Legislature(2017 - 2018)BARNES 124
03/16/2018 03:15 PM LABOR & COMMERCE
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HB 329-REAL ESTATE APPRAISAL MNGMT. COMPANIES 3:26:14 PM CHAIR KITO announced that the first order of business would be HOUSE BILL NO. 329, "An Act relating to the registration and regulation of real estate appraisal management companies; relating to the establishment of fees by the Department of Commerce, Community, and Economic Development; relating to the Board of Certified Real Estate Appraisers; relating to real estate appraisers; and providing for an effective date." 3:26:35 PM THOMAS ATKINSON, Staff, Representative Andy Josephson, Alaska State Legislature, presented HB 329 on behalf of Representative Josephson, prime sponsor. He explained one of the causes of the nationwide recession in 2008 was bad mortgages bundled with stocks. He stated one of the things that was bad about the mortgages was appraisals that were wrong. He indicated it has been reported that this was due to lending institutions leaning on appraisers, ending up with some appraisals that were way above market value. He explained that Congress devised the DoddFrank Wall Street Reform and Consumer Protection Act. The act inserted another layer into the mortgage process, creating an arm's length mortgage by using an appraisal management company (AMC). The federal legislation set up an appraisal subcommittee which promulgated federal regulations and gave all the states a certain amount of time to set up their own regulations. He underlined the states are not required to do so; however, AMCs cannot handle federally related transactions if the states do not. He explained federally related transactions constitute about 10 percent of the market. He added AMCs want the state to regulate them and the appraiser want the state to regulate AMCs. He said the process helps "Joe and Jane Alaskan" as well. He remarked that getting a mortgage is complex and it happens in a hurry. Typically, a lending institution doesn't hold a mortgage for the full period but turns around and sells it to an underwriter. The mortgage originator does not necessarily know whether the transaction is federally related. He highlighted the process only relates to residential property. He stated HB 329 has a companion bill in the Senate. He added there is a federal deadline on 10 August 2018, but there may be an extension. 3:31:27 PM CHAIR KITO asked for confirmation that AMCs are not currently regulated by the state of Alaska. MR. ATKINSON answered in the affirmative. CHAIR KITO asked whether the proposed bill would be adding a prevision under the Real Estate Commission. MR. ATKINSON answered the federal regulations stipulate that when a state regulates AMCs, it is done through the board of certified real estate appraisers. 3:32:29 PM REPRESENTATIVE STUTES said she thinks the proposed bill is trying to solve a problem that doesn't really exist. She said she does not see what the benefit is. MR. ATKINSON answered that Congress, in the wake of the 2008 financial meltdown, thought it would be a good idea to add that layer so that the lending institutions don't contact the appraisers directly. Using a middleman avoids collusion between appraiser and lender. CHAIR KITO explained the proposed bill would be following up from a situation from ten years ago. He said Dodd-Frank was the result of what happened with the subprime mortgage market in which the appraisers were working in collusion with real estate agents or banks to acknowledge real estate values that may not have been accurate because there was not an arm's length relationship with the appraisers. He explained HB 329 would be putting the structure in place so that when real estate management companies do come into the state, they will be required to work through an AMC. 3:35:56 PM REPRESENTATIVE STUTES asked how many other states have implemented similar legislation. MR. ATKINSON shared his understanding that 46 other states have implemented something similar. 3:36:28 PM REPRESENTATIVE SULLIVAN-LEONARD asked Mr. Atkinson to review the fiscal note (FN). She shared her concern that the state would be adding a position specifically to process the legislation and to collect funds that would go to the federal government. MR. ATKINSON answered the department would need to write regulations and therefore incur some costs. He said the legislature has asked departments to pay for their own programs. He indicated DCCED is particularly good at covering their own programs and has board staff that would be paid for through assessing fees. He added the federal government requires that some of the fees are put towards the appraisal subcommittee. 3:37:52 PM REPRESENTATIVE SULLIVAN-LEONARD asked for examples of issues occurring in Alaska. MR. ATKINSON deferred to Mr. Derry. REPRESENTATIVE SULLIVAN-LEONARD asked what a private appraisal business would have to pay annually to be covered. MR. ATKINSON asked whether Representative Sullivan-Leonard referred to an AMC or an appraiser. REPRESENTATIVE SULLIVAN-LEONARD answered, "Both." MR. ATKINSON said he understood it costs $1,100 every two years to remain certified with the state. He said for an AMC it depends on the state requirement for a surety bond. He surmised with the current draft of the proposed bill, it would cost around $2,400 per year to be certified and have a controlling person who would be the single point of contact for the board. 3:40:31 PM REPRESENTATIVE SULLIVAN-LEONARD asked whether the proposed bill would mandate that a private appraiser would have to be under an appraisal company. MR. ATKINSON answered that it would not. He added the ultimate responsibility for certifying the appraisal is on the lender. He said they can skip the AMC. He mentioned that Mr. Derry can list at least three lenders in Alaska that do not use AMCs. 3:41:26 PM REPRESENTATIVE STUTES referenced a letter [included in committee packet] dated February 12, 2019 [sic], from Wells Fargo which reads, "If a state does not set up a compliant regulatory system for AMCs by August of 2018, then home loan lenders cannot use AMCs for federally related transactions." She asked whether the proposed legislation is in response to a federal mandate. MR. ATKINSON answered the mandate from the federal government states that if states want to regulate AMCs, it has to be done by a certain date and regulations must include certain items, but states are not required to regulate AMCs. He said if they are not regulated, mortgages will still be possible, but it might be more difficult, and AMCs would not make money on certain transactions. REPRESENTATIVE STUTES shared her concern that the proposed bill would be creating a niche for another small business at the expense of a homeowner or an individual looking for a mortgage. She added the appraiser would "jack up his price" to belong to the organization that the state is not mandated to have. MR. ATKINSON answered the state is not mandated by the federal government to regulate AMCs. He stated the costs can be passed on to the appraiser or the lending institution and appraiser can split the cost. He said the proposed bill would not mandate any shared costs. REPRESENTATIVE STUTES asked what the other states that are regulating AMCs charge. MR. ATKINSON deferred to Mr. Derry. 3:46:05 PM REPRESENTATIVE JOSEPHSON suggested if the state does not regulate AMCs, it will not fully benefit from the effort to insulate appraisals from lender/appraiser collusion. MR. ATKINSON answered that the Dodd-Frank Act is about consumer protection. 3:46:44 PM REPRESENTATIVE SULLIVAN-LEONARD asked whether Representative Josephson knows of any instances in Alaska of such a thing occurring. REPRESENTATIVE JOSEPHSON said he does not but that there is the issue of federally related transactions as well. MR. ATKINSON added that the term, "federally related transactions" is a quagmire. He said it's a complex environment and Alaska Housing Finance Corporation (AHFC) would seem to be a federally related transaction, but he said he can't state with any certainty that it is. He remarked there is a definition of federally related transactions on BASIS, but it is very difficult to understand. 3:48:23 PM DAVID DERRY, Chair, Board of Certified Real Estate Appraisers, testified in support of HB 329. He stated the board supports the AMC legislation and oversight proposal. He added that while the board is not looking for more work, oversight is an important function that should happen in Alaska. He reiterated some lenders use AMCs and some do not. He said the easiest way to describe an AMC is as an entity used to find appraisers in the process of a mortgage transaction. He explained this is for people who are looking for mortgages. He mentioned Rocket Mortgage in the Lower 48. He added there are no Alaska-based AMCs. He said if someone applies for a loan in Anchorage, Alaska, or Fairbanks, Alaska, using an AMC is an expeditious way to comply with the requirement that there be a separation between the entity making the loan and the appraiser. He added one of the impetus to pass this legislation is to provide that separation between loan officer and appraiser. He said he didn't know of any cases brought to the board. MR. DERRY said appraisers in Alaska are paid $1,050 and $80 dollars is paid to the federal appraisal subcommittee. He added there would also be a fee for management companies which is $25 per appraiser. He said one of the criteria is that the AMC has 15 appraisers in 1 state or a total of 25 appraisers in 2 states. He spoke to fees and costs to the consumer and to the state. He said there should not be any cost to the consumer. He said some lenders use AMCs (Wells Fargo, Alaska USA Federal Credit Union) and some do not (First National Bank of Alaska, Northrim Bank, Mount McKinley Bank). He specified the lenders can set up within the bank how to operate under Dodd-Frank [Act]. 3:56:45 PM REPRESENTATIVE STUTES mentioned the appraiser's license is a rigorous process. She asked whether the board would take action against an appraiser who was seen to be colluding. MR. DERRY answered the board would take action against the AMC and the appraiser or, where there is no AMC, it would take action against the appraiser. He said he agrees that it is an onerous process to get licensed. He underlined the Alaska requirements for certification mirror those of other states. He said there is a nationwide effort to make it somewhat easier to become certified as a residential appraiser. He stated it was the result of a change in federal regulations established in early March 2018. REPRESENTATIVE STUTES suggested having an AMC would not preclude the occurrence of collusion. MR. DERRY answered the proposed bill would allow the board to go after the AMC. He explained that without legislation, there would be no oversight at all. REPRESENTATIVE STUTES said she cannot believe that the AMC will "eat that cost" and not pass it on to the consumer. MR. DERRY reminded that the lender is the originator of the loan. He stated most of the AMCs are fairly large entities and $2,400 is not a big cost. 4:02:54 PM MARK SCHIFFMAN, Executive Director, Real Estate Valuation Advocacy Association (REVAA), testified in the hearing on HB 329. He said AMCs support being regulated in Alaska. He clarified 46 states have passed similar legislation. He listed Alaska, New York, Massachusetts, and Ohio as the final four and informed there is legislation being proposed in all four states. He asked on behalf of the AMCs to be regulated in Alaska. He added it is a self-paid regulation and there would be no cost to the state. He said AMCs are already working in the state, and the difference would be there would be a revenue generator. He said the primary role of an AMC is public safety and consumer protection. He indicated the lender has the same responsibilities. He added most American lenders have outsourced appraisal services to AMCs. 4:06:20 PM CHAIR KITO opened public testimony on HB 329. Upon ascertaining that no one was available to testify, he closed public testimony. CHAIR KITO held over HB 329.