BILL ANALYSIS
AB 1796
Page 1
Date of Hearing: April 20, 2010
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
AB 1796 (Hall) - As Amended: March 24, 2010
SUBJECT : Appraisal management companies.
SUMMARY : Requires the Office of Real Estate Appraisers (OREA)
to include in its next set of adopted regulations guidance on
issues related to appraisal management companies (AMCs).
Specifically, this bill :
1)Requires OREA to include in its next set of adopted
regulations guidance regarding the following:
a) Assignment of out-of-area real estate appraisers by
AMCs;
b) AMC's role in the timeliness and accuracy of employed or
retained appraisers' work product;
c) Conflict of interests; and,
d) AMC's policy maintenance ensuring compliance with
specified requirements to guarantee an unbiased and
accurate appraisal.
2)Makes legislative findings and declarations.
EXISTING LAW :
1)Provides for the licensure and regulation of appraisers by
OREA.
2)Requires AMCs to register with OREA and abide by provisions of
the Real Estate Appraisers' Licensing and Certification Law.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of this bill . According to the author's office, "SB 237
(Calderon), Chapter 173, Statutes of 2009, does not specifically
AB 1796
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empower OREA to regulate AMCs regarding the use of out-of-area
appraisers, audit the timeliness or accuracy of their work
product, or prevent conflicts of interest in referrals from a
controlling lender or title company. It is unclear whether SB
237 gave OREA the authority to regulate AMCs."
Background . The relationship between real estate brokers,
lenders, and appraisers has evolved since the enactment of state
and federal laws established to prevent the improper influence
of appraisers. Specifically, lenders, real estate brokers,
mortgage brokers, and others seeking real property appraisals
are now relying on AMCs to serve as middlemen in the appraisal
process.
The growth of AMCs has been driven, in part, by an agreement
reached between Fannie Mae, Freddie Mac, and New York State
Attorney General Anthony Cuomo establishing the Home Valuation
Code of Conduct (HVCC), which prohibits lenders and mortgage
brokers from being directly involved in the selection of an
appraiser on a loan in which they are involved, and requiring
the use of a third party to order their appraisals, or some
other method that isolates the process of selecting an appraiser
from the persons who are compensated based on whether a loan is
approved. Under a practice that is becoming increasingly
common, lenders and others seeking appraisers are contracting
with AMCs, which assemble panels of appraisers on whom they can
call when they receive an appraisal order. The AMCs then assign
the requested appraisals to appraisers on their panels. AMCs
then deliver completed appraisers to the lenders and brokers who
ordered them. With limited exceptions, the HVCC calls for no
contact between the lender or sales agent and the appraiser
regarding the property being appraised.
According to the author's office, the use of third parties and
AMCs can remove pressure on an appraiser by insulating the
appraiser from the person or entity who orders the appraisal
(typically the party with the most to gain or lose from the
appraised value). Despite HVCC's implementation, the sponsor
asserts that AMCs are increasingly contradicting recent state
and federal efforts to prevent the improper influence of
appraisers because the lender may either refer appraisals to
affiliated AMCs, or AMCs owned by lenders or title companies, in
a practice known as steering or self-referral.
A survey administered by the bill sponsor, the California
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Association of Realtors (C.A.R.), observed that since HVCC
requirements to use AMCs became mandatory in June 2009,
appraisal costs have increased, time to complete an appraisal
has nearly doubled, the use of out-of-area appraisers has nearly
tripled, and the validation of home sale prices has decreased.
The sponsor claims that out-of-region appraisers sometimes
results in lower home sale prices because the appraiser may be
unfamiliar with the regional real estate market or will conduct
an appraisal without a property viewing to provide a cost
savings to AMCs. While there is nothing that prohibits property
appraisals using only exterior inspections, an interior
inspection often validates an appraisal's accuracy.
OREA has just begun accepting applications for AMC registration
pursuant to SB 237 and the adoption of emergency regulations in
January 2010.
The sponsor contends that guidance on AMCs is necessary to
address concerns on valuation and the work product of appraisals
originating from AMCs.
The opposition contends that following the implementation of
HVCC, appraisal values have decreased to reflect more accurate
home valuation, concerns arise from individual licensees rather
than AMCs, and the new law to register AMCs just went into
effect.
Support . According to the sponsor, C.A.R., "AB 1796 is intended
to provide clarification of the OREA authority to regulate key
functions and activities of real estate appraisers employed or
retained by AMCs." The sponsor states that this bill empowers
OREA to "evaluate and provide guidelines for such areas of AMC
appraisal activity as the following: a) whether the ownership
or control of an AMC by an affiliated lender creates the
appraisal problems observed by the California Association of
Realtors (increased cost, reduced accuracy, delay), or, in fact
makes them less likely to occur, and, b) whether lenders should
be restricted in their ability to steer or self-refer to
affiliated AMCs."
Oppose . According to the First American Corporation, "While SB
237 did create standards for AMCs registered with OREA, it
specifically did not provide OREA with broad regulatory
authority over AMCs. However, the bill did not prohibit OREA
from promulgating regulations in any of these areas. A new bill
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should not be passed granting OREA authority they may already
have. In addition, SB 237 only went into effect a short time
ago? it is premature to consider any legislation of this sort
without waiting to see the benefits of last year's legislation.
Furthermore, OREA is not asking for any additional authority in
these areas."
Prior Legislation . SB 237 (Calderon), Chapter 173, Statutes of
2009, created a registration program for AMCs within OREA.
REGISTERED SUPPORT / OPPOSITION :
Support
California Association of Realtors (C.A.R.) (sponsor)
Opposition
California Financial Services Association (CFSA)
National Real Estate Information Services
Service Link/Fidelity National Financial (SL)
The First American Corporation
Title/Approval Vendor Management Association (TAVMA)
Analysis Prepared by : Joanna Gin / B.,P. & C.P. / (916)
319-3301