Appraisers' Free Forum

www.workingre.com/workingre/bond-requirement.html

S.2452 is a bill intended to “amend the Truth in Lending Act to provide protection to consumers with respect to certain high-cost loans, and for other purposes.” Among other things, it’s intended to establish a duty for mortgage brokers and lenders to consider the best interests of their clients first. Lenders will be required to conduct a meaningful analysis of the borrowers' ability to repay the loan (duh).


Tucked into the bill, however, is a bonding provision for appraisers that could be catastrophic for many. Once you understand the way bonds work, it’s not difficult to understand why the “Qualifying Bond” provision of S.2452 has so many appraisers squirming. If passed, it will add one more straw to the already straining backs of appraisers.

No, it won't affect me much at all. If a client calls and wants a bonded appraiser for a typical SFD, my fee will be $$$$ plus a "bonding fee" of $$$ (my good name is worth something). If they don't want a bonded appraisal, my fee will remain $$$. The fee all depends on the scope or work and intended use.

M L wrote:No, it won't affect me much at all. If a client calls and wants a bonded appraiser for a typical SFD, my fee will be $$$$ plus a "bonding fee" of $$$ (my good name is worth something). If they don't want a bonded appraisal, my fee will remain $$$. The fee all depends on the scope or work and intended use.

I'm with you on that, but what are the chances that they'll pay the bonding fee when they already whine over full fee? Comp checkers that promise value may get the business, but I doubt I will. That's ok though, I hate lending work

It's just one more bureaucratic hassle. It will affect you whether you realize it or not. Your ability to increase your fee is limited by the competition. Since, most appraisers who don't take the new costs into account will eventually go out of business, it might not affect you too much in the long run, but as we are all learning from the credit crisis, you have to get through the short term before you can get to the long run.

I posted something relevant to this issue here:

http://appraisers.freeforums.org/the-wa ... t3013.html

Senator Dodd (aka Dodderhead) is one of the main forces behind this. Crooked as a dog's hind leg.

Also, I first posted about this issue here:

http://appraisers.freeforums.org/the-u- ... t2904.html

My thought is still that very few independent residential fee appraisers will remain in business if this passes. And, I suspect that is exactly what Dodd has in mind.

M L wrote:No, it won't affect me much at all. If a client calls and wants a bonded appraiser for a typical SFD, my fee will be $$$$ plus a "bonding fee" of $$$ (my good name is worth something). If they don't want a bonded appraisal, my fee will remain $$$. The fee all depends on the scope or work and intended use.

Is it possible to be bonded for some assignments and not for others? I was under the impression that the cost of bonds are based on risk and they can't be put in place on a case by case basis.

I don't know what these things cost, but I have heard that it may between $10,000.00 and $40,000.00 per year. I have not heard that the bonding is be optional, I think it is mandatory.

Has anybody heard that clients are supporting this by allowing appraisers to pass the cost of bonding through?

If bonding is required by law or convention and the profession continues to permit clients to set the fees, then it will be difficult if not senseless for me to remain in business. Of all of the appraisers I know and I don't know their business circumstances, but my guess is that most of them will be out of business. I believe O&E insurance is an unnecessary convention and a waste of money and this will be more of the same. You will now need both since they cover different risks that I'm sure the lending industry is impatient to pass on to others. Let the banks buy the bonds.

Edd
You may not be able to purchase bonds on a case by case basis, I truely am not sure. I do believe though, that only lending transactions will be required to have bonded appraisals. So, if your business is mainly lending then bonding could in fact force you out of appraisal. If you are primarily non lending, no need to fret.
If I'm wrong on this then I'll be out pickin' up apps at my local Walmart!

If Bonding is passed, I will convert to "Public" appraising and provide the Public a right to question the Lenders Practice of dictating value.

In my days as an Insurance Fire Loss Value originator, we had a bunch of guys Open shops for the Private sector, so that the Public made sure the Insurance Companies were being Fair. I think this could work very well for us and provide the HomeOwner an incentive to pursue "unscrupulous lending practice's".

I yam one bad mutha........

Oh and by the by, no need to carry anythin but yer camera / clipboard and other paraphenalia associated with collecting large quantities of benjamins weeks at a time.

Be the first on yer block to go intraneighborhoody - imagine nobody would be able to steal any equity out of anyones house anymore....... put that in yer bowl of screamin yeller zonkers and suck it thru a straw wit them oversized soup coolers ya call lips...........

Every day I think more about buying a big sailboat and just ditching it all for a sunny island........

jennettecj wrote:I'm with you on that, but what are the chances that they'll pay the bonding fee when they already whine over full fee? Comp checkers that promise value may get the business, but I doubt I will. That's ok though, I hate lending work

To become bonded, you have to have good credit and $$$$ reserves. Along with the current state of the economy, attrition will kick into over drive... there won't be many choices if lenders require a bonded appraiser.

Is it possible to be bonded for some assignments and not for others? I was under the impression that the cost of bonds are based on risk and they can't be put in place on a case by case basis.

Sure you can. In the construction side, we have to be bonded for Gobment work. Don't always have to be bonded for private work. If a client requires a bond, it's added into the quote... along with a fee because our good name and credit is worth something. A bond is not insurance, it's basically credit that a bondholder extends to insure you preform.

Edd Gillespie wrote:I don't know what these things cost, but I have heard that it may between $10,000.00 and $40,000.00 per year. I have not heard that the bonding is be optional, I think it is mandatory.

The bill specifies 1% of the total value of the properties appraised. An example given in Working RE is:

Finally, there is the issue of cost, which probably is foremost in the minds of most appraisers who are upset about this requirement, and for good reason. With the market slow, cut rate AMC work on the rise and the cost of most everything else going up, especially fuel, appraisers need another expense like they need a hard drive crash.

In our experience, bonds typically cost about one percent of the amount to be bonded. So it would cost about $500 for a $50,000 bond.

The bonding language in S.2452 requires a bond for “not less than one percent of the aggregate value of all homes appraised by an appraiser of real property in connection with a home mortgage in a calendar year...”

The OREP insured who contacted us provided these numbers from his own business: this California appraiser said to figure $350,000 per home for, say, 15 homes per month or $63,000,000 in aggregate value per year. So, at the one percent threshold requirement, his bond needs to be for a minimum of $630,000. This would cost him about $6,300 additional a year.

This amount may be manageable for some appraisers but certainly not for others. Indeed for some, it may be the final straw. In any case, it sure makes his $600 annual E&O insurance premium look pretty good, especially since the E&O is designed to respond to a covered claim, including defense costs up to his limit (after the $500 deductible is satisfied).

M L wrote:Sure you can. In the construction side, we have to be bonded for Gobment work. Don't always have to be bonded for private work. If a client requires a bond, it's added into the quote... along with a fee because our good name and credit is worth something. A bond is not insurance, it's basically credit that a bondholder extends to insure you preform.

That is true. While I generally respect your knowledge on this issue, ML, I really wonder how anyone who knows anything about bonding could believe that this will not affect the business.

First of all, a bond is not insurance. The bonding company never expects to have to pay a claim.

Secondly, you can lose your ability to be bonded for things as diverse as bad credit or a DUI. When Missouri passed a law that you had to pay your taxes to stay licensed, we lost several hundred appraisers in one fell swoop. Now, you can argue that these were not the cream of the crop, and I would not disagree, but with bonding, I believe we could reasonably expect to see a minimum of half the sfr appraisers now in business drop out for various reasons including cost of the bond and inability to be bonded.

Last, but not least, a bonding requirement would likely hit a lot of otherwise good appraisers, who simply know little about bonds. Just look at the responses on this thread.

Personally, I believe that Dodd's intent is to deep-six the sfr appraisal profession. When the large number of appraisers who drop out are gone there will simply not be enough left to handle the volume. Then, FANNIE, or possibly Congress will decide that collateral no longer needs to be verified by appraisal (probably AVM's will take the place of appraisal, but possibly some deal has already been worked out with Zaio). End result is the end of appraising as we know it.

Steve Owen wrote:

M L wrote:Sure you can. In the construction side, we have to be bonded for Gobment work. Don't always have to be bonded for private work. If a client requires a bond, it's added into the quote... along with a fee because our good name and credit is worth something. A bond is not insurance, it's basically credit that a bondholder extends to insure you preform.

That is true. While I generally respect your knowledge on this issue, ML, I really wonder how anyone who knows anything about bonding could believe that this will not affect the business.

First of all, a bond is not insurance. The bonding company never expects to have to pay a claim.

Secondly, you can lose your ability to be bonded for things as diverse as bad credit or a DUI. When Missouri passed a law that you had to pay your taxes to stay licensed, we lost several hundred appraisers in one fell swoop. Now, you can argue that these were not the cream of the crop, and I would not disagree, but with bonding, I believe we could reasonably expect to see a minimum of half the sfr appraisers now in business drop out for various reasons including cost of the bond and inability to be bonded.

Last, but not least, a bonding requirement would likely hit a lot of otherwise good appraisers, who simply know little about bonds. Just look at the responses on this thread.

Personally, I believe that Dodd's intent is to deep-six the sfr appraisal profession. When the large number of appraisers who drop out are gone there will simply not be enough left to handle the volume. Then, FANNIE, or possibly Congress will decide that collateral no longer needs to be verified by appraisal (probably AVM's will take the place of appraisal, but possibly some deal has already been worked out with Zaio). End result is the end of appraising as we know it.

From what we hear from the guys who are doing SFR mortgage stuff on the cheaper-faster track the law will require a bond based on the tens of millions of dollars. If you appraise $1,000,000.00 in SFR values in one year, your ten percent bond is for $100,000.00. The cheaper-faster crowd is allegedly running at $50 mil or more per year. Something is seriously going to have to give if some company will bond an appraiser for that much. Dodd must be getting lobbied by the bonding companies, or, more likely as Steve says, he is ringing the SFR mortgage appraisal death nell. Zaio will be the first entity to receive a national appraisal license and AI associate dues will increase to cover the cost of Zaio's bond and that will be it.

Maybe, this will finally put the damn thing out of its misery. The national SFR lenders don't want actual appraisals anyway.

Christopher Dodd is the sponsor of that 'bonding' bill but he has troubles of his own...

Dodd received two 30-year loans from Countrywide Financial Corp., whose chairman and chief executive officer, Angelo Mozilo, has testified in front of Congress about problems in the subprime crisis.

Dodd, a Connecticut Democrat who is currently the chairman of the Senate banking committee, was designated as a "Friend of Angelo,'' along with former Cabinet member Donna Shalala and other high-profile Washington insiders.

The Conde Nast article stated that Dodd's 30-year loans were both designed to be at 4.875 percent, but the East Haddam loan was reduced to 4.5 percent and the Washington loan was dropped to 4.25 percent. Over the life of the loans, that saved the Dodds about $58,000 on their Washington home and $17,000 on the East Haddam home, according to the article. Countrywide also waived three-eighths of a point on one loan and one quarter of a point on the other.

http://blogs.courant.com/capitol_watch/ ... -to-c.html

I mailed this to the Senators.

In an apparent effort to find a way to prevent a repeat of the financial crises that the real estate industry is currently undergoing, a bill sponsored by Senator Dodd is circulating in the Senate that, among other things, contains a provision that appraisers involved in residential mortgage appraisal be bonded.

I'm sure there are good intentions behind the measure, and certainly the crisis is a problem that needs our attention, but independent residential mortgage appraisers are struggling to remain in business as it is. If appraisers are required to be bonded and to pay the cost of the bonding it is likely very few, if any, will be able to continue in business. Part of the economic reality of appraising in residential mortgage work is that the fees, and even the standards of appraising, are set by the lending industry and not the appraisers. Surely a part of that is due to failures in the appraisal profession, but the costs an appraiser now incurs are very difficult, if not impossible, to pass through to the consumers. Appeasers are simply not in a position to absorb any more costs.

The result of requiring appraiser bonding, while it would select out appraisers who are not credit worthy in the opinion of bonding companies, would most likely decimate the ranks of appraisers. The effect of decreasing the supply of appraisers will cause delay and higher costs. I do not see how appraiser bonding will in any meaningful way interfere with the lending practices that brought us this crises.

While bonding may offer some assurance that what an appraisers does is guaranteed, the financial crises we are dealing with in the real estate industry was not generated to any significant degree by appraisal failure. There are sufficient regulatory mechanisms currently in place that, if funded and working, would have acted to avoid this crises. Most of the crises is due to lenders making loans that should not have been made. The lenders had sufficient accurate information to make sound lending decisions, but the information was ignored and suppressed. The lenders were not misled by appraisers to any significant degree, certainly not sufficient to bring about this crises.

As for dealing with appraisers. The board that regulates appraisers in Colorado has been desperately and chronically underfunded since its inception. While the funding of state regulatory agencies is the business of the state legislature, it seems to me that your encouragement may help convince our legislature to release some money for enforcement of existing regulations.

Please guide the Senate to address the problem of underfunded existing regulation first. If that is attempted and doesn't work then consider new regulations and requirements.

You know, I am beginnng to become convinced that all these politicians coming out of the woodwork wanting to "fix" the mortgage crisis are merely taking advantage of the opportunity to come up with some knee jerk "solutions" that make no sense but make their voters happy.

We have regs in place. How about we enforce them?

How about we insist that lenders make sure the appraisals they use are solid? We are currently working on 3 retor-active reviews that have holes in them so big that even Hellen Keller could drive a bus through them.

These reports should have NEVER made it through underwriting.

Do we, as appraisers, have a professional problem with skippies and ill-trained appraisers? Absolutely.

Is bonding going to fix the problem? No.