Missouri House Bill 967 (Missouri Appraisal Management Company Registration and Regulation Act

[David Doering]

A bill to regulate the activities of Appraisal Management Companies (AMCs) in Missouri has been introduced in the Missouri House. I was privileged to give testimony in favor of the bill on behalf of MAAC.

I encourage all appraisers in Missouri to contact their State Representatives and State Senators and express your support for this needed legislation. Here are the key points of my testimony to give you some talking points in discussing the bill with your representatives. The current version of the bill can by found by going to the MAAC weblink at missouriappraisers.org. - Dave

HB 967-- Sponsor: Hobbs, Steve(Rep-021)

Bill Title:Missouri Appraisal Ma nagement Company Registration and Regulation Act

Regulates real estate appraisal management companies


Background:
-On May 1, 2009, the Home Valuation Code of Conduct (HVCC) will be implemented by Fannie Mae and Freddie Mac.
-Fannie Mae and Freddie Mac are the two largest purchasers of residential real estate loans in the country and their rules, regulations and guidelines generally define the practices of most residential mortgage lending.
-Compliance with the HVCC will be required on all loans purchased by Fannie Mae and Freddie Mac on or after that date.
-The HVCC was developed with the specific purpose to ensure greater appraiser independence.
-The underlying purpose of the HVCC was in effort to deal with one aspect of the making of under-collateralized loans resulting from improper influence on the process by loan originators who are compensated on the basis of their production and motivated to “make the deal” rather than use “due care and diligence”.
-To provide separation between the loan origination function and the loan approval function, the HVCC requires among other things that the process of engaging appraisers be done by parties or entities not involved either directly or indirectly in loan origination.
-Many larger lenders will accomplish the intent of the HVCC by creating in-house appraisal coordination departments or designating an in-house “appraisal coordinator” to serve as an independent interface between the loan originators and appraisers.
-Smaller loan originators (such as independent mortgage brokers) will be required to utilize the services of intermediaries often referred to as “Appraisal Management Companies” or “AMCs”.
-AMCs are not a new concept with several AMCs having been in business for several decades.
-AMCs are private entities or corporations that secure orders for appraisals from lenders and then engage appraisers to complete the order.
-AMCs will typically charge the lender or loan originator a fee for the appraisal (which is ultimately paid by the consumer) and pay the appraiser some portion of that fee for completing the appraisal.


Problem (Law of Unintended Consequences):
-All parties with respect to the loan production process are currently or will be shortly subject to some form of regulation, licensing or administrative oversight to protect the public interest and ensure the ethical conduct of business with the exception of Appraisal Management Companies (AMCs).
-In addition a number of AMCs that have been in business for many years, since the evolution of the Home Valuation Code of Conduct (HVCC) new AMCs are being formed daily to either serve the intent of the HVCC or to subvert it.
-Many AMC business models focus on two factors, who can do the appraisal the quickest and who can do the appraisal the cheapest which then serves as the basis for appraiser selection and not who is most qualified to complete the appraisal.
-A “quickest” and “cheapest” business model in inconsistent with the intent of the HVCC and not necessarily in the public interest since any savings in the cost of the appraisal would benefit the AMC and not the consumer.
-Additionally, there is not transparency to the borrower with respect to the true cost of the appraisal (the amount paid to the appraiser) and the appraisal management fee which are aggregated into a single fee in the closing documents.
-The HVCC essentially mandates the use of and creates a required position in the residential loan process for AMCs.
-The proliferation of new AMCs with no standard for their business practice has already begun.
-There is no standard of conduct for AMCs to protect the public interest or provide remedies for unethical business practices or to ensure the intent of the HVCC in this regard.

Solution:
HB 967 Missouri Appraisal Management Company Registration and Regulation Act:
-Provides basic standards for the ethical conduct of business of appraisal management companies in Missouri
-Requires the registration of appraisal management companies engaged in the business of securing appraisals in the State of Missouri for their clients in exchange for compensation or gain in the State of Missouri
-Provides for oversight and examination of the business practices of appraisal management companies by the Missouri Division of Finance and allow them to adopt rules consistent with the intent of the bill
-Provides that fees paid by consumers for appraisal services not be misrepresented to include hidden charges by appraisal management companies
-Extends the intent of the HVCC and Missouri’s mortgage fraud laws to appraisal management companies by prohibiting named unethical practices to unduly influence or interfere with the independence of appraisers
-Prohibits individuals convicted felonies and misdemeanors involving mortgage lending, real estate appraisal or any offence involving breach of trust, moral turpitude, fraudulent or dishonest dealing or appraisers who have had their appraisal licenses denied, revoked or suspended from acting as principle of an appraisal management company
-Provides civil and criminal penalties and remedies for violation of the provisions of the law
-Provides exemption from the law for state and federally regulated lenders and safeguard the necessary process of making legitimate requests from appraisal management companies for appraisers to consider additional relevant information in completion of appraisals, provide additional detail and explanation to support their opinion of value and to correct errors in the appraisal report
-Bill has an emergency clause due to the May 1, 2009 stated date of implementation of the Home Valuation Code of Conduct by Fannie Mae and Freddie Mac.

[Dan Wilson, RAA]

Thanks for the information and I will be sure to contact my rep and senator to give them my opinion of the new Bill