Transactions Secured by Manufactured Homes Without Land ...

September 9, 2013

Ms. Monica Jackson Office of the Executive Secretary Consumer Financial Protection Bureau 1700 G Street, NW Suite 1801 L Washington, DC 20552

Docket No. CFPB-2013-0020

Dear Ms. Jackson:

On behalf of the 25,000 members of our respective professional appraisal organizations, thank you for the opportunity to comment on the Consumer Financial Protection Bureau's ("CFPB") proposal ("Proposal") to amend the Final Rule issued by the Agencies on January 18, 2013, related to Regulation Z and "Higher Priced Mortgage Loans" (HPMLs). The Proposal provides three exemptions from the rules, as follows: transactions secured by existing manufactured homes and not land; certain "streamlined" refinancing; and transactions of $25,000 or less.

We are providing general comments below, and including responses to specific questions at the end of the letter.

Transactions Secured by Manufactured Homes Without Land Generally, our comments are reserved for situations where manufactured homes are secured with land, as that's the most common situation where a real estate appraiser is involved in lender due diligence. Situations where the manufactured home is secured without land generally are treated as personal property appraisals.

With Land We support the CFPB's proposal to retain the Higher Priced Mortgage Loan (HPML) appraisal requirements for a transaction secured by a manufactured home and land. Loans involving manufactured housing with land often are more complex than conventional, "stick-built" transactions, requiring increased due diligence. Several years ago the Appraisal Institute developed a successful seminar related to this type of appraisal assignment (referenced in the proposed rule), to assist with the development of a deep pool of appraisers available with the skills to do this type of work. This seminar was presented more than 150 times and with an enrollment of more than 5,500 professionals.

New Manufactured Housing Our organizations urge the CFPB to reconsider the existing exemption from the HPML appraisal requirements for new manufactured homes when secured by land. There are a number of complicating factors with new manufactured housing that would beg for enhanced due diligence. For one, the price of a manufactured home may not necessarily reflect the value of the property, as often price does not equal value because of supply and demand issues. In addition, our members have reported significant valuation impacts based on the quality of installation and construction of the

manufacturing housing, which would be analyzed by an appraiser. For these reasons, we believe that the HPML appraisal requirements should apply.

Streamlined Refinancing While our organizations support plans or programs designed to ease the housing situation, we remain cautious against ignoring collateral risks. Loans that involve "new risk" or "new money" to agencies or taxpayers should require real estate appraisals to fully understand collateral risk. Such appraisal requirements are consistent with long-standing real estate lending regulations. While the Proposal is correct in saying that in the current market, cash-out refinancings have become less common, that is likely due to the lack in equity in homes. However, as the market returns with some positive equity for homeowners, the number of refinancings should be expected to increase; therefore, the agencies should retain the use of appraisals in this situation.

The cost of ordering an appraisal is often cited as a reason to waive the appraisal and utilize an automated valuation model (AVM) instead. This ignores the fact that there are a range of services that appraisers can provide ? desktop appraisals, drive-by appraisals or full interior inspection appraisals. Generally, a sound business practice is to pair the collateral risk with the most appropriate valuation or appraisal service. Where there is "new risk" the most prudent practice is to obtain an interior inspection appraisal; where risk is known or already exists, it may be prudent to obtain an appraisal (especially where no other results are available), but this may be an exterior inspection appraisal.

"USPAP Compliant Appraisal" Throughout the Proposal, the term "USPAP compliant appraisal" appears. We would caution the CFPB and other agencies against using this term, as it doesn't officially exist in the appraisal lexicon. The Uniform Standards of Professional Appraisal Practice, or "USPAP", provides a minimum set of quality control standards for the conduct of appraisal in the U.S. It does not attempt to prescribe specific methods to be used. Likewise, the term "FIRREA-compliant" appraisal is another term that is not defined and is likely to confuse a great many practitioners and industry participants.

"Cost of the Appraisal" The Proposal contains many references to the "cost of the appraisal" and cites $350 as an example fee (Page 87). While $350 may be the going rate for an appraisal in one region, it may be much more in other areas. Our organizations urge Government Agencies to avoid quoting fees, even if just for the sake of an example, because doing so could have consequences for appraisers at a later date. In fact, manufactured housing often is treated as a complex appraisal assignment and, as such, is likely to involve an enhanced scope of work.

Closing Our organizations are pleased with the CFPB's work on this proposal, and we stand committed to working with you to assist in the implementation of this and other important endeavors.

Should you have any questions or need additional information, please contact Bill Garber, Director of Government and External Relations, Appraisal Institute, at 202-298-5586 or bgarber@, or Brian Rodgers, Manager of Federal Affairs, Appraisal Institute, at 202-298-5597 or brodgers@.

Sincerely,

Appraisal Institute American Society of Farm Managers and Rural Appraisers

Responses to Specific Questions

Question 22: In this regard, the Agencies also seek additional comment and information on the availability of: (1) Comparable sales data for appraisers to use in an appraisal of a manufactured home alone, without land; and (2) state-certified or -licensed appraisers to appraise these properties.

Since it is without land, this type of work is typically directed toward personal property appraisers, who do not need state-certification or licensing to appraise personal property, unlike real property appraisers, who are required to be licensed or state-certified.

Question 29: Accordingly, the Agencies solicit comment on the circumstances in which the originator's assumption of put-back risk raises safety and soundness concerns that weigh in favor of requiring the originator to obtain a USPAP-compliant appraisal with an interior property inspection for a "streamlined" refinance loan.

In talking with members who work for financial institutions, we understand that many banks already are getting appraisals on all (or a high percentage of) HARP or HAMP loans. Regardless of it being a "streamlined refinance," many banks view manufactured housing loans as having increased risk. Therefore, they often order a full appraisal.

Question 30: The Agencies also seek information on the valuation practices of private creditors for refinanced loans where the private owner or guarantor remains the same and the loans are not sold to a GSE or insured or guaranteed by a federal government agency, including how often no valuation is obtained.

It is our understanding that in situations where refinanced loans are not sold to a GSE, or insured or guaranteed by a federal government agency, banks most likely will order a full appraisal because of the increase of risk on their books.

Question 34: The Agencies also seek comment on whether the exemption for refinance loans should be conditioned on the creditor obtaining an alternative valuation (i.e., a valuation other than a FIRREA- and USPAP-compliant real property appraisal with an interior inspection) and providing a copy to the consumer three days before consummation. In requesting comment on this issue, the Agencies note that the purpose of TILA section 129H is, in part, to protect consumers by ensuring that they receive a copy of an appraisal with an interior property inspection of the home before entering into a HPML that is not a qualified mortgage.

Fannie Mae's desktop underwriter is an AVM, unless it's a property waiver.

While an AVM is better than nothing, it is risky to use with manufactured housing, due to the inconsistency of County property records. For example, personal property often gets merged with real property data.

In our view, all valuations should be disclosed to the consumer to be consistent with the intent of the Dodd-Frank Act. We have concerns with this question, as it could lead the agencies to provide an inducement for not getting an appraisal. We urge that the final rule not establish any inducements to steer creditors away from ordering appraisals to avoid a consumer disclosure requirement.

Question 37: The Agencies request comment generally on the extent to which either appraisals or other valuation tools such as AVMs or broker price opinions are used in connection with "streamlined" refinances by non-depositories in particular.

Generally, BPOs are not found in refinancing situations and, in fact, are illegal in many states. Moreover, the GSEs and other agencies prohibit their use in refinancing, as a matter of policy. As far as AVMs are concerned, the GSEs have their own AVMs. Where a high level of confidence exists with the AVM result, the GSEs will waive appraisals. The GSEs would be the best source for information on the extent these are used in connection with streamlined refinances.

Question 38: The Agencies also seek comment on whether additional criteria or guidance would be needed to describe the type of home value estimate that a creditor would have to obtain and provide to the consumer and, if so, what the additional criteria or guidance should address.

We are unclear what is being asked by this question. As a matter of general policy, we believe, at a minimum, that the consumer should be made aware as to what type of valuation service was performed and by whom.

Question 39: However, the Agencies request comment on whether the Agencies should adopt additional criteria for HPML "streamlined" refinancings that would be exempt from the HPML appraisal rules, including, but not limited to, requirements regarding whether the consumer has an on-time payment history and whether consumer "benefits" exist as part of the refinance transaction. The Agencies request that commenter supporting inclusion of these types of criteria explain why and comment on what the parameters of an on-time payment history should be and how "benefit" should be defined.

We think that the existing exemptions are sufficient. Additional exemptions would fly in the face of the spirit of Dodd-Frank, which is intended to put more emphasis on risk management, especially in HPML. The general idea is that where one risk is higher (Credit) more emphasis should be placed on other areas of underwriting, such as in this case (Collateral). As such, pursuing exemptions for risky loans seems inconsistent with the spirit of Dodd-Frank.

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