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Updated April 8th 2020: COVID-19 Frequently Asked Questions - Mortgage Originations

Posted on: 04/09/20

COVID-19 Frequently Asked Questions - Mortgage Originations

Last Updated: Apr. 08, 2020

In response to the COVID-19 national emergency, Fannie Mae and Freddie Mac have provided temporary guidance to lenders on several policy areas to support mortgage originations. These FAQs provide additional information on temporary policies. We will be adding more FAQs, therefore we encourage you to check in frequently for updates - refer to the "NEW" or "UPDATED" notations after the questions.

Note:  The numbering sequence is from the COVID-19 Frequently Asked Questions PDF document that includes mortgage originations and appraisals. These have been separated for easier reference by topic. Click here for the COVID-19 FAQs related to Appraisals.  Click here for the COVID-19 FAQs related to Quality Control.

 

Mortgage Originations

  1. Do Fannie Mae’s existing disaster policies in the Selling Guide and the Servicing Guide apply to the COVID-19 pandemic? 

No, Fannie Mae’s existing policies related to disasters do not apply to loans impacted by COVID-19.  Instead, lenders and servicers can follow the guidance in Lender Letters LL-2020-02Impact of COVID-19 on Servicing,  LL-2020-03Impact of COVID-19 on Originations, and LL-2020-04Impact of COVID-19 on Appraisals. All guidance specific to COVID-19 will be communicated through Lender Letters and FAQ documents such as this.

 

  1. Given the unprecedented and rapid instances of voluntary and mandated business closures, and the concerns over whether employees will continue to be paid, is updated income documentation required prior to closing?

Yes, in some cases income documentation may need to be updated. Refer to Lender Letter LL-2020-03Impact of COVID-19 on Originations for details.

 

  1. If a recent paystub or bank statement is obtained in lieu of the verbal verification of employment (VOE), and the documentation evidences reduced hours and/or pay due to the pandemic, what are the next steps?

Continue to follow the requirements and guidance in the Selling Guide Chapter B3-3 related to income stability and calculation.  For example, for declining variable income, the requirements and guidance for declining income trends in the B3-3.1-01, General Income Information are applicable.  In those cases, the reduced amount of declining variable income can only be used for qualifying if it has since stabilized and there is no reason to believe the borrower will not continue to be employed at the current level.  In no instance may income be averaged over the period of declination.

 

  1. Are there acceptable alternatives if a lender is unable to obtain a verbal verification of employment (VOE)?

Yes, please reference the guidelines and flexibilities announced in Lender Letter LL-2020-03Impact of COVID-19 on Originations

 

  1. Does the lender remain responsible for the representations and warranties related to the borrower’s employment status when using one of the verbal VOE flexibilities? 

Yes. The lender’s representations and warranties related to the borrower’s employment status do not change. We are allowing certain documentation flexibilities due to the unique circumstances resulting from the COVID-19 pandemic to address the issue lenders have raised due to disruption of employer operations and their inability to be reached by phone. Lenders are not required to use these flexibilities if they are not comfortable with them.

 

  1. How should lenders apply the temporary policy on age of documentation to third-party vendor employment or income verification reports that are not used as part of the DU validation service? NEW

Lender Letter LL-2020-03Impact of COVID-19 on Originations did not change the age of documentation requirements for third-party vendor employment verifications. Therefore, lenders must continue to comply with the requirements in B3-3.1-07, Verbal Verification of Employment, which require the vendor report date to be no more than 10 days prior to the note date, and the information in the vendor’s database (For example, “current as of” date) to be no more than 35 days prior to the note date.

Lender Letter LL-2020-03Impact of COVID-19 on Originations did update the age of documentation requirements for third-party vendor income verifications:

  • For loan applications prior to Apr. 14, 2020, the vendor report date must be no more than 120 days prior to the note date.
  • For loan applications on or after Apr. 14, 2020 through May 18, 2020, the information in the vendor’s database (For example, “current as of” date) must be no more than 60 days prior to the note date.

Note: The above guidance does not apply to loans with employment or income validated with the DU Validation Service. See B3-2-02, DU Validation Service for more information.

 

  1. The borrower is self-employed and owns a business that is closed due to the pandemic.  Can the income be used to qualify?

No, if the business is not operating, the income may not be used to qualify.

 

  1. Can I use the requirements for income while on temporary leave?

Yes, refer to the requirements in the B3-3.1-09, Other Sources of Income.

 

  1. Does the tax deadline extension issued as a result of the COVID-19 emergency affect documentation requirements?

Lenders should continue to obtain the most recent year’s tax return filed by the borrower as indicated in B1-1-03, Allowable Age of Credit Documents and Federal Income Tax Returns.  However, lenders are not required to obtain a copy of the IRS Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Income Tax Return) filed with the IRS, until the point at which the tax deadline extension has expired.  Accordingly, lenders are not required to review the total tax liability reported on IRS Form 4868 and compare it with the borrower’s tax liability from the previous two years as a measure of income source stability and continuance.

 

  1. Is there any impact to the DU validation service for loans with income or employment validation?

If income or employment has been validated by the DU validation service, the validation will remain eligible for representation and warranty relief on income and employment provided the lender complies with the terms of the DU messages.

For employment validation, the lender must comply with the “close by” date in the DU message. Otherwise, the guidance in LL-2020-03, Impact of COVID-19 on Originations related to obtaining a verbal VOE (or allowable alternative) would apply.

 

  1. Can a closing agent or other affiliated party sign loan documents on the borrower’s behalf using a power of attorney (POA)? UPDATED

Yes. We have expanded the transaction types that are eligible for a party with a connection to the transaction to serve as attorney-in-fact, including an employee of the title insurance company providing the title insurance policy. In addition to limited cash-out refinances (which are currently permitted in the Selling Guide), this exception now also applies to purchase transactions.

All related requirements in B8-5-05, Requirements for Use of a Power of Attorney must be met including the on-line, interactive internet session, the express statements required in the POA, and the prohibition against the attorney-in-fact being an employee of the lender.

In addition:

  • For purchase and limited cash-out refinance transactions, when the attorney-in-fact is an employee of the insuring title insurer or is an employee of the policy-issuing agent of the insuring title insurer, such title insurer must have issued a closing protection letter (or similar contractual protection) for the transaction for such policy issuing agent.
  • For purchase transactions, the attorney-in-fact or agent may not be the property seller, any relative of the property seller, or any direct or indirect employee or agent of the property seller, unless they are also a relative of the borrower.

The POA Job Aid contains detailed information on additional flexibilities and new requirements outlined in Lender Letter LL-2020-03Impact of COVID-19 on Originations for loans with documents signed subject to a power of attorney.

 

  1. If applicable law requires acceptance of a power of attorney, do the provisions of the Selling Guide and Lender Letter LL-2020-03, Impact of COVID-19 on Originations on powers of attorney apply? NEW

Under Selling Guide B8-5-05, Requirements for the Use of a Power of Attorney, and as noted in LL-2020-03, requirements of applicable law regarding a lender’s obligation to allow the use of a power of attorney always have priority over the terms of Fannie Mae policy. If a power of attorney is used because the lender determines such use is required by applicable law, the lender must include in the mortgage loan file a written statement that explains the circumstances. Such a statement must be provided to the document custodian with the power of attorney.

 

  1. It is not always possible to obtain a closing protection letter, for example, as in the state of New York. What specific documentation would a lender be required to obtain? NEW​​​​

There are a number of states where closing protection letters are not permitted by insurance regulators. In these cases, an alternative contractual indemnity that provides equivalent protection against title agent misuse of the power of attorney or funds must be confirmed. This can include, for example, indemnity provisions in the agreement between the lender and the settlement provider, or an employee fidelity bond maintained by the title insurance agency. In some states, there are statutory protection schemes; these would also meet the requirements of the lender letter.

 

  1. The guidance in Lender Letter LL-2020-03, Impact of COVID-19 on Originations introduces a new requirement for purchase transactions closing subject to a power of attorney, requiring borrower confirmation of the loan terms with the borrower. When does this requirement apply?  NEW​​​​

Except for situations described in the next sentence, the requirement for borrower acknowledgment (in person or via telephone conversation or a video conference system) of his or her understanding of the loan terms applies to all purchase transactions, regardless of who is serving as attorney-in-fact. However, for purchase (as well as limited cash-out refinance transactions) where the attorney-in-fact is a person “connected to the transaction” listed in B8-5-05, Requirements for the Use of a Power of Attorney, then the existing processes in B8-5-05 are mandatory, and there is no need for any further borrower acknowledgment.

The new borrower acknowledgment requirements only apply to borrowers signing by a power of attorney. If a borrower signs personally, and another borrower signs via a power of attorney, then no acknowledgment by any borrower signing personally is required by Lender Letter LL-2020-03.

 

  1. What, specifically, needs to be reviewed with the borrower during the borrower acknowledgment conversation, and what is meant by the acknowledgment being “memorialized”?  NEW​​​​

The purpose of the borrower acknowledgment provision is to confirm orally after receiving the Closing Disclosure that the borrower understands both the key features of the loan and that the attorney-in-fact has the ability to contractually bind the borrower to the transaction – including the purchase of a home – on the same basis as if they had signed themselves.

Key features of the loan would include such things as principal amount, interest rate and adjustment provisions (if applicable), first payment date, loan term, and initial loan payment (P&I and PITIA).

The conversation reflecting the acknowledgment by the borrower(s) must be documented either in a written record created by the lender or settlement agent or in a recording capturing the conversation with the borrower. If documented in writing, there is no expectation that the borrower signs the memorialization. In either case, the lender must retain the acknowledgment in the loan file, and make it available to us on request.

 

  1. What are Fannie Mae’s requirements concerning “gap coverage” in lenders’ title insurance policies?

The Selling Guide Chapter B7-2 requires a loan title insurance policy that satisfies Fannie Mae’s requirements, written on the 2006 ALTA loan title insurance form or local equivalent, be obtained by a lender before a mortgage loan is sold to Fannie Mae.

The 2006 ALTA form includes “gap coverage” in Covered Risk 14 for matters arising between the date a mortgage loan is closed and when the mortgage is recorded. Similarly, if title insurance is obtained on an alternate form, the Selling Guide requires coverage be provided for the period between the closing date of the loan and the date when the mortgage is recorded.

Lenders must continue to ensure that no unacceptable title impediments or policy exceptions exist in accordance with B7-2-05, Title Exceptions and Impediments.

 

  1. Does Fannie Mae require deferred debt payments (for example, student loans, auto loans, etc.) to be considered in a borrower’s debt-to-income (DTI) ratio?

Yes. Even if a borrower’s debt payments are temporarily suspended due to COVID-19 response, the lender must consider the payment in the borrower’s DTI ratio in qualifying for a mortgage loan. Refer to the requirements in the B3-6-02, Debt-to-Income Ratios and B3-6-05, Monthly Debt Obligations.

 

  1. What should the lender do when informed of a change in the borrower’s pay structure?

If the lender is notified that the borrower is transitioning to a lower pay structure, for example due to pending retirement, the lender must use the lower amount to qualify the borrower. See B3-3.1-01, General Income Information; Continuity of Income.

 

  1. Can borrowers still use trust accounts for down payment, closing costs, and reserves?

Yes, lenders can continue to follow the requirements in the B3-4.3-02, Trust Accounts. In addition, lenders must apply the age of document and other requirements and guidance in Lender Letter LL-2020-03Impact of COVID-19 on Originations for any market-based assets in the trust account required for the transaction.

 

  1. Can a borrower waive the right to rescind on a refinance transaction?

Fannie Mae does not set requirements around rescission periods. If a lender chooses to allow a borrower to waive the rescission period, they must follow and comply with applicable regulatory requirements.

 

  1. Does Fannie Mae purchase loans that are in forbearance?

No. During the forbearance, the borrower is not making payments and the loan is not eligible for sale to Fannie Mae.

 

  1. Can lenders continue to use capital gains and interest and dividend income for qualifying a borrower?

Yes, however, lenders should apply additional due diligence to capital gains and interest and dividend income since it is calculated using a historical view which may not be sustainable given current market volatility. While two years of tax returns are still required to demonstrate a stable history of capital gains and interest and dividends income, lenders must consider the current value of the underlying asset when evaluating income for qualifying purposes.

  • If the current value of the asset indicates a reduced amount when compared to historical levels, the lender must use the lower amount provided it is deemed stable at the current level.
  • If, due to continued market volatility, the lender cannot determine the income is stable at its current level, the income should not be used for qualifying purposes.
  • In the event the current value of the underlying asset indicates an increased amount of capital gains or interest or dividends, the lender should continue to use a two-year average calculated using the borrower’s tax returns.

 

  1. Do lenders still need to have each borrower whose income (regardless of income source) is used to qualify for the loan to complete and sign a separate IRS Form 4506-T at or before closing? NEW

Yes, lenders are still required to have each borrower whose income (regardless of income source) is used to qualify for the loan to complete and sign a separate IRS Form 4506-T at or before closing. Refer to B3-3.1-06, Requirements and Uses of IRS Request for Transcript of Tax Return Form 4506-T.

 

  1. Can subordination documents be remotely notarized? 

Yes, subordination documents can be remotely notarized provided the lender follows the requirements in the A2-5.1-03, Electronic Records, Signatures and Transactions and Lender Letter LL-2020-03Impact of COVID-19 on Originations.

 

  1. Are there any changes to the signature requirements for the promissory note?

No. In accordance with A2-5.1-03 Electronic Records, Signatures, and Transactions, unless the lender is approved to deliver eNotes, we require that the original wet signed promissory note be in the possession of the document custodian when the loan is certified for our purchase.

 

  1. Was there a methodology for determining the states that are acceptable in the remote online notarization (RON) grid? NEW

For states without an express and currently effective RON statute, we assessed the overall likelihood of that state’s recognition of valid RON acts performed out of state, and looked at a number of factors, including governors’ executive orders, applicable state laws, and applicability of the Full Faith and Credit clause of the U.S. Constitution (and any exceptions to its application). The state list was aligned with Freddie Mac and was reviewed and approved by FHFA.

The passage of a federal law is also contemplated in the language and would potentially supersede the need for state-by-state analysis.

 

  1. Will Fannie Mae update the RON grid for states that have executive orders or state law issued since publication? NEW

We are actively reviewing any additional governors’ executive orders and any state laws since publication, along with any related federal laws, and we will update the grid as needed.
Based on our review of additional governors’ executive orders, lenders may sell loans with remotely notarized loan documents in the additional states listed below, on the terms and conditions noted in Lender Letter LL-2020-03Impact of COVID-19 on Originations:

  • Arkansas
  • Georgia
  • Hawaii

Note: lenders are still responsible for reviewing and complying with all state laws related to remote online notarization transactions; ensuring that any recordable documents can be recorded properly; and receiving a title policy without exception, all as further described in Lender Letter LL-2020-03Impact of COVID-19 on Originations.

 

  1. What does “maintain the recording of the notarial ceremony for the life of the loan” mean for storage by lenders? NEW

The requirements are not prescriptive about how this must be stored, but lenders must be able to have the ability to access the notarial ceremony upon our request. Lenders may develop their own system or rely on a vendor’s capabilities to satisfy this requirement.

Note: the minimum requirements for the system used for remote notarization include a separate storage of the notarial ceremony. This storage must be for the minimum period required by applicable laws or seven years, if no period is specified in the applicable laws.

 

  1. Can a lender use remote online notarization (RON) to close loans that include wet-ink signed documents, including notes that are not eMortgages? NEW

Yes, lenders may employ RON methods to sign and notarize loan documents in accordance with the terms and conditions in Lender Letter LL-2020-03, Impact of COVID-19 on Originations in transactions where the transaction includes a promissory note (and other closing documents) that are wet-ink signed. As a reminder, sellers can only deliver electronically signed eNotes if they have previously been approved by Fannie Mae.

Further, note that powers of attorney may be notarized using RON methods and the POA Job Aid contains detailed information on these requirements outlined in LL-2020-03Impact of COVID-19 on Originations.

 

  1. Does Fannie Mae permit an electronic signature by a borrower on a promissory note that is not an eMortgage? NEW

No, a wet-ink signature is required for all promissory notes, unless the promissory note is an electronic note sold in accordance with Selling Guide A2-5.1-03, Electronic Records, Signatures, and Transactions. Lenders that are approved to deliver eMortgages may refer to the Guide to Delivering eMortgages to Fannie Mae for additional information.

 

 

FHA Will Accept Exteriors and Desktop Appraisals

Posted on: 03/29/20

New FHA Guidelines

https://www.hud.gov/sites/dfiles/OCHCO/documents/20-05hsgml.pdf

Desktop Appraisals

https://www.hud.gov/sites/dfiles/SFH/documents/ModelApprDesktop_OnlyCert_03_27_20.pdf

Exterior-Only Appraisals

https://www.hud.gov/sites/dfiles/SFH/documents/ModelApprExterior_OnlyCert_03_27_20.pdf

COVID-19: Latest Developments and Efforts for Appraisers Webinar

Posted on: 03/27/20

Please join these five profession-leading organizations for a robust panel discussion on COVID-I9 and its implications for the appraisal profession.

COVID-19: Latest Developments and Collaborative Efforts

A Panel Discussion

March 31, 2020

Webinar starts @ 1 PM Eastern, Noon Central Time. It will be a participation event.

Program time approximately 90 minutes.

It will be recorded and made available for review for those unable to attend. 

Our speaker panel will include:

·     Bill Garber - Director of Government and External Affairs, AI.

·     John Russell - Senior Director of Government Relations and Business Development, ASA.

·     Stephen Frerichs - Government Relations Consultant, ASFMRA.

·     Greg McHenry - President-Elect, IAAO

You will hear updates on:

·     State of the stay in place and business operations orders.

·     Appraiser guidelines and regulatory revisions.

·     Latest developments impacting appraisal.

Click here to register today. It is free.

VA Guidelines for Covid 19 Appraisals

Posted on: 03/27/20

Temporary Guidance From the VA
 

The VA has issued temporary guidance on appraisal requirements in Circular 26-20-11, Valuation practices during COVID-19 which will be updated as needed. The guidance links from Fannie and Freddie are also below. We sincerely hope this message finds everyone well. Please continue to practice the CDC suggestions to help you stay safe during this crisis.

VA

Fannie Mae

Freddie Mac

FREE WEBINAR - Legal and Risk Issues for Appraisers Stemming From The COVID-19 Crisis

Posted on: 03/25/20

Legal and Risk Issues for Appraisers Stemming from the COVID-19 Crisis

March 24, 2020

  • Discuss legal nature of appraisal work/business in light of current COVID-19 and “stay-at-home” orders.
  • Discuss language ideas for appraisal reports responding to COVID-19 issues.
  • Address my main concerns with respect to appraiser liability going forward.
  • Convey important information about E&O insurance.
  • End with two suggestions about personal legal planning.
  • Aiming for 45-60 minutes.

Peter Christensen Attorney, Christensen Law Firm Santa Barbara, CA Peter is an attorney and member of the California and Washington State Bars. He maintains a law practice focused on legal and regulatory issues concerning real estate valuation. His clients include appraisal firms, management companies, and other providers and users of valuation services.

Peter has presented hundreds of liability prevention seminars for appraisers and is the author of Risk Management for Real Estate Appraisers and Appraisal Firms, published by the Appraisal Institute (2019). The Christensen Law Firm’s website is www.valuationlegal.com

View webinar slide deck HERE.

Appraisal Foundation Updated Q & As as of 3/25 and Upcomming Webinar

Posted on: 03/25/20

NEW Q&As:

March 2020

Q&A 1, 2, 3

Visit this page for more up to date guidance - How Does the Coronavirus Impact Appraisers?


ASB Meeting Livestream - April 3rd, 2020

Out of an abundance of caution for health and safety, the Appraisal Standards Board public meeting on April 3, 2020, will be only a virtual meeting that will be live-streamed. The ASB livestream will still be held at the same regularly scheduled time at 10:00 am ET/9:00 CT on April 3, 2020. Click here to register for the livestream: https://bit.ly/2TICtXC

Ohio Stay at Home Order

Posted on: 03/24/20

Dear OCAP Members,

As we navigate a difficult time, I wanted to let you know that Ohio has included appraisers in the list of essential services, thus allowing continuation of your appraisal practice. The official Director’s Stay at Home Order can be found here:

https://www.documentcloud.org/documents/6816971-Stay-at-Home-Order.html

Please notice the information within Item 12, lines i and u, which specifically pertains to our profession.

When entering the field appraisers are encouraged to bring a copy of their license, VA card, or any other documentations to show you are providing appraisal services.

We are hopeful we’ll be able to provide an update regarding appraisal alternatives as soon as possible.

Dear OCAP Members,

As we navigate a difficult time, I wanted to let you know that Ohio has included appraisers in the list of essential services, thus allowing continuation of your appraisal practice. The official Director’s Stay at Home Order can be found here:

https://www.documentcloud.org/documents/6816971-Stay-at-Home-Order.html

Please notice the information within Item 12, lines i and u, which specifically pertains to our profession.

When entering the field appraisers are encouraged to bring a copy of their license, VA card, or any other documentations to show you are providing appraisal services.

We are hopeful we’ll be able to provide an update regarding appraisal alternatives as soon as possible.

CoreLogic Acquires a la mode technologies, LLC

Posted on: 04/12/18

April 12, 2018 08:02 AM Eastern Daylight Time

IRVINE, Calif.--(BUSINESS WIRE)--CoreLogic® (NYSE: CLGX), a leading global property information, analytics and data-enabled services provider, today announced the completion of the Company’s acquisition of a la mode technologies, LLC (a la mode). a la mode provides subscription based software solutions to more than 40,000 appraiser professionals across the United States. The software solutions provided by a la mode facilitate the aggregation of data, imagery and photographs in a GSE compliant format for the completion of U.S. residential appraisals. a la mode, founded in 1985, is headquartered in Oklahoma City.

“The acquisition of a la mode is an important next step in the development and scaling of our end-to-end valuation solutions workflow suite which includes data and market insights, analytics as well as data-enabled services and platforms,” said Frank Martell, CoreLogic president and CEO. “a la mode tools and solutions help to make our professional appraiser community more productive and efficient. The addition of a la mode to our existing workflow and technology offerings also provides CoreLogic with a seamless digital platform for ordering, preparing, quality assuring and delivering property valuations and allows us to expand the connectivity between a number of the major constituencies in the mortgage underwriting ecosystem.”

The acquisition of all of the equity of a la mode is expected to be modestly accretive to CoreLogic’s 2018 revenue and adjusted EBITDA, excluding certain purchase accounting adjustments and one-time integration-related costs.

Click HERE to read official response letter from alamode. 

 

About CoreLogic

CoreLogic (NYSE: CLGX) is a leading global property information, analytics and data-enabled solutions provider. The company's combined data from public, contributory and proprietary sources includes over 4.5 billion records spanning more than 50 years, providing detailed coverage of property, mortgages and other encumbrances, consumer credit, tenancy, location, hazard risk and related performance information. The markets CoreLogic serves include real estate and mortgage finance, insurance, capital markets, and the public sector. CoreLogic delivers value to clients through unique data, analytics, workflow technology, advisory and managed services. Clients rely on CoreLogic to help identify and manage growth opportunities, improve performance and mitigate risk. Headquartered in Irvine, Calif., CoreLogic operates in North America, Western Europe and Asia Pacific. For more information, please visit www.corelogic.com.

CORELOGIC and the CoreLogic are trademarks of CoreLogic, Inc. and/or its subsidiaries.

Safe Harbor/Forward-Looking Statements

Certain statements made in this press release are forward-looking statements within the meaning of the federal securities laws, including but not limited to statements that (i) the a la mode acquisition will advance the Company’s valuation solutions capabilities; and (ii) the a la mode acquisition will be modestly accretive to the Company’s 2018 revenue and adjusted EBITDA, excluding certain accounting adjustments and costs. Risks and uncertainties exist that may cause the results to differ materially from those set forth in these forward-looking statements. Factors that could cause the anticipated results to differ from those described in the forward-looking statements include the risks and uncertainties set forth in Part I, Item 1A of our most recent Annual Report on Form 10-K, including without limitation: difficult conditions in the mortgage and consumer lending industries and the economy generally; compromises in the security of our data, including the transmission of confidential information or systems interruptions; our indebtedness and the restrictions in our various debt agreements; and our ability to realize the anticipated benefits of certain acquisitions and/or divestitures and the timing thereof. The forward-looking statements speak only as of the date they are made. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.

CLGX-F

 

Contacts

CoreLogic
Media Contact:
Alyson Austin, 949-214-1414
Corporate Communications
newsmedia@corelogic.com
or
Investor Contact:
Dan Smith, 703-610-5410
Investor Relations
dan@corelogic.com

Are Appraisal Management Companies Value-Adding?

Posted on: 04/12/18

Excerpt:

Are Appraisal Management Companies Value-Adding? – Stylized Facts from AMC and Non-AMC Appraisals


In this paper, we study whether there are any systematic quality differences between appraisals associated and unassociated with appraisal management companies (AMCs). We find that compared to non-AMC appraisals, AMC appraisals on average share a similar degree of overvaluation despite being more prone to contract price confirmation and super-overvaluation. AMC appraisals also share a similar propensity for mistakes, despite employing a greater number of comparable properties. Our evaluation employs relatively simple statistical comparisons, but the results indicate no clear evidence of any systematic quality differences between appraisals associated and unassociated with AMCs.

1. Introduction
Appraisal management companies 1 gained prevalence after the recent financial crisis as intermediaries with the ability to prevent lenders from directly pressuring appraisers—thereby improving appraisal quality and adding value to the appraisal industry. Whether they have realized such potentials is now a growing debate. AMC advocates believe that in addition to acting as firewalls between lenders and appraisers, AMCs contribute a quality assurance step to the appraisal process. Some advocates may believe additionally that the thriving of AMCs represents an increasing specialization of appraisal management and appraisal services 2. Each of these circumstances would lead to consumers acquiring less biased and better quality appraisal reports and consequently to lenders achieving reduced credit risk as well as reduced management time and effort. Those on the other side of the debate believe that AMCs offer no quality assurance contribution and in fact tend to hire the least expensive rather than the most suitable appraisers. They also claim that AMCs set unrealistic deadlines, effectively rushing appraisal reports. Under these circumstances, rather than having higher quality appraisals, AMCs could in fact reduce the overall quality of appraisals, and in doing so, increase credit risk in the long run. Opponents also cite the fact that because AMCs take a cut of prevailing appraisal fees, their prevalence has caused and will continue to cause an appraiser shortage, the result of which, ceteris paribus, is increasing appraisal costs for future borrowers…

Read entire document HERE.

 

Published: 3/26/2018

Author:

​Jessica Shui, Economist; Shriya Murthy, Economist

Abstract:​
In this paper, we study whether there are any systematic quality differences between appraisals associated and unassociated with appraisal management companies (AMCs). We find that compared to non-AMC appraisals, AMC appraisals on average share a similar degree of overvaluation despite being more prone to contract price confirmation and super-overvaluation. AMC appraisals also share a similar propensity for mistakes, despite employing a greater number of comparable properties. Our evaluation employs relatively simple statistical comparisons, but the results indicate no clear evidence of any systematic quality differences between appraisals associated and unassociated with AMCs.

FTC vs CoreLogic - OCAP's Response

Posted on: 04/12/18

How does this impact us? Read: Why this matters to appraisers.

 

Office of the Secretary
Federal Trade Commission
600 Pennsylvania Avenue, N.W.
Washington, DC 20580

Re: In the Matter of CoreLogic, Inc., Docket No. C-4458

We are independent, unaffiliated non-profit organizations that represent the professional real
estate appraisers in our respective states. We believe that FTC’s proposed actions regarding
CoreLogic’s non-responsive actions is fully justified. Our more serious concern, however, is the
related increasing presence – and potential dominance – by CoreLogic of the entire breadth and
depth of the real estate collateral valuation process. The issue is not unfair competition –
appraisers are typically users of many of CoreLogic’s databases – but rather the integrity of the
valuation process.
CoreLogic controls a variety of the property sales and information databases and search
programs that appraisers depend upon for information on comparable sales and market
conditions, such as REIS, Realist, AppraiserSuite, and RealQuest. CoreLogic provides flood
zone certifications through FloodCert. CoreLogic owns the leading provider of residential and
commercial construction cost data, Marshall & Swift. CoreLogic owns two of the “portals” for
ordering and transmitting appraisals, FNC and Mercury Network. CoreLogic has just acquired
one of the largest and most popular appraisal software firms, a la mode. CoreLogic is the source
of the automated appraisal review program LSAM, which is widely used by large and small
lenders and appraisal management companies. CoreLogic also owns a national provider of
appraisal education and symposia, Columbia Institute. And CoreLogic is a national appraisal
management company, having purchased LandSafe and RELS. CoreLogic of course was also
the subject of the FTC action with regard to its purchase of DataQuick Information System and
this request for comments.
The effect of CoreLogic’s expansion into all these areas is that one company controls the
ordering of real estate appraisals, the data that the appraisers rely upon for their analysis, the
transmission of the final reports, and the review of those reports. The valuation of the collateral
held to support a significant portion of the nation’s mortgages is therefore in the hands of a
single company. Appraisers, who are held to high standards of independence, objectivity, and
due diligence are increasingly concerned about the inherent dangers of this concentration of
control and its effect on the integrity, both real and perceived, of the valuation process.
We urge the FTC to examine this concentration and take appropriate measures to insure the
safety and soundness of real estate transactions.

Very truly yours,

National State Appraiser Organizations
"The Network"

California Coalition of Appraisal Professionals

Tennessee Appraiser Coalition

Rhode Island Real Estate Appraiser Association

Real Estate Appraiser's Association, California

Real Estate Appraisers of Southern Arizona

Virginia Coalition of Appraiser Professionals

South Carolina Professional Appraisers Coalition

Ohio Coalition of Appraisal Professionals

West Virginia Council of Appraiser Professionals

Mississippi Coalition of Appraisers

Maryland Association of Appraisers

Oklahoma Professional Appraisers' Coalition

Louisiana Real Estate Appraisers Coalition

Coalition of Appraisers in Nevada

Northern Colorado Association of Real Estate Appraisers

Appraiser's Coalition of Washington

Illinois Coalition of Appraisal Professionals

North Carolina Real Estate Appraiser Association

Michigan Coalition of Appraisal Professionals

FTC Wants Public Comments on CoreLogic alleged Federal Law Regulations

Posted on: 04/11/18

ATTENTION APPRAISERS!
The FTC wants public comments about CoreLogic's alleged violations of federal law prohibiting unfair or deceptive acts or practices or unfair methods of competition.

Follow the link below to read what has transpired. The meat of the issue is discussed on page 56.

Comments Due: Monday, April 16, 2018

Click HERE to read the FTC disclosure. 

Click HERE to submit your comments. 

Call to action to oppose Senate Bill 2155

Posted on: 03/19/18

Call to action to oppose Senate Bill 2155

Dear Ohio Appraisers,

We are placing an immediate nationwide call to action to oppose Senate Bill 2155 which was passed by the US Senate on March 14th.

Senate Bill 2155 has a provision, (sec 103) which allows a bank to waive an appraisal in rural communities. This will be detrimental for homeowners and communities in rural areas. A loss of income will also occur for appraisers who cover rural counties.

The Independent Community Bank Association has been hard at work promoting this bill. To see what they have been sending to the legislators, click here.

This bill has bipartisan support of 25 cosponsors and we need everyone to contact their representatives and express your concerns with sec 103. We need to take action quickly as this bill will be discussed and voted on within the week.

It does appear we have consumers on our side. The AFR (Americans for Financial Reform) conducted a poll and an overwhelming majority of Americans oppose Senate Bill 2155 and rolling back Dodd-Frank. See the poll results here.

This does not mean that Congress will listen, so we need to be vocal NOW!

A sample letter/email to use as a guide has been written by Lori Noble. See the sample letter here or below.

We also ask that you make a phone call daily and ask to speak with your Congressman/woman. If they are not available be sure to voice your demands to the staffer, making sure to tell them you are a constituent. Staffers count the number of calls that come in on a specific issues so the more calls, the bigger impact. Let’s ring their phones off the hook!

To find the contact info for your Congressman/woman in your district click here.

To see the entire Ohio Legislature directory, click here.

Sample letter/email written by Lori Noble from Virginia Coalition of Appraisal Professionals:

The Honorable (Name)
Office Address
Washington, DC 20510

RE: S.2155, Section 103, False Claims of Appraiser Shortage

Dear Congressman (Name),
I am writing today about the Economic Growth, Regulatory Relief, and Consumer Protection Act, referenced as S.2155. As a Certified Appraiser in (STATE), I am concerned about Section 103 and specifically the exemption of appraisals for real estate located in rural and underserved areas. There are a few points we would like to share as a professional valuation provider in our rural regions.

Mortgage lenders are trying to convince lawmakers there is a shortage of real estate appraisers in our country, specifically in designated rural markets and this simply is not true. There has always been a limited number of appraisers in remote regions but area appraisers respectively serve those sectors of the market place. Section 103 would allow banks to blanket more than (% coverage) percent of the state. To claim there are no appraisers in that much territory is simply false.

The problem is, the passage of the Dodd-Frank Act caused a proliferation of Appraisal Management Companies (AMC’s), although not required by law. It is noted publicly that AMCs control more than 80 percent of mortgage market appraisals in the United States. The perceived intent was for them to act as intermediary between lenders and appraisers to eliminate coercion, protect consumers, and provide fully independent appraisals to clients. The opposite effect has happened and it is harming consumers with excessive fees, causing inferior quality appraisals, and fake claims of an appraiser shortage. Lenders and third-party AMC affiliates caused the market push back because of poor business practices and not investing in the cost of doing business in rural regions. To offset the negative economic factors affecting appraisers who will not work for 50 percent the market rate (which lender/AMCs call reasonable), they have created a false appraiser shortage narrative that seriously harms the safety and soundness of housing markets and the public.

I appreciate that community banks and credit unions want to be involved in appraisals, but am concerned about the possible gaming of the system as proposed. Without clarification, one can imagine the scenario where a bank would contact three out of area appraisers, offer them a low fee to be declined, and move forward with no neutrality to their internal valuation processes.

Section 103 defies the logic, intent, and the spirit of FIRREA for which it was written. Further investigation is recommended for transparency, real facts about allegations of a fake appraiser shortage, and where fees paid by consumers to third party lender affiliates for appraisals is going. I assure you, not all is going to appraisers and there is not accountability for the difference.

Thank you for your consideration. Appraisers are more than willing to serve our community bank and credit union customers across the country. Please contact me at (phone number) to discuss further as I am available to answer any questions you may have regarding this very sensitive housing economy matter.

Sincerely,

Name

address

email

phone

We ask that you spread this information to every appraiser in your network, inside Ohio and out. The House will be voting on this bill sometime next week so we urgently need your help.

 

Sincerely,

The Board of Directors

Ohio Coalition of Appraisal Professionals

 

Posted on: 12/31/69