Oregon ACLB- Appraiser Certification & Licensure Board Quarterly meeting- October 21, 2009

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1 Oregon ACLB- Appraiser Certification & Licensure Board Quarterly meeting- October 21, 2009 The Oregon ACLB protects the public by ensuring real estate-appraisal activities conducted in Oregon are in compliance with state and federal laws and standards. The ACLB is committed to ensuring the availability of state-certified and state licensed appraisers and ensuring appraisals are performed in accordance with the Uniform Standards of Professional Appraisal Practice. The Request: Certain groups and organizations engaged in appraisal related practices within the State of Oregon are negatively affecting 1) enforceability of the Uniform Standards of Professional Appraisal Practice (USPAP) 2) the independence of State licensed/certified residential appraisers and 3) protection of the public trust. Among state appraisers, these recent unacceptable practices have been the subject of heated controversy over the past year, with no strong leadership yet provided by either Federal or State agency; therefore, the Appraisers Union Coalition (a coalition of Oregon appraiser licensees), formally requests the Oregon Appraiser Certification & Licensure Board (ACLB) to act swiftly in approving temporary emergency rules affecting residential appraisal practice within the State of Oregon; and make them effective immediately. Statutory Authority: ORS , ORS (1)(a), ORS (7) and ORS (2) Other Authority: Title XI of the Federal Financial Reform, Recovery and Enforcement Act of 1989 (1 2 USC et seq.1) Need for the Rule(s): ORS (7) authorizes the Board to adopt rules necessary for the administration of ORS Chapter 674. ORS (1) requires the Board to do all things necessary and convenient to carry into effect the provisions of Chapter 674, Oregon Revised Statutes and of the Federal Financial Institutions Reform, Recovery and Enforcement Act (FFIRREA) of Documents Relied Upon: Chapters 674, 182 and 183, Oregon Revised Statutes; the Federal Financial Institutions Reform, Recovery and Enforcement Act (FFIRREA) of 1989 and Guidelines thereto published by the Appraisal Subcommittee of the Federal Financial Institutions Examination Council. Statement of Purpose: To promote high standards, consistency, and openness in real estate appraisal related practices; and to promote and maintain availability of local qualified appraisers within individual counties. Unacceptable Practices requiring emergency rules include, but not limited to: Groups, organizations and individuals making appraisal assignment placement conditional on 1) unacceptable assignment conditions*,**; 2) fees not at a rate customary and reasonable for appraisal services performed in the market area of the property being appraised; and 3) placement of assignments to appraisers who lack a similar or greater level of knowledge, experience and/or sources for obtaining local market data as appraisers geographically located within the same county as the subject property***. October 21, 2009 ~ Oregon ACLB-Appraiser Certification & Licensure Board Quarterly meeting Appraisers Union Coalition ~ request for EMERGENCY Appraisal Rules

2 Commentary: We are in the middle of a national housing crisis. At a time when the most experienced and qualified local appraisers should be performing the bulk of appraisals, instead, only appraisers who accept half the typical $450-$550 collected appraisal fee, and who agree to upload reports without adequate consistent time to confirm data, and who agree to work in geographical areas and/or on property types they are less familiar with than local appraisers, are mostly able to get appraisal assignments. Appraisal management has traditionally been a lender function and lender paid expense. More recently, appraisal management companies are now profiting from skimming half of a typical $450-$550 Oregon appraisal fee. They also make appraisal assignment placement, conditional on appraisers agreeing to unacceptable assignment conditions. The alternative to an appraiser submitting to this type of unacceptable pressure, is for an appraiser to go out of business. These issues are NOT about AMC s taking advantage of free trade opportunities AMC s are simply leveraging unacceptable fee & turn-time pressure that serves to break down an appraiser s independence and taint the appraisal process. Oregon licensed/certified appraisers are increasingly unable to resist industry wide pressures currently being applied and is reason why the Appraisers Union Coalition formally requests the Oregon ACLB immediately implement emergency rules to protect the public trust in the appraisal process, to protect Oregon citizens, and to protect Oregon appraiser licensees. Recent examples of unacceptable pressure affecting Oregon appraisers performing residential assignments: a) Appraisal assignments made conditional on Scope of work with 24-hour completion and delivery of report/analysis after inspection is performed. b) Appraisal assignments made conditional on Scope of work with completion and delivery of report/analysis on a non-business calendar day (due date on Saturday, Sunday or holiday). c) Appraisal assignments made conditional on acceptance of fees that do not adequately compensate in a manner anticipated to result in consistent acceptable specific property analysis results; consistent maintenance of non-specific property data analysis; consistent continuing education; consistent support and maintenance of an independent locally based community appraisal office; and to provide a level of income consistent with the knowledge, independence and regulatory demands of state licensed/certified residential appraisers. (Note: A fee that is customary and reasonable is not the lowest obtainable fee; it is more often the fee typically charged to community banks local to a subject property.) Regulatory References: *USPAP STANDARD 1: Real Property Appraisal, Development *USPAP Ethics Rule *USPAP AO-4 *USPAP AO-19 ~ Unacceptable Assignment Conditions in Real Property Appraisal Assignments **USPAP Scope of Work Rule **USPAP AO-22 ~ Scope of Work in Market Value Appraisal assignments **USPAP AO-29 ~ An Acceptable Scope of Work ***USPAP Competency Rule Appraiser Certifications and stated Scope of Work contained in Fannie Mae/Freddie Mac appraisal reporting forms, and adopted by FHA; Fannie Mae and HUD selling guides for mortgagees/appraisers. HUD Mortgagee Letter (09/18/2009) clarifies and reaffirms Federal Housing Administration (FHA) appraisal requirements related to appraiser independence. October 21, 2009 ~ Oregon ACLB-Appraiser Certification & Licensure Board Quarterly meeting Appraisers Union Coalition ~ request for EMERGENCY Appraisal Rules

3 HUD Mortgagee Letter (11/07/1994) issued to advise of the necessity for appraisal independence. Subsequent Mortgagee Letters enhanced the importance of appraiser independence, and clarified and supplemented Mortgagee Letter FHA prohibits mortgagees, and third parties working on behalf of mortgagees, from any act or practice that impairs or attempts to impair an appraiser s independence, objectivity or impartiality or violates law or regulation, including, but not limited to: the Truth in Lending Act (TILA) and Regulation Z and USPAP. The Cause: The HVCC-Home Valuation Code of Conduct was implemented nationally, effective May 1, On September 18, 2009 HUD Mortgagee Letter announced implementation of portions of the HVCC. The HVCC was implemented primarily to prevent coercion and pressure on residential appraisers performing work intended for the two primary government sponsored entities (GSE s) Fannie Mae and Freddie Mac. The HVCC primarily separates commission based mortgage origination staff and appraisers- permanently severing pre-existing appraiser client relationships that were in many cases, decades old. This caused an almost immediate shift in appraisal assignment procurement after May 1, 2009; shifting appraisal assignment procurement from mostly mortgage originators who directly engaged appraisers local to a subject property and for local fees-- to nationally based Appraisal Management Companies (AMC s) who act as an intermediary between lenders & appraisers, and who primarily base appraiser selection on lowest fee and quickest turn time. In any other profession, the impact of something similar to the HVCC would be considered anticompetitive and illegal under fair trade rules enforced by the Federal Trade Commission and Oregon Department of Consumer and Business Services. There should be little doubt that the HVCC has greatly diminished previous going concern business values for a majority of Oregon appraisal firms and in many cases, has reportedly prevented many Oregon appraisers known to be in the upper 50% percentile in perceived local experience/quality by their peers, from being able to receive any work at all from AMC s. The fact the HVCC has not been successfully challenged to-date, is a reflection State/Federal fair trade rules DO NOT apply to the appraisal industry; that rules and agreements can and should be put into place to protect independence of licensed/certified state appraisers and to protect the public trust in regard to the residential appraisal process. THEREFORE, the Appraisers Union Coalition requests the Oregon ACLB implement the following temporary emergency rules and minimum OREGON RESIDENTIAL APPRAISAL STANDARDS (ORAS), effective immediately: 1) All single family residential appraisal assignments requiring an on-site inspection are allowed no less than 5-business days for completion & report delivery, beginning on the first business day AFTER acceptance of the appraisal order; OR in the event of a borrower or client extended inspection date, no less than 3-business days AFTER the date of inspection. a) All single family residential appraisal assignments based on an exterior only drive-by inspection are allowed no less than 3-business days for completion & report delivery, beginning on the first business day AFTER acceptance of a residential appraisal order. b) Discussion of rush orders with an Oregon appraiser for residential assignments is prohibited. c) The only questions of time-frame or status of order that can be asked of, or answered by, an Oregon appraiser for residential assignments is if the ORAS minimum turn-time can or cannot be met; and ONLY if it cannot be met by the appraiser, can the appraiser have further discussion for an anticipated completion date. October 21, 2009 ~ Oregon ACLB-Appraiser Certification & Licensure Board Quarterly meeting Appraisers Union Coalition ~ request for EMERGENCY Appraisal Rules

4 ) All single family residential valuation assignments requiring an on-site property inspection will be completed for a minimum fee of $450 for Fannie Mae/Freddie Mac and FHA, USDA and other HUD intended assignments. a) All single family residential valuation assignments requiring an exterior-only property inspection from the street will be completed for a minimum fee of $350 for Fannie Mae/Freddie Mac and FHA, USDA and other HUD intended assignments. b) Only persons who hold valid Oregon real estate appraiser licenses may benefit from fees collected for performing an appraisal. Oregon appraiser licensees are prohibited from the sharing of appraisal fees with anyone other than another person who holds a valid Oregon real estate appraiser licensee, and only if the second licensee provides direct support to the sharing licensee. The intent is to prevent any perception that appraisal fees are being shared for the procurement of appraisal assignments. (ref: USPAP Ethics Rule) c) Groups and organizations engaged in appraisal related practices is addressed in USPAP and the Oregon ACLB is encouraged to monitor their activities in Oregon. i) The fee charged a borrower for completion of an appraisal of an Oregon property may not include a fee for management of the appraisal process or any related activity. ii) Any management or delivery fees charged by an AMC, online provider, or other third party engaged in providing appraisal related services in Oregon must be for actual services related to ordering, delivery, processing appraisal assignments, or for additional services provided to a mortgagee/lender; AND must not exceed what is customary and reasonable for similar services provided in the market area of the property being appraised; AND must be paid for by the originating mortgagee/lender. iii) Appraisal management services performed directly by internal departments of a mortgagee/lender are not required to register with the Oregon ACLB; however, prior to engaging in appraisal related practices in Oregon, all independent AMC s, mortgagee/lender owned AMC s and other third party providers of appraisal related services are required to register with the Oregon ACLB and pay registration fees no less than is currently required of ACLB appraiser licensees. 3) The Oregon ACLB on-line database will be adjusted so the county name listed for a licensee is either their home address OR business address; OR upon request of a licensee, a county which reflects the licensee s highest geographical experience. All single family residential appraisal assignments placed in Oregon will FIRST be placed with an appraiser whose ACLB listed county location is identical to the subject property. In the event a local appraiser on a lender s approved appraiser list cannot be located within the subject county (that is also able to meet minimum ORAS turn-time), only then can a residential appraisal assignment be placed with another appraiser that is situated in a county adjacent to the county a subject property is located. a) The intent of this rule is to prevent residential appraisers from working in distant counties, when more qualified and geographically competent appraisers are situated locally to a subject property. (Example: at very best, it is an arguable point whether a Portland area appraiser can perform infrequent appraisals in Bend or Eugene as competently as local appraisers in those communities.) b) The Portland metropolitan area crosses several county boundaries; therefore, any appraiser with an ACLB database county address that includes Portland addresses, can also appraise any other county that includes Portland addresses. c) Certain coastal counties and central/eastern/southern counties are known to have extremely limited population densities that can greatly limit the number and availability of local appraisers. October 21, 2009 ~ Oregon ACLB-Appraiser Certification & Licensure Board Quarterly meeting Appraisers Union Coalition ~ request for EMERGENCY Appraisal Rules

5 i) When a county of a subject property has less than 25 ACLB database listed appraisers, a residential appraisal assignment can be placed with an appraiser situated in any adjacent county, conditional on that appraiser otherwise meeting the USPAP Competency Rule, having direct access to property data local to a subject property, AND being perceived as both competent and geographically experienced by residential appraiser peers located in the general area of the subject property. ii) In the case of coastal counties, appraisers physically located in any Oregon coastal county and/or from any adjacent county to the subject property can be used, conditional on that appraiser otherwise meeting the USPAP Competency Rule, having direct access to property data local to a subject property, AND being perceived as both competent and geographically experienced by residential appraiser peers located in the general area of the subject property. iii) In the case of certain central/eastern/southern counties with known limited population densities, appraisers physically located in the general area of a subject property can be used, conditional on that appraiser otherwise meeting the USPAP Competency Rule, having direct access to property data local to a subject property, AND be perceived as both competent and geographically experienced by residential appraiser peers located in the general area of the subject property. d) Working in an appraisal office local to a subject area, has always been one of the most important and integral parts of the appraiser apprenticeship program. Geographical familiarity can often be obtained with only 1-2 years consistent appraisal work in a subject neighborhood; however, a minimum 3-years experience performing consistent appraisal work in a specific neighborhood is a more generally accepted timeframe for an appraiser to become independently geographically competent in that area. If an appraiser is not yet independently geographically competent in a neighborhood; and familiar with the property type being appraised, the appraiser is required to either decline the assignment or to work closely with an appraiser who has no less than 10 years experience consistently appraising the subject neighborhood and property type. i) By no later than January 31, 2010 and subsequently by the end of the first month of each year, all state licensed/certified appraisers are required to submit an ACLB provided property appraisal log sheet for all residential appraisal work performed by each appraiser licensee, for the calendar year that just ended. a) The ACLB residential appraisal log sheet will include no less than the assignment order date, the subject property address, the entity that ordered the appraisal, the intended user of the report (lender name), the assignment form type, the appraisal fee charged, the completion/delivery date, date the appraisal fee was paid, and the appraised value. b) The ACLB is not required to audit these residential yearly reports, but is required to maintain the reports on file in the event regulatory enforcement and/or audit concerns arise. c) Certified General Appraiser licensees face identical competency issues while appraising residential property and Certified General Appraisers are required to turn in the same ACLB provided residential log sheet required of residential licensees; and either report only commercial appraisals were completed for the calendar year, or report each residential property appraised, as required of residential appraiser licensees. 4) Groups, organizations and other entities engaging valuation services within the State of Oregon, whose current appraiser engagement rules are less than emergency minimum OREGON RESIDENTIAL APPRAISAL STANDARDS (ORAS) in this request, are October 21, 2009 ~ Oregon ACLB-Appraiser Certification & Licensure Board Quarterly meeting Appraisers Union Coalition ~ request for EMERGENCY Appraisal Rules

6 required to re-open their approved appraiser lists accordingly and base engagement of Oregon appraisers on emergency ORAS, effective immediately. 5) Groups, organizations and other entities engaging valuation services within the State of Oregon are prohibited from making appraiser engagement conditional on agreement and/or following of any additional private firm appraisal reporting conditions, and/or requirements, and/or certifications, and/or on any other manner of reporting that is not based on written USPAP, Fannie Mae, Freddie Mac and/or HUD rules. These four primary national organizations are relied on to set appraisal reporting standards nationally- not individual private firms. (Note: The appraisal process is legally considered as much of an art as it is a science and the manner in which an appraiser reports their analysis cannot reasonably be dictated by more than 100 different private firm s own individual requirements. No appraiser should ethically be expected to be aware of, track, and follow so many different requirements.) 6) Groups, organizations and other entities engaging valuation services within the State of Oregon, who violate emergency minimum OREGON RESIDENTIAL APPRAISAL STANDARDS (ORAS) approved by the Oregon ACLB, may be fined $500 for each occurrence and/or prohibited from engaging valuation services within Oregon; as determined by the Oregon ACLB Administrator. 7) The importance of the Oregon ACLB continuing to operate independent of other state agencies is paramount in protecting the public trust. Independence of state appraisal boards is encouraged by the Appraisal Subcommittee (ASC) and the Oregon ACLB will initiate whatever action required to maintain its status as an independent State agency. 8) As required to initiate and/or defend approved emergency rules contained in this formal request, the Oregon ACLB will apply a yearly license fee surcharge, equally to all appraiser licensees and AMC/third party management registrants. Discussion: HUD Mortgagee Letter (09/18/09) clarifies and reaffirms Federal Housing Administration (FHA) appraisal requirements related to appraiser independence and is attached as support for Oregon ACLB to implement emergency residential appraisal rules. Pertinent quotes from the letter include: FHA has long advised lenders and appraisers of the importance of appraiser independence in the context of generally accepted prudent lending practices. FHA Roster appraisers are compensated at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised. The fee for the actual completion of an FHA appraisal may not include a fee for management of the appraisal process or any activity other than the performance of the appraisal. Any management fees charged by an AMC or other third party must be for actual services related to ordering, processing or reviewing of appraisals performed for FHA financing. October 21, 2009 ~ Oregon ACLB-Appraiser Certification & Licensure Board Quarterly meeting Appraisers Union Coalition ~ request for EMERGENCY Appraisal Rules

7 Affirming Existing Requirements Prevention of Improper Influences on Appraisers Mortgagee Letter requires that FHA Roster appraisers avoid conflicts of interest and the appearance of conflicts of interest. Appraiser Independence Safeguards When FHA transitioned from rotational assignment of appraisers to Lender Select, Mortgagee Letter was issued to advise of the necessity for appraisal independence. Subsequent Mortgagee Letters enhanced the importance of appraiser independence, and clarified and supplemented Mortgagee Letter FHA is reaffirming these requirements. Mortgagees and third parties working on behalf of mortgagees are prohibited from: Withholding or threatening to withhold future business for an appraiser, or demoting or terminating or threatening to demote or terminate an appraiser. Expressly or impliedly promising future business, promotions or increased compensation for an appraiser. Conditioning the ordering of an appraisal report or the payment of an appraisal fee or salary or bonus on the opinion, conclusion or valuation to be reached, or on a preliminary value estimate requested from an appraiser. Providing to the appraiser, appraisal company, appraisal management company or any entity or person related to the appraiser, appraisal company or management company, stock or other financial or non-financial benefits. Any other act or practice that impairs or attempts to impair an appraiser s independence, objectivity or impartiality or violates law or regulation, including, but not limited to: the Truth in Lending Act (TILA) and Regulation Z and USPAP. Appraiser Engagement Knowledge of Market Area Geographic Competency Mortgagees are reminded that they are responsible along with the appraiser for the quality and accuracy of the appraisal if the lender knew or should have known that there were problems with the integrity, accuracy and thoroughness of an appraisal submitted to FHA for mortgage insurance purposes and must select an appropriate appraiser for every assignment. An appraiser who is primarily experienced in appraising detached, single family dwellings in one market may lack the knowledge, experience and/or sources for obtaining market data that will enable the appraiser to perform quality appraisals on condominiums or manufactured homes in the same market or detached, single family homes in another market a short distance away. The valuation principles for appraising all residential properties are essentially the same no matter the market in which a property is located, however not all appraisers are knowledgeable and experienced or have access to sources of data for all markets. A lender must not assume, simply because an appraiser is state-certified, that the appraiser is qualified and knowledgeable in a specific market area. It is incumbent upon the lender to determine whether an appraiser s qualifications, as evidenced by educational training and actual field experience, are sufficient to enable the appraiser to competently perform appraisals before assigning an appraisal to them. October 21, 2009 ~ Oregon ACLB-Appraiser Certification & Licensure Board Quarterly meeting Appraisers Union Coalition ~ request for EMERGENCY Appraisal Rules

8 Appraisers are reminded that the Uniform Standards of Professional Appraisal Practice (USPAP) apply to all appraisals performed for properties that are security for FHA insured financing including the Competency Rule. Per the Appraiser s Certifications contained in the property specific Fannie Mae/Freddie Mac appraisal reporting forms*** adopted by FHA, appraisers must certify that: I have knowledge and experience in appraising this type of property in this market area (Appraiser s Certification # 11) and I am aware of, and have access to, the necessary and appropriate public and private data sources, such as multiple listing services, tax assessment records, public land records and other such data sources for the area in which the property is located. ( Appraiser s Certification #12) ***Nearly every residential appraisal is completed on Fannie Mae (FNMA)/Freddie Mac (FHLMC) residential forms that include stated certifications & limiting conditions that the form prohibits changes to, including minimum stated Scope of Work, appraiser independence and competency certifications. Attachments: HUD Mortgagee Letter (09/18/09) Hagens Berman Sobol Shapiro class action suit press release October 21, 2009 ~ Oregon ACLB-Appraiser Certification & Licensure Board Quarterly meeting Appraisers Union Coalition ~ request for EMERGENCY Appraisal Rules

9 Attachment: HUD Mortgagee Letter (09/18/09)

10 U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, DC ASSISTANT SECRETARY FOR HOUSING- FEDERAL HOUSING COMMISSIONER September 18, 2009 MORTGAGEE LETTER TO: SUBJECT: ALL APPROVED MORTGAGEES ALL FHA ROSTER APPRAISERS Appraiser Independence This Mortgagee Letter provides clarification and reaffirms Federal Housing Administration (FHA) appraisal requirements related to appraiser independence and announces new requirements pertaining to entities that are eligible to order appraisals for FHA insured mortgages. FHA has long advised lenders and appraisers of the importance of appraiser independence in the context of generally accepted prudent lending practices. In this mortgagee letter, FHA reiterates the importance of appraiser independence, and advises of new requirements regarding who is eligible to request an appraisal from an FHA Roster appraiser. The new requirements set forth in this mortgagee letter will be effective for all case numbers assigned on or after January 1, The existing requirements will remain in effect. New Requirements Prohibition of mortgage brokers and commission based lender staff from the appraisal process Historically FHA prohibited mortgagees from accepting appraisal reports completed by an appraiser selected, retained or compensated, in any manner by real estate agents. To ensure appraiser independence, FHA-approved lenders are now prohibited from accepting appraisals prepared by FHA Roster appraisers who are selected, retained or compensated in any manner by a mortgage broker or any member of a lender s staff who is compensated on a commission basis tied to the successful completion of a loan. Appraiser Selection in FHA Connection Lenders are responsible for assuring that the appraiser who actually conducted the appraisal used for the FHA-insured mortgage is correctly identified in FHA Connection. FHA has found that, on numerous occasions, the name of an appraiser in the appraiser log-in screen is not the appraiser who actually completed the appraisal. Lenders who fail to assure that the FHA Connection reflects the correct name of the appraiser will be subject to administrative sanctions. espanol.hud.gov

11 2 Appraisal and Appraisal Management Company (AMC)/Third Party Organization Fees FHA does not require the use of AMCs or other third party organizations for appraisal ordering, but recognizes that some lenders use AMCs and/or other third party organizations to help ensure appraiser independence. To address several questions that have already been raised regarding compensation, this mortgagee letter corrects and expands existing fee requirements set forth in Mortgagee Letter FHA-approved lenders must ensure that: FHA Appraisers are not prohibited by the lender, AMC or other third party, from recording the fee the appraiser was paid for the performance of the appraisal in the appraisal report. FHA Roster appraisers are compensated at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised. The fee for the actual completion of an FHA appraisal may not include a fee for management of the appraisal process or any activity other than the performance of the appraisal. Any management fees charged by an AMC or other third party must be for actual services related to ordering, processing or reviewing of appraisals performed for FHA financing. AMC and other third party fees must not exceed what is customary and reasonable for such services provided in the market area of the property being appraised. Affirming Existing Requirements Prevention of Improper Influences on Appraisers Mortgagee Letter requires that FHA Roster appraisers avoid conflicts of interest and the appearance of conflicts of interest. In order to help appraisers avoid conflicts or the appearance of conflicts, no members of a lender s loan production staff or any person (i) who is compensated on a commission basis upon the successful completion of a loan or (ii) who reports, ultimately, to any officer of the lender not independent of the loan production staff and process, shall have substantive communications with an appraiser relating to or having an impact on valuation, including ordering or managing an appraisal assignment. The DE Underwriter who has responsibility for the quality of the appraisal report is allowed to request clarifications and discuss with the appraiser components of the appraisal that influence its quality. If absolute lines of independence cannot be achieved as a result of the lender s small size and limited staff, the lender must be able to clearly demonstrate that it has prudent

12 3 safeguards to isolate its collateral evaluation process from influence or interference from its loan production process. Appraiser Independence Safeguards When FHA transitioned from rotational assignment of appraisers to Lender Select, Mortgagee Letter was issued to advise of the necessity for appraisal independence. Mortgagee Letter prohibited loan officers and loan production staff from supervising or directing appraisers and prescribed penalties for mortgagees that unduly influenced or pressured appraisers. Subsequent Mortgagee Letters enhanced the importance of appraiser independence, and clarified and supplemented Mortgagee Letter In Mortgagee Letter , FHA directed that the mortgagee and the appraiser avoid even the appearance of a conflict of interest, which would include providing the appraiser with anything of value in consideration of returning the appraisal at a given value. With the release of Mortgagee Letter , FHA instructed mortgagees that they may not condition continued selection of an appraiser on inflating values or disregarding repair requirements. FHA is reaffirming these requirements. Mortgagees and third parties working on behalf of mortgagees are prohibited from: Withholding or threatening to withhold timely payment or partial payment for an appraisal report. Withholding or threatening to withhold future business for an appraiser, or demoting or terminating or threatening to demote or terminate an appraiser. Expressly or impliedly promising future business, promotions or increased compensation for an appraiser. Conditioning the ordering of an appraisal report or the payment of an appraisal fee or salary or bonus on the opinion, conclusion or valuation to be reached, or on a preliminary value estimate requested from an appraiser. Requesting that an appraiser provide an estimated, predetermined or desired valuation in an appraisal report prior to the completion of the appraisal report, or requesting that an appraiser provide estimated values or comparable sales at any time prior to the appraiser s completion of an appraisal report. Providing to the appraiser an anticipated, estimated, encouraged or desired value for a subject property or a proposed or target amount to be loaned to the borrower, except that a copy of the sales contract for purchase must be provided. Providing to the appraiser, appraisal company, appraisal management company or any entity or person related to the appraiser, appraisal company or management company, stock or other financial or nonfinancial benefits. Allowing the removal of an appraiser from a list of qualified appraisers

13 4 or the addition of an appraiser to an exclusionary list of qualified appraisers, used by any entity, without prompt written notice to such appraiser, which notice shall include written evidence of the appraiser s illegal conduct, a violation of the Uniform Standards of Professional Appraisal Practice (USPAP) or state licensing standards, improper or unprofessional behavior or other substantive reason for removal. Ordering, obtaining, using, or paying for a second or subsequent appraisal or automated valuation model(avm) in connection with a mortgage financing transaction unless: (i) there is a reasonable basis to believe that the initial appraisal was flawed or tainted and such appraisal is clearly and appropriately noted in the loan file, or (ii) unless such appraisal or automated valuation model is done pursuant to written, preestablished bona fide pre- or post-funding appraisal review or quality control process or underwriting guidelines, and so long as the lender adheres to a policy of selecting the most reliable appraisal, rather than the appraisal that states the highest value; or Any other act or practice that impairs or attempts to impair an appraiser s independence, objectivity or impartiality or violates law or regulation, including, but not limited to: the Truth in Lending Act (TILA) and Regulation Z and USPAP. Appraiser Engagement Knowledge of Market Area Geographic Competency Mortgagees are reminded that they are responsible along with the appraiser for the quality and accuracy of the appraisal if the lender knew or should have known that there were problems with the integrity, accuracy and thoroughness of an appraisal submitted to FHA for mortgage insurance purposes and must select an appropriate appraiser for every assignment. An appraiser who is primarily experienced in appraising detached, single family dwellings in one market may lack the knowledge, experience and/or sources for obtaining market data that will enable the appraiser to perform quality appraisals on condominiums or manufactured homes in the same market or detached, single family homes in another market a short distance away. The valuation principles for appraising all residential properties are essentially the same no matter the market in which a property is located, however not all appraisers are knowledgeable and experienced or have access to sources of data for all markets. A lender must not assume, simply because an appraiser is state-certified, that the appraiser is qualified and knowledgeable in a specific market area. It is incumbent upon the lender to determine whether an appraiser s qualifications, as evidenced by educational training and actual field experience, are sufficient to enable the appraiser to competently perform appraisals before assigning an appraisal to them. Appraisers are reminded that the Uniform Standards of Professional Appraisal Practice (USPAP) apply to all appraisals performed for properties that are security for FHA insured financing including the Competency Rule. Per the Appraiser s Certifications contained in the property specific Fannie Mae/Freddie Mac appraisal reporting forms

14 5 adopted by FHA, appraisers must certify that: I have knowledge and experience in appraising this type of property in this market area (Appraiser s Certification # 11) and I am aware of, and have access to, the necessary and appropriate public and private data sources, such as multiple listing services, tax assessment records, public land records and other such data sources for the area in which the property is located. ( Appraiser s Certification #12) If you should have any questions concerning this Mortgagee Letter, call CALLFHA. Persons with hearing or speech impairments may access this number via TDD/TTY by calling TDD-2HUD ( ) Sincerely, David H. Stevens Assistant Secretary for Housing- Federal Housing Commissioner Paperwork Reduction Act Paperwork reduction information collection requirements contained in this document have been approved by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C ) and assigned OMB control number In accordance with the Paperwork Reduction Act, HUD may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection displays a currently valid OMB Control Number.

15 Attachment: Hagens Berman Sobol Shapiro class action suit press release

16 Search this site: Search Our Firm Cases Investigations Practice Areas Press Room Class Action FAQ Press Releases Press Release : Countrywide Homeowners Hagens Berman Files Class Action Against Lending Giant Countrywide January 13, 2009 SEATTLE - A group of Washington homeowners this week filed a lawsuit against Countrywide, a wholly owned subsidiary of Bank of America (NYSE: BAC) and the nation's largest mortgage company, claiming the mortgage giant illegally rigged the appraisal process in a scheme to boost profits at the expense of homeowners and independent appraisers. Filed under the Racketeering Influenced and Corrupt Practices Act (RICO), the suit claims that Countrywide forces homeowners to use its wholly owned subsidiary LandSafe, for appraisals. The company then turns around and subcontracts the work to independent appraisers while charging homeowners as much as 200 percent of the actual cost of the appraisal. The suit also contends that if independent appraisers do not accept Countrywide's fee structure or appraisal guidelines, they stand the risk of being blacklisted for further work by the industry giant. The lawsuit, filed in U.S. District Court in Seattle, seeks to represent all homeowners who purchased or refinanced their home through Countrywide and LandSafe, and asks the court to award plaintiffs damages. "As we investigated Countrywide for our clients, it was immediately obvious that Countrywide is a well-oiled operation," said Steve Berman, managing partner and lead attorney at Hagens Berman Sobol Shapiro. "Unfortunately, the company's efficiencies are focused on soaking every penny from consumers and independent appraisers in ways we believe violate the law." The lawsuit claims LandSafe subcontracts much if its appraisal work to a network of independent appraisers, but offers them rates as low as $140 per appraisal. The company then marks the costs of the appraisal back as high as $410 when invoicing homeowners.

17 The suit also claims that Countrywide, through its arrangement with LandSafe, has excessive influence on the appraisal process, designed to be an independent verification of a property's value. "When you control the entire appraisal process, including your hands around the necks of appraisers financially speaking, you have a lot of influence," Berman added. Berman noted that hundreds of thousands of homeowners have fallen prey to the alleged scheme. The suit states that if appraisers fail to agree to the fee schedule set by LandSafe, their names appear on the Field Review List, a database of appraisers Countrywide refuses to use unless the mortgage broker also submits a report from a second appraiser. Plaintiffs claim that Countrywide created LandSafe to guarantee a continual source of significant profit and control over the appraisal process. The real estate market boomed from 2000 through 2006, allowing Countrywide to exert its will on appraisers, forcing them to lower fees for loans. Countrywide maintained market rates to its borrowers and kept the excess, all for no additional services rendered. The plaintiffs, Carol and Gregory Clark of Washington state, refinanced their home in February Countrywide required them to use LandSafe for their home appraisal. Under the Real Estate Settlement Procedures Act (RESPA), Countrywide is required to provide an 'Affiliated Business Arrangement' disclosure to its customers. This alerts customers that LandSafe is a subsidiary of Countrywide. However, according to the lawsuit, the Clarks never received an 'ABA Disclosure' document. While Sound Value performed the appraisal, LandSafe charged the Clarks $410 and paid a fraction of the fee to the third party, the suit claims. The lawsuit cites violations of federal law under RICO and RESPA. Other counts include unjust enrichment, breach of fiduciary duty and violation of California unfair competition law. You can learn more about this case by visiting About Hagens Berman Sobol Shapiro Hagens Berman Sobol Shapiro is based in Seattle with offices in Chicago, Boston, Los Angeles, Phoenix, San Francisco and New York. Since the firm's founding in 1993, it has developed a nationally recognized practice in class action and complex litigation. Among recent successes, HBSS has negotiated a pending $300 million settlement as lead counsel in the DRAM memory antitrust litigation; a $340 million recovery on behalf of Enron employees which is awaiting distribution; a $150 million settlement involving charges of illegally inflated charges for the drug Lupron, and served as co-counsel on the Visa/Mastercard litigation which resulted in a $3 billion settlement, the largest anti-trust settlement to date. HBSS also served as counsel in a $850 million settlement in the Washington Public Power Supply litigation and represented Washington and 12 other states in lawsuits against the tobacco industry that resulted in the largest settlement in the history of litigation. For a complete listing of HBSS cases, visit ### Media Contact: Mark Firmani nd Avenue Suite 700 Seattle, WA Phone: Mark Firmani