created….” – THE TRUTH FOR #2 – First, evaluations are only allowed in transactions that are lower risk than appraisals.  Therefore, they cannot possibly add risk to lending.  In my 27+ years of working for banks, I cannot recall a bad loan that originated with the use of an evaluation.  But, all the bad real estate loans I have seen did contain an appraisal.  Inflated appraised values alone do not make loans go bad.  That is not what I am insinuating.  But, I will confidently say that no bank has ever or will ever go under because of the use of evaluations.  However, many banks have gone and will go under with appraisals being a contributing factor.  THE TRUTH FOR #3 – ‘…diminished protection for consumers.’  Everyone loves to claim they are trying to help the consumer.  I guess we can call it using the ‘Consumer Card.’  The ‘consumer’ usually means the general public that buys houses.  The fact is FIRREA does not apply to 90%+ of residential loans.  Everything that Fannie Mae, Freddie Mac, the VA, HUD, and on and on are involved in is exempted from FIRREA.  (If you are honestly concerned about the consumer, it is Fannie Mae and Freddie Mac that must be stopped from loosening appraisals standards…and remember evaluations are not in their world, so don’t get the issues confused.)  The consumer BENEFITS from evaluations as they are cheaper and faster than appraisals.  It is a flat out, despicable lie to say that the ‘consumer’ is hurt by the use of evaluations.  Actual proof has been the real world since 1992.  Evaluation volume is estimated to be 4x-6x that of appraisals.  Has anyone ever said an evaluation caused a loan to go bad or a bank to go under?  NO!

LIE #4 – “This important development by the ASB shows how the Board has their ear to the ground, listening to the concerns of working appraisers in a rapidly evolving marketplace where there is an increasing demand for different valuation products,” said David Bunton, president of the Foundation.” – THE TRUTH – Ear to the ground?  What a ridiculous statement!  Evaluations were an option when the original FIRREA was placed into law in 1989.  30 YEARS AGO!!!  The ASB reminds me of the quote attributed to Mark Twain about one of my favorite cities, Cincinnati – “When the end of the world comes, I want to be in Cincinnati because it’s always twenty years behind the times.”  When it comes to evaluations, I want to be the ASB because they are 30 years behind the times:)  The demand for evaluations has existed mainly since 1992.  (Any of you remember BC-225:) )  Nothing has changed.  Except if The Appraisal Foundation will say the truth they are scared to death of a non-appraisal product.  They want to control their fiefdom.  Hey ASB, the first step is admitting what you are!

LIE #5 – “Currently, the Interagency Appraisal and Evaluation Guidelines for federally regulated financial institutions provide guidance on evaluations, but that guidance is directed at lenders, not appraisers.” – THE TRUTH – OMG, the misleading statements get more ridiculous.  This is like saying the 5 appraisal requirements in FIRREA are directed at lenders, but not appraisers.  Just not true.  Appraisers must provide Market Value ‘As Is’ per FIRREA, not USPAP.  That applies to both appraisals and evaluations, BTW.  Appraisals must be written per FIRREA, not per USPAP.  The IAEG requires the subject property be inspected for evaluations.  USPAP doesn’t even require an inspection for appraisals!  As a reminder, the IAEG requirements apply to BOTH appraisers and non-appraisers for evaluations.  Just imagine if USPAP applied to non-appraisers!  That idea is as ridiculous as the ASB trying to provide standards for evaluations.

LIE #6 – “Under federal regulations, evaluations may be performed by non-appraisers who have not demonstrated a level of expertise through education, training, and examination.” – THE TRUTH – Do you ever wonder why people tell a lie that can easily be proven wrong?  Here is what the IAEG says about who can complete an evaluation – “An institution should maintain documentation to demonstrate that the appraiser or person performing an evaluation is competent, independent, and has the relevant experience and knowledge for the market, location, and type of real property being valued. Further, the person who selects or oversees the selection of appraisers or persons providing evaluation services should be independent from the loan production area.”  The requirements are the exact same for appraisals and evaluations.  Shouldn’t the ASB be made to retract their lie?  Shouldn’t they have to issue a new announcement with truths, instead of lies?  How does a group of people look themselves in the mirror each morning knowing they published numerous lies to the public they love to claim they protect?  I have never understood how people live like that.

LIE #7 – “If appraisers are not completing an evaluation, there is no recourse for a lender or consumer to appeal a bad evaluation.” – THE TRUTH – Why not?  I have asked for evaluations to be revised.  I have rejected evaluations.  I have done both for appraisals, also.  There is no difference in how these products are treated in this regard.  Whoever did the evaluation can be sued as easily as one of us appraisers that did an appraisal.  And it is likely an evaluation doesn’t contain that funny limiting condition that many appraisers put in appraisals about their liability being limited to the appraisal fee:)  That one has always cracked me up.  I am sure lawyers have been stopped in their tracks when they see that clause, not!

Those are what I would label as bald-faced lies.  (I learn something every day….there are bald-faced and bold-faced lies and they are different….interesting.)  Below are just statements that are hyperbole or unsupported or such.

“Appraisers are valuation experts. When hiring a licensed or certified real property appraiser to develop and report market value, the client should expect the work to be performed in accordance with USPAP,” said Wayne Miller, chair of the Appraisal Standards Board” – COMMENT – No, they should not.  USPAP is not a law, as we all know.  USPAP has never been the only set of standards for valuation.  Many states do not require USPAP for all appraisals.  (Read my blog post of a few years ago where I contend that all ‘Mandatory’ laws are in violation of Federal Law.  I believe this issue was settled by a Federal Court ruling in 2004 in Pennsylvania.)   Many large clients do not either.  The Yellow Book (UASFLA as the word police are now wanting it to be referred to) is its own set of valuation standards.   USPAP says the following:

“USPAP does not establish who or which assignments must comply. Neither The Appraisal Foundation nor its Appraisal Standards Board is a government entity with the power to make, judge, or enforce law. An appraiser must comply with USPAP when either the service or the appraiser is required by law, regulation, or agreement with the client or intended user. Individuals may also choose to comply with USPAP any time that individual is performing the service as an appraiser.”

It is NOT needed for all assignments.  Appraisers do NOT need to comply if it is not necessary.  Clients do NOT need USPAP appraisals all of the time.

“The Board is eager to receive stakeholder feedback from the planned concept paper and public hearing on the impediments, if any, to appraisers completing evaluations in accordance with USPAP.” – COMMENT – This one is simple.  The lone impediment are the state laws that require licensed appraisers to meet USPAP for ALL appraisals, including those for financial institutions.  As I note above, I believe these laws are unconstitutional and have ignored them my whole career.  Federal law trumps state law.  My grass roots campaign since 1994 to get the Tennessee Law, as I refer to it, passed in all other states has gained traction in the past few years.  Numerous states now allow us licensed appraisers to perform non-USPAP Evaluations.  That is the solution.  Change the state laws, one by one.  And keep the ASB the heck out of the Evaluation world!  The banking agencies already set the standards for evaluations and they can enforce them.  Probably much better than the states have enforced USPAP!  People who violate FIRREA are subject to civil money penalties and jail time.  That applies not only to lenders or credit people or anyone else in a bank or credit union, but also to appraisers and evaluators!

In closing, let me point out the obvious….remember what the ‘A’ stands for in USPAP, TAF, ASB, et al.  Evaluations are NOT appraisals.  Appraisals are NOT evaluations.  They may coincidentally have some similarities, but they also have significant differences.  They each have more than adequate standards.

Some facts that I have had to share over and over for 25+ years….Evaluations have been around as long as appraisals in regard to FIRREA.  They are not something new.  They have not negatively affected the appraisal industry.  The volume of appraisal work has increased significantly over the past 25-30 years – evaluations have been done all along.  Mostly by non-appraisers.  Passing state laws like TN and GA and FL and LA and VA and others now have is all that is needed to open this world to appraisers.  Those who do not want to do them, don’t do them.  Your business decision.  But, don’t stop your peers from making a living that includes doing them.  That is selfish.

I am 100% positive that evaluations have not negatively affected the banking industry or our economy over the past 30 years.  They will not over the next 30 years.  If you understand the transactions they can be used on, you understand that almost always, if not always, evaluations are involved in lower risk loans than appraisals.  If you are concerned about the banking industry, the economy, the consumer, then figure out how to provide appraisals that are more accurate than the plus or minus 20% minimum range of accuracy that numerous studies have proven them to be!  How do you convince the public that a professional doing a valuation is adding something of value (no pun intended…or is it) when their appraisal on a $1,000,000 property is not more accurate than $800,000 to $1,200,000?  Do you not think that most of the public knows to a smaller range than that what their property is worth?

I am sworn to secrecy about a similar professional study on the accuracy of evaluations that showed the range to be plus or minus 5%.  Now, tell the world that there is more risk when using evaluations than appraisals.  See how that flies with people that know that plus or minus 5% is far superior to plus or minus 20%.

Folks, know what the facts are versus the Fake News about evaluations that is passed around by individuals and organizations with a bias.  I try not to have any bias as I have made my living off of both products in one way or another for 27+ years.  I have spent 25 of those years trying to help the appraisal industry see the light and get their state laws passed so they can access the non-USPAP Evaluation world.  That is what will help appraisers.

What will not help appraisers is the ASB putting out their own standards for evaluations.  Who is going to follow them anyway?  The banking/credit union world already have evaluation standards.  Why would they want to amend Federal Law to require that evaluations follow some new ASB standards?  Hopefully, the ABA, MBA, and others will be sure to squash that idea.  The Federal Agencies that have examined banks all along can factually say that although evaluation programs can be improved overall, they have not added any risk to banks or the economy or consumer.  They know the most.  If there was a concern, it would have been made public already.

What will not help appraisers is appraisers wanting to only provide the Black Model T Ford.  If you think evaluations will lower the quality of appraisals, you have been proven wrong for 30 years.  If you think evaluations will lower appraisal fees, you have been proven wrong for 30 years.  (The continuous decline in appraisal fees is due to many other factors, but I am certain it has nothing to do with evaluations.)  If you think evaluations will add risk to the financial industry, you have been wrong for 30 years.

If you think appraisers like yourself are the best people to provide non-USPAP Evaluations and have been missing out on a ton of revenue for 30 years and that clients would prefer to be using licensed appraiser to do non-USPAP evaluations, YOU ARE RIGHT…..

mic drop

The Mann

(Obviously feel free to share the above…it is out on the web, not like there is any taking it back lol  I will post something new if an error is pointed out or I hear lies about what I said or misinterpretations et al…so check back now and then….and be sure to let the ASB know what you think when they open this up to public comment.)

2019 – THE YEAR EVALUATIONS BREAK THROUGH

April 19, 2019 – It has been exactly 25 years that I have been campaigning for non-USPAP Evaluations to be performed by licensed/certified appraisers.  Most of the time it has been a one-man campaign.  Thankfully, times have changed and appraisers have come around to the need for Evaluations.

It looks like this year will see many States pass the requisite law to allow its most qualified valuers to finally perform non-USPAP Evaluations.  If your State isn’t mentioned below, I encourage you to take action.  For almost 30 years, non-appraisers have been doing all the Evaluation work in your State.   With Evaluation volume about 4x-6x that of Appraisal volume think how much business you have missed out on:(

The following are from the Appraisal Institute:

Utah Allows Appraisers to Perform Evaluations for Federally Regulated Lenders
Utah Gov. Gary Herbert on March 26 signed SB 140, legislation that allows state-licensed and state-certified appraisers to perform evaluations for federally regulated financial institutions.
Under the new law, appraisers who provide evaluations in compliance with the Interagency Appraisal and Evaluation Guidelines are exempt from compliance with the Uniform Standards of Professional Appraisal Practice. Appraisers will sign the evaluations, certifying that they comply with the IAEG. However, they must still abide by the basic elements of USPAP’s Ethics, Competency, Scope of Work and Recordkeeping rules. This concept has been advanced by several Appraisal Institute chapters in recent years.
The legislation takes effect May 14.
• Evaluations
Alabama (HB 304) Louisiana (SB 42) and Oregon (SB 109) are considering bills that will amend appraiser licensing laws so that appraisers can perform for financial institutions evaluations that do not comply with the Uniform Standards of Professional Appraisal Practice when not required by federal law. If the laws pass in these states, they will join Florida, Georgia, Illinois, Indiana, Tennessee, Utah, and Virginia in allowing appraisers to perform these services.

 

MARKET VALUE ‘AS IS’ MUST CONSIDER EXISTING LEASES

February 21, 2019 – Every once in awhile the same question arises from several people in different parts of the country.  I wonder if people attended the same seminar and were told the same (erroneous) information.  Or just plain coincidence.

The topic du jour is bank/credit union clients asking appraisers to ignore existing subject leases and appraise Fee Simple Estate only.  There are two main scenarios to deal with – one where such a request is not acceptable and one where it is.

Scenario #1 – The subject has one or more arm’s-length leases in place that are not all month-to-month or say expire within a month.  I just use one month as technically the appraisal will be done by then and the tenants could be removed in that time period (assuming such is legal).  In this case, Market Value ‘As Is’ MUST be of the Leased Fee Interest.  The subject must be appraised as it legally and physically stands today.  If the bank/credit union would also like to know the Fee Simple Estate value, then this can be provided IN ADDITION TO Market Value ‘As Is’ of the Leased Fee Interest.  I would call this additional value Hypothetical Value of Fee Simple Estate.  A Hypothetical Condition is needed as this value assumes the existing leases are not in place.  Now, if the subject is leased to a single tenant and that tenant is purchasing the property…we go to…

Scenario #2 – The subject is leased to a single tenant who is purchasing the property.  Obviously, when the purchase occurs the lease goes away.  Or at least for us appraisers, it is ignored because now it is no longer arm’s-length.  The bank/credit union’s request for Fee Simple Estate only is now acceptable.  With a bit of a twist though….Market Value ‘As Is’ would still be of Leased Fee Interest.  However, this value is not needed.  Why?  Because the loan is not being made until the property is purchased.  Therefore, the appraiser provides a Prospective Value as of say a month or two in the future (whenever a closing is projected to occur).  An Extraordinary Assumption is needed to say that we assume the purchase will occur and the lease will be extinguished in the stated timeframe.  What about the requisite Market Value ‘As Is’ that FIRREA requires?  Well, on the day the property is purchased and the loan is closed, the appraiser’s Prospective Value is now Market Value ‘As Is.’  And now FIRREA is satisfied and all is good in Appraisal Land:)

((As an aside, Scenario #2 is useful when a zoning change is in process.  Until it occurs, Market Value ‘As Is’ must consider the subject as currently zoned.  I encourage banks not to make the loan until the zoning change occurs.  This way an appraiser can provide a Prospective Value ‘Upon Zoning Change’ with a future date and not have to deal with Market Value ‘As Is.’  But, if the loan is being made today, then two difference scenarios must be valued.  Once again, the value difference might not be that much.))

There are likely some other less common scenarios that arise.  But, the above two seem to take care of the vast majority of transactions.

I will quickly mention one scenario that provides an example of why Market Value and Market Value ‘As Is’ are not always the same.

The subject is leased to a single tenant with say 3 or 6 months left on the lease.  The owner or a buyer is going to occupy the property once the lease expires and the tenant has moved out.

In non-bank/cu appraisals, Market Value could likely just ignore the existing lease.  We could argue that market participants don’t care about the next 3-6 months of the tenant being in place.  They know they will occupy the property very soon.  This is ok for Market Value.

However, for a bank appraisal under FIRREA, this is not acceptable.  The lease is in place and Market Value ‘As Is’ is of Leased Fee Interest and the lease must be part of the value.  Obviously, if the rental rate happens to be at market, then there is no difference in value between the Leased Fee Interest today and the hypothetical Fee Simple Estate today.  If contract rent is above or below market, then there is a difference in these two values.  Admittedly, it is likely to be a small amount.  But, it MUST be included in the Market Value ‘As Is’ conclusion.  In this case, Market Value and Market Value ‘As Is’ differ.  And this is one of several examples where USPAP and FIRREA differ.

As with FF&E, please do not pull the ol’ ‘this is absorbed in rounding and thus is not added or deducted’ routine.  Make the addition or deduction to get to Market Value ‘As Is’ and move on.

Please contact me if you have any questions.  Any other scenarios worth me addressing.  et al.  Thanks for taking the time to read my blog:)

The Mann

 

Re-Posted – Apartment Appliances are FF&E!!!!!!!! Not Real Property!!!!!!

February 2019 – This item was originally posted in 2015.  Four years later I still hear that an appraiser or reviewer wants to say that kitchen and laundry appliances are real property.  NOT!  Geez folks, get over this already.  Appliances are appliances are equipment and not real property.  This is basic knowledge.

I will add one suggestion (from my wife when she was a reviewer) for those dealing with this issue.  My wife would tell the appraiser that all they had to do is provide rent comparables of units with no appliances and rent comparables of units with appliances and if the rents were the same, then the FF&E does not contribute to value.  That simple and it would be market evidence.

In our combined 50+ years of reviewing appraisals we have not seen this analysis done.  I have seen many appraisals where a rent adjustment IS made for comps with only washer/dryer hookups versus ones with washer/dryer units.  That has been an adjustment greater than $0 in 100% of the cases I have seen.  Definitive proof that FF&E has a positive value in apartments.

I have not seen any rent comparables that lacked kitchen appliances, so no evidence there that I know of.  In foreign countries this exists.  In some markets tenants actually move their refrigerator and such from apartment to apartment:)

When I started appraising in 1986 in South Florida, my first apartment complex appraisal I separated out FF&E.  It wasn’t a requirement (that I can recall).  It was just obvious.  Common sense.

I do want to commend those appraisers that I review that always value the FF&E separately.  Some go so far as to provide a value even if there is only one or two apartment units in a property (e.g. retail first floor, 2 apartments on 2nd floor).  Might be only $400 in FF&E, but FIRREA doesn’t care about the amount.  Just that it is excluded from Market Value ‘As Is.’

Also, please do not pull the ol’ ‘this is absorbed in rounding and thus is not added or deducted’ routine.  Make the addition or deduction to get to Market Value ‘As Is’ and move on.

Please contact me if you have any questions.  Any other topics for me to blog about.  et al.  Thanks for taking the time to read my blog:)

The original post follows.

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It is 2015 and I continue to encounter appraisers (albeit fewer and fewer thankfully!) who do not value the FF&E in apartment properties.   Since 1990, FIRREA has required this.  This issue should have been settled 25+ years ago.

The most common response I get when I ask an appraiser to separately value the FF&E is ‘In our market these items transfer with the real estate.’  To which a whole list of questions and replies come to mind:

Who cares how the FF&E is transferred – it is still FF&E!

FF&E in hotels transfers with the real estate – how does that differ from an apartment complex?  The same goes for many other property types.

Having been frustrated by this issue for 23+ years as a reviewer, a few years ago I took the opportunity to have this item added to the 14th Edition of The Appraisal of Real Estate.  There is a list of property types with FF&E and that list now includes apartments:)

For bank/credit union appraisals, appraisers need to realize that it is Federal Law that requires LTV (Loan-To-Value) ratios be calculated on the Market Value As Is of REAL ESTATE ONLY.  Examiners have been focusing on this very item for the past 5 years.  It is important that fee appraisers help their clients comply with Federal Law.  Provide a value for the FF&E and be done with it.  And do NOT include the amount in the Market Value ‘As Is’ figure as again it is supposed to be Real Estate Only.

I will agree that in some cases this amount is minimal.  But, Federal Law still requires a separate value.  There are many cases where this amount can be in the millions of dollars – e.g. those high end condo projects that did not sell out before the bubble burst and have been rented as apartments ever since.

Lastly, as one instructor told a class I was in – If I can drop it on my foot, it is FF&E:)

The Mann

RESIDENTIAL APPRAISAL THRESHOLD INCREASE – MUCH ADO ABOUT NOTHING

February 1, 2019 – The Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency proposed raising the residential appraisal threshold from $250,000 to $400,000.

The Appraisal Institute and numerous other groups are opposing this increase.  That is understandable.  But, the hyperbole that these organizations and appraisers put out there is no different than the Fake News problem.

Based on my experience of over 25+ years in banking, I estimate that less than one-hundredth of 1% of residential appraisals will be affected.  Probably less than that.

GSEs are responsible for 90%-95% of residential loans and, thus, residential appraisals.  All such loans are exempt from FIRREA.  So, the Federal Agencies can increase the residential threshold from $250,000 to $1 Trillion and it wouldn’t be noticed by 99%+ of   residential appraisers!  Also, it will have no effect on the national economy.

For the most part, the only residential properties that stay under FIRREA are second/vacation homes, model homes in subdivisions, and rental homes (e.g. an investor rents 20 houses around a city).   Some ‘regular’ house loans remain under FIRREA – this is when the bank does not sell the loans to the secondary market.  Banks typically don’t keep many of these loans on their books.  But, yes, they do keep some.

Appraisers just need to keep an eye on the GSEs.  They are the ones who make decisions that affect the entire residential appraisal industry in a significant way.  Don’t worry about the FIRREA issue at hand.  As they say, it is a nothing burger:)

The Mann

A REAL-WORLD SCENARIO AND HOW FIRREA ADDRESSES IT

August 2, 2018 – First, thanks to a bank client for sharing some real-world situations with me and allowing me to post them to my blog.  Also, thanks to the regulators for providing anonymous explanations of how FIRREA applies.

SCENARIO – Any City USA – We financed one 4-plex (units cannot be sold individually) and eventually there may be more than four 4-plex properties.  At what point do we consider this tract development, therefore would need discounted cash flow analysis completed?

Assumption – Ignore any land for future development

Assumption – All development occurs in same development

FIRREA Application Under Several Situations:

First 4-Plex – This is a SINGLE 1-4  Family residential property.  Therefore, the $250,000 threshold applies and an evaluation is required if the loan amount is $250,000 or lower.  As always, the bank can choose to order an appraisal.  If the loan amount is above $250,000 then an appraisal is required.

Two 4-Plexes at once – This falls under Commercial Real Estate Transaction and the new $500,000 threshold.  A loan amount at or below the threshold requires an evaluation and above the threshold requires an appraisal.

Five or more 4-Plexes – This meets the definition of Tract Development and  would need a discounted cash flow analysis completed.  Some exceptions are possible, but generally a DCF analysis is performed.  The $500,000 threshold applies as to whether the DCF is done in an evaluation or appraisal.

With the new definition of Commercial Real Estate Transaction and the new threshold of $500,000, the above project shows the realm of possibilities.

As always, please contact me if you want  to discuss this.

Also, as always, I encourage you to contact the authors of the 2018 interagency bulletin that introduced the new definition and threshold.  They can give an ‘official’ opinion on how to handle your particular situation.  You do not need to provide a borrower’s name or such.  They simply want to help you follow FIRREA correctly.

I will be posting a few more scenarios over the next few weeks….check back often:)

The Mann

 

REVISIONS MADE TO TITLE XI OF FIRREA

April 2, 2018 (UPDATED) – The Agencies have finally released ‘The Final Rule’ for updates to FIRREA.  A copy of the document can be found at:

https://www.fdic.gov/news/board/2018/2018-03-20-notice-sum-c-fr.pdf

The main change is increasing the de minimus level for commercial real estate transactions from $250,000 to $500,000.  Although this might seem significant, it is basically an adjustment for inflation from the last change to $250,000 in 1994.

Also, the definition of ‘commercial real estate transaction’ has been updated.

The changes are not in effect until published in the Federal Register,  I will update this post when this occurs.  UPDATE – This document is now live as it is in the Federal Register.

Financial institutions should update their appraisal/evaluation policies accordingly.

The Mann

 

AGENCIES PROPOSE TO INCREASE ONLY ONE THRESHOLD A SMALL AMOUNT

July 24, 2017 – The Federal Agencies published the following on July 19th:

The FDIC, the Board of Governors of the Federal Reserve System, and the Office of the Comptroller of the Currency (the Agencies) are jointly issuing a notice of proposed rulemaking titled Real Estate Appraisals (Appraisal NPR) that will be published in the Federal Register for a 60-day comment period. The Appraisal NPR proposes to increase the current appraisal threshold for commercial real estate (CRE) transactions from $250,000 to $400,000. The Appraisal NPR addresses comments received during the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) review process, which requires that, not less than once every ten years, the Agencies, along with the Federal Financial Institutions Examination Council, conduct a review of the Agencies’ regulations to identify outdated or otherwise unnecessary or burdensome regulatory requirements.

You can get their full 60-page report at:

https://www.fdic.gov/news/board/2017/2017-07-18-notice-dis-a-fr.pdf

The one thing I found amusing was their statement that it takes about 40 minutes to review an appraisal.  Who did they survey?

I have reviewed over 4,000 commercial appraisal reports for the past 25 years.  I consider myself extremely fast.  Plus, many times I am reviewing reports of the same appraisers I have seen 10 or 20 or 50 times before.  That helps to speed up reviews as we know where everything is in a report.

In all of the time studies I have been part of or heard about for the past 25 years, the average time to perform a Compliance Checklist is 2 hours and to perform a Technical Review is 4-8 hours.

But, that is not an important issue.  The only suggestion being made is to increase the $250,000 threshold for all commercial loans up to $400,000.  The business loan exemption will stay at $1,000,000 and the residential (1-4 units) loan exemption will stay at $250,000.

These are minor changes and quite surprising to me.  Based on inflation alone (which they present in their report), I would increase the $250,000 to $500,000 and the $1,000,000 to $2,000,000.  Based on the stats they present, this would keep appraisal volume at 1994 levels (appraisal volume has increased steadily over the past 23 years).

If I really had my way, I would eliminate appraisals for all business loans and residential loans.  Appraisers know that the value when a new loan is made is meaningless.  These type of loans are based on credit not real estate.  The banks only need to know the real estate value years in the future when a foreclosure might occur.

Which, of course, always brings us back to my call for America to adopt Mortgage Lending Value/Long-Term Sustainable Value…..but, I digress.

Remember, you have the opportunity to send in your opinion to the Agencies.  This is probably the first time in 23 years that your opinion has been asked for in regard to FIRREA.  And, it will be the last time for another 10 years.  Speak up…this is the time to do such.

The Mann

5 STATES DOWN, 45 TO GO

May 19, 2017 – I was notified this week that Illinois has had a law on their books that allows licensed appraisers to perform non-USPAP Evaluations.  I have no clue how long it has been there.  Maybe someone from Illinois knows and can tell me.  So, we are actually at 5 states now, albeit Virginia has a technical glitch that will delay the law for a year.  Following is an excerpt from the law (I will add emphasis to the key words) and additional explanation I have received from my ‘sources.’  (oh geez I sound like the Fake News Media!)

225 ILCS 458/5-5a – “It is unlawful for a person to …. (ii) develop a
real estate appraisal, (iii) practice as a real estate appraiser… without a license issued under this Act.”
225 ILCS 458/5-5g – “This act does not apply to”….
[1] an employee, officer, director, or member of a credit or loan
committee of a financial institution or any other person engaged by a financial institution when performing an evaluation of real property for the sole use of the financial institution in a transaction for which the financial institution would not be required to use the services of a State licensed or State certified appraiser pursuant to federal regulations adopted under Title XI of the federal Financial Institutions Reform, Recovery, and Enforcement Act of 1989… (emphasis added)
The state board has confirmed to several people that state-certified appraisers are permitted to perform non-USPAP compliant evaluations when engaged by an institution.  The only caveat is that the appraiser cannot sign as an appraiser, reference their state credential or any appraisal related designations.

CONGRATS VIRGINIA! 4 DOWN, 46 TO GO

March 27, 2017 – I’ve been campaigning since 1994 to get states to pass laws that allow licensed appraisers to perform non-USPAP compliant Evaluations.  After 23 years, we now have the 4th state to invoke such a law.  Congrats to Virginia and all of its appraisers that can now complete on a level playing field.

We have a long way to go.  But, hopefully, this is gaining steam and appraisers in every state will get to work on getting similar laws passed sooner than later.   Florida and North Carolina have similar laws up for consideration right now.

Just fyi, I think the Tennessee law is the best, but the Indiana wording is very good, too.

My alter ego, Johnny Evaluationseed, is proud to see such progress:)

If you are trying to get this law passed in your state, please feel free to contact me.  I would be glad to help in any way I can.  In a few days I will be posting a list of Q&As that address the typical opposition to these laws.  I hope you find it useful.  Feel free to use it, albeit I would appreciate knowing where it is being passed around.  Just curious which states are considering the law is all:)

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ADDED April 27, 2017 – There has been some confusion among appraisers.  I received the following explanation which I think clarifies the law.  I hope it helps.

The new law very clearly says that “The provisions of this chapter DO NOT APPLY” to an appraiser performing an evaluation.   So once you make the determination that: 1) you are an appraiser; and 2) that you are performing an evaluation as permitted in the law, then the rest of the law in the chapter does not apply, including anything related to USPAP compliance.   At that point (appraiser performing an evaluation), you are 100% outside of the appraiser licensing law and the VREAB would have absolutely ZERO jurisdiction over you as it relates to ANYTHING.