SENATE BILL NO. 155 "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; and relating to real estate appraisers." 9:02:52 AM Vice-Chair Bishop MOVED to ADOPT proposed committee substitute for SB 155, Work Draft 30-LS1295\D (Radford, 2/28/18). Co-Chair MacKinnon OBJECTED for discussion. JULI LUCKY, STAFF, SENATOR ANNA MACKINNON, discussed the Committee Substitute (CS) for SB 155. She informed that the changes to the bill were a result of questions that had arisen related to concerns about the legislation. Ms. Lucky read from the Explanation of Changes document (copy on file): ? Increases the limit for the required surety bond to $50,000 (previous bill limit was $25,000) see page 5, line 21. ? Removes the fingerprinting requirement for the "controlling person" - AS 08.87.135 (c) on page 5 of the previous bill. ? Allows the department to collect fees to cover costs by removing the specific references to subsection (j) of AS 08.01.165 on page 4, line 18. ? Adds transition language with an immediate effective date to allow the department to promulgate regulations before the effective date of the act, per the department's request. ? Conforming amendments, as required, including deletion of: Previous Section 8 removed due to deletion of fingerprinting requirement Previous Section 9 duplicative of language already appearing in statute is AS 37.05.146(c)(24). Co-Chair MacKinnon WITHDREW her OBJECTION. There being NO OBJECTION, the proposed committee substitute was ADOPTED. 9:06:13 AM SENATOR KEVIN MEYER, SPONSOR, introduced himself. EDRA MORLEDGE, STAFF, SENATOR KEVIN MEYER, discussed the bill. She shared that, due to the Dodd Frank Act of 2010, there was a federal deadline for states to enact comprehensive regulations regarding appraisal management companies. The deadline was August 2018. Subsequently, the department requested a one-year waiver to implement the program, but there was no notification whether the state had been granted that waiver. She stated that appraisal management companies were business entities that administered networks of independent appraisers to fulfill real estate appraisal assignments on behalf of lenders. She noted that the companies would no longer be able to operate in the state without the comprehensive legislation. She stated that it would cause problems for realtors, banks, and other lenders; and have an adverse effect on the economy. She noted that Alaska was one of four states plus the District of Columbia that have yet to pass comprehensive legislation on the subject. Those locations were currently in the legislative process to address the subject. Co-Chair MacKinnon noted that there had been significant changes to the bill, and there were people ready to answer questions. Senator Olson asked if the sponsor was in agreement with the changes in the CS. Senator Meyer answered in the affirmative. He continued that he had wanted an immediate effective date, which would allow for compliance by August 2018 without the need for an extension. He thought there might be a difference of opinion on the effective date, as well as with the bond requirements. 9:10:31 AM Co-Chair MacKinnon advised that the bill would not be moving from committee in the current meeting. The committee was working with the sponsor to address issues with due consideration. Co-Chair MacKinnon stated that the meeting would continue with invited testimony. DAVID DERRY, CHAIR, BOARD OF CERTIFIED REAL ESTATE APPRAISERS, KENAI (via teleconference), spoke in support of the bill. He stated that the Board of Certified Real Estate Appraisers was ready to assume oversight of appraisal management companies. He appreciated the changes identified in the committee substitute. He spoke in support of the amendments, except for the bond amount. He recalled that he had originally requested that the bond amount be increased from $25,000 to $150,000. He pointed out that the Washington had a bond amount of $100,000. He felt that since the appraisal management companies were all lower 48- based companies, and that the board had fiduciary responsibilities, the bond amount would provide some coverage and protection. He reported that there was an opinion that the $150,000 would be too costly, and he disagreed. He remarked that, currently, Alaska real estate appraisers currently paid a recertification fee of $1,130. He furthered that all appraisers that worked for them, were usually required to carry insurance, which could cost between $1000 and $2500 per year. He shared that the defense of keeping the bond amount low, was that it would affect competition and result in higher consumer fees. He disagreed with that argument. He pointed out that some of the larger Alaska-based lenders did not use a third-party mortgage initiator. He felt that it would not affect the consumer. 9:15:02 AM Co-Chair MacKinnon noted that she had a list of states with bonding fees of $25,000. She queried a nationwide average to consider. Mr. Derry did not have an average, but had a list of states that had the legislation enacted, but stated other states had a $50,000 bonding amount. Senator von Imhof wondered how the bill sponsor had chosen the amount of $50,000. Senator Meyer was not sure what the right amount should be. He used the example of Hawaii, which would have a similar geographical circumstances. He observed that the State of Washington was at $100,000, but of the states he had researched, most were lower than $100,000. Co-Chair MacKinnon asked if there had been an average of surety bond rates. Ms. Morledge had found in her initial research that the average was approximately $33,000. 9:19:14 AM Senator Micciche asked Mr. Derry what costs would not be covered by a $50,000 surety bond, and what other protections would be available if there was a claim or appraisal problem above that amount. Mr. Derry replied that there may be a default payment from an out of business appraisal company. He remarked that many appraisals servicing rural areas must charge airfare, in addition to the appraisal fee, which often exceed the fee itself. Senator Micciche asked if Mr. Derry was more concerned about a collective cost rather than a single company defaulting and having exposure on several appraisals. Mr. Derry answered in the affirmative. Co-Chair MacKinnon asked whether a company had had to use its share of surety bonds. Mr. Derry stated that he had no oversight Co-Chair MacKinnon wondered whether there was anything prohibitive in the bill that would restrict a company from going above the $50,000 proposed limit. Mr. Derry replied in the affirmative. He stated that they could set any appraisal amount. He felt that normal business practices would at least push to meet the minimum. 9:23:52 AM Co-Chair Hoffman shared that he had several appraisals done in rural Alaska. He noted that appraisers had not come to the area unless there were multiple appraisals to complete. He thought the practice was working well currently in Western Alaska. Co-Chair MacKinnon asked about the amount of the surety bond. Senator Meyer thought the amount of the surety bond was a policy call by the committee. He thought if the amount was set too high, it might dissuade some appraisers Ms. Morledge reminded that the surety bond was a recurring cost. Co-Chair MacKinnon had no issue with the $50,000 surety limit. She noted that the lending agencies were referred to within the bill. Ms. Morledge replied that the appraisal management companies were standalone agencies. She stressed that lending institutions would contact the individual agencies. Vice-Chair Bishop thought the bill sponsor had made a reasonable compromise. 9:27:07 AM AT EASE 9:33:53 AM RECONVENED Senator Micciche thought there may have been a misunderstanding about the need for surety bonds. He understood that an appraisal management company could hire the same individual to do multiple appraisals. He did not know that $50,000 was adequate. He thought he better understood Mr. Derry's concern. Co-Chair MacKinnon asked Mr. Derry if Senator Micciche had accurately reflected his concern. Mr. Derry answered in the affirmative. Co-Chair MacKinnon asked Mr. Derry to stay online to comment on further topics. Co-Chair MacKinnon referenced a letter dated February 8, 2018 (copy on file). She asked for comments about that letter. SARA CHAMBERS, DEPUTY DIRECTOR, DIVISION OF CORPORATIONS, BUSINESS AND PROFESSIONAL LICENSING, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, relayed that she had submitted a letter to the appraisal subcommittee requesting an extension from the 2018 deadline to a 2019 deadline. She stated that the bulletin issued from the subcommittee stated that draft legislation would be considered a cause for an extension. 9:39:22 AM Co-Chair MacKinnon thought the sponsor had indicated the bill needed to move forward with implementation. Ms. Chambers answered in the affirmative. Co-Chair MacKinnon thought the sponsor was concerned that without implementation, there would be consequences. Ms. Chambers understood that there may be a period of time (if Alaska did not receive the extension) that business could continue. Without state oversight, federally- regulated companies would still be able to operate. Her assessment was that there could be a period of time that non-federally-regulation would be available. Co-Chair MacKinnon asked if there was an option for emergency regulations. Ms. Chambers stated that the Department of Law had advised that emergency regulations should be reserved for matters of public emergency, and not for administrative emergencies. Co-Chair MacKinnon asked why it would take over a year to implement regulations for an existing board. Ms. Chambers informed without the extension, the bill would take effect and licensure would be required before the 3 to 4 month time period necessary to complete regulations. Co-Chair MacKinnon surmised that the issue was complex. Senator von Imhof wondered if the extension was for an "all-in" scenario. Ms. Chambers answered in the affirmative. Vice-Chair Bishop thought Ms. Chambers had provided the worst case scenario. He asked if there was a better scenario to consider. Ms. Chambers stated that what she had described was likely the best case scenario. Co-Chair MacKinnon asked when the federal compliance deadline. Ms. Chambers stated that the federal compliance deadline was July 2018; unless an application for extension was submitted. Co-Chair MacKinnon felt that there needed to be contingency language. 9:46:30 AM Vice-Chair Bishop referenced Ms. Chambers comment regarding federal loans being currently processed within the state, and asked for more information about that statement. Ms. Chambers understood that there were federally-regulated appraisal management companies currently that would continue to operate without the legislation. Senator Micciche wondered why the bill was up against a deadline. Ms. Chambers stated that the board worked to secure a sponsor to accomplish the goal of legislation two years previously. The board was unable to do so. 9:49:04 AM Mr. Derry thought there was a question of implementation of regulations, and recalled that there was effectively only one or two AMCs that were federally regulated. Co-Chair MacKinnon asked Mr. Derry to help elucidate the consequences if regulations were not put into place. Mr. Derry supported Ms. Chambers. was not aware if either of the federally-regulated AMCs. Co-Chair MacKinnon stated that the committee would work with the sponsor on this particular issue. She stated that there was an issue about a "controlling person" within the bill. It had been proposed to remove the requirement that the controlling person be within the state. 9:55:26 AM WILLIAM SCROGGINS, REAL ESTATE VALUATION ADVOCACY ASSOCIATION, NORTH CAROLINA (via teleconference), association had worked with many states to push forward legislation to satisfy Dodd-Frank Act requirements. He viewed $50,000 to be excessive but did not oppose the provision. He did not want to limit the certification. He thought it had been a drafting oversight. Co-Chair MacKinnon asked Mr. Scroggins to be available for questions later in the meeting. Co-Chair MacKinnon referenced page 4, lines 28 through 30 of the bill, which talked about uniform standards of professional appraisal practices. She wondered whether the standards were "like" or "exact." Mr. Derry queried the requirement that the controlling person be within the state. Co-Chair MacKinnon referenced page 5, line 22. Mr. Derry supported the bill as it was currently written. Co-Chair MacKinnon stated that the committee would get legal clarification on the matter. 10:03:02 AM Ms. Chambers stated that the bill section referenced being active was the same as Mr. Derry's. She agreed that the person must be certified, but did not have to be physically a resident of the state. Co-Chair MacKinnon stated that she had a comment from an individual who believed that was a burden for larger out of state management firms. Senator Stevens asked Ms. Chambers to comment on reciprocity with other states. Ms. Chambers stated that licenses were fairly transportable. She announced that if a state's requirements were equal to or greater than Alaska's, there would be an expedited process to recognize the standards. Co-Chair MacKinnon relayed that the committee still awaited a new fiscal note for the bill. The committee would have a new CS drafted for a future meeting. SB 155 was HEARD and HELD in committee for further consideration.