Valuations 'Lack Standards'
The move by the Obama administration to allow broker price opinion property valuations in the Home Affordable Foreclosure Alternatives short sales program is "an indictment" of the standards for the appraisal profession set by the federal government in the wake of the thrift crisis back in 1991, said the president of the Appraisal Institute.
In an interview with National Mortgage News, Leslie Sellers maintained that there is no one to hold publicly accountable for BPOs so they don't serve the public interest. He said BPOs have no compliance rules, unlike appraisals. Real estate brokers are not required to have any valuation training, and there is a question about whether BPOs are legal in a number of states, he said.
Others have defended BPOs as using expert knowledge to help define comps.
But even if they are legally done, Sellers said the National Association of Realtors is putting its members at risk because the activity is not covered by the real estate broker's errors and omissions insurance policies.
Accountability came up a number of times during the interview, with Sellers noting that those standards set in 1991 were woefully low and even the passage of new standards because of the subprime mortgage crisis which in effect doubled the requirements of the old ones were still well behind the standards for someone to become a valuator of properties in many developing nations. "Valuation clientele don't respect the profession," he said, noting those standards were created low to have plenty of competition and keep fees low.
Sellers said in his own case, back in 1991 he increased his fee for a Fannie Mae appraisal from $275 to $375. Today, an appraiser is lucky to get $250. "Do we want professionals doing this work?" he asked rhetorically.
Even though the Home Valuation Code of Conduct has a sunset date, Sellers said it is here to stay in one form or another. The good thing it does, as was its primary intent, is to protect appraiser independence. But there are other issues with the code that need to be fixed and he hopes the affects of those unintended consequences are reduced. In particular, HVCC has resulted in many experienced appraisers electing to leave the business.
Sellers suggested fixes mirror in many ways the rules for appraisals adopted by the Federal Housing Administration.
There needs to be a competency standard for appraisers. He noted that FHA no longer recognizes the "licensed appraiser" category and instead requires they be state certified. This should be adopted for HVCC as well.
The second fix is to no longer "mix and match" the fee paid to the appraiser and the appraisal management company. Typically the consumer pays one fee to the AMC, which then gives a cut to the appraiser. Sellers called for disclosure of what the appraiser is making for the appraisal as well as what the AMC receives for its services.
There are some good AMCs, which pay proper fees and seek to work with competent appraisers. But others are run by people who have lost their license or have had other issues and there is no way to check.
Therefore AI has created a model bill, Sellers pointed out, which has been passed in nine states and between 22 and 24 other state legislatures are looking at.