Archive for Appraisal News

Apr
18

Why it’s Good to be Apprised of Where Appraisal Fees Go

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This is an interesting article in The Washington Post on a hot topic in the banking and appraisal worlds – Customary and Reasonable Appraisal Fees. If you are a lender, you are responsible for the actions of your appraisal management company (AMC), if you are using one. To give you a local perspective, the Veterans Administration appraisal fee for Columbia, SC is $375 for a single family residence. I have seen national AMCs send appraisal orders at fees of $180 to $210.

You get what you pay for……

LINK TO ARTICLE HERE

Categories : Appraisal News
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Mar
01

The USPAP Competency Rule

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The USPAP Competency Rule requires that, prior to accepting an assignment or entering into an agreement to perform any assignment, an appraiser must determine that he or she can perform the assignment competently. To be competent, the appraiser must be able to properly identify the problem to be addressed, posses the knowledge and experience to complete the assignment competently, and be able to recognize laws and regulations that apply to the assignment.

If the appraiser does not believe he or she is competent to perform the assignment, the appraiser must disclose the lack of knowledge to the client, take steps to complete the assignment competently, and describe the lack of knowledge and or experience and the steps take to complete the assignment competently in the report. The Competency Rule also states that if facts or conditions are discovered during the course of the assignment that indicate the appraiser does not have the knowledge and experience to complete the assignment competently, the appraiser must notify the client and follow the above steps.

Competency can apply to geographic area, market area, property type, or appraisal methodology.

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Dec
11

Tenant Lease Terms – Are They What They Appear to Be?

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An associate of mine had lunch today with an attorney that does transactional work for national retailers. The attorney stated that their business model has changed as a sign of the times. They are currently working with every one of their national retail clients to renegotiate all leases. All angles are apparently being pursued, including but not limited to, shortened lease term, reduced rental rate, capped expense reimbursements, elimination of percentage rent, etc. It appears to be a national trend.

So, the pro-forma that you are reviewing today (pre-July 2008) may be changing shortly. Appraisers, lenders, brokers and buyers should keep their eyes open and be skeptical; especially if working with a special servicer or the property in question is in foreclosure. The income being generated today, may not be equal to the income received tomorrow……..
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Dec
10

Treasury Cites Appraisal Deficiencies Identified by OCC in Bank Failure

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– Appraisal Institute

An audit report issued on November 25 by the Department of the Treasury has found that appraisal deficiencies were partially responsible for the recent failure of ANB Financial, National Association, an Arkansas-based lender. The report, which also assessed the role played by the Office of the Comptroller of the Currency in supervising ABN, concluded that “the primary causes of ANB’s failure were the bank’s strategy of aggressive growth without adequate controls; heavy reliance on wholesale funding, including brokered deposits; inadequate risk management of credit concentrations in commercial real estate, and unsound underwriting practices.”

The report went on to note that although the OCC conducted regular and timely examinations of ABN, the oversight provided was often generalized. Among the OCC’s recommendations to ABN were for the lender to hire a senior loan officer, ensure that all underwriting and credit administration practices were commensurate with the level of risk in the loan portfolio, and enhance the independence of the real estate appraisal ordering and review process.

Yet these recommendations went mostly unheeded by ABN so that by April 26, 2007, the OCC designated ABN to be in “troubled condition.” The Treasury notes in its audit report that at one point inadequate controls led to ABN’s failure to obtain appraisals before funding one real estate transaction in the amount of $6.2 million as required by federal banking regulations.

The findings of the Treasury’s audit report also emphasize the original recommendations of the OCC when it came to the importance of a sound, impartial appraisal process. As recommended in the audit report, “Enhance the independence of the real estate appraisal ordering and review process by clearly separating it from the loan approval process. The individual granting the loan request should not have the responsibility for reviewing the appraisals and evaluations.”

LINK TO ARTICLE HERE:
http://www.appraisalinstitute.org/ano/current.aspx?volume=9&numbr=23/24
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BLOG NOTE:
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Integra Realty Resources can assist with setting up a proper appraisal procurement and review system to meet appraisal independence regulations. In fact, the entire process can be outsourced to Integra at a significant savings to lending institutions. Please e-mail or call me with questions – we would love to help.

Michael Dodds, MAI, CCIM, MRICS

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Nov
20

Appraiser Groups Call Upon FDIC to Abandon BPOs in Loss Sharing Proposal

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In a November 19 letter, the Appraisal Institute strongly urged the Federal Deposit Insurance Corporation to require the use of appraisals performed by licensed or certified appraisers as part of its program, Loss Sharing Proposal to Promote Affordable Loan Modifications. Currently, the program permits the use of broker’s price opinions to ascertain loan-to-value ratios as part of the modification of “underwater loans” – loans where the value of the collateral is less than the loan amount – that are in default.

The Appraisal Institute was joined by the American Society of Appraisers, American Society of Farm Managers and Rural Appraisers, and National Association of Independent Fee Appraisers in penning the letter.

While the letter supported the overall intent of the Loss Sharing Proposal – reducing the number of homes in foreclosure – the groups pointed out that use of a BPO for any purpose other than establishing a purchase or selling price of property is illegal in at least 24 states. Further, it was argued that FDIC regulations and guidance require the use of appraisals for loan modifications when there has been any material change in market conditions. Lastly, the groups mentioned that allowing the use of BPOs, which answer the question of price rather than value, was a significant step toward loosening valuation requirements at a time when the federal government should be ensuring that taxpayer “bailout” dollars are not exposed to unnecessary risk.

ARTICLE SHORTENED DUE TO LENGTH….

LINK TO ARTICLE HERE:
http://www.appraisalinstitute.org/ano/current.aspx?volume=9&numbr=21/22
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BLOG NOTE:
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We recently created a limited restricted appraisal report specifically for this type of assignment. It isn’t right for all applications, but those that need a report that is less expensive, easy to review, but detailed enough to address the concerns of the client, have found it to be valuable.
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Mike Dodds

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May
30

Who Rates the Ratings Agencies?

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Published: May 29 2008

It was a debacle. The large ratings agencies – Moody’s, Fitch and Standard & Poor’s – completely misjudged the creditworthiness of subprime mortgages and bonds backed by them. But while there is an urgent need for change, intrusive regulation would utterly fail to prevent similar problems in future, while imposing considerable costs.

Some have gone as far as blaming the subprime mortgage crash on the ratings agencies because, in retrospect, their judgments were wrong. But a lot of other intelligent people were wrong as well. A separate issue is the report by the Financial Times last week that a computer bug resulted in Moody’s awarding incorrect triple A ratings to billions of dollars-worth of one type of complex debt product. That is something that Moody’s must resolve but it is not the primary basis for wider debate about credit ratings.

That debate must rest on what went wrong with the ratings on asset-backed bonds. First, there was fraud in the underlying mortgage applications, so ratings were based on false data. Second, subprime mortgages are a recent innovation, so there were few data on how they perform in a downturn. Third, mortgagors seem to have become more willing to walk away from their homes as prices fall, and ratings agencies did not spot the change.

A fundamental, though intractable, question is whether the inadequacy of the ratings was linked to the conflict of interest faced by all of the ratings agencies. Credit ratings are used by investors but paid for by the issuers of bonds, so the agencies have a financial incentive to keep issuers happy. This conflict could be solved – by, for example, creating an independent body to commission credit ratings using issuers’ money – but that would require the will to push through a fundamental industry upheaval.

Some have proposed straightforward regulation as an alternative – but it would not work. Confronted with byzantine new forms of structured finance and little time to assess them, regulators would either be captured by the agencies, or block all innovation. It would be far better to open up the methodology behind ratings to wider scrutiny, debate and understanding.

That is a change the credit raters must make themselves and it is not the only one. Credit ratings were not just wrong, they were misunderstood, and the agencies’ use of the familiar triple A nomenclature contributed to that. Structured bonds are different to normal corporate bonds both in legal structure and in how they behave. The ratings agencies should adopt new labels to describe them forthwith.

LINK TO ARTICLE HERE:
http://www.ft.com/cms/s/0/972d5cca-2dad-11dd-b92a-000077b07658.html

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May
30

Regulator Criticizes Appraisal Agreement

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May 28, 2008

By THE ASSOCIATED PRESS

The regulator who oversees national banks is protesting an agreement by the mortgage buyers Fannie Mae and Freddie Mac to stop buying loans involving lenders’ in-house appraisers, a deal intended to protect buyers from fraudulently inflated home prices.

The comptroller of the currency, John C. Dugan, is asking for withdrawal of the agreement that the two mortgage finance companies negotiated with the New York attorney general, Andrew M. Cuomo, and their federal regulator, on grounds that it violates federal law and could have an unintended negative impact on the mortgage industry.

Mr. Dugan on Tuesday joined another federal regulator, the Office of Thrift Supervision, and mortgage industry interests who previously criticized the agreement that is scheduled to take effect next year, which would ban lenders from using in-house appraisers and block mortgage brokers from ordering appraisals.

Fannie Mae and Freddie Mac, Mr. Cuomo and the Office of Federal Housing Enterprise Oversight, or Ofheo, reached the accord in early March, ending an investigation by Mr. Cuomo into billions of dollars of loans Fannie and Freddie had bought from lenders. The two government-sponsored companies agreed to buy only mortgages for which appraisals were made by companies independent from lenders.

ARTICLE SHORTENED DUE TO LENGTH….

LINK TO ARTICLE HERE:
http://www.nytimes.com/2008/05/28/business/28lend.html?ex=1212724800&en=2514ba1742913131&ei=5070&emc=eta1

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