Rep Paul W. Hodes introduced House Bill H.R.3535 to create the Homebuyer's Protection Act of 2007 on 9/14/2007:

To amend the Truth in Lending Act to require escrow accounts for the payment of property taxes and insurance for all subprime loans, and to expand the coverage of the appraisal requirements under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, and for other purposes.

The second section of the bill is MOST important to appraisers!  It would significantly change the language in FIRREA regarding when appraisals are required .

• The current language only requires appraisals on `federally related transactions'. 
• The proposed language requires appraisals on ALL `real estate related financial transactions'. 

What could that mean for AVM and BPO products?  This bill is in the first step in the legislative process. Introduced bills go first to committees that deliberate, investigate, and revise them before they go to general debate. The majority of bills never make it out of committee.

But if it were to pass . . .Would that mean that ALL real estate transactions would have to be performed by a licensed appraiser?  What do you think the chances are that a bill like this will make it out of committee?

Here's a clip from Rep. Hodes website:

This bill amends the Truth In Lending Act, or TILA, to ensure that all subprime loans have an escrow for the life of the loan, like prime loans. Because subprime loans do not require escrow accounts, borrowers can be hit with huge tax bills at the end of the year, contributing to foreclosures.

The second part of the bill would require a licensed appraiser to appraise all residential homes when a consumer seeks a mortgage. Currently, licensed appraisers are only required when a federally regulated bank originates the loan. However, with the increase in non-bank mortgages (like warehouse lenders) some loans are not "federally related" and therefore do not require a licensed appraiser.

Without an accurate appraisal, a homeowner would not know the true value of their home and could be taxed at a higher rate by the city. Additionally, if the mortgage is later purchased by an investor on the secondary market, that purchaser would not know the true value of the home either. If a foreclosure occurs, the investor who purchased the debt (mortgage) would be unable to recoup their whole loss since the property was appraised at a higher value than it was actually worth.

The bill would change federal law to require a licensed appraiser in all real estate transactions by amending Financial Institutions Reforms, Recovery, and Enforcement Act 1989, also known as FIRREA. 

Here's an excerpt from the bill:

SEC. 3. SCOPE OF APPRAISAL REQUIREMENTS.

(a) In General- Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (12 U.S.C. 3331 et seq.) is amended by striking `federally related transaction' and `federally related transactions' each place each such term appears and inserting `real estate related financial transaction' or `real estate related financial transactions', as the case may be.

(b) Technical and Conforming Amendments-

(1) The heading of section 1120 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (12 U.S.C. 3349) is amended by striking `federally related transactions' and inserting `real estate related financial transactions'.

(2) Section 1121 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (12 U.S.C. 3350) is amended--

(A) by striking paragraph (4); and

(B) in paragraph (5), by striking `any transaction involving' and inserting `any consumer transaction involving'.

Download HR3535_Homebuyers_Protection_Act_2007.pdf (42.4K)

Latest Major Action: 9/14/2007 Referred to House committee. Status: Referred to the House Committee on Financial Services.

Thanks to Joan Trice of http://www.AppraisalBuzz.com and washingtonwatch.com for ferreting out this legislation!

Brian J. Davis, RAA - Brian Davis & Associates - Brian has over 23 years of appraisal experience in Central, IL and hosts the Appraisal Scoopblog and the WinTOTAL Users Group an email forum for appraisers.