OPEN LETTER TO NEW YORK STATE ATTORNEY GENERAL
ANDREW M. CUOMO RE: BROKER PRICE OPINIONS (BPO’S)
August 4, 2009
Honorable Andrew M. Cuomo
New York State Attorney General
Office of the Attorney General
The Capitol
Albany, New York 12224
Dear Mr. Cuomo:
In 2007, your office’s investigation into the mortgage industry and the issue of lender pressure on appraisers led to the establishment of the Home Valuation Code of Conduct (HVCC). No honest person will disagree with the stated goal of preventing the coercion of appraisers but there have been negative unintended consequences. While the HVCC does not provide a mandate for the use of appraisal management companies (AMC’s), the Code of Conduct in conjunction with banking industry consolidation has resulted in a larger percentage of mortgage appraisal assignments being channeled through AMC’s. Along with this, reduced fees have caused many experienced appraisers to reject these assignments and some good appraisers have even left the profession leaving less experienced and knowledgeable appraisers with a large portion of appraisal assignments at a time when valuation questions are increasingly complex.
It appears as though there is some movement within Congress and some state legislatures to address these unintended consequences such as by establishing some oversight over AMC’s. On your web site there is the statement that your office has attempted to “…identify larger systemic problems within entire industries and then develop solutions that directly affect people’s lives”. Perhaps your office might take a look at how AMC’s operate in New York State and help develop rules that might improve the lives of not only appraisers (who are still subjected to pressure from some AMC’s along with the added pressure of completing more complicated assignments in a quicker period for reduced compensation) but also promote “public integrity and enhancing transparency”, other goals that you delineate on your website.
This letter, however, is not primarily concerned with the HVCC or AMC’s or New York State. It is intended to address a related issue that is of great concern that your office might have an interest in looking at: the use of Broker Price Opinions (BPO’s) as substitutes for professional appraisal reports.
This important issue was concisely discussed in a letter addressed to Treasury Secretary Timothy Geithner on February 27, 2009 by the Illinois Coalition of Appraisal Professionals with the support of other appraisal organizations such as the American Society of Appraisers, the National Association of Independent Fee Appraisers and the Appraisal Institute. They noted that the usage of alternate valuation products such as BPO’s “…by individuals lacking professional or regulatory oversight poses an unacceptable risk to the financial industry, taxpayers and the public”. The usage of alternate valuation products in and of themselves is not what is being questioned here, there is certainly a need for a wider array of appraisal products as “one size does not fit all”: a small line of credit with a low loan to value ratio certainly might warrant a less detailed analysis than a unique, high value property with a high loan mortgage. During your tenure as Secretary of HUD, your efforts to help revitalize that agency are noted and appraisers welcome change that serves to promote greater efficiency and modernization.
The important point, as delineated in the letter to Secretary Geithner, is that “…Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA)… established a system for state certification and licensing of real estate appraisers and mandated reliance on such appraisers to value collateral in important federally-related transactions”.
Since this letter was written, the extensive use of BPO’s as substitutes for appraisals by these licensed and certified appraisers has become increasingly apparent. This is where your office has the opportunity to take the lead and help correct a dangerous practice.
It is my fervent hope that your office will look at this issue and help provide the force that will end BPO’s now! In doing so, you will be providing great assistance in helping to fix part of our troubled financial system. In addition, you will be gaining the respect of tens of thousands of professional appraisers who have been unintended victims of changes that were intended to alleviate pressure on them and not to increase it.
Sincerely, William R. Collins, Appraiser Help, Inc.
www.endbposnow.com