REVAA Recommendations On Broker Price Opinion Legislation

Model Legislation

(a) Notwithstanding any provisions to the contrary, a real estate broker or sales agent licensed by this state may prepare an opinion:

(i) regarding the value of real estate;

(ii) to a potential seller or third party recommending a listing price of real estate;

(iii) to a potential buyer or third party recommending a purchase price of real estate; or

(iv) to an existing or potential lienholder or other third party for any purpose other than as the sole basis to determine the value of a property for the purpose of a purchase money loan origination (provided that the transaction has not otherwise been designated by rule as appropriate by the relevant federal regulators).

Precedence

Nevada S.B. 184 - this bill received support from both appraiser and alternative valuation groups based upon its clarification (bolded below) that BPOs are acceptable for most uses in the mortgage lending industry other than as the sole basis for a loan origination decision.

"2. A person licensed pursuant to this chapter may prepare a broker's price opinion for:

(a) An existing or potential seller for the purposes of listing and selling a parcel of real property;

(b) An existing or potential buyer of a parcel of real property;

(c) A third party making decisions or performing due diligence related to the potential listing, offering, sale, exchange, option, lease or acquisition price of a parcel of real property; or

(d) An existing or potential lienholder, except that a broker's price opinion prepared for an existing or potential lienholder may not be used in lieu of an appraisal for the purpose of determining whether to approve a mortgage loan."

U.S. House of Representatives H.R. 4173 (Wall Street Reform and Consumer Protection Act) - Industry participants were able to agree upon a narrowly tailored restriction solely limiting the use of BPOs when they serve as the primary basis for the origination of a residential mortgage loan secured by a consumer's principal dwelling.

"SEC. 1126. BROKER PRICE OPINIONS.

(a) General Prohibition- In conjunction with the purchase of a consumer's principal dwelling, broker price opinions may not be used as the primary basis to determine the value of a piece of property for the purpose of a loan origination of a residential mortgage loan secured by such piece of property.

(b) Broker Price Opinion Defined- For purposes of this section, the term `broker price opinion' means an estimate prepared by a real estate broker, agent, or sales person that details the probable selling price of a particular piece of real estate property and provides a varying level of detail about the property's condition, market, and neighborhood, and information on comparable sales, but does not include an automated valuation model, as defined in section 1125(c)."

Support

Home Affordable Modification Program ("HAMP")

HAMP commits $75 billion to keep up to 3 to 4 million Americans in their homes by preventing avoidable foreclosures. The program supports the use of AVMs or BPOs to establish eligibility for a loan modification.

"The servicer may use, at its discretion, either one of the government sponsored enterprises (GSEs) automated valuation model (AVM) - provided that the AVM renders a reliable confidence score - or a broker price opinion (BPO)."

Home Affordable Foreclosure Alternatives ("HAFA")

Recently announced by the U.S. Treasury, HAFA encourages short sales and deeds in lieu where a loan modification or refinancing will not work.

"Property Valuation: The servicer will independently establish both property value and the minimum acceptable net return in accordance with investor guidance and will provide instruction to the borrower regarding the list price and any permissible price reductions. The price may be determined based on either: (1) an appraisal performed in accordance with USPAP and/or (2) one or more Broker Price Opinions either of which must be dated within 120 days of the Short Sale Agreement."

Regulation Z (Truth in Lending); Proposed Rules

The Federal Reserve recently supported the use of BPOs and AVMs to assist lenders in making decisions related to Home Equity Lines of Credit (HELOCs).

"Proposed comment 5b(f)(3)(vi)-5 would clarify that appropriate property valuation methods under Sec. 226.5b(f)(3)(vi)(A) may include, but are not limited to, automated valuation models (AVMs),\29\ tax assessment valuations (TAVs),\30\ and broker price opinions (BPOs).\31\ These examples of appropriate valuation tools are illustrative; the Board recognizes that the methods named in the commentary may in the future commonly be referred to by other names, and that new valuation methods that may be appropriate could be developed over time. Creditors would not be able to use any valuation method if state or other applicable law prohibits using that method for determining whether to suspend or reduce credit lines. For example, some state laws permit real estate brokers or salespersons to perform BPOs only as part of the real estate sales or listing process."

If state law is read to prevent the use of BPOs in connection with a loan modification under HAMP, or a short sale under HAFA, homeowners will be severely disadvantaged in their ability to efficiently establish their eligibility to modify their loan or otherwise avoid foreclosure.

For a description of other Federal agencies that have supported the use of BPOs, please see REVAA's BPO Brief at revaa.org. For a description of the many other non-origination based uses of BPOs in the mortgage lending industry, please see REVAA's BPO Utilization Chart at Revaa.org.