Blackburn
on ForwardReal estate fraud is present in every area of the US. The group responsible for monitoring the appraisal regulatory program (The Appraisal Subcommittee), Federal Financial Institutions Examination Council is the only group I can envision having a realistic chance of helping turn the tide for more meaningful lending regulations to monitor the behavior of lending officials who order appraisals. This certainly cannot be achieved through the efforts of real property appraiser regulatory agencies acting alone. The Kentucky Real Estate Appraisers Board has experienced problems with electronic signatures. Approximately 5-cases of multiple fraud allegations have been presented the Board in the past 24-months. Appraisers are accusing mortgage brokers, and others, of lifting their electronic signatures, obtaining the same appraisal report form software used by the appraisers, and altering the appraisal reports prior to submitting them to investors. I have discovered many appraisers fail to totally understand the liability associated with submitting electronic appraisal reports. – Larry Disney, SRA, Executive Director, Kentucky Real Estate Appraisers Board from an email to Ole Bear, Editor for Realty Reality, June 6, 2005.
In my learning how the money works in the real estate valuation and professional organizations, a few years back, I stumbled on the writings of the past Executive Director of the Kentucky Real Estate Appraisers Board – Sam E. Blackburn, now retired. Sam Silver Fox as he is affectionately known in the Bluegrass State has always seen through the smoke and mirrors of The Appraisal Foundation, HUD, Fannie Mae and the GSEs, as well as the Fraud of Appraisal Regulation, FIRREA 1989. It is with great pleasure to present to the global financial markets these essays by Sam Silver Fox. These essays are from the first, second, and third quarter KREAB quarterly newsletters from 2003. One of Sam’s favorite Kentucky colloquialisms is “that dog just won’t hunt!” Here’s the reason why the real estate valuation industry and professional in America is in serious jeopardy. This is why it is important to have good honest appraisers in the business at all times just in case Mr. Greenspan and the other Bad Boys at the Federal Reserve like Bernanke with his printing press cause a global financial holocaust in financial markets and real estate, which by the way is being used and prostituted to hold up Wall Street and the US Economy – and every other brother and their dog’s stock and financial markets. The following Blackburn Essay Reprints are taken directly from original copy provided by Larry Disney, SRA, the current Executive Director of the Kentucky Real Estate Appraisers Board. These are from the KREAB, Quarterly Newsletters No. 48, 49, 50 – January, April, July – 2003, and definitively, reprinted with permission of the KREAB… and its Executive Director for Realty Reality here at FSO. Mr. Disney is also a SRA in the Appraisal Institute and the former Chief Investigator in the KREAB under Blackburn. The realty valuation community in Kentucky has been well blessed by these leaders and currently stands at the forefront challenging the Delphi Techniques, Cognitive Dissonance, and Group Manipulation Tactics used by the banking cartel on the realty valuation industry. -- Ole Bear, Editor
For the past seven years it has been my pleasure to serve as Executive Director of the Kentucky Real Estate Appraisers Board. As any old man, now eligible for social security and a strong desire to spend more time with my family and on the golf course, I announce my retirement effective September 1, 2003. During my seven year tenure, I made many friends and played many rounds of golf. Life just doesn’t get much better than that. The appraisers in Kentucky are indeed fortunate to have a professional, caring Board and a hard working and dedicated staff. It’s been my pleasure to have been associated with both. Kentucky is blessed with many fine appraisers that serve our clients well. It is my personal opinion that Kentucky appraisers are more knowledgeable today then they were seven years ago thanks to the effort of the Board and staff. Through seminars and newsletters, we have tried to keep appraisers informed, up-to-date and aware of the many pitfalls in appraising. Having our clients served by competent appraisers has always been our number one objective. I’m proud to have played a small part in advancing professionalism for real property appraisers in Kentucky. Upon being appointed Executive Director, I quickly realized the appraisal profession, as regulated by Title XI, was in deep trouble. There is no single voice representing our nations 80,000 real property appraisers. The requirements to become a certified/licensed appraiser are woefully inadequate and the Appraisal Foundation, a private entity charged with writing the Uniform Standards and establishing the experience and educational criteria, has operated in a vacuum and promoted their own interest over those of our nation’s appraisers. No entity, public or private, can carry out its responsibilities without effective oversight and accountability. I have spent the last seven years trying to correct the mistake Congress made in 1989 when Congress enacted Title XI. I regret that I must report to you in my last newsletter, I failed. It is tough to win against an opponent that owns the ball, the court and the referee and has no regard for how the game is played. The self-serving and profit oriented policies of TAF continue to be a detriment to the appraisal profession. To my many friends I made in Kentucky and throughout the United States as President of AARO, I thank you for all the wonderful memories. If we raised the bar of professionalism just one notch, then the appraisal profession has been improved from our effort. I would suggest to all participants in the appraisal certification program that you never be satisfied with mediocrity or the status quo and continue to strive for improvement. Never be afraid or timed to speak up for what you believe, for evil thrives when good men do nothing. I would personally like to thank the staff and Board for seven wonderful years. Larry, Angie and Janie, you are the best and thank you from the bottom of my heart for a job well done; your kindness and friendship will never be forgotten. To our Board, Max, Judy, Carol, Jennifer and Woodrow, I commend you for your thoughtfulness and careful consideration you give each decision; Kentucky appraisers are in good hands. My best to all appraisers in Kentucky and I challenge each appraiser to be the best you can be and represent the appraisal profession with dignity and honor. Again my thanks for a wonderful seven years.
Title XI is not working as Congress intended, financial institutions are not being protected, clients continue to pressure appraisers to hit the number and predatory lending and real estate fraud is running rampant; so what else is new? What’s new is Freddie and Fannie are being investigated for financial solvency, cooking the books and accounting irregularities. These two loosely regulated, highly leveraged monopolies have put billions of taxpayer dollars at risk. The senior management of these two entities has lost their prospective and purpose and are being scrutinized by Congress. A quasi government agency loosely regulated with virtually no oversight or accountability is a disaster in the making. Congress should review Fannie and Freddie and all quasi government agencies and demand oversight and accountability. Congress will not allow Fannie and Freddie to fail, but it might take a transfusion of several billion dollars for both to remain solvent. Funds appropriated by Congress to shore up Fannie and Freddie will come directly from the pockets of America’s taxpayers. Will the problems associated with Fannie and Freddie effect the residential appraiser? Absolutely. When Congress examines Fannie and Freddie’s short comings, one standout will be inflated appraisals and the role of the certified residential appraiser. When Congress examines the home mortgage system it needs to pay particular attention to the major players and their participation in the system. As a start, Congress should examine, (1) The Appraisal Subcommittee, (2) The Appraisal Foundation, (3) Under funded state Regulatory Boards, (4) How appraisers are selected, and (5) Client and lender pressure. Congress should also examine why the appraisal profession is the only profession in the United States with Federal oversight. Regardless of the misdeeds of Fannie and Freddie, they will shift as much of the blame as possible to inflated appraisals prepared by unethical appraisers. These wrong doings are certainly going to get the attention of Congress and prompt Congress to examine the present home mortgage system. What’s been reported to date on Fannie and Freddie is just the tip of the iceberg. Folks, it’s going to get ugly. [Editor: The last two paragraphs of this essay were reversed from the original version, making the essay more powerful in our view.]
The Department of Housing and Urban Development (HUD) is an over-grown beast, devoid of logic, reasoning or common sense. There is no rope strong enough to tie the beast down and no cage large enough for confinement. There is but one cure, shoot the wild beast and put him out of his misery. Under the tenure of Secretary Cuomo, HUD floundered like a fish out of water. HUD took off on tangents that had nothing to do with home ownership and is some cases were a detriment to the home buyer. Some ill conceived ideas were attacking gun ownership, airing TV commercials whereby an appraisal completed by a certified appraiser will suffice for a home inspection and producing a V.C. form (verification of condition) which contradicted HUD’s own handbook. Also, in a high profile yield spread premium case, Culpepper vs. Irvin Mortgage Corporation, HUD sided with Irvin Mortgage and said yield spread premiums were not an illegal kick back under federal law. In 1998 Congress ordered HUD to clarify its position on lender payments to mortgage brokers. In March of 1999, after considerable sole searching and pressure from mortgage brokers HUD, through a Statement of Policy, said, “yield spread premiums are not per se unlawful.” HUD’s Statement of Policy allowing yield spread premiums, negated class action lawsuits against our nation’s largest lenders amounting to forty billion dollars. HUD clearly came down on the side of unethical mortgage brokers and hung the borrower out to dry. Without the threat of class action law suits, unethical mortgage companies were free to continue their abusive lending practices against the poor, the elderly, the less educated and minority borrowers. HUD’s current Secretary Mel Martinez, proposed changes to the Real Estate Settlement Procedures Act (RESPA), that would conceal from the borrower what they are getting for their closing cost. In short, lump all fees together with no break down. Congress is having no part of this and sent RESPA back for a make over that can be understood by the average home buyer. HUD also contends appraisal services are “high priced” services, when in fact, appraisal fees for residential housing are about the same as they were ten years ago and in some cases lower. Does the beast not know what’s happening in the real world? North Carolina and Georgia, impatient for Federal legislation to address predatory lending, passed strong predatory lending bills. Kentucky, while a step in the right direction, passed a much weaker predatory lending bill. With Congress and the states addressing predatory lending it would seem HUD, on its own volition, would step up to the plate and take the lead. Rest assured, HUD will only do that which Congress mandates, nothing more. Has HUD helped millions in obtaining home ownership? Absolutely. Has HUD done all it can do to prevent predatory lending and protect home buyers from unethical and unscrupulous mortgage brokers and loan originators? Absolutely not. The beast has been running amuck for many years, its time Congress did something. Either put a short leash on the beast or shoot the beast; either way we need some relief.
Clients are asking, “Why should I pay a certified appraiser to tell me the value when 99% of the time it’s going to be the selling price or greater? Many clients have reached the conclusion; a residential appraisal is a waste of time and money. Clients sharing this attitude are on the rise as appraisers continue to lean on the sales price to support their opinion of value. The sales price should certainly be a component of your analysis, but should never be the predetermined target value. As clients begin to rely on AVM’s and their own data bases to determine market value and move away from asset based lending and more toward credit based lending; a precise value becomes less important and a range of value will suffice. Real property appraisers have lost sight of their purpose and their real worth. Appraisers are selling themselves and their services short and prostituting themselves for the sake of a few dollars and the promise of additional assignments. At what cost are we accommodating our clients? And, if everyone’s doing it, where’s the harm? The real harm is the loss of credibility and accountability. Appraisers are not held in high esteem by users of appraisal services or the general public. And, we’re doing very little to reverse this trend. The major users of appraisal services are actively seeking alternatives to residential appraisals and are finding these alternatives just as reliable as the work product of a certified appraiser. God bless those appraisers that still have principals and the strong belief we are professionals and not prostitutes. The sad fact of the matter is; those appraisers aspiring to be professionals are a minority and their number is decreasing. Is the work product of many appraisers deficient because they intentionally set out to deceive and mislead or do they just plain don’t know any better? I sincerely believe the lack of knowledge and understanding of the appraisal processes is our biggest problem. Many appraisers lack the proper educational foundation and their training took place under a supervisor who also was educationally challenged. Suggestions for improving and restoring credibility to our profession. (1) Accept only those assignments you are competent to perform; saying “NO” to some assignments will save you a lot of headaches. If you’re not competent to perform an assignment, become competent through education or aligning yourself with someone that is competent. Competency begins with recognizing there are some assignments with which you require assistance. (2) If you don’t understand a particular appraisal practice, don’t proceed with the assignment until you talk to someone that does. Never be ashamed or embarrassed to ask for help or advice. (3) Never put an unsupported statement in your report. Pulling unsupported conclusions from the air will not lend credibility to your report. Market value is market value with all data being derived from the market. If you can’t support it – don’t report it. Its easy to rationalize and defend the proposition that if appraising is being done incorrectly by so many; what difference can it make if I put out the extra effort to do it right? The world may never know or care if your work product is excellent, average, mediocre, or below average. But, the one person to whom it should matter will know and you and your clients will be better served because you took the time to do it right. Regardless of your profession, taking pride in your work product is a necessary and marvelous attribute to possess; especially if you plan to be successful and have the respect of those that pay for your services.
While no appraiser relishes the thought of having a complaint filed against them; the complaint process is a very important component of Title XI and the appraiser’s certification program. All professions that require a license to practice are regulated by allowing an aggrieved party to file a complaint and seek redress. Here’s where the appraisal profession differs with most professions. To file a complaint with a state regulatory board, you don’t have to be an aggrieved party, you don’t have to have standing or even know the appraiser or the client. In fact, you don’t even have to be an intended user. The only requirement to file a complaint is to have a copy of the appraisal and be able to state the alleged violations of USPAP or state law. Herein lies the problem. Disliking competition, some appraisers use the complaint process to embarrass their fellow appraisers. Using the complaint process to embarrass one’s competition is not in the best interest of the appraisal and be able to state the alleged violations of USPAP or state law. Herein lies the problem. Disliking competition, some appraisers use the complaint process to embarrass their fellow appraisers. Using the complaint process to embarrass one’s competition is not in the best interest of the appraisal profession and state regulatory boards should closely monitor this practice and be aware of its implications. The complaint process should address two types of complaints. (1) Less egregious complaints containing commonly made errors. Many of these complaints are made by appraisers who received their education from unknowledgeable and incompetent instructors and their training from like supervisors. In most cases, it’s not the fault of the appraiser but the system. These folks need guidance, additional education and possibly a small fine, not humiliation. (2) The second type of complaints deal with gross negligence and fraud. Gross negligence and fraud should be addressed with stiff fines, suspension, and or revocation of license. Gross negligence and fraud cannot and should not be tolerated by appraisers or a state board. The boards policy of publishing in the quarterly newsletter the names of appraisers that receive a fine of $1000 or greater, a suspension or revocation, was implemented to prevent an appraiser from embarrassing their competition. Should an appraiser not understand the Uniform Standards or an appraisal process, it’s the board’s intent through guidance and additional education to rehabilitate the appraiser and correct any misunderstandings. Should an appraiser commit gross negligence, a stiff fine and suspension will prevail. Should an appraiser intentionally commit fraud, it’s the board’s intent to remove them from the appraisal profession. Ours is a unique profession that allows the practitioner to regulate their competition. Nothing wrong with the concept if it is done for the right reasons. There is also nothing wrong for a reviewer to call the appraiser for clarification or offer advice or guidance. Most appraisers would appreciate a friendly call when they have made a mistake or misunderstood an appraisal practice. A little empathy toward a fellow appraiser will go a long way in promoting professional behavior and building relationships. Tolerance and empathy are good qualities when used in the right way for the right reasons.
Between 1980 and 1984, 2912 banks and thrifts failed costing the American taxpayer 200 billion dollars. In 1989 Congress enacted Title XI to protect the safety and soundness of America’s financial institutions. Congress, in its haste to correct the problem, enacted an extremely poor piece of legislation, Title XI. Title XI authorized the Appraisal Foundation, a non-profit, non-government, private organization, chartered in the state of Illinois, to promulgate the Uniform Standards, educational and experience criteria. The Appraisal Standards Board (ASB) promulgates the Uniform Standards while The Appraisal Qualifications Board (AQB) promulgates the educational and experience criteria necessary to become a certified or licensed appraiser. From inception, The Appraisal Foundation has been very reluctant to allow its membership and especially the ASB and AQB to be representative of the entire appraisal community. With few exceptions, trustees and board members are members of a sponsoring organization. Our nations 50,000 appraisers that choose not to belong to a sponsoring member organization are virtually devoid of representation. This closed shop attitude and the ostracizing of anyone who criticizes the Appraisal Foundation has not served the best interest of American’s real property appraisers. Sponsors are akin to lobbyist; they pay their dues for the prospect of accessibility and influence. It is my opinion, the Appraisal Foundation should not have sponsors and all appraisers should have equal access and a chance to serve. The Appraisal Foundation has also dictated that no state board member may serve on the ASB or AQB. This arbitrary and capricious ruling is an affront to the many dedicated and knowledgeable appraiser board members who could be a valuable recourse to the ASB or AQB. This exclusionary attitude is symbolic of a closed shop and exemplifies why many competent appraisers choose not to apply. By regulation, the ASB and AQB must expose changes to the Uniform Standards and the education and experience criteria. However, neither board is required to adhere to comments received on exposure drafts. In fact, comments to exposure drafts have been ignored and in at least one instance, the responses were manipulated to support the view and agenda of the Chair. In that case the Oversight Committee ignored the facts and protests from every major appraisal organization and many state boards, and allowed the Chairman to serve the following year. Removing members from the ASB or AQB whose tenure has been less than stellar, has not been a strong suit of the Appraisal Foundation. The AQB, by mandating our nations 80,000 appraisers take the 7-hour National USPAP Update course every two years, taught only by an AQB approved instructor; has created a monopoly which will generate millions of dollars for the coffers of the Appraisal Foundation. Also, effective January 1, 2003, the 15 hour USPAP course must be the National USPAP course approved by the AQB and taught by an AQB improved instructor. These mandated courses, done so under the disguise of improved USPAP instruction, is an affront to the free market system and many dedicated and competent USPAP instructors. The provision for an equivalent USPAP course, approved by the AQB, is a red-herring at best. Furthermore, the National USPAP course is disorganized and needs considerable work by the ASB and AQB to make it plausible. Not taking the time to get it right the first time is a prime example of greed getting in the way of excellence. In enacting Title XI, Congress made a grievous error in not specifically addressing what the Appraisal Foundation shall do and shall not do. In the absence of definitive language, the Appraisal Foundation has usurped state authority and done as they pleased. Congress provided funding for the Appraisal Foundation and the Appraisal Subcommittee while failing to provide adequate funding for State Regulatory Boards, the very entity necessary for Title XI’s success. The $25.00 now being collected and remitted to the Appraisal Subcommittee from every certified and licensed appraiser would go a long way in improving a State Boards financial condition. The appraisal profession is the only profession in America with Federal oversight. As state regulatory boards license and regulate all other professions in the United States, so should they license and regulate real property appraisers. The Appraisal Foundation has never understood the role of a leader or the qualities necessary to gain confidence and respect. As evidenced by the fact that virtually only a handful ever apply for a position on TAF, ASB or AQB or answer an exposure draft, says it all. Why go through the motions of applying for a position or answering an exposure draft, when in most cases, the die has long been cast. The ASB, under the leadership of its present chair, has demonstrated a desire and willingness to listen and work with all participants. Had this been the prevailing attitude from the beginning, many of our present problems would not exist. It was the intent of Congress that the AQB would set the minimum qualifications for a real property appraiser to appraise real estate utilized for lending purposes for a federally related transaction. It was the clear intent of Congress that additional educational and experience criteria would be determined and promulgated by State Regulatory Boards. It was never the intent of Congress for the AQB to usurp state authority, become an educational provider, mandate courses and instructors for a fee; and generate millions of dollars off the backs of our nation’s real property appraisers. Folks, not only was this not the intent of Congress, its just flat out wrong. The Appraisal Foundation, by operating as a private club with restricted membership and a deaf ear to the appraisal community, has missed a golden opportunity to set the example and through a spirit of cooperation and consensus, raise the bar of professionalism for all real property appraisers. The Uniform Standards, as presently written, changes every year and is understood by very few appraisers. The minimum educational criteria is woefully inadequate and should have been addressed years ago by the AQB. The AQB is dead set on requiring a college degree, which is opposed by a majority of state boards and appraisal organizations. Another example of not listening to exposure drafts comments. The AQB should have established the minimum educational criteria and left augmenting the minimum criteria to state boards. I’m quite confident when the GAO study is completed and delivered to Congress, the Appraisal Foundation will do the old Potomac two step and put a Washington spin on why they should not be held accountable for the failures of Title XI. The failures of Title XI can be attributable to a relative small number of people who have controlled the Appraisal Foundation from the inception of Title XI. The Appraisal Foundation has it within its power to take down its “members only” sign and open its doors to all. My best guess; this will happen when Hottie allows women to be members of Augusta. Unless changed by Congress or the Courts; the Appraisal Foundation will continue to be the Achilles’ heel of the appraisal profession.
Mr. Bunton [Editor’s Note: one of the honchos in The Appraisal Foundation in 2003] states he feels compelled to correct numerous misleading or erroneous statements in my April Newsletter article. Wonderful idea; lets put the facts on the table and let the appraisal community decide if the Appraisal Foundation (TAF) is conducting business in the best interest of our nations real property appraisers. FACT NO. 1: TAF does not allow state board members to serve on the ASB or AQB. Your rationale being the ASB and AQB sets policies that are carried out by state boards and there may be a conflict or perceived conflict of interest. I find it a little odd that state board members are capable of establishing and enforcing laws for their respective states but would somehow be incapable of doing the same as a member of the ASB or AQB. Folks, that dog just won’t hunt. FACT NO. 2: My criticism of the AQB’s 7 and 15 hour National USPAP Courses was not directed at the courses, although I don’t believe the 15-hour USPAP course achieved it’s initial objective, but to the fees associated with instructors certification fees and course fees. From these mandated courses TAF will garner millions of dollars off the backs of our instructors and real property appraisers. If I’m in error, do the math and prove me wrong. FACT NO. 3: As to my interpretation of the AQB’s authority under Title XI to establish the minimum educational criteria. My concern and it was not asked of the General Counsels of the five federal financial institutions regulatory agencies with 140 years experience; does the AQB have the authority to mandate our nations 80,000 real property appraisers take specific courses, taught only by AQB approved instructors, with a fee paid to the TAF for this service. The question should have been to the General Counsels; does Title XI give the AQB authority to establish a monopoly and assess an arbitrary fee for the approval of courses and instructors that the AQB has mandated 80,000 appraisers must take. The initial voluntary USPAP course offered by the AQB was quickly rejected by the appraisal community. The only alternative remaining was to make the course mandatory, thus guaranteeing TAF a nice source of revenue. Call it by any name you wish, but generating additional revenue is the name of the game. FACT NO. 4: My criticism of TAF as a private club is well documented in the make-up of its Boards and Chairs over the past fifteen years. The ASB and the AQB are the two rule making bodies of TAF. If you believe membership is open to all, submit your application and see how quick they respond that while you’re qualified, you don’t fit the mix they are looking for. Enough said membership by invitation only. FACT NO. 5: Only in the past few months has the Board of Trustee’s changed its long standing policy of not allowing comments in person. I applaud Chair Mary McCarter for this long over due change. My reason for criticizing this policy was that many times correspondence critical of TAF, ASB or AQB was never shared with the Trustee’s; the Trustee’s should see all correspondence, both good and bad. FACT NO. 6: As to the AQB’s wishes to require a college degree for admission to the appraisal profession. Over the strong objections of state boards, appraisal organizations and appraisers, the AQB had to settle for its present criteria. Dave, you must have missed the AQB meetings where Chairman Morse berated speakers for not agreeing a college degree should be required. The AQB had to settle for less, but make no mistake, they will be back. I believe it’s very important for the readers of this publication and the appraisal community to hear an opinion other than that of TAF. Although TAF does not agree, my personal opinions are shared by many in the appraisal community, who, just as I, believe we deserve better from TAF. The real property appraisers in America desperately need one voice to represent their concerns and well being. TAF has it within its power to be that voice and catalyst, but only if TAF is willing to be inclusive and represent all real property appraisers in America. TAF must allow all participants a role in the decision making process, and not just ad hoc and advisory committees. Sponsors of TAF represent, at best, forty percent of America’s appraisers, who speaks for the rest? For the past seven years, I have brought to light what I believe to be flawed and profit oriented policies of TAF. Policies that I believe have better served TAF than the average appraiser. My record of speaking out and standing up for appraisers in Kentucky and our nation is well documented, I stand on that record. Apathy and complacency are common place in today’s world and even more prevalent in the appraisal community. At the national level, appraisers have virtually no voice as to how they are regulated or to the standard they must abide. Appraisers do not control their own destiny. Their fate lies totally in the hands of the Appraisal Foundation. Folks, that’s one scary thought.
Editor’s Closing Commentary Blackburn’s essays reveal an underworld of politics, intrigue, and an economic tapeworm controlling the realty valuation community comprised of over 80,000+ realty valuation appraisers. This is a black budget negative return economy that reaps profits for the insiders at the expense of the realty valuation professional, designated or not, who is the honest appraiser out there on Main Street America trying to do his job. Ole Bear, Editor © 2005 Realty Reality |
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