LLR Regulatory Review - Real Estate Appraisers Board

This statement was prepared by The South Carolina Professional Appraisers Coalition in response to the Governor's request for comments regarding the LLR Appraisers Board.

The undersigned believe that the changes suggested below will enhance an industry which is crucial to the overall economy of the State of South Carolina.

THE PROBLEMS:

1. LOSS OF JOBS

· Eighty percent of the appraisers in South Carolina are self-employed small business owners. In 2006, there were more than 3800 appraisers licensed in the state of South Carolina. By June of 2012, there were only 2500 licensed appraisers remaining in the state of South Carolina. Only 1000 of those remaining are Certified Residential Appraisers.

· This represents a devastating loss of 1300 jobs and a loss of 35% of the licensed professionals in one industry in only 6 years. South Carolina currently has 135 appraiser apprentices who, after attrition, will fill less than 10% of the jobs lost. The loss of knowledge and experience is immeasurable since the average appraiser in our state is 57 years old and has been practicing for more than 25 years. LLR’s lost income from appraiser licensing fees is a staggering $403,000 biennially or $1.2 million over the past 6 years.

· The loss of appraisers and decimation of an old and honored profession can be attributed to the adoption of the Home Valuation Code of Conduct by FNMA, HUD and FNMC in 2008 and the Dodd-Frank Act adoption of similar requirements in 2010. Both prohibit loan officers from ordering appraisals. As appraisers we lost every client we had acquired over the course of our careers. In place of loan officers ordering appraisals, the law requires that a third party be used.

2. LACK OF APPRAISAL MANAGEMENT COMPANY REGULATION

· Appraisal management companies, the third party mentioned above, have been conducting business WITHOUT REGULATION in the State of South Carolina since 2008. The appraisers, who they “manage” and the lenders for whom they provide services, are highly regulated.

· AMC’s, most of whom are located out of state, divert millions of dollars of tax free money out of the state of South Carolina. A majority of their income comes on the backs of appraisers. Example: Appraisal fee charged to the borrower is $500. The fee paid to the appraiser is $200. Amount retained by the management company for ordering the appraisal and transmitting it to the lender is $300.

· In the example above, the “appraisal fee” disclosed to the borrower, a tax paying resident of our state, is $500. There is no disclosure as to how much of this fee was paid to the appraiser and how much to the management company. It should be noted that the management company does not provide any services to the borrower or the appraiser, only to the lender. Since 2008 and the introduction of the third party, appraisal fees charged to consumers have risen by more than 40%. This system is an incentive for the AMC to hire the least expensive appraiser regardless of their experience, proximity to the property being appraised and/or quality of work.

· In the past 12 months, numerous appraisal management companies have filed for bankruptcy leaving appraisers with millions of dollars in unpaid invoices for work which had already been completed and for which the lender had already paid the AMC.

3. LACK OF FUNDING

· The biennial licensing fee for appraisers is $390 and consists of a $310 payment to the SCLLR and an $80 fee paid to the Appraisal Subcommittee for the National Registry. At our current licensing levels, the income to the appraiser’s board is approximately $387,500 per year and more than enough to adequately staff our board.

· The Real Estate Appraisers Board is a donor licensing board, meaning that the license fees are not kept by the board to serve and protect the public as intended. Hundreds of thousands of dollars in fees paid to the appraisers board are being diverted to the general fund and are not being used as intended.

· Despite what should be adequate funding, the appraisers board is horribly understaffed with only one full time employee, the Compliance Coordinator, and one investigator who can be shared by other boards. This is not sufficient to license, supervise, investigate and reprimand the 2500 appraisers in our state. There is no funding for continuing education, USPAP books, newsletters and/or other communications from the board to the state’s appraisers.

· The board has no funding to cover the costs of legislative changes which are mandated by the Appraisal Subcommittee and must be enacted by January 2015 in order for our state to remain compliant. Without this legislative change, there can be no government backed mortgage loans in the State of South Carolina.

HOW THIS AFFECTS THE PUBLIC:

· Massive loss of jobs and employment opportunities

· Increased costs to buy or refinance a home

· There is an increasingly inadequate number of appraisers to meet the demand for
appraisal services, causing significant delays in real estate sales and refinance transactions.

· Undisclosed fees being paid to unregulated management companies who do not provide any services to the borrower. Appraisers are currently forbidden from disclosing their fees or discussing them with anyone other than the appraisal management company.

· The public is increasingly at risk due to the inability of the board to adequately regulate and police licensed professionals and appraisers are not receiving the support to which they are entitled.

· Lack of any type of surety bond requirement for AMC’s which would protect small business owners and appraisers in the event that a management company files for bankruptcy.

· Decimation of an industry in which the appraiser is the only unbiased participant in a real estate transaction.