Arkansas Appraisers Association

• We are in the midst of the greatest financial crisis since the Great Depression. Now is not the time to loosen collateral valuation standards by allowing unqualified agents and brokers to perform appraisals in the guise of BOVs or BPOs for loan origination and loan renewal purposes.

• Policymakers at all levels must return to basics - the Three C's - Credit, Capacity, and Collateral. BOVs/BPOs are simply not in the public trust. It will take decades to pay for the current financial mess.

• There is no provision in the proposed Arkansas Legislation for the preparer to have Errors and Omission Insurance to protect the public and end user against fraudulent BPOs/BOVs.

• There is no provision in the proposed Arkansas Legislation to make BOVs/BPOs subject to any effective, nationally recognized standards, nor to be subject to any regulation by any State Agency, such as the Arkansas Real Estate Commission or the Arkansas Appraiser Licensing and Certification Board.

• The proposed legislation does not cover re-finance loans, which in today’s market account for ±50% of all residential lending.

• The Arkansas Legislation does not require that a BPO/BOV disclose on its face that "this is not an appraisal", as is required in all other states where such legislation has been considered, nor is there an absolute provision that requires the signature of the issuer/preparer on the document itself.
[see (A) (7) (b) (1) (2)]

• Existing collateral valuation standards should be maintained, and the ability of an agent or broker to perform a BOV/BPO should not be expanded beyond the uses currently permitted.

• BPOs/BOVs are not in the best interests of consumer protection. BPOs/BOVs are largely unregulated and are performed with little oversight and training. While licensed and certified appraisers are required to meet minimum education and experience requirements and to perform real estate valuation assignments in conformance with USPAP, BPO preparers have no such standards. BPOs are often prepared by the least qualified agents who are unable to obtain listings or sell properties in soft markets.

• The Dodd-Frank Wall Street Reform & Consumer Protection Act prohibits BPOs from being used as the primary basis to determine the value of a property for the purpose of loan origination. The provision is intended to codify GES policies that prohibit the use of BPOs in mortgage loan origination.

• The two largest purchasers of mortgages in the secondary market - Fannie Mae and Freddie Mac – and the Federal Housing Administration have recognized the importance of having accurate and reliable valuations on the collateral that backs up the mortgages that they purchase. Each of these entities requires that an appraisal be performed on any collateral for mortgages that they are going to purchase or insure.

• In a January 14, 2010 letter to the Appraisal Institute, the Federal Reserve Board stated that, "a BPO does not provide sufficient detail on a commercial property's condition, occupancy, and use to the meet the [Interagency Guidelines'] requirements for an evaluation".

• In an April, 2010 Quarterly Report to Congress, the Special Inspector General for the Troubled Asset Relief Program stated, "One prevalent short sale scheme - called "flopping" - centers of home values that are fraudulently deflated for the purpose of decreasing the cost of the short sale to a "straw purchaser" ... As constituted now, the program permits home valuation, the key vulnerability point for a flopping scheme, without a true appraisal, allowing estimates from brokers or other "independent" providers ... "

• The Executive Vice President of the National Community Reinvestment Coalition, a leading consumer group, stated in a June, 2010 article in US Banker that, "The only solution for protecting consumers, lenders and investors alike is to prohibit the use of broker price opinions in short sales and to return to using appraisals to independently determine a home's value." Further, the article stated, "Using BPOs is manifestly unfair to the lender and homeowner alike, and because BPOs are subject to almost no regulation to support independence and quality, using them easily leads to abuse and fraud.

• Many lending institutions would like to expand their ability to order BPOs for many loan origination and renewal purposes. A lender can order a BPO for as little as $25, while an appraisal could cost the lender several times that amount. A lender's motivation for ordering a BPO in lieu of an appraisal is driven by monetary considerations, not by prudent lending practices or the best interest of the public.

• There have been many problems that have been reported with BPOs. In particular, there is the possibility that an agent or broker could provide a BPO for a transaction or for a property in which they have a vested financial interest. Appraisers are required by USPAP to certify that they have no financial interest in a property that they are appraising. There are no such assurances with BPOs.

• We have heard evidence that in a short sale transaction, an agent or broker working on behalf of a lender will intentionally report a low price opinion to the lender with the goal of facilitating a sale to an investor who "flips" the property to a buyer at the true market value.

• Agents and brokers that perform BPOs may not be protected by their broker's errors & omissions insurance. (This proposed legislation offers no such protection in Arkansas)

PROPOSED AMENDMENTS to HB ________ SB ________

1) Require that an agent's sponsoring broker countersign each BOV/BPO.

2) Require that an agent provide evidence that their errors & omissions insurance, or that of their sponsoring broker, provides coverage for the provision of a BOV /BPO.

3) Require that BOVs/BPOs are performed according to standards and guidelines, such as those adopted by the National Association of BPO Providers, that are enforceable by the Arkansas Real Estate Commission.

4) Prohibit the use of BPOs for any loan origination or refinance transaction.

5) Restrict the development of BPOs to residential properties only.

6) Require that BPO’s or BOV’s be prepared/issued under the supervision of some State Agency, either the Arkansas Real Estate Commission or the Arkansas Appraiser Licensing and Certification Board.

7) Require that all signatures appear on the BPO/BOV form itself, not some phantom attachment, and that the BPO/BOV clearly states on the form itself that it is not an appraisal so that there can be no possibility of public deception.