**Sent:** Tuesday, January 13, 2009 10:34 PM\
**To:** Comments, Regs\
**Subject:** ID OTS-2008-0012 - Attention: Debbie Merkle

**Comments Regarding Proposed Interagency Appraisal and Evaluation
Guidelines**

In light of the current US economic situation the proposed guidelines do
little to protect the US Consumer, from future occurrences.  The
American Citizen deserves protection from the national consequences of
bailing out the failures of large lending institutions in the future. ,
as well as the individual abuse of paying for a valuation product  and
not receiving it. 

The proposal states that independent and reliable collateral valuations
are core to a regulated intuition's real estate credit decision and then
delves into the many alternatives that allow this to be skirted.  This
affects the nation, individual institutions and the US Public  We have
suffered too long the ill effects of short term gains for individual
loan officers and institutions at the expense of the economic health of
the nation.

The following areas should be further studied or eliminated.

***Threshold***

The threshold for a appraisal should be lowered, especially for initial
loans and at least every other time a loan is renewed without advancing
further funds.  The \$250,000 limit should be placed at \$50,000 for
residential real estate and no more than \$250,000 for commercial loans.

 

***Evaluations***

The use of evaluations should be limited beyond that set forth in the
proposal.  Evaluations should not be used for any loan renewal dated 24
months from the last appraisal.

Allowing unlicensed individuals to perform evaluations begs for abuse. 
Allowing sales professionals, often referred to as real estate agents,
to perform valuations is ludicrous. Real estate agents neither receive
training in appraisal practice nor can be viewed as unbiased if they are
acting in a market they work in.

When evaluations are used as a tool, institutions should be required to
have a lending officer who is trained in valuation perform the
evaluation and it should be signed off by an executive of the
institution.  This would likely eliminate the use of this practice on
riskier transactions below the threshold.  Obviously there is still the
potential for abuse, but if the threshold was lowered to appropriate
levels the abuses would be minimal

No evaluation should be allowed for higher risk real estate related
loans for any of the items outlined on page 34 which include:

            Loans in excess of loan to value limits

            Atypical properties

            Real estate outside an institutions traditional lending
market

            Properties in transition markets

            Subsequent transactions with significant risk

            Borrowers with high risk characteristics.

The proposed for a more ***"detailed evaluation"*** in the above
instances begs the question of sanity.  Each of these areas should
require an appraisal.

***Third Party Arrangements***

It would appear that this would allow a lender, at least on the surface,
to shift a responsibility.  While eventually responsible for bad
valuations, institutions can accept the criticism without being directly
responsible for actually procuring/ordering the bad appraisal.

This would encourage the use of appraisal brokerage firms, most of whom
charge an institution a set fee and garner a profit by ordering
appraisals from the least expensive provider.  The appraisal brokerage
firms, also called appraisal management companies, are often volume
providers without concern for quality or accuracy.

Institutions can charge an appraisal fee to a borrower and then order a
less expensive product. It is also a current practice for lenders to own
appraisal management entities and share the profit  difference between
the fee charged the borrower and the actual cost of the appraisal.

It is unconscionable that the lender could make a profit off a portrayed
fee and then provide the consumer with a product of inferior quality. 
How can this be allowed?

***Automated Valuation Models -- AVMs  p52***

Agencies should discourage or prohibit the use of  AVMs except as a
source of secondary quality control and documentation.  The sole use of
AVMs for valuations on loans above the threshold is dangerous and an
unnecessary risk. AVMs have been a source of lender abuse and will
continue to be.  They should not be used or encouraged for any initial
loan or any renewal beyond, requiring additional funds after 24 months
from the loan origination.

AVMs cannot report property condition.  Next to location, condition is
very often a key component of value.

***Sales Concessions  p 63***

Sales concessions distort market value and understate loan risks. The
only way to address seller concessions is to completely prohibit the
practice.  Sellers paying for buyer closing costs, lender origination
fees, prepaid expenses or discount points inflate the sales price and
are rarely reported. The sales price thus equals the value of the real
estate plus the cost of financing.

The next time the transaction is used as a comparable sale in the market
place the gross sales price is used without the comp being adjusted for
the non-reported seller contributions.  This ramps up values based on
sellers continually requiring the purchase price to be raised to cover
the seller concessions that are being paid.

Integrity in the lending and valuation process is eroded through seller
concessions.  Due to seller concessions, loans placed on the books as
having 90 or 95% loan to value ratios are often 100% or more loan to
value transactions.

Prohibit seller concessions but allow lenders to loan the borrower these
cost even though it would show as 100% or more loan.  At least in the
role of oversight you would be aware of what you were looking at.  The
Consumer would have a truer value of the real estate they owned
purchased and could maker wiser decisions.

Obviously a portion of these fees go to lender overhead and profit. 
Likely this would cut into some of the outrageous profits a few lenders
have pocketed off individual loans.

***Mortgage Backed Securities p 50***

Guidelines set forth in this document will greatly influence MBS's. 
**Prohibit the purchase or sale of  MBS's that contain any loan that was
valued using an AVM or those  in which the transaction included seller
concessions.  **

Requiring that MBS's purchased or sold by regulated institutions had
full appraisals and that no seller concession were included in purchase
transactions would revamp confidence and wellness into a sick system. 
The American Consumer deserves this, further we might regain some
credibility from foreign purchasers of our MBS's.

Why would you trust anything Fannie and Freddie have done in the past? 
If they were an individual who had deceived the public trust as many
times as they have in the past, they would have forever been prohibited
from participating in the industry.

***Related Concerns***

***Time Frames***

The thought that loans need to be made overnight and that appraisals
must be completed in unrealistic time frames have also contributed to
the current economic crisis.  What the industry needs is a level playing
field.  **Require that valuations not be deliverable in less than 5 to 7
days from the appraiser's receipt of the engagement letter for
residential appraisals and longer for larger commercial appraisals.**

Further, require that each appraisal ordered be sent to the borrower. 
The practice of many institutions of ordering and providing only the
appraisal that made the deal work has got to stop.

At loan closing, the borrower should sign acknowledgment that they
received, reviewed and accepted the appraisal finding at least three
days prior to closing.

And finally, the appraisal fee the borrower pays should be the fee the
appraiser is paid.  If a management company is used for attaining the
appraisal, this management fee should be stated forthright in a lenders
disclosure at the onset of the loan application and should be the
lenders responsibility.

As an example, **the current practice of allowing lenders to charge
\$375 for an appraisal fee to the consumer and then getting a \$175
appraisal through an appraisal management company is a breach of public
trust. ** Reasonableness dictates that a quality product that is
reliable will not generally be obtained in this process**.** 

***Handling of REO Real Estate***

            "Do as I say and not as I do"

            "Penney wise and pound foolish"

The above sayings come to mind in allowing institutions to use brokers
with a potential vested interest to value REO properties and then to
place these properties on the market using their figures.  The use of
BPO's (Brokers Price Opinions) for valuing foreclosed real estate goes
against the spirit of fair, unbiased valuations by trained
professionals.  It could be akin to the funeral home owner being in
charge of  CPR in the heart wing of a hospital.  He may be less
expensive but is he really the one you want?

BPOs are used to set the value for liquidation of REOs.  Usually the
agent doing the BPO will be the one in charge of listing the property.
The tendency is low and quick.  This leaves money on the table for the
institution and can further harm the equity position of homeowners
actually still  paying their mortgage.  Realtors have a job and are
generally very professional at it, doing BPOs for lenders is not their
expertise and should not be allowed.  This practice is apparently not
allowed in many states.

I appreciate you consideration of these concerns.  Please appropriately
address all areas of concern.  The American Public deserves your
attention.

Sincerely, 

**Michael S. Cook, MAI, SRA **

**\-\-\-\-\-\-\-\-\--**

**Michael S. Cook & Associates, Inc. **

**Real Estate Analysis, Brokerage and Consulting**

**P.O. Box 2219 **

**McKinney, TX 75070-8167 **

**Phone:  972.547.9697 **

**Cell:  972.979.6897 **

**Fax:  972.547.9695 **

**Email:  michael@michaelcook.com **

**www.michaelcook.com**