July 13: Title company jobs; a couple lawsuits of interest; lots of chatter for appraisers

Rob Chrisman

Rob Chrisman began his career in mortgage banking – primarily capital markets – 31 years ago in 1985 with First California Mortgage, assisting in Secondary Marketing until 1988, when he joined Tuttle & Co., a leading mortgage pipeline risk management firm. He was an account manager and partner at Tuttle & Co. until 1996, when he moved to Scotland with his family for 9 months. Read more...

Underwriters weren’t the only ones to fare well in 2012. According to the STRATMOR compensation survey, 90% of processors were paid incentives that made up 13% of their total compensation. That always seems to be a question: can LOs spiff their processors under the table? Ah, those were the old days… Anyway, given that these incentives were primarily based on closed loan volume, STRATMOR expects to see this number fall for 2013. (For more information about the comp survey, contact Nicole Shown Yung at Nicole.shown@stratmorgroup.com.)

 

There are lots of changes to the business. I have lost track of how far we’re “through” with Dodd Frank, but there is plenty ahead of us. For example, as CFPB vendor management becomes a greater topic of discussion, one often overlooked aspect of our business is the “right” title provider. And companies have sprung up to deal with it. Pantheon National ensures CFPB vendor management compliance by offering competitive advantages over local title companies. Why is this important? Consumers can be at a “real disadvantage because they do not get to choose the service providers they deal with…” states CFPB Director Richard Cordray: http://www.consumerfinance.gov/pressreleases/consumer-financial-protection-bureau-to-hold-financial-institutions-and-their-service-providers-accountable/. Pantheon is a nationally recognized title provider and can assist companies with allowing consumers to make informed decisions on who their title provider is. Pantheon is also hiring reps nationwide in major markets, so if you are interested, please contact Jay Patel at j.patel@pantheonnational.com.

 

I received this note. “It is being reported that the city of North Las Vegas, NV (NLV) has been sued to stop it from using eminent domain to seize underwater mortgages.  The suit alleges improper use of eminent domain under the Nevada Constitution and violations of due process and equal protection guarantees under the U.S. Constitution.  While NLV is not “ready to go” with this, many NLV residents see this as a major drain on the city’s already strapped resources. Everyone should understand that NLV and Mortgage Resolution Partners (MRP) have only agreed to do a study to determine how many NLV homeowners would benefit from this and what the cost would be and nothing else.  I think those will be interesting numbers, especially what they determine the city’s cost will be.  This goes back in front of NLV city council next month. Those of us who live out here in the Las Vegas metropolitan area know how very close the State came to having to take over NLV because of its fiscal mess (and that may still be a possibility).  The city laid off employees, froze remaining employees pay and hasn’t been the beneficiary of increased home prices and an improved economy compared to the rest of southern Nevada which has kept tax revenue down.  Where NLV thinks they will get the money to pay for all of this is beyond most of us.  It’s certainly not like the State of Nevada is in great fiscal shape either and can help out. One potential positive thing has happened since NLV made its decision to study the eminent domain issue.  About a week ago NLV installed a new Mayor and a new city Councilman.  Maybe they will show some good fiscal sense and kill this once and for all.”

 

It is almost fashionable to be involved in a lawsuit, or trying to settle one. Fannie and Freddie are on the mend, and they are being sued by everyone and their brother since they’re now making some moolah. Tuesday’s lawsuit concerns two funds that Congress established in July 2008 to finance low-income housing with a fraction of the annual revenue of Fannie and Freddie. The FHFA suspended those payments in November 2008, two months after the companies were rescued from collapse by the U.S. government. The nonprofit housing groups argued in Tuesday’s lawsuit that the companies should resume making those payments now that they are profitable. The groups also said the FHFA, which is acting as the companies’ conservator, shouldn’t be allowed to indefinitely suspend the payments. But hey, don’t take my word for it. Nick T. does another good job on the write up: http://online.wsj.com/article/SB10001424127887323368704578595582454397520.html.

 

Appraisers… some people say they’re the glue that holds the real estate business together. Of course, those people are usually appraisers. Regardless, and I’m not sure what this means, but certainly it may be good news to lenders using AMCs that they have no liability if the AMC doesn’t pay the appraisers/brokers for their work. Here you go: http://www.workingre.com/workingre/Bankruptcy-Court-Absolves-Chase-of-All-Liability-page.html?goback=%2Egmr_1236557%2Egde_1236557_member_255234609 and http://www.workingre.com/workingre/Stiffed-Appraisers-Go-After-Chase-page.html.

 

Many appraisers will admit that they receive their marching orders from the bank or lender, and may or may not be aware of the technicalities of appraisals. But supposedly the CFPB has updated its HPML appraisal rules under Reg. Z. Here is a taste: http://www.consumerfinance.gov/regulations/disclosure-and-delivery-requirements-for-copies-of-appraisals-and-other-written-valuations-under-the-equal-credit-opportunity-act-regulation-b/.

 

Mortgage loans are considered higher-priced mortgage loans when interest rates above a certain threshold and they are secured by a consumer’s principal dwelling with a first or second mortgages. At this point the property must have specific type of appraisals. Appraisers – licensed or certified and compliant with USPAP and FIRREA. They must visit and inspect the interior of the premises and submit written report. Obtain an additional appraisal at your own expense if the property’s seller acquired the dwelling within the past 180 days and is reselling it for a price that exceeds certain thresholds. Provide a disclosure within three business days of application explaining the consumer’s rights with regard to appraisals. Give consumers free copies of the appraisal reports performed in connection with the loan at least three days before consummation of the transaction.

 

Even if it is a business transaction using a single family property as security, the borrower must be given notice of right to appraisal pursuant to ECOA. The rule however does not cover junior liens. This rule under ECOA is effective Jan. 18, 2014.  See 12  CFR Part 1002. Require creditors to notify applicants within three business days of receiving an application of their right to receive a copy of appraisals developed. Require creditors to provide applicants a copy of each appraisal and other written valuation promptly upon its completion or three business days before consummation (for closed-end credit) or account opening (for open-end credit), whichever is earlier. Permit applicants to waive the timing requirement for providing these copies. However, applicants who waive the timing requirement must be given a copy of all appraisals and other written valuations at or prior to consummation or account opening, or, if the transaction is not consummated or the account is not opened, no later than 30 days after the creditor determines the transaction will not be consummated or the account will not be opened. Prohibit creditors from charging for the copy of appraisals and other written valuations, but permit creditors to charge applicants reasonable fees for the cost of the appraisals or other written valuations unless applicable law provides otherwise. Show the citation box.

 

Moving on, a recent bankruptcy court case absolved Chase of all liability in an appraisal case. That is not particularly welcome news for appraisers. The bankruptcy case involved Evaluation Solutions/ES Appraisal Services (ESA), and despite numerous objections from appraisers and agent/brokers, a Florida bankruptcy judge has ruled in favor of JPMorgan Chase in granting a Bar Order which absolves Chase of any liability on future claims from appraisers, agents, and brokers for unpaid fees for valuation services that were delivered to Chase through ESA. Specifically, the Order “shall be deemed to have released Summit and JPMorgan Chase and each of their current and former…agents…from any and all known or unknown claims, causes of action, suits, debts, obligations, liabilities, demands, losses, costs and expenses (including attorney’s fees).” About six months ago ESA declared bankruptcy with over 11 million dollars in unpaid debt, with an estimated 5 million in unpaid fees to appraisers, agents, and brokers. JPMorgan Chase was the client for 98% of ESA’s valuation business and was listed as the client on all of the appraisal reports that appraisers submitted to Chase through ESA.  Read Stiffed Appraisers Go After Chase and Chase Denies Responsibility for Bankrupt AMC Debt.

 

Within the appraisal community, the widely held understanding of the relationship between a lender and its appraisal management company (AMC) has been that of an agency relationship, wherein the AMC serves as the lender’s agent, with the lender being responsible for the actions and obligations of its agent.  This is due to the fact that federal regulations, including FIRREA and the Interagency Appraisal Guidelines, require a lender to engage appraisers either directly or through “its agent.” An agency is, “The relationship of a person (called the agent) who acts on behalf of another person, company, or government, known as the principal. The principal is responsible for the acts of the agent, and the agent’s acts bind the principal.”

 

In this particular case, someone forgot to tell federal regulations what the term “agency” means, since the Court notes that it is nowhere defined in the federal regulations and, consequently, the Court must revert to a common law definition of agency. Using a common law definition of agency, wherein “the essential element of agency is control,” the Court has ruled that no agency relationship existed between Chase and ESA. The Court cites Section 14.8 of the Master Service Agreement between Chase and ESA where it states that at all times ESA was to remain “an independent contractor.”  In short, the Bar Order has been approved, in part, because ESA was not Chase’s agent.

 

It is not a done deal, however, as there is plenty of legal wrangling about whether or not Chase has knowingly violated numerous Federal Regulations and statements by the banking agencies and ordered appraisals through prohibited parties. And one person noted that appraisers are consistently and repeatedly told, by AMCs, that the AMC is acting as the agent on behalf of the lender; and consequently, appraisers are required to place the lender’s name on the appraisal as the client – and isn’t a lender like Chase the client?

 

An argument that was used by Chase and the bankruptcy judge in denying appraisers’ and agents’ claims against Chase is that because Chase and ESA entered into a Master Service Agreement (MSA) that specifically defined ESA as an “independent contractor,” ESA was consequently not Chase’s agent and that Chase is not responsible or liable for ESA’s actions. However, as author Isaac Peck points out, if this is true, it begs the question about Chase’s other MSAs, and the agreements and arrangements that exist between lenders and AMCs across the country. “Are AMCS, in fact, the agents of lenders? Who is the client?”

 

Although the news is full of stories about increased home sales and huge demand (despite the volatility of rates recently), with all this activity appraisals remain a problem for buyers, sellers, lenders and everyone involved. Let’s say a buyer makes a competitive bid – one of 20 offers on the property, and it is accepted by the seller at 100K over the original asking price. Now we have to sell that same property all over again, but this time we have to sell the property to the lender. A mortgage application is made and an appraisal is ordered. As required, the appraiser is given a copy of the purchase agreement as part of the appraisal order so that they know the agreed upon purchase price. The appraisers’ job is to go out to inspect the property and then compare the subject property to other similar properties (same age, condition and style) that have sold in the same price range, same general neighborhood (within 3 miles) and same time frame (within the past 3 months). The appraiser then reviews the comparable properties and puts them side by side on a grid for comparison and through some formulas derives a market value as supported by the comparable sales. Lastly, the appraisal is sent with the full loan package into underwriting.

 

Underwriters are trained to review and document and review again; they utilize some valuation tools, computer models that will show sales in the timeframe and price range and offer an automated valuation. If the computer model disagrees with the actual appraisal report the underwriter could request a review appraisal. Those involved in this process on a daily basis say here’s where the fun begins. The review process often means that another appraiser goes to the subject property and provides a second appraisal.

 

One broker from Maine wrote, “Unlike most of the country where there can be mile after mile of similar homes in terms of age, style and room count (in fact there can be hundreds of almost identical homes in one sub-division), in the North East we have a huge variety of home styles on every block. It is a challenge with today’s appraisal rules to find enough similar property sales to support the appraisal.”

 

She went on: “Another frustration is that there is no standardization in the appraisal process. One appraiser can value a fireplace at $8K and another at $15K or a parking space at $35K and another at $100K. Recently, a tandem parking space sold in Back Bay for $560K! There is no effective way to determine if one appraiser is right and the other is wrong; the industry simply says that they are using the appraisal that came in with the lowest value. Until there is some consistency in the way appraisers approach a property and value the components utilized for comparison, an appraisal will always be an ‘opinion’ of sorts and will please some and frustrate others on our journey to real estate recovery.”

 

 

The recent plane crash in San Francisco was a terrible event. And in typical fashion, a certain contingent somehow found something they found funny in the event. And unfortunately this incident got carried away: http://blog.sfgate.com/matierandross/2013/07/12/1937/

 

 

Rob

 

Copyright 2013 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)