The Times West Virginian

October 13, 2013

Appraisal reform: ‘Fair estimate of value on each property’

By Jessica Borders
Times West Virginian

FAIRMONT — As the real estate appraisal process goes through different reforms, professionals remain dedicated to serving their customers.

One issue that the Dodd-Frank Wall Street Reform and Consumer Protection Act addresses is how an appraisal should be handled by the bank, said Doug Butcher, president of Appraisal Resource Center Inc. This law was enacted on July 21, 2010, to improve the financial regulatory system and promote stability in the country following the recession.

Butcher, who got started in the industry in 1978, has experience in residential and commercial appraisals and has been employed with national appraisal firms. He was working for some banks in West Virginia before he began his appraisal management company in 2006.

Appraisal Resource Center, headquartered in Beckley, is involved with a couple banks in Virginia and Ohio, but its main focus is West Virginia.

“We are a third-party vendor for financial institutions to help them comply with the government regulations that are out there right now,” said Butcher, who is a certified general real estate appraiser in West Virginia.

Appraisal Resource Center Inc. accepts orders for residential or commercial properties from financial institutions, and finds and hires an appraiser to assess the property as requested by the bank, he said.

The company receives the appraisal and reviews the work to make sure it’s in compliance with all the different requirements. When Appraisal Resource Center is satisfied with the appraisal, it forwards the document to the bank to continue the loan process.

Butcher said the Dodd-Frank Act is trying to protect the public by establishing that a division should exist within a bank if the appraisal is ordered and reviewed internally, or a third-party vendor should be used.

Large banks often have entire appraisal departments that are completely separate from the loans of the financial institution, he said. Sometimes smaller banks don’t have the personnel for this type of independence, which is why entities have the option to go to a third-party vendor to handle appraisals for them.

This policy prevents a loan officer from ordering an appraisal on a loan that he has qualified and is trying to do. Separation must exist between the loan officer, appraiser and borrower so there is no coercion, Butcher said.

“They’re trying to keep the independence as an important issue,” he said of the law. “They’re trying to get a fair estimate of value on each property.”

Butcher said the new regulations are helpful and make the process simpler and more consistent. He believes a loan officer should be making loans, and shouldn’t be worried about hiring an appraiser.

He commented that the transition to the new regulations has been pretty seamless. The majority of consumers aren’t aware of the changes, which mostly impact lenders. They just know that an appraiser is contacting them in conjunction with the bank’s appraisal, Butcher said.

MountainSeed Appraisal Management, based in Atlanta, Ga., works almost exclusively with community and regional banks across the country, including West Virginia, on the appraisal process. It serves as their outsource appraisal department, keeping track of the regulations, ordering and renewing appraisals, and doing other related tasks, said Nathan Brown, chief operating officer for MountainSeed.

He further explained that two sections of the Dodd–Frank Act amend the Truth in Lending Act in relation to appraisals.

Brown said the amendment to the Truth in Lending Act includes the addition of the appraisal independence requirements, which are already in effect. It also replaces the Home Valuation Code of Conduct, which was instituted in 2008 to stop the abusive appraisal process that Congress saw as some appraisers weren’t using their own professional judgement to assess real estate.

The Dodd-Frank Act builds certain divisions between employees inside the bank who deal with the appraisal process — including ordering, selecting and reviewing appraisals — and the loan production staff, which is anybody inside the bank who produces loans, he said.

Another appraisal-related section of the Dodd-Frank Act will take effect in January of next year, Brown said.

He said these new pieces of regulation govern higher-priced mortgage loans. The rules allow some higher-priced mortgage loans to be exempt from particular appraisal requirements, but will only impact a relatively small number of loans. The Equal Credit Opportunity Act, which has to do with providing copies of appraisals to borrowers, is the second piece to the section.

“I think that there’s no doubt that there were certain appraisal abuses among certain lending institutions,” Brown said.

But Brown believes that most of the banks that MountainSeed Appraisal Management works with and the financial institutions in the West Virginia Bankers Association are focusing on serving their customers and aren’t trying to abuse the system. In some cases, the good get punished with the bad, he said.

In general, the requirements of the Dodd–Frank Act will probably result in people coming up with new business practices, Brown said. There will be a period of time where banks will have to work through the regulations and do their best to comply, but before too long the rules will be rolled into routine business practices.

The requirements shouldn’t have impact on the ability of borrowers’ to get loans, he said.

Joe Ellison, president and CEO of the West Virginia Bankers Association, said the association and banks will live with whatever regulations are implemented, whether they like them or not, and always focus on taking care of the customers. The new rules will not prohibit banks from making loans.

Companies like MountainSeed will make sure that banks follow all the regulations. Financial institutions are in business to make loans, and they want to help people that need housing and loans, Ellison said.

Sandy Kerns, executive director of the West Virginia Real Estate Appraiser Licensing and Certification Board, pointed out that the Dodd–Frank Act also establishes that all appraisal management companies must be registered with the state licensing board.

Any professionals in West Virginia must go through a licensing board, from doctors, nurses and hair dressers to banks and real estate sales people, she said. Appraisal management companies will soon be regulated, too.

For more than 30 years, appraisal management companies have been operating in West Virginia. Kerns said the history of these companies can be split into three phases: before the Home Valuation Code of Conduct, or before May 2009; during the Home Valuation Code of Conduct, or from May 2009 to November 2010; and the current era of the Dodd-Frank Act.

The West Virginia Appraiser Board is audited and regulated at the federal level by the Appraisal Subcommittee because of its ties to the mortgage industry, she said. The board reports the activity of its appraisers to this federal entity.

At this time, the Appraisal Subcommittee is still determining the standards that appraisal management companies have to meet. But once that criteria is established by the government in its final form, the states will have 36 months to register those companies, Kerns said.

She said approximately 35 states already have registration statutes in place. West Virginia’s law was passed earlier this year, and registration of appraisal management companies should be able to start by July 1, 2014.

Email Jessica Borders at jborders@timeswv.com or follow her on Twitter @JBordersTWV.