Appraisers Rally Against BPOs in Foreclosure Relief Plan

The nation’s four largest organizations of professional real estate appraisers—the ""Appraisal Institute"":http://www.appraisalinstitute.org, ""American Society of Appraisers"":http://www.appraisers.org, ""American Society of Farm Managers and Rural Appraisers"":http://www.asfmra.org, and the ""National Association of Independent Fee Appraisers"":http://www.naifa.com—are urging the federal government to require that market values of homes ""rescued"" under President Obama’s ""Homeowner Affordability and Stability Program"":http://dsnews.comindex.php/home/news_story/2576 be determined by professional appraisers who are state certified and licensed.
According to these appraisal groups, reliable valuations of mortgage properties are key to the success of the administration's foreclosure relief plan, and is a requirement needed to protect both homeowners and taxpayers.
Current regulatory guidelines require new appraisals in restructuring loans when a material change in market conditions exists. In a ""letter"":http://www.appraisers.org/images/fastread/Feb_19_09/SecTreasLtr.pdf to Treasury Secretary Timothy Geithner, the four appraisal organizations note that reliable valuation and appraisal products are available from professional appraisers in every community in the country.
There are more than 100,000 certified or licensed real estate appraisers in the United States. And according to the appraisal organizations, because of new technologies and methodologies, these professionals are prepared to deliver a wide variety of necessary services quickly, including summary and streamlined appraisals.
To ensure that all parties have accurate and reliable information when restructuring or refinancing loans under the government's housing plan, the appraisers' letter cautions against the use of real estate sales people to provide broker price opinions (BPOs). According to the professional appraisal groups, these real estate brokers ""have no valuation training, do not observe uniform valuation standards, are accountable to no one for their estimates of home prices, and may sometimes have an economic interest in whether loans are modified or defaults occur requiring a resale of the property to another buyer.""
By contrast, the organizations said, all 50 states license, certify, and supervise the work of appraisers, noting that 23 states specifically prohibit realtors from valuing properties for any mortgage-related purpose, including loan modifications. According to appraisers, if the administration’s mortgage relief plan permits the use of BPOs to determine the current value of residential properties, it could lead to widespread violations of state laws.
The appraisal organizations also warned against the use of computer-generated automated valuation models (AVMs), which they say do not factor the condition of properties into their market values and are not reliable in declining markets and in areas with diverse housing stock. The groups also cautioned against reliance on national housing indices to determine the market value of individual properties, as these indices often contain data many months old and generally fail to consider foreclosure or short sales in their calculations.
Homeowners who might otherwise be eligible for loan modification, the appraisal groups said, could be denied a lower cost mortgage because a BPO, AVM, or housing index could improperly value their collateral property.
In the letter to Secretary Geithner, Bill Garber, the ""Appraisal Institute's"":http://www.appraisalinstitute.org director of government affairs and external relations, said, ""Individuals who become state licensed or certified appraisers must meet meaningful requirements involving valuation-specific training, education, and experience, and, their conduct is regulated by appraiser licensing agencies in the 50 states and territories. Real estate appraisers can provide a range of services in a loan modification or refinance situations, including streamlined appraisals, under existing standards. For a stable economy and secure mortgage finance system, valuations must be reliable and those performing the appraisals must be accountable and professional.""
The chairman of the ""American Society of Appraisers'"":http://www.appraisers.org Government Relations Committee, Jay Fishman, added, ""We believe a foreclosure relief program which relies on valuation professionals to establish the market values of properties collateralizing mortgages will benefit homeowners and protect America’s taxpayers who are ‘on the hook’ for losses resulting from the inevitable defaults on some modified mortgages. The safety and soundness of taxpayer guaranteed loans in today’s tumultuous mortgage markets require reliance on professional appraisers, not on part time salespeople and unreliable computer-generated values.""