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TA | Appraisal Webinar 11.15.2012
 

TA | Appraisal Webinar 11.15.2012

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NCRC and expert consultants, Elizabeth Green and Peter Vidi discuss the role of valuation in the servicing, REO and foreclosure process, and the limitations associated with automated valuation models.

NCRC and expert consultants, Elizabeth Green and Peter Vidi discuss the role of valuation in the servicing, REO and foreclosure process, and the limitations associated with automated valuation models.

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    TA | Appraisal Webinar 11.15.2012 TA | Appraisal Webinar 11.15.2012 Presentation Transcript

    • Interpreting Home AppraisalsSolving the Mystery of the Home Appraisal Valuation Process
    • Agenda: Welcome 1:00-1:02 p.m.Introductions of Speakers 1:02-1:04 p.m.Webinar Etiquette 1:04-1:08 p.m.Interpreting Home Appraisals 1:08-1:55 p.m.  Regulatory Overview (David)  Appraisal Keys (Liz)  Talking to the Appraiser (Peter)Questions and Answers 1:55-2:25 p.m.Webinar Closure 2:25-2:30 p.m.
    • ADOBE Connect Please mute your phone by pressing *6To mute your computer click the green microphone Questions or comments, type them here
    • Presenters David Berenbaum serves as National Community Reinvestment Coalition’s Chief Program Officer. David is responsible for implementing NCRC’s legislative, research, compliance, community lending, minority business and civil rights programs.CONTACT INFORMATION:David BerenbaumChief Program OfficerNational Community Reinvestment CenterTEL: (202) 628-8866EMAIL: dberenbaum@ncrc.org
    • Presenters Elizabeth Green, Principal Consultant with rel-e-vant Solutions, is a strategist, solutions architect, speaker and valuation advocate. A recognized mortgage technology veteran in software product leadership for solutions in residential property valuation, loan origination, mortgage servicing and secondary marketing, Green is helping to foster a new level of understanding in property valuation and collateral risk assessment through the application of digital intelligence. She is the third term chairperson of the MISMO Property and Valuation Services Workgroup. Follow her on Twitter: @FreshRelevance.CONTACT INFORMATION:Elizabeth GreenPrincipal ConsultantRel-e-vantTEL: 888-804-7773EMAIL: liz@rel-e-vant.com
    • Presenters With 30 years of experience in real estate appraisals, Pete Vidi is a Certified General Real Estate Appraiser specializing in forensic valuations for litigation support in the Metro Washington DC, Maryland and Virginia areas. Mr. Vidi is also a past President of the National Association of Independent Fee Appraisers (NAFIA).CONTACT INFORMATION:Peter R. VidiNational PresidentAmerican Guild of AppraisersGuild 44 OPEIUTEL: 888-804-7773EMAIL: liz@rel-e-vant.com
    • Regulatory Overview David Berenbaum, Chief Program Officer NCRC
    • The Mission of the NationalCommunity Reinvestment CoalitionTo increase fair & equal access to credit, capital, andbanking services/products for low- and moderate-income communities, because discrimination isillegal, unjust and detrimental to the economicgrowth of underserved communities in the UnitedStates and around the world.
    • The CFPB and NCRC’s CommentsAs it relates to appraisal/valuation issues, the CFPBproposed several amendments to the Truth InLending Act (TILA)-Regulation Z, as well as, the EqualCredit Opportunity Act (ECOA)-Regulation B. OnOctober 15, 2012, NCRC submitted commentsaddressing the proposed amendments to theseregulations.
    • The CFPB and NCRC’s Comments TILA-Regulation ZIn our comment, we argued that Congress did not intend that FIRREA Title XIrequirements would only apply to the subset of higher-risk mortgage loans thatare already covered by FIRREA. NCRC specifically called for the prudentialregulators to require full walk-through appraisals by licensed appraisalprofessionals for all residential mortgages above $50,000 regardless if they areoriginated or insured by the private sector, Fannie Mae and Freddie Mac, or theFederal Housing Agency.
    • The CFPB and NCRC’s Comments ECOA-Regulation BIn our comment, we argued that in order to prevent the problemsassociated with the use of automated valuation models and creditorsreliability on them, it is essential that creditors disclose all forms ofappraisal and/or valuation at the time the application is received, not laterthan the third business day after receiving a consumer’s writtenapplication, to allow consumers to read all information and makeinformed decisions relating to one of the biggest financial commitments oftheir lifetime.
    • The CFPB and NCRC’s Comments Integrated Mortgage Disclosures under Real Estate Settlement Procedures Act (Reg X) and Truth In Lending Act (Reg Z)On November 6, 2012, NCRC signed on to a comment letter prepared by theAppraisal Institute, addressing the Integrated Mortgage Disclosures under theReal Estate Settlement Procedures Act (RESPA)-Regulation X and the Truth InLending Act (TILA)-Regulation Z. In their letter, the Appraisal Institute notedunder the proposed rule, disclosure of AMC fees is optional, despite a clearauthorization under the Dodd-Frank Act to require such disclosure. Under theproposed rule, lenders that do not want to report the fee paid to the AMC couldinstruct the settlement agent to bundle the two fees under the Appraisal fees.Among other things, this is likely to hasten the development of bank-owned or“captive” AMCs .
    • The CFPB and NCRC’s CommentsIntegrated Mortgage Disclosures under Real Estate SettlementProcedures Act (Reg X) and Truth In Lending Act (Reg Z) The Appraisal Institute argued that the decision to hide or disclose the AMC fee should be left to the discretion of a party that may have a vested interest in hiding this fee from consumers. The Institute explained that this practice is likely to result in inconsistency in disclosure of AMC fees, with some lenders listing only an appraisal fee and others listing both an appraisal and an AMC fee without any explanation. The overarching concern expressed was that the aforementioned practice would confuse consumers, not empower them to rational and responsible decisions. The Appraisal Institute and NCRC as a sign-on, asked the CFPB to establish clear and understandable rules that consumers and others can rely on commencing mortgage financing transactions.
    • NCRC’s Appraisal RecommendationsOn June 28, 2012—NCRC testified before the US House of RepresentativesCommittee on Financial Services, Subcommittee on Insurance, Housing &Community Opportunity on the subject of Appraisal Oversight: The RegulatoryImpact on Consumers and BusinessesIn our testimony, NCRC made ten recommendations aimed to improve theappraisal industry and help all Americans, particularly low to moderate incomecommunities, communities of color, and communities impacted by theforeclosure crisis. These recommendations are as follows:1. A call for Congress, the prudential regulators, etc. to review and define a moremodern and robust appraisal reporting process and not accept the UniformResidential Appraisal Report form by the GSEs2.Require full appraisals by licensed appraisal professionals for all residentialmortgages above $50,000
    • NCRC’s Appraisal RecommendationsRecommendations continued:3.The role and impact of Appraisal Management Companies (AMCs) must be critically reviewed by theASC to ensure that they are not negatively affecting appraisal quality4.Appraisal professionals must be appropriately compensated under any usual and customary feestandard that is developed5.The banking regulators, Fannie Mae, Freddie Mac, and the FHA should not escape AppraisalSubcommittee valuation safety and soundness review and enforcement6.Automated Valuation Models (AVMs) should never replace the use of an appraisal by a licensedappraiser for all mortgages that exceed $50,0007.There is a need for more effective Consumer Protection, Transparency & Education8.Responsible appraisal practices ensure and expand housing opportunities in an open society9.Inappropriate appraisal undervaluation is equally damaging to homeowners, communities, the taxbase, investors and insurers10. States must suspend directing funds intended for appraisal compliance, professional developmentand licensing, to their general funds
    • Appraisal Keys Elizabeth Green, Principal Consultant REL-E-VANT SOLUTIONS
    • IntroductionKnowledge of the home appraisal process -- and the differing credentials ofthose who provide appraisal services -- benefits homebuyers and sellersalike. This knowledge is a powerful information tool to help them makewise real estate investment and sales decisions about what is for mostpeople, their single biggest asset.
    • The AppraisalThe appraisal process and written reporting formats vary, depending uponthe nature and purpose of the appraisal. But the appraisal’s fundamentalpurpose is:“To establish a well-researched, impartial and carefully documentedestimate of property value at a single point in time, And, in so doing,protects the interests of buyers, sellers, mortgage lenders and otherinvolved parties regarding the corresponding event.”Mortgage Financing/Refinancing and the AppraisalHomebuyers seeking financing, and homeowners seeking refinancing, arerequired by their mortgage lenders to underwrite the cost of an appraisal,which typically ranges from $200 and $400. The appraisal is the essentialcomponent in determining loan limits for the property in question.Mortgage lenders typically select appraisers from “approved” lists theycompile and maintain. Consumers are entitled to copies of all valuationsused in conjunction with their loan as mandated by recent legislation.
    • Roles in the Appraisal Process Consumer Responsibilities • Know the approximate value of the home. • If you can afford one, get your own appraisal from a state licensed appraiser. • Ask questions. Shop around. Get the best price from your agent. • Insist on a home inspection! • Don’t rush into transactions. Don’t sign anything until you read and understand it. • Get a copy of all forms associated with the transaction. • Understand the meaning of buyer’s agent, seller’s agent & dual agent. • Ask how your agent is going to advertise your property.
    • Roles in the Appraisal Process Lender Responsibilities • Describes the terms of the loan. • Determines the monthly payments. • Informs you of The Annual Percentage Rate/if it changes/balloons/or increases in percentage over a period of time. • Describes the different forms involved in the loan transaction. • Acknowledges whether the loan will be sold by the lending institution or mortgage company who is lending and to whom it will be sold. • Utilizes an appraisal to check comparison of the loan value and the property value.
    • Roles in the Appraisal Process Agent Responsibilities• Provides and explains Agency Disclosure.• Enters into a Listing Agreement & Negotiates a commission.• Discusses with you how your property will be advertised if you are the seller.• Doesn’t act as a Mortgage Broker. Your agent is not responsible for the home inspection.• Notifies the consumer of known physical defects of the property.
    • Roles in the Appraisal Process Agent Responsibilities• Your agent is not responsible for finding you the best financing.• Your agent does not ensure that the title search is done properly.• Your agent is not responsible for providing a copy of your deed.
    • Roles in the Appraisal Process Appraiser Responsibilities• Gathers data on market area, subject property & comparable properties in market area.• Reflects markets perception of value as of the appraisal date.• Examines the separate indications of value.• Bases comparison of like properties to subject property with adjustments made for differences.• Analyzes evidence & draws conclusions.• Does not advocate the needs or desires of the client or lender.
    • Roles in the Appraisal Process Appraiser Responsibilities• Provides sufficient detail & information to lead the reader of the report to a logical conclusion.• Reports the highest best use of the property. Does NOT take the place of a home inspector.• Analyzes all sales of subject property for last 3 years.
    • About the AppraisalThe written appraisal contains valuable and often-revealinginformation -- including the legal and physical description of theproperty, square footage measurements, list of comparableproperties in the neighborhood, a neighborhood description, and anarrative of current real-estate activity and/or market trends in thevicinity.Carefully review the details regarding the size, number of rooms,features and condition as reported by the appraiser. The appraiserwill check all rooms for obvious damage that could affect theoverall value of the property.Also review the information presented about the neighborhood aswell as the comparable sales that have been selected by theappraiser to support his opinion of value.
    • Details About the HomeThe Appraiser will account for permanent features to a home. Forexample, in-ground pool, built-in appliances in the kitchen. Anythingremovable is not included in the final value. For example: a Jacuzzi tub.The appraiser will check that heating and air units are present and thatthey are in good working condition.Basements are not included in the square footage for the computation ofGross Living Area (GLA). But, are considered in the valuation overall. Theappraiser will check the basement for upgrades and finishing which canincrease a property’s value, but it’s never included in the square footage.Bedroom count is also a big part of the valuation. Appraiser will verify thenumber of bedrooms. By definition, a bedroom is a room with at least onecloset and one window.
    • Checking the AppraisalCommon errors in appraisals include: misuse of adjustments tocomparables, disregarding special financing and concessions, ormiscalculation of gross living area.Ask yourself:•Do adjacent homes add or detract from the value of the subject property?•Is the subject property equal to or lower in price than surrounding homes?•Does the floor plan have any functional problems?•Does the house (particularly the kitchen and bathrooms) require majorremodeling to make it comparable with similar homes in the same pricerange?•Is the number of bedrooms and baths in the home comparable to similarhomes in the same price range?•Did the appraiser perform an adequate review?
    • Appraisal FactsAssumption: Market value should approximate replacement cost.Fact: Market value is based on what a willing buyer likely would pay a willingseller for a particular property, with neither being under pressure to buy orsell. Replacement cost is the dollar amount required to reconstruct a propertyin-kind.Assumption: Assessed value should equate to market value.Fact: While most states support the concept that assessed value approximateestimated market value, this often is not the case. Examples include wheninterior remodeling has occurred and the assessor is unaware of theimprovements, or when properties in the vicinity have not been reassessed foran extended period.Assumption: Appraisers use a formula, such as a specific price per square foot,to figure out the value of a home.Fact: Appraisers make a detailed analysis of all factors pertaining to the valueof a home including its location, condition, size, proximity to facilities andrecent sale prices of comparable properties in the subject market area.
    • Appraisal FactsAssumption: In a robust economy - when the sales prices of homes in agiven area are reported to be rising by a particular percentage - the value ofindividual properties in the area can be expected to appreciate by thatsame percentage.Fact: Value appreciation of a specific property must be determined on anindividualized basis, factoring in data on comparable properties and otherrelevant considerations. This is true in good times as well as bad.
    • Appraisal FactsAssumption: Consumers need not be concerned with what is in theappraisal document so long as it satisfies the needs of their lendinginstitution.Fact: Only if consumers read a copy of their appraisal can they double-check its accuracy and question the result. Also, it makes a valuable recordfor future reference, containing useful and often-revealing information -including the legal and physical description of the property, square footagemeasurements, list of comparable properties in the neighborhood,neighborhood description and a narrative of current real-estate activityand/or market trends in the vicinity.
    • Appraisal FactsAssumption: An Appraisal is the same as a home inspection.Fact: An Appraisal does not serve the same purpose as an inspection. TheAppraiser forms an opinion of value in the Appraisal process and resultingreport. A home inspector determines the condition of the home and itsmajor components and reports these findings.Assumption: You generally can tell what a property is worth simply bylooking at the outside.Fact: Property value is determined by a number of factors, includinglocation, condition, improvements, amenities, and market trends.
    • Appraisers & ConsumersAppraisers provide an integral service as an unbiased, trusted advisor to theprocess. Consumer education and advocacy regarding the appraisalprocess has been improved as a result of recent legislation and the adventof the Consumer Finance Protection Bureau.The appraisal report is a critical tool to new homeowners to help themunderstand their new home and the investment it represents.
    • How to work with the Professional Appraiser “Understanding Real Estate Valuation” Peter Vidi, National President American Guild of Appraisers Guild 44 OPEIU
    • Understanding the Professional Appraiser• Describe the certification/licensing requirements, underwriting guidelines, and appraisal laws in the jurisdiction.
    • Understanding the Professional Appraiser• Describe the certification/licensing requirements, underwriting guidelines, and appraisal laws in the jurisdiction.• Identify appraisal conditions and requirements that professional real estate appraisers are required to follow.
    • History of Real Estate AppraisingPrior to 1989 real estate appraisers were unlicensed. Forthe most part “designations” were offered byprofessional organizations as part of the effort to controlthe education and practice.
    • History of Real Estate Appraising Legislation and RegulationsFIRREA enacted mandating that appraisers who performvaluations for Federally Related Transactions would need to belicensed
    • History of Real Estate Appraising Legislation and RegulationsFIRREA enacted mandating that appraisers who performvaluations for Federally Related Transactions would need to belicensedUSPAP annual guidelines & rules governing the professional realestate appraiser and the appraisal reports for variousassignments.
    • History of Real Estate Appraising Legislation and RegulationsSubsequent to Congress passing FIRREA regulatorsreduced the “deMinimus” threshold to $500,000 toultimately $100,000. States were faced withmandatory vs. voluntary licensing.
    • History of Real Estate Appraising Legislation and RegulationsSubsequent to Congress passing FIRREA regulatorsreduced the “deMinimus” threshold to $500,000 toultimately $100,000. States were faced withmandatory vs. voluntary licensing.Many States and jurisdictions areas are NOT mandatorystates. Appraisers who perform non-FRT assignmentsmay be exempt.
    • Licensing of Appraisers Appraisal Trainee
    • Licensing of Appraisers Appraisal Trainee• 75 Hours of Approved Appraisal Education including 15 Hours in USPAP
    • Licensing of Appraisers Appraisal Trainee• 75 Hours of Approved Appraisal Education including 15 Hours in USPAP• Within 4 years must pass test for Licensed or Certified Residential Real Property Appraiser
    • Licensing of Appraisers Appraisal Trainee• 75 Hours of Approved Appraisal Education including 15 Hours in USPAP• Within 4 years must pass test for Licensed or Certified Residential Real Property Appraiser• Under direct supervision of Licensed or Certified Real property appraiser
    • Licensing of Appraisers Appraisal Trainee• 75 Hours of Approved Appraisal Education including 15 Hours in USPAP• Within 4 years must pass test for Licensed or Certified Residential Real Property Appraiser• Under direct supervision of Licensed or Certified Real property appraiser
    • Licensing of AppraisersLicensed Residential Real Property Appraiser
    • Licensing of Appraisers Licensed Residential Real Property Appraiser• 150 hours of Approved Appraisal Courses
    • Licensing of Appraisers Licensed Residential Real Property Appraiser• 150 hours of Approved Appraisal Courses• 2000 hours of field experience (max 1,000 hours per year)
    • Licensing of Appraisers Licensed Residential Real Property Appraiser• 150 hours of Approved Appraisal Courses• 2000 hours of field experience (max 1,000 hours per year)• Pass a Comprehensive Exam
    • Licensing of AppraisersCertified Residential Real Estate Appraiser
    • Licensing of Appraisers Certified Residential Real Estate Appraiser• 175 Hours of Approved Appraisal Courses
    • Licensing of Appraisers Certified Residential Real Estate Appraiser• 175 Hours of Approved Appraisal Courses• Minimum Associate degree in approved subject matter
    • Licensing of Appraisers Certified Residential Real Estate Appraiser• 175 Hours of Approved Appraisal Courses• Minimum Associate degree in approved subject matter• 2000 Hours of Field Experience (max 1,000 hours per year)
    • Licensing of Appraisers Certified Residential Real Estate Appraiser• 175 Hours of Approved Appraisal Courses• Minimum Associate degree in approved subject matter• 2000 Hours of Field Experience (max 1,000 hours per year)• Pass a Comprehensive Exam
    • Licensing of AppraisersCertified General Real Estate Appraiser
    • Licensing of Appraisers Certified General Real Estate Appraiser• 300 hours of approved appraisal courses
    • Licensing of Appraisers Certified General Real Estate Appraiser• 300 hours of approved appraisal courses• Minimum Bachelors in approved subject matter
    • Licensing of Appraisers Certified General Real Estate Appraiser• 300 hours of approved appraisal courses• Minimum Bachelors in approved subject matter• 3000 hours of field experience (max 1,000 hours per year)
    • Licensing of Appraisers Certified General Real Estate Appraiser• 300 hours of approved appraisal courses• Minimum Bachelors in approved subject matter• 3000 hours of field experience (max 1,000 hours per year)• Pass a comprehensive exam
    • Appraisal vs. CMAThey are NOT the same!
    • Appraisal vs. CMA They are NOT the same!• An appraisal is an estimate of market value as of a specific date by a professional real estate appraiser.
    • Appraisal vs. CMA They are NOT the same!• An appraisal is an estimate of market value as of a specific date by a professional real estate appraiser.• Term “appraisal” is a specific term only used in connection with definition of market value.
    • Appraisal vs. CMA They are NOT the same!• An appraisal is an estimate of market value as of a specific date by a professional real estate appraiser.• Term “appraisal” is a specific term only used in connection with definition of market value.• CMA only for listing/sale purpose
    • What does this all mean to you and the consumer?• Appraisers have a fiduciary responsibility to the client”• Appraiser is only an “advocate” for the appraisal report and conclusion• Impartial opinion to protect consumer• Appraiser is controlled by USPAP• Term “appraisal” is a specific term only used in connection with definition of market value.
    • Violation of the Law!!! Don’t go there!!!
    • Violation of the Law!!! Don’t go there!!!• Coercion of the appraiser
    • Violation of the Law!!! Don’t go there!!!• Coercion of the appraiser• Manipulation of information or report
    • Violation of the Law!!! Don’t go there!!!• Coercion of the appraiser• Manipulation of information or report• Predatory Actions
    • What can I do…What can’t I do? Know the professional boundaries
    • What can I do…What can’t I do? Know the professional boundaries• Do NOT pressure the appraiser to get a value or to misrepresent.
    • What can I do…What can’t I do? Know the professional boundaries• Do NOT pressure the appraiser to get a value or to misrepresent.• Do encourage the appraiser to act independently.
    • What can I do…What can’t I do? Know the professional boundaries• Do NOT pressure the appraiser to get a value or to misrepresent.• Do encourage the appraiser to act independently.• Do assist appraisers in disclosing “material” information
    • Examples of issues with a professional appraiser?• Appraiser calls the client asking for them to provide comparables.• Appraiser uses comparables outside of market to “push” or “lower” values• Appraiser with geographic competency
    • What should the consumer know?• Appraiser can be the “gate keeper” on a deal...treat them with respect.• Appraiser can provide invaluable information to assist in a decision• Ask the appraiser questions!!!
    • What can consumer do if they disagree?• Provide information on new comps• Provide new perspective about things that appraiser may have overlooked• Get a copy of the appraisal report
    • Complaints• Any person may file a complaint against a licensed or certified appraiser. Complaints must be filed in writing on forms provided by the Commissions.• Follow the directions of providing the objective evidence that can be used by the investigating body.
    • Contact Us