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Spring 2014 AARO Conference

On behalf of ICAP, Ken Mrozek, MAI, SRA attended the Association of Regulatory Officials (AARO) 2014 Spring Conference, where discussions included state compliance reviews, national registry, USPAP, Dodd Frank Act, AMC Regulation, mandatory background checks, and more.  This year’s spring conference held April 11-13 at the Sir Francis Drake Hotel in San Francisco, California.  It was attended by representatives from the TAF, ASC, AQB, APB, ASB, AMCs, Members of the Conference of State Bank Supervisors, AI, IAAO, NAA, IAC, FBI, as well as many state regulator departments (including Brian Weaver ad Mark Thompson from Illinois). Topics of discussion at the conference included:

• Updates from TAF, ASC, AQB, APB and ASB
• Criminal History Reports & Background Checks;
• Reducing Complaint Processing Times:  Successful Complaint Reductions Plans & ASC Review Findings
• Mortgage Fraud Investigation
• Supervisor/Trainee Course Development & Maintenance
• Federal Legislation on Background Checks and the February AQB Exposure Draft
• Appraiser and AMC Regulatory Issues and Updates

Additionally, time was allocated to various Advisory Council Meetings, meetings included:  ASC Advisory, Qualifications Advisory, USPAP Advisory, AMC Advisory Council, and Appraiser Professional Organizations Advisory Council.  The following is a summary of the discussions as presented by the various presenters.

 

Jim Park, Executive Director of the Appraisal Subcommittee (ASC)

• New State Rating System for State Compliance

The old ASC State Rating system had three ratings:  In Substantial Compliance, Not In Substantial Compliance, Not In Compliance.  The new rating system, as of June 1, 2013, states have 5 ratings.  Eighteen states have been rated so far in 2014 (including Illinois).  The rating categories and number of states rated are:

o    Excellent (2-year review cycle)/4 States

o    Good (2-year review cycle)/8 States

o    Needs Improvement (2-year review cycle)/6 States

o    Not Satisfactory (1-year review cycle)/ 0 States

o    Poor (Continuous Monitoring)/0 States

Illinois was reviewed September 2013 and was rated:  Needs Improvement with a 2-Year review cycle with follow-up.

• National Appraiser Registry

There was discussion on how states are keeping the National Appraiser Registry up to date with licensee information.  At present, 27% of states are entering all data directly into the National Registry.  California is using SOAP System, which is linked to the National Registry and automatically updates the registry daily.

• Appraiser Population

Mr. Park discussed the appraiser population, which peaked in 2008 with approximately 120K appraisers.  It had declined at a 3% to 5% annual rate through 2012.  He noted that the rate of decline decreased in 2013 to 1%, where we are currently at approximately 100K appraisers.  These numbers to not include trainees.

• Dodd Frank Act –  Appraisal Complaint National Hotline, Statistics

Since implementation as required by the Dodd Frank Act, the Appraisal Complaint Hotline website has had approximately 6,200 website hits.  The call center has taken 287 calls and there were 289 federal referrals and 865 agency referrals.

• AMC Regulation

The AMC Regulation Requirements were released for 60-day Comment Period.  The Comment Period ends June 9^th.  There may be another round of requirement and another 60-day comment period.  Once the new requirements are enacted, states will have 36 months to comply (with one possible 12 month extension).  The AMC Registration also includes a definition of an AMC, which differs from the current Illinois definition.

• Federal Regulations to Come and ASC 2014 Priorities

Mr. Park discussed additional regulations and other Appraisal Subcommittee priorities that may be seen in the future.  These include:

o    Interagency guidelines require all valuations to be subject to review.  The Appraisal Standards Board is just starting to look at Automated Valuation Modules (AVM’s) and how the board might ensure Quality Control.

o    The ASB is looking to develop a Unique Appraiser ID Number that will be tied to the National Appraiser Registry.  The number would be used at the state and federal level to identify and track individual appraisers.

o    The Dodd Frank Act requires the ASB to develop an AMC National Registry.  This is still in progress.

 

David Bunton, President of The Appraisal Foundation (TAF)

• Investigator Training

TAF developed courses for Investigator training.  There were two levels of investigator available and one newly announced training.  There are currently 310 Level I Trainers and 204 Level II Trainers.  TAF will not be offering a Level III investigator training course which will focus on evaluating appraisal report writing and reporting investigator findings.

• Foundation to Publish a “Digest of USPAP Court Cases”

TAF will publish a collection of court cases across the country which cites USPAP.   The volume of court cases citing USPAP has grown exponentially, according to Mr. Bunton.  A website subscription will be available in time.  There was not timeframe given to when it would be published or when the website would be available.

• eLibrary

The foundation has an electronic library available with resources to assist appraisers.  Resources highlighted include:

o    Training Videos

o    AQB Updates

o    APB – Its Role and Function

o    Understanding the Appraiser Regulatory System

o    Introduction to Green Buildings

o    Mock Administrative Hearing

o    Roundtable – Business Valuation Profession as it Relates to Financial Reporting

• Alliance for Valuation Education (http://www.avenew.org/)

Mr. Bunton described a new non-profit organization established with the support of thirteen appraisal-related organizations, known as Alliance for Valuation Education.  The alliance’s primary goal is to develop valuation education that broadens and complements those courses currently being offered in the marketplace.  The Alliance will not be a provider of education.  The education developed by the alliance will be made available for wholesale purchase by education providers and professional organizations who will serve as course presenters.  Initial focus of the Alliances is on Continuing Education and may consider development of Basic Qualifying Education Courses or Remedial Courses later.

 

Wayne Miller, Chair of Appraiser Qualifications Board (AQB)

• Background Checks Mandate

Mr. Miller announced that earlier that day, the Board voted to postpone mandate for background checks to 1/1/2017.  States can still implement prior to this date, but after 1/1/2017, states will be required to complete background checks on all new appraiser applicants.

• Personal Property Appraiser Criteria

Mr. Miller stated that the Personal Property Appraiser Criteria have not been updated since 1998.  The AQB is working on updating these criteria and there will likely be an Exposure Draft released soon

• Jobs Analysis Survey sent out to appraisers recently

A recent job s analysis survey was sent over 23,000 emails throughout the country.  A total of 14.6% completed the entire survey and the board expressed gratitude for all those completing the survey.  The results will drive how appraisers are tested in state exams.  The initial results from the survey indicate that since 2008, state appraiser exams have been testing the “right” things.  The AQB is looking to see how exams could be shortened without losing effectiveness.  Mr. Miller also published the success rates for State Exams, nationwide.  In 2013, 1^st Time Test Taker Pass Rates for Certified Residential was 69% and for Certified General was 54%.

• Other AQB Discussion points

o    466 of 509 USPAP Instructors renewed their instructor’s license this year.  There were 24 new instructors.

o    The AQB is considering a University Degree Program, where university students would take college courses that would count for college credit as well as Qualifying Education towards their appraiser license.

 

Barry Shea, Chair of Appraisal Standards Board (ASB)

• The ASB is the largest it has been, currently at 8 members.  Members include: 5 Certified Generals, 2 Certified Residential, and 1 Personal Property
• The Second Exposure Draft for 2016-2017 USPAP is out for comment, some changes:

o    Definition of “Report”

• Communication of Assignment Results/Drafts
• Standard 3
• Retrospective versus Prospective Value Opinions
• Reasonable Exposure Time
• Statement 9
• Confidentiality & Ethics Rule.  This rule as written as a few unintended consequences.  As written, an appraiser is unable to show the appraisal report under investigation to their own attorney due.  Additionally, the board is considering two confidentially concerns.  One, how does the rule apply to clients that are no longer in existence, such as bankrupt banks.  Also, how the rule applies to staff members of an appraisal company.
• Courses being worked on by the ASB

o    Appraisal Review Courses

o    A course providing a more in-depth look at the applications of USPAP (beyond the 7- and 15-hour courses).  This would be an optional course which would look at USPAP as it applies to extraordinary circumstances.

 

Rick Baumgardener, Chair of Appraisal Practices Board (APB)

• Subject Matter Expert (SME) Process

o    Mr. Baumgardener discussed the Subject Matter Expert (SME) Process.  There is currently a SME pool of approximately 100 experts in various topics.  Once a project has been identified, SME’s will define the Scope of Work for the project and the AQB will approve before the project moves forward.  This is not meant to be a “How To” guide, but only provide the basic information for appraisers.  The current SME project is the Valuation of Green Buildings.  There is a Second Exposure Draft – Valuation of Green Buildings:  Background & Core Competency out for comment.  Future projects will divide Valuation of Green Buildings into Residential and Non-Residential buildings.  The APB is now considering new projects, including:

• Collection and Verification of Sales Comparable Data
• Green Buildings Residential
• Green Buildings Non-Residential
• Tangible and Non-Tangible Assets
• Valuation of Financial Reporting

 

Criminal History Reports and Background Checks – Defensible Decisions

• Anne Petit, Superintendent of the Ohio State Division of Real Estate & Professional Licensing discussed Defensible Decisions in Administrative Regulation.  Ohio has been completing Background Checks on appraiser applicants for some time.  She covered the ethical and legal concerns related to implementation.  Denials are appealable, but the applicant must appeal to the state board.
• Alec Stone, Legal Counsel for California Bureau of Real Estate Appraisers stated that California statute now requires all new applicants to pass a background check.  It is not yet clear if upgrades are required to pass a background check.  Mr. Stone stated that 15% to 30% of initial applicants have a “rap” sheet, and over half of these are related to DUI’s.  Less than 5% of offences are related to drug felonies or sexual misconduct, and less than 1% is related to fraud.

 

NMLS System (National Multiple Licensing Services)

• Tim Doyle, Senior VP, Conference of State Bank Supervisors discussed the NMLS System.  It is available to State Regulators as a method to track their Appraiser licensees.  It tracks pertinent data, including licenses, education, and discipline.  It is also compliant with 2017 background check requirement.  The systems are an approved channel for the FBI national database, required for proper background checks.  Submitted background checks are received back in 2 to 12 hours.

 

Panel Discussion:  Reducing Compliant Processing Times:  Successful Complaint Reductions Plans and ASC Review Findings

• Panel:

o    Mark Mrnak, Enforcement Director, Texas

o    Danitra Kourkounakis, Enforcement Chief, Ohio

o    Elizabeth Seaters, Enforcement Chief, California.

• Brian Weaver, Illinois Appraisal Coordinator asked Mark Mrnak on the panel about “Contingent Dismissals” used in Texas.  Mr. Mrnak stated that Contingent Dismissals are successfully used in Texas to avoid formal disciplinary.  This is available for 1^st time offenders with minor or major deficiencies or 2^nd time offenders with minor deficiencies.  The offender must agree to the terms of the conditional dismissal.  Terms may include courses, mentorship, or written assignments.  It is usually a short timeframe for completing terms (~6 months).  If offender meets required actions, the offense is dismissed with a warning letter which stays in the record, but it is not reported to ASC or AMC’s.  A future offense would still be considered a 1^st time offense.  There are consequences if the terms are not met.  The mentorship program includes board approved mentors and the offenders must pay for the mentor’s time.  The offender is able to select their own mentor.
• Scott DiBiasio, Appraisal Institute’s Manager of State and Industry Affairs asked panel how states might enforce compliance if appraiser was not required to comply with USPAP, only the USPAP Ethics and Competency Section, for Non-FRT (Federally Regulated Transactions) work.  Panel was unsure how to respond, and stated that states require appraisers to be compliant with USPAP.  Scott alluded to potential future changes that may require appraisers of Non-FRT appraisals to only comply with the Ethics and Competency Section of USPAP.

 

Panel Discussion:  Supervisor/Trainee Course Development & Maintenance

• Panel:

o    John Brenan, The Appraisal Foundation (TAF) – introduced the Supervisory Appraiser/Trainee Appraiser Education Q&A published by The Appraisal Foundation.  Worth checking out if you’re a trainee or supervisor.  Note:  State may add to the requirements beyond the federal requirements.

o    Craig Steinley, South Dakota – implementation of a Supervisory/Trainee Appraiser course in South Dakota.  Mr. Steinley discussed the implementation of the education in South Dakota.  There is a core content section where the AQB provides minimum content.  A second portion is the jurisdictional topics related to supervisory and trainee topics specific to the state.  AQB allows the states to decide whether the course is considered Continuing Education or not.  AQB does not stipulate time requirements.  Training has ranged for various states has ranged from around four hours to two days.  Illinois course is not yet complete, but is likely going to be a one day 7-hour course for both sections, and likely to be available on the fall of 2014.  More to follow.

 

Panel Discussion:  Regulatory Issues:  Federal Legislation on Background Checks & the February AQB Exposure Draft

• Panel:

o    Tim Doyle (NMLS) – Further discussed NMLS as a possible method for meeting background check compliance through the NMLS system.  Noted:  NMLS is owned by the Office of Comptroller and is a Not-for-Profit which is owned and regulated by state regulators.  Potential future additions to system include:  Examination Suite, Risk, Electronic Surety Bonds

o    John Brenan (TAF) – Discussed Exposure Draft – 2015 Real Property Appraiser Qualification Criteria as it relates to Background Checks

o    Doug Oldmixon (Texas) – Texas considering Background Checks for AMC’s.  Also considering statute that would prevent AMC’s from passing on cost to appraiser for excess requirements beyond state requirements.

 

Panel Discussion:  Regulatory Issues:  Appraiser and AMC Regulatory Issues and Updates

• Panel:

o    Scott DiBiasio, Appraisal Institute – Federal Guidance.

• Mr. DiBiasio discussed risk management guidance.  Regulated Institutions are responsible for actions of 3^rd Part Entities, such as AMC’s.  This has moved more institutions (banks) to bringing AMC functions back in-house.  He stated that there are approximately 60% to 80% less residential appraisals ordered through AMC’s currently than in the past year.
• 38 States have passed Comprehensive AMC Oversight & Registration Law and 17 jurisdictions have yet implemented any law.  There are many states now looking to update their AMC law.  Several states are considering a Recovery Fund versus Surety Bond.  Additionally, several states are finding Surety Bonds at $25,000 or less inadequate and increasing to $100,000.
• Some states have added a State Board Member for AMC’s and others have developed an AMC Advisory Board to advise the State Board
• Other Issues being discussed concerning AMC’s are what constitutes an AMC.  Dodd Frank Act, which currently relates primarily to residential appraisals, and if/how it relates to commercial appraisals.  There is also discussion on what distinctions (if any) should be made between companies with employees versus independent contractors.
• New Proposed Rules for AMC Act were released last week.  Mr. DiBiasio offered a checklist he developed to help states analyze if they meet requirements (but stated it is only a working document, not a definitive guide).

Illinois State Appraisal License Report

As of June 30, 2013, the number of active real estate appraisers in the U.S. stood at 82,250.  According to a June 2013 sudy by the Appraisal Institute the number of appraisers decreased at an average rate of 3.0 percent per year over the past five years. As shown in the following data released from the Illinois Department of Financial and Professional Regulation (IDFPR) Illinois is no exception to the national trend:

As illustrated Illinois lost 519 (10.89%) licensed or certified appraisers over the last two-year renewal period.  Data suggest that this rate of decrease could rise sharply over the next 5 to 10 years due to increased retirements, reduced numbers of new people entering the appraisal profession, economic factors, and greater use of data analysis technologies.

Uniform State Certification Examination

In 2008 the Appraiser Qualifications Board (AQB) began offerering its Uniform State Certification Examination.    The authority for the AQB to set standards and approve examination content was established by Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.  Below are the latest pass/fail statistics for Illinois of the Uniform State Certification Examination:

The Associate, Certified Residential and Certified General examinations are based upon 14 major content areas. Although the topics of the major content areas are the same for all three examinations, the emphasis devoted to the content areas differs in each examination. In Illinois Certified General Appraisers had the highest pass/fail ratio of 64% (on average), followed by the Certified Residential Appraisers (58%) and the Associate Real Estate Trainee Appraisers has the lowest pass/fail ratio at 52%:

The Associate Exam is composed of 100 questions plus five unscored pretest questions. The Certified Residential and the Certified General are composed of 150 questions. In addition to the number of questions that are used to determine your score, the examinations may contain up to 15 questions that are being pretested for future versions of the examination.

Number of Illinois Appraisers That Renewed Their Licenses

According to the Bureau of Labor Statistics Occupational Outlook Handbook (2010-11 Edition) the employment of real estate appraisers and assessors of real estate is expected to grow slower than average over the 2008-2018 decade (increasing by 5 percent).  That being said, the decline in the number of Illinois licensed appraisers is not isolated to Illinois, but a national dilemma. Below is the number of Illinois appraisers that renewed their licenses as of  October 2011:

Number of Licensees

The Bureau of Labor Statistics goes on to say that although opportunities for established certified appraisers are expected to be available in active real estate markets, aspiring entrants to this occupation may have difficulty locating a trainee position because traditional sources of training positions, such as real estate offices and financial institutions, increasingly prefer not to take on new trainees.

The cyclical nature of the real estate market has a direct effect on the job prospects of appraisers, especially those who appraise residential properties.  In times of recession, fewer people buy or sell real estate, causing a decrease in the demand for appraisers.  As a result, opportunities will be best for appraisers who are able to switch specialties and appraise different types of properties.

ICAP will continue to promote the interest of the professional appraiser in Illinois, but we can’t do it alone.  ICAP is in the process of cleaning up the ICAP Member Database, as we prepare to send out the 2012 dues notices later this month.

Please take a moment to go to the ICAP website www.icapweb.org and update your member information. Important information is missing on many of our members profile page…like an address, which comes in handy when someone is searching for an appraiser on our online statewide database. Also missing are designations, professional affiliations, license type, etc. Let me us know if you are receiving multiple e-mails or if you know someone in your office that never gets our e-mail announcements.

ICAP has close to 2,000 members, but we still would like to see more appraisers join us across the state.  This year ICAP worked to write and pass the Illinois Appraiser Act and the AMC Registration Act, which starts on January 1, 2012. We are now working with the state on drafting the RULES for both laws.

So, if you know of an appraiser who does not belong to ICAP, invite them to join.  We continue to upgrade our website and our “links page” which has just about every link an appraiser could ever need.

Please e-mail tj@tjmccarthy.com if you need to update anything; however, most of the corrections or changes you can make yourself on your member homepage, which pops up as soon as you sign on.

Thanks for your continued support

ICAP