Fact 1: Alternative valuations do not replace professional appraisers.
Appraisals are most commonly used for loan originations, and they are not typically the most efficient product for servicing loan modification and loss mitigation purposes.
The growth of alternative valuations is due to their efficiency and reliability for non-origination purposes. Therefore, they have not replaced appraisals as the typical valuation tool for loan originations.
Fact 2: The Federal Government recognizes the validity of BPOs.
FIRREA and the Interagency Appraisal and Evaluation Guidelines only require appraisals for residential loan originations in excess of $250,000.
The Treasury Department recognizes the use of automated valuation methods (AVMs) or broker price opinions (BPOs) to establish eligibility for Home Affordable Modification Program (HAMP) and Home Affordable Foreclosure Alternatives (HAFA), the current federal mortgage rescue programs.
The Federal Reserve Board recognizes the use of BPOs, AVMs and new data-driven products to assist lenders in making decisions related to home equity lines of credit in their Regulation Z (Truth in Lending) proposal.
The FDIC allowed for the use of BPOs in its loss sharing proposal for loan modifications (a precursor to HAMP).
Fact 3: Many states should clarify use of BPOs.
Many states have generalized, rather than fact-specific, statutory language on what constitutes an appraisal. Because of this ambiguity, automated valuations, property inspections, and even newspaper articles on housing prices could be interpreted as requiring the services of a licensed or certified appraiser.
Historically there have been two primary transactional situations requiring a determination of a property's value: for loan origination purposes (an appraisal) and to establish a listing price for a sale (a BPO). However, the situation today is much different, with multiple backend uses of valuation products for pre-foreclosure analysis, secondary market transactions, and loan modifications, which are not often addressed in current legislation.
Rather than engaging in a turf battle over what product should be mandated for use in a given situation, the goal should be to develop current statutes and regulations based on a full understanding of the wide array of valuation tools available to aid in sound decision making by lenders, loan servicers, investors and consumers. To limit the flow of valuable information based on aggressive interpretations does a disservice to all.
Fact 4: BPOs are accurate and adhere to professional standards.
BPO providers are currently held accountable and ranked for accuracy by comparing ultimate REO disposition values to previous BPO prices. Because they are performed by experienced real estate professionals who have a deep understanding of the local market; they are an accurate reflection of current market conditions.
In addition, the BPO Standards and Guidelines (BPOSG) provide a comprehensive national framework for the preparation of BPOs. The BPOSG was developed by a BPO Standards Board made up of subject matter experts and experienced BPO practitioners. It includes suggested practices for selecting and using comparable properties, pricing, and photographs; prohibits conflicts of interest; and provides ethical and competency considerations.
Fact 5: If BPOs were outlawed, appraisers could not simply replace them with short-form 2055 Appraisals and drive-by Appraisal Price Opinions.
Current demand for BPOs exceeds the number of valuations that licensed and certified appraisers could realistically deliver. Without BPOs, the turnaround times and fees for appraiser valuations would increase; servicing and investment due diligence would greatly diminish, threatening the flow of capital; and quality could drop as appraisers would face less competition in providing quality products cost-effectively.
In addition, short-form 2055 Appraisals are expensive, and in many cases the end-user needs the viewpoint of a sales professional active in a particular market.