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April 2009
SOUTHERN CALIFORNIA
CHAPTER
President’s Message
Steven R. Fontes, MAI
Spring is here and like Spring the Chapter is full of new life. As of the end of March the Chapter welcomed 37 new members this year; bringing our membership level to 1,421 members, the largest in the Na-tion. Six of our members have achieved their designations as well. These include Eric Garfield, MAI; Kent Serviss, SRA; Philip Moore, Jr., MAI; Kevin Fritch, MAI; Charles Baker, SRA and Kevin Burke, SRA. Our new website is also up and running. Let me encourage you to take advantage of this tool for your busi-ness by visiting www.SCCAI.org. I trust you will find it more efficient than its predecessor with relevant, updated con-tent.
Three of our Chapter members (Tupper Lienke, MAI, Eric Garfield, MAI and Mi-chael Eggleson, MAI) will be attending the Leadership Development & Advisory Council meetings in Washington, DC later this month April 29th through May 1st. The Leadership Development & Advisory Council (LDAC) has served as a source of leadership and as an inspiration for new programming ideas for the Appraisal Insti-
tute for over 30 years. Through a series of roundtable discussions, the LDAC provides a forum where ideas and opinions of tar-geted topics of concern in the appraisal pro-fession are exchanged. A key component of the LDAC is that it establishes an "appraiser presence" in Congress. Organ-ized into Congressional Teams, LDAC par-ticipants lobby Capitol Hill and demon-strate that the Appraisal Institute is made up of professionals who recognize the impor-tance of being actively involved in the po-litical process. One of the byproducts of LDAC activity on Capitol Hill is that the Appraisal Institute is almost always THE appraisal organization that lawmakers seek input from. Participation in the LDAC has served as a springboard into future leader-ship positions for many attendees.
We held a Regional Training Session for all of our Regional Representatives and Alter-nates on April 14th at the Rio Hondo Coun-try Club in Downey. We are very fortunate as a Chapter this year to have the Chair (Vickie Gill, SRA) and Vice Chair (Robert Dietrich, MAI) of Region VII as members of our Chapter. Vickie and Bob provided training to our Regional Representatives and Alternates in preparation for the up-coming Regional Meetings in Tucson, Ari-zona on May 1st and 2nd. The intent of this training was to 1) provide an overview of the Regional structure 2) explain why the Region is important 3) explain how we as a Chapter relate to the Region and how the Region relates to the National organization 4) discuss the 45-day notice material 5) provide a job description to our Regional Representatives and Alternates & 6) answer
Southern California
Chapter of the
Appraisal Institute
2609 Honolulu Ave.
Suite 202
Montrose, CA 91020
Phone (818) 957-5111
FAX (818)957-0702
www.sccai.org
President’s Message 1-2
Appraisal Institute
Webinars 2
Bert Thornton Scholarship 3
Meet Our Newly
Designated Members 3
Southern Branch Chapter 4
Northwestern Branch Chapter 5
Eastern Branch Chapter 6
Conversation With The OREA 7-8
New Members 8
Collateral Valuation Fraud 9-11
Valuation Issues in a De-pressed Market 12
SCCAI 2009 Education Calendar 13
Inside this issue:
Newsletter Editor Linda Zimmer
Executive Director Newsletter Coordinator
Arianna Vargas [email protected]
Newsletter Publisher Lianna Chaparyan
Chapter Staff
questions. The benefit of this training helped to ele-vate the knowledge level of our Regional Representa-tives and Alternates; provide them with the tools they need to function well in their roles and serve the Chap-ter and the Region better by being more informed.
Our three Branch Chapters have been very busy this year by offering quality speakers and a terrific net-working structure. I have very much enjoyed visiting the branches this year and I applaud the dedicated Branch Chapter leaders who are all serving at a very high and dedicated level.
Our next dinner meeting will be held jointly with the ASA's and will take place at the Brookside Golf Course in Pasadena on May 14th. Philip Moore, MAI will be receiving his designation certificate at this event. I encourage you all to attend to congratulate Philip on his achievement as well as to take advantage of the networking opportunities with ASA members. If you missed the joint meeting we held in March with the IRWA, here is your opportunity to come out and network with your peers.
Let me remind you that your membership in the Ap-praisal Institute is largely what you make of it. The more time and attention you give it, the more you will get out of it. The Chapter is operating very synergisti-cally as a result of our very dedicated Executive Direc-tor Linda Zimmer, excellent Chapter staff, attentive Board of Directors, terrific Education Committee, vi-sionary Branch Chapter leaders, committed Regional Representatives and Alternates, tireless Seminar Chairs, seasoned Government Relation Chair, engaged Associate Guidance Chairs, active Scholarship Com-mittee, prudent Finance Committee, well-rounded Nominating Committee, detail-oriented Bylaws Com-mittee, responsible Newsletter Coordinator and Editor and multi-faceted membership. If you are not pres-ently active, let me encourage you to take advantage of all that the Chapter has to offer while at the same time allowing the Chapter to benefit from all you have to offer.
If you have not yet taken advantage of your education rebate coupon(s), let me encourage you to look at the Chapter website (www.SCCAI.org) and schedule time
Page 2
to take one of the many excellent seminars and/or courses scheduled for 2009. The Education Commit-tee did most of their planning last year for this year's slate of seminars and courses. What I have been par-ticularly impressed by is the fact that they continue to work very hard to bring quality educational offerings to the membership. In fact, they have been working very hard to put together a high-level Finance/Excel seminar that will likely involve Ms. Terri Dickerhoff, a financial modeling professor from USC and Ted Whitmer, MAI to teach the financial side of the semi-nar. This home-grown seminar will be one of a kind, very high level and a definite must attend event. Keep your ear to the ground for this one. You will not want to miss it!
Thank you for your time and for the opportunity to serve you this year. If you would like to contact me for any reason, I may be reached at (951) 656-6036.
President’s Message cont.
Appraisal Institute Webinars
The Appraisal Institute conducts webinars on a regu-lar basis to provide convenient, valuable training on today's "hot" appraisal issues as well as appraisal business practice topics. Recent Appraisal Institute webinars have covered pressing industry issues that are top-of-mind for real estate appraisers, including the revised Home Valuation Code of Conduct (HVCC), guidelines for appraising distressed real es-tate, and lead generation tactics during an economic downturn.
Upcoming Webinar:
Introducing Valuation for Financial Reporting
Date: April 16, 2009
Time: 10:00 a.m. PT, 11:00 a.m. MT, 12:00 noon CT, 1:00 p.m. ET
Duration: 60 minutes
Registration Fee: FREE for members;
$75 for non-members
Learn more and register now
Bert Thornton Scholarship - - Kerry Leiman, SRA
Scholarships are available for courses leading to a designation.
The Bert Thornton Scholarship Fund is awarding scholarships for SCCAI courses required for a designation. As long as funds are available the Scholarship Committee will be granting scholarships.
Fill out the application form and include a letter stating the reasons that entitle you to a scholarship. Important facts include service to the Appraisal Institute (committee member, board of director, Regional Committee member, etc.), courses taken and passed, and financial need.
To be eligible you must be an Associate Member of the Southern California Chapter of the Appraisal Institute in good standing. Scholarship applications must be received at least two months prior to the start of the course. Please mail, fax or email required documents to:
Linda Zimmer SCCAI 2609 Honolulu Ave Suite 202 Montrose, CA 91020-1738 [email protected] 818-957-0702 Fax 818-957-5111 Ext 22 Scholarship application forms can be found on the chapter website: www.sccai.org under “Scholarships:
Page 3
Meet Our Newly Designated Members
Mr. Charles B. Baker, SRA
Mr. Kent C. Serviss, SRA
Ms. Sharron A. McBroom, SRA
Mr. Eric B. Garfield, MAI
Mr. Kevin Burke, SRA
Mr. Kevin L. Fritch, MAI
Mr. Philip E. Moore, Jr., MAI
Southern Branch Chapter
Gilbert A. Valdez MAI—Southern Branch Chair
This has been a very popular and interest-
ing presentation in years past, and it has
been about three years since we have pre-
sented it. With all of the ongoing changes
in the real estate market and the world in
general there should be plenty of fresh
subject matter being offered. We will
keep you posted…..
We have a dinner meetings scheduled for
September 8th and October 13th. We are
still researching topics and speakers for
the September meeting. However for the
October dinner meeting we have sched-
uled Danny E. Mendez from FHA. He is
the Director of Processing and Under-
writing in the Santa Ana Homeownership
Division. This will be a must attend
meeting for appraisers who are doing, or
thinking about doing future FHA work.
We appreciate Mr. Mendez taking the
time and interest in helping the appraisers
with a better understanding of the specific
FHA/203K issues. I would also like to
thank Don Phillips for his efforts in coor-
dinating this event.
Gilbert A. Valdez MAI
Southern Branch Chair
Hello and happy spring to you all from
the OC! I was ill and was not able attend
the March 24th board meeting. However I
want to thank Shawn Noblin vice Chair
and Don Phillips Director for attending
and bringing me up to speed. Our last
Southern Branch dinner meeting was on
March 10, 2008, and it was a huge suc-
cess and very well attended. Our speak-
ers were George Dell SRA, MAI, and
Steve Smith SRA, MAI. The subject was
Analyzing Sales Contracts and New Fan-
nie/Freddie Requirements. It was a rele-
vant and insightful session. We appreci-
ate all of you for coming out! It ran a
little longer than normal but there was a
lot of information that was being put out.
We want to especially thank George and
Steve both for their time, knowledge, and
commitment! They both did an out-
standing job! Cheers…..
We are our planning on having a dinner
meeting at the same location the Newport
Beach Golf Course and Country Club, on
May 10, 2008. This is a nice location
especially this time of the year. It makes
for a very nice setting overlooking the
golf course during sunset. At this point
we are still waiting for confirmation from
our proposed speaker(s) Randy Bell MAI
and/or Orell Anderson MAI. The tenta-
tive subject is Real Estate Dam-
ages/Condemnation, and related topics.
Page 4
Gilbert A. Valdez, MAI
Chair
Shawn C. Noblin, SRA
Vice Chair
Don T. Phillips
Director #3
Tyler N. Baird
Director #4
Northwestern Branch Chapter Your Future?
Rick A. Orwig, Northwestern Branch Chair
We had a great turnout for our first meeting of the year with 32 people in attendance to learn about The Ap-praiser’s Role in Public Acquisitions. Brian Everett and Craig Justesen of Overland Pacific & Cutler described some of the acquisitions they have facilitated and dis-cussed the qualities they seek when selecting appraisers for these projects. Our April meeting will feature Michael Johnson of MICA & Associates. Mike is an Executive Recruiter who specializes in the placement of appraisers and other Real Estate and Finance industry professionals. Consid-ering these challenging economic times and current real estate market conditions, we are excited to hear what Mike has to say about employment prospects for the appraisal profession. Want some insight into your fu-ture? Then the Spitfire Grill in Santa Monica is the place to be Thursday morning, April 16. Be sure to reg-ister online at the SCCAI website.
Page 5
We were honored to have our Chapter President, Steven R. Fontes, MAI, join us for our meeting. Steve took a few moments to discuss some recent chapter accomplishments as well as some exciting changes to come including a newly designed chapter website and enhancements to our chapter newsletter. Steve also shared some thoughts regarding a special event planned for our branch later this year – Associate’s Day. This event will be an adaptation of a prior chapter event called Candidate’s Night, in which Steve and other non-designated members gave market data presentations to the chapter membership. Steve found this opportunity to be personally rewarding and enhancing to his career. Our version of this event will feature at least one residential associate and one commercial associate from our very own branch. Any Associate members who have interest in being one of the Associate’s Day presenters should con-tact any of our Branch leaders right away.
Left to Right: Rick Orwig; Craig Justesen of Over-land, Pacific & Cutler; Brian Vick, MAI; Mo Hammad, MAI; Sally Haft, MAI; Steven R. Fontes, MAI; Brian Everett of Overland, Pacific & Cutler
Eastern Branch Chapter Robert King
Eastern Branch Chair
The co-speaker, Mr. Steve Smith, MSREA, MAI, SRA, gave us some case study examples and ideas of implemen-tation. Together, they conducted an ex-cellent presentation with good audience participation. In fact, the discussions became …, well, let’s just say it’s terri-fic to see the passion the Eastern Branch appraisers have for our industry!
Since George and Steve just gave this presentation at the SW Branch meeting, we didn’t expect a huge turnout, and were pleasantly surprised with 28 atten-dees. There were five appraisers from the Low Desert area, one from the High Desert, and four new AI members. We all enjoyed a lunch of pizza, pasta and salad bar buffet at a terrific new venue, John’s Incredible Pizza, centrally lo-cated at the 215/60 interchange.
We are looking for additional topics and speakers for future meetings in the Inland Empire, so if you have any ideas please call the Eastern Branch Chair, Bob King at (951) 850-4115.
The Eastern Branch Chapter conducted its second meeting of the year on March 31st in Riverside. After positive feed-back from the attendees of the Southwest Branch meeting held on March 10, we decided there would still be enough de-mand to conduct the same program in the Inland Empire. The topic, “Analyzing Sales Contracts”, is a current hot issue due to Fannie Mae’s new guidelines in its Announcement 08-30.
We were fortunate to begin the meet with an AI update provided by our Chapter President, Steven R. Fontes, MAI. Ste-ven discussed the recent Board of Direc-tors meeting and this year’s SCCAI goals, scholarships, regional topics, as well as what’s going on at the State and National levels.
The first presenter was Mr. George Dell, MAI, SRA, who provided various per-spectives on Fannie Mae & Freddie Mac requirements regarding the new guide-lines, as well as some of the old guide-lines.
Page 6
Robert R. King
Chair
Bryan R. Cooper
Vice Chair
SCCAI President Steven R. Fontes, MAI Attendees listen to Seminar George Dell, MAI, Guest Speaker
A Conversation with the OREA
Gregg S. Whittlesey, Region VII Government Relations Representative
Recently, I had the opportunity to sit down with our new director of the Office of Real Estate Appraisers, Mr. Bob Clark. We had a wide ranging conversation, touching on such topics as where the OREA is today, where he hopes to take it in the future, and some gen-eral industry trends.
Mr. Clark reported he’s been director for 11 months now. His goals are vigorous, strict enforcement and to provide service to licensees. He wants to work with the profession for strong education and ethical practice. He wants to be more than just the “appraisal cop” and play an active role in helping the state's ap-praisers to do the best job they can do.
He provided me with some statistics regarding licens-ing levels:
Total Active Licenses as of:
01/ 01/07 20,164
01/01/08 19,573
03/13/09 17, 223
This represents a 12% decline since January 1, 2008, and a 14% decline since January 1, 2007. The trend in license levels can be plotted as shown:
Page 7
License Level Breakdowns
January 1, 2007 March 13, 2009
Trainees 32.5% 18%
Licensed Residential 27.9% 25%
Certified Residential 23% 36.4%
Certified General 16.5% 20.5%
As we can see from these figures, there has been a dramatic reduction in the level of trainees in the state of California. In addition, there has been a general upgrading of all appraisers to the certified level. Mr. Clark reminds us of HR3221 that will require FHA appraisals to be completed by certified appraisers effective 10-1-2009.
We also discussed the new AQB exam results. This new more comprehensive exam started January 1, 2008 the following exam results are through Novem-ber 5, 2008
Government Relations Report Winter 2009 ...continued
Pass Rates
Trainee Appraiser 19.5%
Licensed Residential 26.9%
Certified Residential 33.5%
Certified General 54.4%
Overall Combined Rates 30.2%.
Mr. Clark believes the office is understaffed and he has requested 3 more investigators and an in-house legal counsel. He is also looking for an information systems analyst.
Mr. Clark reported a new on-line newsletter is ex-pected to be available soon. The old newsletter, in a printed form was last mailed to all licensed appraisers in 2005. The online version is planned to be released two times per year. All appraisers should subscribe to the OREA e-mail list and they will receive the news-letter when it’s published. We can find a link to the OREA e-mail list on their home page. Or, he informed me that Appraisal Institute members can simply send a blank e-mail to: [email protected] and we will be placed on their list.
I thanked Mr. Clark for our meeting and emphasized how much our members appreciate our continuing good relationship with the OREA.
Page 8
Jacqueline Brian Redondo Beach
Anthony S. Cangelosi Santa Maria
Geoffrey W. Capell Redondo Beach
Jeffrey Y. Carrillo Pasadena
Alex Cheng Long Beach
Susan D. Gurrola Moreno Valley
Cory Hall Los Angeles
Frank B. Hennessey Tucson
Maria Olson Irvine
Marcus A. Romero II San Diego
George A. Rue Chino Hills
Please join in WELCOMING the
following NEW MEMBERS
to the Appraisal Institute’s
Southern California Chapter
Upcoming Inland Empire Market Trends Seminar Jennifer Hafner
Join us for the 12th Annual Inland Empire Market Trends Seminar on Thursday, June 4th at the Doubletree Hotel in Ontario. This educational and informative seminar will feature brokers and investment analysts discussing the cur-rent situation in the Inland Empire's economy and real estate market. Both commercial and residential real estate will be presented with the Keynote and lunch speaker, Bruce Norris from The Norris Group, diving into the current Real Estate Financing Trends. This exciting program is a great value for 8 Appraisal Institute and California OREA con-
tinuing education credit hours. Register on the SCCAI web site today! REGISTER TODAY
Page 9
GAO – Report to Congressional Requesters. Regulatory Programs. Opportunities to Enhance Oversight of the Real Estate Ap-praisal Industry. May 2003
Letter dated May 14, 2003 to The Honorable Paul S. Sarbanes Ranking Minority Member Senate Committee on Banking, Housing, and Urban Affairs United States Senate Letter dated May 14, 2003 to The Honorable Paul S. Sarbanes Ranking Minority Member Senate Committee on Banking, Housing, and Urban Affairs United States Senate
Impact of Appraisal Problems on Real Estate Lending, Mortgage Insurance, and
Region VII Central California Southern California Guam Arizona San Diego Hawaii Southern Nevada
There are a total of ten regions within the Appraisal Institute
Vickie L. Gill, SRA
Region VII Director
2004 SCCAI President
Collateral Valuation Fraud
The Silent Killer of our Banking System
Today we find our country mired in a global financial meltdown that was born and raised primarily in greed; and igno-rance of the fundamental concepts of effective risk management. One of the primary drivers of mortgage related fraud and the accompanying losses and bailouts by the tax payers is a lack of respect for the importance of collateral in the mortgage lending process. In 2003 the Government Accountability Office issued a report titled “Opportunities to Enhance Oversight of the Real Estate Appraisal Industry. The study was the result of concerns raised by industry par-ticipants including members of congress. Senator Zell Miller from Georgia wrote:
“Recent predatory mortgage lending cases, involving fraudulent and inflated appraisals, have highlighted the need for accurate real estate appraisals in pre-venting losses to the federal government and significant financial harm to indi-vidual consumers. When making mort-gage loans, lenders need an objective and accurate assessment of the value of properties used as collateral to help avoid losses in the event that borrowers do not repay the loans”.
Background
Over 20 years ago the US mortgage banking system underwent a financial crisis that spawned new regulations and
laws that were designed to install pre-ventative measures that would forestall another mortgage banking crisis.
From1980 to1994 over 1,300 thrifts failed with assets totaling over $600 bil-lion. In 1986, the House Committee on Government Operations issued a report concluding that faulty and fraudulent appraisals were an important contributor to the losses that the federal government suffered during the savings and loan cri-sis. New legislation was created includ-ing the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 or FIRREA. From the valuation perspec-tive, Title XI of FIRREA was written to create a federal and state regulatory structure that would improve appraiser competency, and prevent or at least stem the tide of appraisal fraud in federally related transactions.
Title XI put in place a regulatory struc-ture that is unique both within and out-side the United States.
It established a three legged regulatory system consisting of The Appraisal Foundation, the Appraisal Subcommit-tee, and the individual states and territo-ries. Congress had the right idea in many ways however, as is usual, the devil is in the details. In this case the devil takes on two major forms: an unfunded federal mandate to the states and territories
Investment in the Secondary Market, H.Rep. 99–891 at 4–6 (Sept. 25, 1986), House
Page 10
and a federal oversight agency (the Appraisal Sub-committee) with very limited powers to force the states to properly administer and enforce Title XI. Unfortunately Title XI was watered down before it ever became law. Various lobbies were able to coerce Congress into believing that setting the appraiser qualifications bar too high would lead to a shortage of appraisers becoming a threat to the politically ex-pedient dream of homeownership in America. The result was an initial set of appraiser qualification cri-teria that allowed far too many incompetent and un-ethical appraisers into the marketplace. But any addi-tional law or regulation is better than none…right? Maybe – maybe not. That debate issue will be saved for another time. What FIRREA did create was an unfunded federal mandate to the states with a rela-tively weak (due to law not effort) federal governing the agency, the Appraisal Subcommittee.
Weak Enforcement Breeds Fraud
The Appraisal Subcommittee is a federal agency made up of the Federal Financial Institutions Exami-nations Council (FFIEC) consisting of the 5 federal banking agencies: Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corpora-tion, Office of the Comptroller of the Currency, Of-fice of Thrift Supervision, and National Credit Union Administration. The Department of Housing and Ur-ban Development was also added. The Appraisal Foundation is a private not-for profit organization. The Appraisal Foundation’s mission through it’s con-gressional mandate is, in part, to:
foster professionalism in appraising by:
• establishing, improving, and promoting the Uniform Standards of Professional Appraisal
Practice (USPAP);
• establishing educational experience and examina-tion qualification criteria for the licensing, certifica-tion and recertification of real property appraisers;
• establishing educational and experience qualifica-tion criteria for other valuation disciplines;
• disseminating information on USPAP and the Ap-praiser Qualification Criteria to the appraisal pro-fession, state and federal government agencies, users of appraisal services, related industries and industry groups, and the general public and;
• sponsoring appropriate activities relating to stan-dards, qualifications and issues of importance to ap-praisers and users of appraisal services.
The third piece of the appraisal regulatory structure is the individual states and territories.
FIRREA resulted in allowing states and territories to establish state programs for certifying appraisers. However it also left a loophole that allowed states to establish a licensing level for appraisers who did no meet the minimum criteria established by the Ap-praiser Qualifications Board for certification. The result has been varying state laws for licensed ap-praisers thereby creating confusion among users of appraisal services, appraisers, regulators, and the public. Recently several states have dropped their licensed category due to the confusion and rampant fraud.
The idea behind this three pronged approach sounds good on the surface. Representation by the federal government, the private sector, and the states – eve-ryone has a seat at the table. However, the system is clearly dysfunctional. Many states’ appraisal licens-ing fees are deposited into the individual state’s gen-eral fund thereby requiring the state appraisal pro-grams to beg for money from their legislature and compete with more politically expedient fiscal needs such as roads, schools, and anti terrorism. Some state appraisal programs barely have enough cash flow to keep the lights on. Quite often state investigators have very little, if any, knowledge of appraisal stan-dards or the lending industry. The same investigator could be investigating morticians, beauticians, and appraisers concurrently. The lack of funding and in-adequate training within several state appraisal li-censing programs has created a vacuum that incom-petent and unethical appraisers and others are more than willing to step into and take advantage. Without proper enforcement laws and regulations are ineffec-tual.
Collateral Valuation Fraud - The Silent Killer of our Banking System…..Cont
Page 11
Collateral Valuation Fraud - The Silent Killer of our Banking System…..Cont
The Appraisal Subcommittee is responsible for the over-sight of states’ and territories’ appraisal programs. How-ever their ability to enforce FIRREA is limited since it only has one arrow in its quiver to use against states that refuse to maintain an adequate program…decertification. Decertification means that all certified appraisers in the decertified state would effectively loose their license and the ability to perform appraisals for federally related transactions. In other words, mortgage lending would effectively come to a halt in that state. It’s the nuclear bomb approach. Several states have been threatened with such action over the years and it has resulted in compli-ance. Obviously serious threats such as this are rare and only in the most dire of circumstances. The result is that in many states appraisers feel little fear of reprisal for fraudulent or unethical behavior.
Other factors have also led to a dysfunctional regulatory system. For example:
Fannie Mae and Freddie Mac are exempt from FIR-REA.
As of December 30, 2002 all five regulatory agencies had exercised their right under FIRREA to establish a mini-mum threshold at which appraisals were not required. As a result, transactions below $250,000 do not require an appraisal. Instead, lenders could simply obtain an “evaluation”.
Evaluations
Evaluations are valuation methods other than appraisals. Examples include:
Automated Valuation Models (AVM)
Broker Price Opinions (BPO), and
Tax value estimates
The $250,000 de-minimus not only effectively excludes a huge portion of homeowners from the protection pro-vided by the requirement to have their largest investment appraised by a certified appraiser, it also gave credibility to evaluations (AVMs and BPO’s) that have no industry accepted standards or qualifications. Fannie Mae and Freddie Mac bought millions of loans using tools such as AVMs. While we are not aware of any published statis-tics showing the level and severity of defaults occurring in loans
using AVMs versus non fraudulent appraisals. It would be a very interesting analysis to undertake.
BPO’s have become rampant in the mortgage servicing business. Not because they are more accurate or credible, but because they are cheaper and faster than appraisals. Unregulated products without standards or qualifications for those individuals or companies providing them gener-ally are cheaper and faster. However rarely are they more reliable. Additionally, several states have laws making it illegal to perform BPO’s for valuing real estate outside of pricing for a listing and or preclude real estate agents from accepting a fee for these assignments. Unbelieva-bly, the federal government recently published guidelines as part of their Home Affordable Refinance program that allow homeowners to refinance their mortgages using tools that have no standards, no qualification criteria for the providers, and no regulation of their results. Thus we wonder is this a help or just digging the hole deeper in the next 5 years?
When Will We Learn?
A basic tenant of sound risk management is understand-ing the nature and value of the collateral underlying the loan, Another basic formulary is that wherever and when-ever criminals and unethical individuals can take advan-tage of a system lacking in regulation and enforcement, they will. A weak appraisal regulatory structure under the guise of federal law and regulation and state enforcement has allowed regulators, lenders, lawmakers, and the pub-lic to be lulled to sleep thinking that inaccurate of fraudu-lent collateral valuations are not a threat. Today, as we watch trillions of dollars in asset values and Americans’ net worth evaporate, do we still believe that collateral is unimportant or ancillary to the lending transaction?
Solutions
There are several possible solutions to the problem of fraudulent and incompetently prepared appraisals. Some are legislative. Write, enact, and enforce laws and regula-tions that address incompetent and unscrupulously pre-pared appraisals. The other and likely more effective so-lution, is for lenders and servicers to employ tools and methods that protect themselves and the consumer by employing third parties to perform adequate quality con-trol around appraisals, BPO’s, and AVMs. Quit relying on minimum standards and qualification established at the national level and employ meaningful standards and qualification criteria that applies to their individual busi-ness and product lines. Laws and regulations can take long periods of time to enac and enforce. Hiring a good quality control team (internal and external) that under-stands valuation methodologies and standards is a much quicker proposition and more effectual in the long run.
Page 12
On March 24th, 2009, the SCCAI joined IRWA Chapter 1 for the 10th Annual Joint Luncheon where Nossaman LLP Partners Rick Rayl, of the Orange County office, and David Graeler, of the Los Angeles office, offered words of wisdom and raised issues specific to Eminent Domain practice in the current declining market. This luncheon presentation was aimed not only at the apprais-ers in attendance, but at the Right of Way and Agency professionals present as well.
After an overview of the definition of “Fair Market Value” (including part B), the components that make up such compensation were discussed. Emphasis was on what type of comparable sales are appropriate and what methodologies might apply due to declining market con-ditions.
Delving further into Right of Way issues, Mr. Graeler and Mr. Rayl addressed how this market affects private ownerships in areas of replacement housing. Payments of purchase differentials and possible uses of Last Resort Housing Plans to solve credit/equity problems were set forth for exploration in solving project problems. The two Eminent Domain attorneys also looked at the “other hand” offering their views on clearing the hurdle of “Gift of Public Funds”.
Practical issues given as food for thought included a dis-cussion of Deposit Dates/Dates of Value and ethical obli-gations for agencies to consider. The recent case of City of Stockton v. Marina Towers, LLC was cited as a warn-ing example of what the law now says about condemning “for condemning sake” in these declining market times.
A copy of the entire luncheon topic’s Power Point pres-entation is available on the SCCAI web site.
Want to learn more? Nossaman Associate Brad Kuhn is Chairing an expanded panel of speakers for the IRWA Orange County Chapter 67 Spring Seminar titled “Property Acquisition, Appraisal, and Relocation in an Upside Down Market” on May 12. See the Nossaman LLP Website for more information.
SCCAI President Steven R. Fontes, MAI and IRWA Presi-dent Vivian How-ell, SR/WA, MBA
Program Moderator Sydney Hawran, MAI
Program Attendees
SCCAI President Steven R. Fontes, MAI and IRWA President Elect William Larsen, MBA
VALUATION ISSUES IN A DEPRESSED MARKET How Market Conditions Impact Eminent Domain Practitioners
Sydney Hawran, MAI
DATE(S) COURSE / SEMINAR LOCATION INSTRUCTOR
April 17th and 18th
Real Estate Finance Statistics and Valuation Model-ing (1)
Hilton Garden Inn
Arcadia
James Vernon, PhD, MAI
April 24th and 25th
Residential Site Valuation and Cost Approach (1) Hilton Garden Inn
Arcadia
Vickie L. Gill, SRA
April 29-30 General Appraiser Report Writing and Case Stud-ies (2)
Hilton Garden Inn Richard DuBay, SRPA, SRA
May 5th Business Practices and Ethics Orange County Carol Chirpich, SRA
May 8 -9 Residential Sales Comparison and Income Ap-proaches (1)
Hilton Garden Inn Vickie L. Gill, SRA
May 13th REO Appraisal: Appraisal of Residential Property Foreclosure
Hilton Garden Inn
Rancho Cucamonga
Carol Chirpich, SRA
May 14th Capital Markets and Commercial Real Estate-DINNER SEMINAR JOINTLY SPONSERED BY The ASA-Los Angeles Chapter and The Appraisal
Brookside Golf Club
Pasadena
May 20-23 General Appraiser Income Approach (Part I) (2) Sheraton
Cerritos
Leslie P. Sellers, MAI, SRA
May 29-30 Residential Report Writing and Case Studies (1) Hilton Garden Inn
Arcadia
Carol Chirpich, SRA
June 4th 12th Annual Inland Empire Market Trends DoubleTree Hotel
June 5-6 15-Hour National USPAP Course Hilton Garden Inn
Arcadia
D. Michael Mason, MAI, SRA
June 8th General Demonstration Appraisal Report Writing Seminar
Hilton Garden Inn
Oxnard/Camarillo
Bonnie D. Roerig, MAI
June 17-20 General Appraiser Income Approach (Part II) (2) National University
Orange
Vincent M. Dowling, MAI, SRA
June 23rd 7-Hour National USPAP Update Course Hyatt Regency
Irvine
Carol L. Chirpich, SRA
June 30th Condominiums, Co-Ops, and PUDs National University
Ontario
Carol L.. Chirpich, SRA
SCCAI 2009 EDUCATION CALENDAR
(1) REQUIRED FOR SRA DESIGNATION
(2) REQUIRED FOR MAI DESIGNATION
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