Legislature(2017 - 2018)ADAMS ROOM 519

04/13/2018 09:00 AM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Bills Previously Heard/Scheduled TELECONFERENCED
Scheduled but Not Heard
Moved CSHB 399(FIN) Out of Committee
Moved HCS CSSB 155(L&C) Out of Committee
-- Public Testimony --
CS FOR SENATE BILL NO. 155(FIN)                                                                                               
     "An Act relating to the  registration and regulation of                                                                    
     real  estate appraisal  management companies;  relating                                                                    
     to  the  establishment of  fees  by  the Department  of                                                                    
     Commerce,   Community,    and   Economic   Development;                                                                    
     relating  to   the  Board  of  Certified   Real  Estate                                                                    
     Appraisers;  relating to  real  estate appraisers;  and                                                                    
     providing for an effective date."                                                                                          
9:11:17 AM                                                                                                                    
EDRA MORLEDGE,  STAFF, SENATOR  KEVIN MEYER,  indicated that                                                                    
SB 155  related to the  regulation of real  estate appraisal                                                                    
management  companies.   She  detailed  that   an  Appraisal                                                                    
Management Company  (AMC) was an independent  entity through                                                                    
which  mortgage   lenders  order  residential   real  estate                                                                    
valuation services. The Senator  discovered that the federal                                                                    
government  required  states  that  chose  to  regulate  the                                                                    
sector  of industry  enact comprehensive  AMC oversight  and                                                                    
registration programs  by the deadline  of August  10, 2018.                                                                    
The companies  fulfilled an  administrative function  in the                                                                    
appraisal process  that included selecting an  appraiser and                                                                    
delivering  the appraisal  report  to the  lender. The  bill                                                                    
accomplished  2 things.  First the  bill  required that  the                                                                    
Board  of  Certified  Real  Estate  Appraisers  manage  AMCs                                                                    
according to  the minimum standards  of the  Dodd-Frank Wall                                                                    
Street  Reform   and  Consumer   Protection  Act   of  2010.                                                                    
Secondly, the  bill established  an annual  registration fee                                                                    
to  be collected  and transmitted  to the  federal appraisal                                                                    
subcommittee  to support  the  maintenance  of the  national                                                                    
registry.  She  reported that  if  the  legislation was  not                                                                    
adopted appraisal  management companies would  be prohibited                                                                    
to   provide   its    services   for   federally   regulated                                                                    
transactions in  Alaska after the deadline.  The issue could                                                                    
pose  an  economic  hardship for  Alaskans  that  wanted  to                                                                    
purchase or  sell a home. Lending  institutions would likely                                                                    
choose  AMCs  that  could   deal  with  federally  regulated                                                                    
transactions. The bill offered a  broader set of options for                                                                    
appraisals  in Alaska.  Currently,  Alaska was  only one  of                                                                    
four  states that  had not  adopted the  federal regulations                                                                    
and the other three states were  in the process of doing so.                                                                    
The  legislation established  the  regulatory framework  and                                                                    
minimum standards for the  Department of Commerce, Community                                                                    
and  Economic  Development  (DCCED). She  relayed  that  the                                                                    
minimum standards  required that  an AMC choose  a certified                                                                    
real  estate  appraiser  to interact  with  the  board  that                                                                    
complied   with  the   uniform  standards   of  professional                                                                    
appraisal   practice  and   other  professional   and  legal                                                                    
standards set by  the state, and to obtain a  surety bond of                                                                    
$50  thousand. The  department requested  a one  year waiver                                                                    
but  was  uncertain  it  would   be  granted.  However,  her                                                                    
understanding  was that  if the  state was  actively passing                                                                    
legislation  the   waiver  would   be  approved.   The  bill                                                                    
established an  effective date  of January  1, 2019  and all                                                                    
AMCs were required to register by March 1, 2019.                                                                                
9:16:56 AM                                                                                                                    
Representative  Wilson asked  what federal  transactions the                                                                    
bill was  speaking of. Ms. Morledge  answered that federally                                                                    
related  transactions  were  complex. She  deferred  to  Mr.                                                                    
Schiffman   (Mark    Schiffman,   Real    Estate   Valuation                                                                    
Association)  for a  complete answer.  Representative Wilson                                                                    
clarified  that she  was thinking  of  Veteran Affairs  (VA)                                                                    
9:18:30 AM                                                                                                                    
MARK  SCHIFFMAN, REAL  ESTATE VALUATION  ASSOCIATION (EVAA),                                                                    
MINNEAPOLIS   (via   teleconference),   explained   that   a                                                                    
federally related  transaction made  up about 10  percent of                                                                    
all transactions.  A loan could  change back and  forth from                                                                    
being a  federally related transaction or  not. He concurred                                                                    
that the issue  was complex. The bill was not  related to VA                                                                    
transactions   and    dealt   with    traditional   mortgage                                                                    
Representative  Wilson asked  whether the  board was  new or                                                                    
under  the   existing  real  estate  appraiser   board.  Ms.                                                                    
Morledge  answered that  the bill  applied  to the  existing                                                                    
9:20:35 AM                                                                                                                    
SENATOR KEVIN MEYER thought  Ms. Morledge's presentation was                                                                    
informative.  He  reemphasized the  need  to  pass the  bill                                                                    
before the  deadline of August  10, 2018. He  indicated that                                                                    
the  bill would  take  effect  on January  1,  2019 but  was                                                                    
concerned with the date. He  reported that the original bill                                                                    
had  an effective  date of  August 10,  2018 but  included a                                                                    
transition period for the regulatory process.                                                                                   
DAVID   DERRY,  CHAIR   BOARD  OF   CERTIFIED  REAL   ESTATE                                                                    
APPRAISERS,  HOMER (via  teleconference), related  that that                                                                    
Ms.   Sara   Chambers    [Deputy   Director,   Division   of                                                                    
Corporations, Business  and Professional  Licensing] deduced                                                                    
that the division  would not likely be able  to generate all                                                                    
the  needed regulations  even by  January 2019.  He believed                                                                    
that the  regulation process could  be completed  within the                                                                    
one  year waiver  period that  DCCED was  requesting through                                                                    
the board's federal oversight entity.                                                                                           
9:23:28 AM                                                                                                                    
Representative  Guttenberg asked  about the  purpose of  the                                                                    
legislation. He  asked for clarity  regarding what  the bill                                                                    
was asking the  board to do. He also  wondered what function                                                                    
AMCs  performed.  Ms.  Morledge   responded  that  AMCs  had                                                                    
operated for decades. The idea  behind the bill was consumer                                                                    
protection. She  delineated that the Dodd-Frank  Act through                                                                    
the  federal  appraisal  subcommittee  instituted  rules  of                                                                    
conduct   that  added   an  extra   layer  between   lending                                                                    
institutions and consumers and  required states to implement                                                                    
standards  of  conduct  for  AMCs.   Any  state  where  AMCs                                                                    
operated  were required  to adopt  the federal  standards of                                                                    
conduct.  The intention  of the  regulations was  to protect                                                                    
consumers from  allowing lending institutions to  have undue                                                                    
influence over  appraisals. Representative  Guttenberg asked                                                                    
what actual  functions the bill  was requiring the  board to                                                                    
perform. Ms. Morledge deferred to Mr. Derry.                                                                                    
9:28:05 AM                                                                                                                    
Mr.  Derry  ascertained   that  Representative  Guttenberg's                                                                    
question related  more to  what AMCs  do. He  explained that                                                                    
the function of AMCs was  to maintain a roster of appraisers                                                                    
and selected  an appraiser to  generate an  appraisal report                                                                    
for  a lender  by  request  of the  lender.  The report  was                                                                    
reviewed by the AMC then  relayed to the lending institution                                                                    
that  contracted its  services. He  delineated that  not all                                                                    
lenders  used AMCs.  He  noted that  Northrim  Bank and  the                                                                    
First National  Bank of  Alaska did not  use AMCs.  Lower 48                                                                    
state  lenders such  as Rocket  Mortgage  and Quicken  Loans                                                                    
used  AMCs  because  of  their  unfamiliarity  with  Alaskan                                                                    
appraisal  services. The  board supported  AMC oversight  to                                                                    
provide  the  maximum  available   mortgage  credit  to  the                                                                    
Alaskan  consumer.  The  use  of an  AMC  meant  the  lender                                                                    
charged more  for the cost  of the  loan. The cost  could be                                                                    
paid by the lender or  sometimes the appraiser offered their                                                                    
services to the AMC for a reduced fee.                                                                                          
9:31:17 AM                                                                                                                    
Representative  Guttenberg  believed  that  all  costs  were                                                                    
passed on  to the  buyer. He  understood that  an AMC  was a                                                                    
referral service and the legislature  was setting up a board                                                                    
of oversight. He asked how  many AMCs operated in Alaska. He                                                                    
wanted  to  better  understand   the  structure.  Mr.  Derry                                                                    
responded  that  no new  board  was  being established;  the                                                                    
function  was  being absorbed  by  the  existing board.  The                                                                    
issue evolved out  of the subprime mortgage  crisis of 2008.                                                                    
Alaska was largely insulated from  the crisis. He noted that                                                                    
problems with  the lending institutions trying  to influence                                                                    
appraisers spurred  the regulation. He announced  that there                                                                    
were no Alaska  based AMCs. He provided the  high numbers of                                                                    
AMC's  registered in  several other  states and  stated that                                                                    
there  were a  significant number  of AMCs  nationwide; most                                                                    
were large  corporate entities. AMC costs  were competitive,                                                                    
and he did  not anticipate an increase in  mortgage costs in                                                                    
Alaska. He  reminded the committee  that the  drop-dead date                                                                    
was August 10th,  2018 and AMCs were  currently operating in                                                                    
9:34:11 AM                                                                                                                    
Mr.  Schiffman interjected  that one  of the  most important                                                                    
issue from the  Dodd-Frank bill was the  notion of appraiser                                                                    
independence;  the  buffer  between the  appraiser  and  the                                                                    
lender. The  roll of the AMC  was to provide and  verify the                                                                    
layer of  independence as  a safeguard  for the  process. He                                                                    
noted that  some lending institutions  did not use  AMCs but                                                                    
had  to   abide  by  the  same   standards  of  safeguarding                                                                    
appraisal independence.  Representative Guttenberg clarified                                                                    
that the only  reason the legislature was  adopting the bill                                                                    
was to  allow AMCs  to operate in  the state.  Mr. Schiffman                                                                    
answered in the affirmative and  observed that the AMCs were                                                                    
in the  "odd position"  to ask the  state to  regulate them.                                                                    
The association  supported the legislation. He  reminded the                                                                    
committee that  the bill  did not mandate  use of  AMCs. The                                                                    
disruption would occur if the  state did not adopt the bill.                                                                    
Representative Guttenberg asked if  AMCs could still provide                                                                    
services in  Alaska without  the legislation.  Mr. Schiffman                                                                    
responded that  they would be  able to provide  services for                                                                    
appraisals that  did not involve federal  transactions. Some                                                                    
lenders were using AMCs for  all their transactions and were                                                                    
reticent  to bifurcate  their system.  He reasoned  that the                                                                    
real hardship fell on the lender.                                                                                               
9:38:01 AM                                                                                                                    
Representative Guttenberg was trying  to understand what was                                                                    
broken in  the Alaska real  estate climate. He  deduced that                                                                    
the  legislation  was  necessary  to allow  AMCs  to  handle                                                                    
federal  transactions   but  wondered  what   was  currently                                                                    
"broken"  in  the Alaskan  chain  between  the lenders,  the                                                                    
appraisal,  and  the home  buyer  or  seller. Mr.  Schiffman                                                                    
responded that  he was  unsure that  anything was  broken in                                                                    
Alaska and  did not  believe that was  the issue.  The issue                                                                    
stemmed  from the  nationwide financial  crisis in  2008 and                                                                    
the  residual effect  to manage  AMCs. He  offered that  the                                                                    
issue  was   about  uniformity  and  bringing   Alaska  into                                                                    
compliance  with  the   federal  regulation.  Representative                                                                    
Guttenberg wondered whether someone  from the Alaska Housing                                                                    
Finance Corporation  (AHFC)was available  to testify  on the                                                                    
bill. Co-Chair Foster answered in the negative.                                                                                 
Mr.  Schiffman   appreciated  SB   155  and   supported  the                                                                    
9:41:02 AM                                                                                                                    
Mr.   Derry  commented   that   the   board  supported   the                                                                    
legislation. He  relayed that the  board attempted  to adopt                                                                    
similar  legislation  in  2009  but was  unable  to  find  a                                                                    
sponsor. The purpose in supporting  the bill was to maximize                                                                    
the availability of  credit for Alaskans. He  stated that he                                                                    
was  unable  to  determine  whether   AHFC  fell  under  the                                                                    
legislation. The question  of federally related transactions                                                                    
and  what   it  entailed   was  "fuzzy."  He   offered  that                                                                    
essentially  lenders did  not  know at  the  beginning of  a                                                                    
mortgage  process  whether  it  would  end  as  a  federally                                                                    
related   transaction.   The   bill  allowed   the   maximum                                                                    
availability  of  credit  for  Alaskans. He  did  not  think                                                                    
anything  was  actually  broken.  He believed  that  by  not                                                                    
adopting SB 155  some out of state lenders  would choose not                                                                    
to  operate  in Alaska,  which  would  limit the  amount  of                                                                    
available mortgage  credit. The bill benefitted  the Alaskan                                                                    
9:44:38 AM                                                                                                                    
Representative Wilson  wanted clarification that  Alaska was                                                                    
not  creating a  new  board  and that  the  state was  being                                                                    
mandated by the federal  government to adopt the regulations                                                                    
or  else  Alaskan's  mortgages would  be  affected.  Senator                                                                    
Meyer responded  in the  affirmative. He  added that  by not                                                                    
passing  the bill  the state  would have  limited access  to                                                                    
some federal loans.                                                                                                             
9:46:13 AM                                                                                                                    
Representative Tilton  asked whether  the bill  affected the                                                                    
process  that the  consumer had  to  engage in  to obtain  a                                                                    
mortgage. Senator  Meyer responded  that the bill  would not                                                                    
impact  the  consumer  other  than   they  would  have  more                                                                    
protections. The  bill allowed  the bank  to have  access to                                                                    
more  funds. Representative  Tilton  stated  that a  lending                                                                    
institution was  not forced to  use an AMC and  could choose                                                                    
not to. Co-Chair Meyer  responded that Representative Tilton                                                                    
was correct.  Representative Tilton reported that  the Dodd-                                                                    
Frank  rules might  undergo some  changes and  surmised that                                                                    
the changes wouldn't affect the  bill because using AMCs was                                                                    
a  voluntary  act.  Co-Chair Meyer  responded  that  it  was                                                                    
uncertain when or if the  Dodd-Frank rules were changing and                                                                    
whether the changes  would impact the bill.  He deferred the                                                                    
answer to Mr. Schiffman.                                                                                                        
Mr.  Schiffman   relayed  that   currently  there   were  no                                                                    
proposals in Congress  that would have an impact  on the AMC                                                                    
Representative   Tilton    referred   to    testimony   that                                                                    
approximately  10   percent  of  mortgage  loans   would  be                                                                    
affected. She  asked if the  issue was more about  how loans                                                                    
were packaged  and sold in  the secondary market.  Mr. Derry                                                                    
responded  that the  bill affected  the origination  process                                                                    
for a  mortgage loan.  The lender would  go through  the AMC                                                                    
for the  appraisal that was  sent back to the  lender; after                                                                    
providing the loan to the  consumer the lender sold the loan                                                                    
to the  investor. He reiterated  that a  lending institution                                                                    
might be  uncertain whether a  loan would  end up part  of a                                                                    
federally related transaction or  not as they worked through                                                                    
processing the  loan and until  the loan was final  it could                                                                    
switch  back  and  forth as  different  loan  programs  were                                                                    
considered. The bill would simplify the process.                                                                                
9:53:24 AM                                                                                                                    
Mr. Schiffman added  that one of the primary  roles that the                                                                    
AMC provided  the lender  in addition  to the  appraisal was                                                                    
the quality  control that the  appraisal met  the standards.                                                                    
The  fact that  that  appraisal met  the standards  provided                                                                    
confidence in the secondary market when purchasing loans.                                                                       
Representative Guttenberg asked that  if the legislature did                                                                    
not pass  the bill would  more business be driven  to Alaska                                                                    
banks.  He wondered  how the  bill  affected federal  credit                                                                    
unions  in   Alaska.  Mr.  Derry   responded  that   if  AMC                                                                    
legislation was  not enacted,  it would  not make  it easier                                                                    
for Alaska banks to operate.  However, passage broadened the                                                                    
home  loan market  for consumers.  He  reiterated that  some                                                                    
Alaskan banks  use AMCs and  some did not. He  reported that                                                                    
credit unions fell  under the same regulation  as the banks.                                                                    
He reported  that the AlaskaUSA  Credit Union did  use AMCs.                                                                    
He informed the  committee that banks that did  not use AMCs                                                                    
set  up their  own  internal organization  that ensured  the                                                                    
appraisal met the underwriting  standards. He concluded that                                                                    
using AMCs was  not necessary but restated  that not passing                                                                    
the bill did not make it  easier for banks to operate in the                                                                    
state and limited other lending sources.                                                                                        
9:58:03 AM                                                                                                                    
Co-Chair Foster OPENED public testimony.                                                                                        
Co-Chair Foster CLOSED public testimony.                                                                                        
Co-Chair Meyer  thanked the committee for  hearing the bill.                                                                    
He wanted to further address  the impacts of not passing the                                                                    
bill.  He  pointed  to the  supportive  letters  in  members                                                                    
packets from  Wells Fargo, Alaska  Chamber of  Commerce, and                                                                    
Alaska Bankers Association (copy on file).                                                                                      
Co-Chair  Foster indicated  that there  were no  anticipated                                                                    
10:00:13 AM                                                                                                                   
Co-Chair  Seaton reviewed  the  previously published  fiscal                                                                    
impact  note  from DCCED,  FN2  (CED),  appropriated to  the                                                                    
Division   of   Corporations,  Business   and   Professional                                                                    
Licensing  in  the  amount of  $111.9  thousand  in  receipt                                                                    
services in FY 19 and $97.5 thousand in the out years.                                                                          
Representative Wilson  asked if  the fiscal note  was paying                                                                    
for an additional staff specifically  for the Certified Real                                                                    
Estate  Appraisers Board.  Co-Chair  Meyer  deferred to  Ms.                                                                    
Chambers for an answer.                                                                                                         
10:01:34 AM                                                                                                                   
SARA  CHAMBERS, DEPUTY  DIRECTOR, DIVISION  OF CORPORATIONS,                                                                    
BUSINESS   AND   PROFESSIONAL   LICENSING,   DEPARTMENT   OF                                                                    
COMMERCE,  COMMUNITY  AND  ECONOMIC  DEVELOPMENT,  concurred                                                                    
that  the  division  was  requesting  an  additional  junior                                                                    
licensing  examiner that  helped  process applications.  She                                                                    
explained that the division was  at maximum capacity and the                                                                    
position would  be necessary  due to  the expansion  of many                                                                    
licensing  programs.   The  position   would  work   on  the                                                                    
appraiser  program and  help with  other licensing  programs                                                                    
that  experienced  diminished   service  levels  because  of                                                                    
insufficient  staff.  The  division  would  employ  positive                                                                    
time-keeping measures.                                                                                                          
Co-Chair Seaton  MOVED to  report HCSCSSB  155 (FIN)  out of                                                                    
Committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal note                                                                                                        
Representative Guttenberg OBJECTED for discussion.                                                                              
Representative Guttenberg spoke to  his objection. He stated                                                                    
that  there  was no  person  or  entity that  represented  a                                                                    
neutral  voice on  behalf of  consumers.  He emphasized  the                                                                    
lack of a consumer advocacy voice in the state.                                                                                 
Representative Guttenberg WITHDREW his OBJECTION.                                                                               
Vice-Chair Gara  added to Representative  Guttenberg's point                                                                    
and  observed  that Alaska  was  the  only state  without  a                                                                    
consumer protection agency.  The state only had  one and one                                                                    
half attorney positions in the  Department of Law (DOL) that                                                                    
did  their best  to provide  consumer protection  but was  a                                                                    
"fraction" of the  prior amount. The only  other agency that                                                                    
offered a  consumer voice was  the Regulatory  Commission of                                                                    
Alaska.  He advocated  for more  consumer protection  in the                                                                    
Vice-Chair Gara WITHDREW his OBJECTION                                                                                          
There being NO OBJECTION, it was so ordered.                                                                                    
HCSCSSB 155 (FIN)  was REPORTED out of committee  with a "do                                                                    
pass"   recommendation  and   with  a   "no  recommendation"                                                                    
recommendation  and  with   a  previously  published  fiscal                                                                    
impact note: FN2(CED).                                                                                                          
10:06:27 AM                                                                                                                   
AT EASE                                                                                                                         
10:07:44 AM                                                                                                                   

Document Name Date/Time Subjects
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HB 399 - Amendment #1.pdf HFIN 4/13/2018 9:00:00 AM
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