Restraint of Trade Investigation

Michael Ford

Michael Ford

General Certified Real Estate Appraiser at Michael F. Ford Appraisal
Over 28 years appraising all property types and interests, in Southern California real estate. VP/Chairman National Appraiser Peer Review Committee, American Guild of Appraisers, #44OPEIU/AFL-CIO. - Michael Ford on e-AppraisersDirectory
Michael Ford

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Suppression of Appraisal Service Free Trade & Fair Price Competition

…suppression of appraisal service free trade & fair price competition…

United States Federal Trade Commission, Acting Director of the Bureau of Competition, Abbott (Tad) Lipsky

Dear Mr. Lipsky:

My name is Mike Ford, and I am a Vice President (Special Projects), and Chairman of the National Appraiser Peer Review Committee of the American Guild of Appraisers (AGA), Office and Professional Employees International Union (#44/OPEIU) of the AFL-CIO.

Sir, the FTC press release referenced below prompted this communication and formal complaint. We’ve followed your published links complaint directions but if a specific FTC form is required, please let us know.

The AGA, OPEIU, AFL/CIO represents the appraisal interests and concerns of our own direct membership as well as the over thirteen million taxpaying and consumer members, their families and retirees of our parent union – the AFL/CIO. In this specific issue AGA is also speaking out on behalf and in advocacy of the entire adult consumer population of the United States of America.

I am heartened that the Federal Trade Commission has recognized the need to assure that appraisal

“…consumers deserve to benefit from a free market where those fees are set by competition.”

It appears that your complaint may have been instigated by the very special interests that are most responsible for suppression of appraisal service free trade and fair price competition in America today. By that I am referring to the entities broadly described as Appraisal Management Companies (AMCs), and in this specific complaint – the Federal National Mortgage Association, also known as Fannie Mae and/or FNMA .

Regardless of how your actions originated, we sincerely applaud the fact that the FTC is taking some action to remedy potential cases of restraint of free trade.

This (new) complaint may also extend to the individual federal governmental agencies that are collectively known as the Federal Financial Institutions Examination Council and any other entities established by the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) or successor legislation known as Dodd-Frank.

Where your existing action in Louisiana is limited to one state, this complaint involves all fifty states plus the District of Columbia and U.S. Territories where FNMA purchased loans originate.

BACKGROUND:

  1. FNMA is now a tax payer guaranteed Government Sponsored Enterprise (GSE) responsible for making home mortgage financing available in transactions for an estimated 50% to 75%± of all residential one to four unit conventionally financed (non HUD/FHA or VA) properties in America today. Each of these transactions requires verification of the market value of the underlying collateral securing the loans, by a state licensed or certified real estate appraiser.
  2. Without ability of direct or ‘originating’ lenders to immediately sell discounted loans to FNMA that they have made, the entire real estate market as it is currently operated in the United States would collapse overnight.
  3. FNMA sells the securitized loans as bundled securities to national and international investors.
  4. FNMA rules specifically prohibit the purchase of any loan in which the appraiser was directly selected by the borrower or in which the borrower ordered the appraisal.
  5. Further the Truth in Lending (TILA) Real Estate Settlement Procedures Act (RESPA) Integrated Disclosure (TRID) final rule adopted by the FFIEC virtually eliminates any possibility of effective or meaningful negotiation of appraisal fees by consumers.

The complaint issue is:

When consumers are prohibited from choosing their appraiser; and the appraisal price is predetermined by third parties in advance of their decision to engage in a mortgage transaction; and substantial obstructions are built into the federal mandated disclosure process; how then is the consumer able to ‘negotiate’ the fee in a free market where fees are set by competition?

It is a closed system where the consumer is excluded from negotiation.

  • FNMA policies prohibit direct selection of appraisers by the consumers that pay for their services.
  • The lenders that make loans have pre-existing Service Level Agreements (SLAs) with specific Appraisal Management Companies wherein the fees for the ‘appraisal’ and management service are lumped into a single fee. The fee is typically preset in a range of from $550.00 to $650.00. Absent C&R fee enforcement by States, the appraisers frequently only received from $175 to $300 of this total.
  • Originating loan brokers or correspondent lenders are only allowed to order appraisals through AMCs already approved by the funding or direct lender that sells the loans to FNMA.
  • Appraisals are not ordered until well after credit and income verifications have been performed and a tentative or pre approval has been obtained subject to an appraisal.
  • The consumer is quoted a fee from $550 to $650 at the time they make their initial loan application for a mortgage loan transaction. They are not even told the truth about how much will actually be paid to the appraiser for the appraisal
  • It’s ONLY the AMC that determines how much they will subsequently pay for the actual appraisal.
  • Nearly all AMCs require $150 or more for their operating overhead out of the $550 to $650.
  • There is no enforceable rule prohibiting the AMCs from paying far less than is required for a competently performed appraisal completed in accordance with the requirements of USPAP (and pocketing the difference up to the SLA payment).
  • AMCs frequently pay appraisers fees that are so low as to virtually guarantee sub-par appraisals in violation of Dodd Frank.
  • Some states (such as Louisiana and others) have attempted to remedy these unfair restraints against trade and consumer deprivation by enacting legislation to enforce the otherwise feckless appraisal provisions of the Dodd Frank Act.
  • This appears to be the point where the FTC has joined in the issue against the State of Louisiana. Presumably at the urging of REVAA or similar other AMC special interests.

While the primary failure to protect the consumers lies with the federal government for not including enforcement mechanisms into Dodd Franks “Reasonable and Customary Fee” appraisal requirements, FNMA also has a direct role.

By establishing rules and procedures that prohibit the purchase of loans secured by collateral where the consumer has had an opportunity to select the appraiser or to negotiate the fee to be paid they virtually eliminate the consumers ability to engage in fee negotiations in an open and free competitive market. Ultimately FNMA has the sole ability to correct this unfair policy that amounts to unfair restraint of trade.

Respectfully, please investigate the above claims and order or file a formal legal complaint requiring FNMA to cease their unfair restraint of trade. When that has been resolved, a follow up complaint for the same reasons should be opened against the Federal Home Loan Mortgage Corporation (FreddyMac).

FNMA has the separate ability (and responsibility) to assure appraisals are not biased in favor of a borrower by ordering and paying for their own appraisal reviews from competent professionals. Their choice not to do so is purely a business decision that should not serve as justification to deprive consumers of their rights to select their own professional appraiser or to negotiate their own fees for those services. Additionally fees required by FNMA rules for AMC services should not be hidden in the TRID Disclosure Documents as “the appraisal fee.”

Please don’t hesitate to contact me by phone or email if you require additional information.

Respectfully submitted,

Michael F. Ford,
VP/Chairman AGA, OPEIU-AFL/CIO

FTC Press Release

FTC Challenges Louisiana Real Estate Appraisal Board Regulations that Restrict Competition
Restrictions on fee setting violate federal antitrust rules, agency alleges

FOR RELEASE – May 31, 2017

The Federal Trade Commission has filed a complaint against the Louisiana Real Estate Appraisal Board, alleging that the group is unreasonably restraining price competition for appraisal services in Louisiana, contrary to federal antitrust law. The complaint will be submitted to adjudication before an Administrative Law Judge, who will review it and render an initial decision.

In the administrative complaint, the FTC alleges that the Louisiana appraisal board limits the freedom of individual appraisers and their customers to engage in bona fide negotiations to set appraisal fees for real estate appraisals in Louisiana.

According to the FTC’s complaint, the 2010 Wall Street Reform and Consumer Protection Act, popularly known as “Dodd-Frank”, required appraisal management companies to pay “a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.” The FTC alleged in its complaint that the appraisal board’s regulations exceeded the scope of the federal mandate. Specifically, the board required appraisal fees to equal or exceed the median fees identified in survey reports commissioned and published by the board. The board then investigated and sanctioned companies that paid fees below the specified levels. The complaint alleges that Dodd-Frank neither requires nor authorizes the restrictions that the board placed on appraisal fees.

Acting Director of the Bureau of Competition, Abbott (Tad) Lipsky, stated: “The Bureau is committed to the judicious exercise of its enforcement discretion as mapped out by the Supreme Court in the North Carolina State Board of Dental Examiners case. The great preponderance of state board activity across the country occurs without significant antitrust concern, and the Commission will respect the authority of such boards when they operate within the defined scope of antitrust law. Today’s action – the first such Commission complaint against a state board since the Supreme Court decision in North Carolina Dental – shows that the Commission remains vigilant and will exercise its prescribed authority when economically sound and otherwise consistent with the public interest. Nearly everyone that purchases or refinances a home in the state of Louisiana pays appraisal fees, these consumers deserve to benefit from a free market where those fees are set by competition.”

The Commission vote to issue the administrative complaint was 2-0. The administrative trial is scheduled to begin on January 30, 2018.

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest. A complaint constitutes an allegation, but does not constitute a determination that the law has been violated as alleged.

Image credit flickr - Susan E Adams
Michael Ford

Michael Ford

Over 28 years appraising all property types and interests, in Southern California real estate. VP/Chairman National Appraiser Peer Review Committee, American Guild of Appraisers, #44OPEIU/AFL-CIO. – Michael Ford on e-AppraisersDirectory

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23 Responses

  1. Wizzard says:

    Well stated Mr. Ford.

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  2. Joshua Walitt says:

    Selection of appraisers by the lender or its agent (but must be non-loan-production) is established in Interagency Evaluation and Appraisal Guidelines and also discussed in TILA. FNMA also add their layer, but they are not the only entity that approaches the issue in this way.

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    • Mike Ford Mike Ford says:

      Josh, actual appraiser selection is rarely made by the lender though you are right about their ‘agents’ (AMCs). Long before any loan application the actual (funding) lender and the AMC agree to Service Levels of ‘management’. Call it AMC scope. The fee paid per order is established at that point. So are the kickbacks to be paid to that lender for selecting that AMC.

      When a correspondent lender is selling his firms services to a prospective client he quotes certain fees that include appraisal. He is not quoting $250 or even $450. He is quoting the SLA agreed fee for that particular lenders selected AMC. It is at this specific moment that the TRID restrictions come into effect and essentially set the appraisal fee in stone circumstances that the correspondent lender is not going to voluntarily change because it means going back to the borrower and obtaining new signatures on the disclosure documents. To you and I this sounds like no big deal. Just get a new signature, right?

      In the real world, this is the point where borrowers are already stressed; other loan brokers are trying to steal the deal, and borrowers are having second thoughts. Its not an environment where a broker that thinks he or she is only a week or so away from getting paid, will willingly delay their deal so they can tell the borrower to come up with more money so that the appraiser fee can be raised.

      It’s time the Interagency Guidelines were changed. They ASSUME despite all the laws and rules, that appraisers are dishonest and will sell their souls and integrity for a few hundred dollars. Instead of guilty til proved innocent, lets go back to treating professionals as if they (we) HAVE professional integrity and are NOT thieves! FNMA can do field reviews to assure no improper appraisals take place.

      Louisiana was merely one of very few states that tried to enforce Dodd Frank. AMC lobbies went to FTC. OK. Turn about is fair paly. FNMA is only one offender, but it is their policy that specifically prevents a borrower from ordering and NEGOTIATING for their appraisal.

      Why not deal with FNMA first, and the others later?

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      • Baggins Baggins says:

        “and other loan brokers are trying to steal the deal”. aka; slam dunking customers with unnecessary and unethical emphasis on faster appraisal turn times.

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  3. Marion says:

    Clapping for Mr. Ford.

    Funny how the borrower pays for the appraisal, before an appraiser is even assigned the order, but then suddenly the appraiser’s fee has impacted what the borrower paid?

    HA HA HA HA.

    And where within any of the mired of laws, rules, regulations, state, federal, forms, and filings, does the borrower receive a refund if they have over-paid for an appraisal fee?

    12 CFR 1024.14

    RESPA Section 8(b) is not violated when a single party charges and retains a settlement service fee, and that fee is unearned or excessive.

    CFPB Consumer Laws and Regulations – Regulation X – Real Estate Settlement Procedures Act RESPA

    So even if an appraiser will accept less, a management company can keep the difference between what the borrower is paying and what the appraiser is charging.

    So there is no benefit to borrowers, as you said, the fees are already scheduled and pre-set between AMCs and lenders.

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    • Mike Ford Mike Ford says:

      Marion if this blog had an HTML format I’d give ya a big ol’ thumbs up! Can you settle for the little one at the bottom of your post?

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    • Baggins Baggins says:

      “So even if an appraiser will accept less, a management company can keep the difference”, aka; cost savings from reduced costs of appraisal services are not returned to borrowing consumers, arguably a violation of the spirit of unearned fee and junk fee existing rule sets.

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  4. BigAl says:

    Excellent response Mike Ford and thank you for your efforts

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  5. Lee says:

    Appraisers really need to have a true union, just like any other industry. Everything that is wrong with this profession is byproduct of appraisers being passive, i personally, had enough and left the industry few months ago. Not only are appraisers being paid low fees but are also subject to complains that anyone can make and report to state to fine and penalize poor appraisers. Why would anyone want to even enter this dinosaur profession is beyond me.

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    • Lee, funny you should mention that…

      American Guild of Appraisers noted in article is a ‘true union’. Oh, we don’t act like a 1940’s-1970’s union where its a large smoke filled meeting hall with everyone yelling “Strike! Strike! Strike!” and threatening boycotts or walk outs…though admittedly sometimes its difficult NOT to suggest doing that.

      We have always looked for win-win solutions working within the regulatory framework that exists while at the same time trying to remain sensitive to the fact that traditionally appraisers are not your typical union candidates.

      Some years ago I finally realized the solutions have to be national in scope rather than purely state by state despite the excellent progress a few states have shown (Virginia is an excellent example; North Carolina has made positive progress and up til this issue, so had Louisiana). I overcame my own Republican based reticence to join organized labor and became an organizer. (If you want a really fun hobby try becoming a union organizer as a Republican some time and to really endear yourself to all, announce that fact in public hearings). At least after the laughter dies down, neither political camp can attack for purely philosophical reasons!

      Anyway, hopefully that disclosure makes it easier for some other traditional anti union hearts and minds to hold their nose and join the cause. We’ve helped some members keep their licenses when falsely accused; or over-accused for nominal impact type errors.

      As I’m sure you know, getting any three groups of appraisers to agree on anything is only slightly less difficult than herding felines in heat through a forest full of Tom Cats. Progress is being made though.

      Sometimes it’s a case of three steps forward and two steps back; with interludes of one step forward and three steps back. Seeking solutions to our primary challenges is always a moving target. Add in a federal system (BOTH parties) that doesn’t actually WANT to do anything and states that run the gamut from those that don’t want to do anything at all for appraisers to those such as Louisiana that try to help appraisers and get blind-sided by a federal agency whose motives are at best “suspect”.

      Im told this case started over a year ago during the prior administration that like to pretend it was consumer friendly. It’s also an agency that is short a few Commissioners according to folks that have written me about it.

      Whether the FTC should be involved or not isn’t as much a concern as WHY the FTC believes suppressing fees to a point where low fee related quality is officially recognized through Dodd-Frank as suffering. Taxpayers and ALL American consumers ultimately always pay the price for the kind of substandard work ultra low, ridiculous fees promote.

      In a few weeks the Guild will be authoring a detailed recap of an over a year state regulatory agency and resulting long court case involving exceptional documented misconduct and incompetence on the part of the state investigators. Any appraisers that believe they are immune to such a case because they do good work are in for a huge surprise. Worse that that, our case load over the past couple years indicates this is now commonplace!

      Appraisers in every state need to find out (1) IF their state appraisal regulators are required to follow USPAP when investigating compliance with USPAP; (2) Whether their state investigators do out side appraisals, and if not, then when the last time was that they performed an appraisal as anyone’s peer; (3) IF they are allowed to do loan production work then are adequate safeguards in place to prevent conflicts of interest from ‘eliminating competition’, and (4) find out what your states administrative law hearings allow in terms of mounting a defense.

      Website Link is to the Appraisers Guild for those that didn’t know such a guild exists. If you have not already joined, please consider it.

      My website is still just my name “www.MFFord.Com”

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    • Retired Appraiser Retired Appraiser says:

      Congratulations Lee, you made the only intelligent choice. This “profession” will never change for the better because it’s infested with weaklings. Best of luck with your future endeavors.

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    • Retired Appraiser Retired Appraiser says:

      This is the best quote currently available with regard to the appraisal “profession”.  Although I applaud the work of Mike’s group, it’s too little and too late.  Appraisers have one choice:  Flee or continue to endure the abuses of slavery.

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  6. Marion says:

    Mr Ford,

    Please consider consumers, the FTC and rushing in to save appraisers, that:

    12 CFR 1024.14

    RESPA Section 8(b) is not violated when a single party charges and retains a settlement service fee, and that fee is unearned or excessive.

    CFPB Consumer Laws and Regulations – Regulation X – Real Estate Settlement Procedures Act RESPA

    Should a property qualify for an appraisal wavier, and the appraisal fee has been paid, the borrower is not harmed under RESPA if the “appraisal” is waved and the fee is not returned to the borrower.

    If the loan qualifies for an “evaluation” and an appraisal fee has been paid, the borrower is not harmed if an “evaluation” is performed instead of an appraisal, and the fee, or difference in fees is not returned to the borrower.

    Tread lightly, but carry a big media companion.

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    • *s* Marion, since we’ve already spoken by phone, please it’s just Mike.

      I think the FTC complaint is based on material Harry Truman was used to describing in colorful colloquialism to the chagrin of Bess. No one really believes the complaint was actually filed for the benefit of consumers, do they?

      Consumers, ‘The Public’ and taxpayers are just descriptions self serving politicos trot out to dress up what would otherwise be clearly spurious implementing rules of feel good legislation.

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  7. Marion says:

    Mike, now you’re going to make everyone else jealous to tell them we’ve spoken on the phone 🙂

    But I’ve spoken on the phone with others who have posted here to, over the years.

    Anyway,
    The FTC’s website is a wealth of information, especially considering certain AMC organizations, the mandating of the use of specific portals and tools, or background checking companies, on, and on, and on, to the point where you start to say to your self, Ghee, there really might be something here worth pursuing.

    Anyway, awhile back, I had collected some hard data from around the country for other “interested” parties, I had not thought about in awhile. So because of this funny little FTC game, I’ve decided to set aside some time this weekend to search for where I put it, and to contact those I had previously sent it to, to see if it’s worth reviewing in the new light of day for a different intended use. If my interest is increased by reviewing what I have, maybe I’ll give you a call, or not, I won’t know until I look back through what I have.

    But I have some idea that there should be many appraisers that have, or had, emails saying that they had to sign up with XYZ to get work from ABC, and that is specifically addressed on the FTC website.

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    • Marion, Lol! As long as your information doesn’t get me in the dog house with Jan Bellas at AGA let them be jealous! You have always had great ability to lay  your hands on a plethora of public documents and regs.

      I don’t think the issue is whether there is any ‘meat on the table’ for FTC…their certainly is. The issue is in this instance, whether they are misguided and acting in the best interests of the American Consumer and taxpayer, or whether this action may have been motivated by something else at a time when they only have two out of the mandated five Commissioners serving.

      FIRREA never anticipated expanded or exclusive use of AMCs. That was Andrew Cuomo’s brainchild arising from the Countrywide and WAMU settlement with his state. After great effort (some on your part I believe), Dodd Frank was passed with lip service token rules on appraiser independence and reasonable fees. Unfortunately it failed to provide any enforcement mechanism.

      That is what Louisiana provided. As has Virginia. Strange it is Coester VMS and iMortgage that had problems in both these states, that is referenced in the FTC complaint.

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      • marion says:

        Perhaps,

        It would open the eyes of many, if they reviewed the FTC case against Corelogic, and then realize, that 5 year time frame for providing make believe competition has already ended.

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        • Mike Ford, AGA, CA AG, GAA, RAA, Realtor ® Mike Ford, AGA, CA AG, GAA, RAA, Realtor ® says:

          Can you elaborate a bit? Seems to me that CoreLogic is moving toward greater monopoly and control rather than toward any credible degree of ‘fair and open competition’.

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  8. EJ Brown says:

    Yeah, 90% of all the REVAA member companies are on my DNU list. I wish they would quit sending me request & BS emails.

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  9. Pat says:

    The subpoenas are gonna fly!!

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  10. Retired Appraiser Retired Appraiser says:

    You have to love it when the mafia (AMCs) who have been extorting appraisers since 2009 are filing lawsuits because their monthly shake downs of customers is being restrained.

    What’s next? Rapists filing lawsuits against victims because they contracted a disease?

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  11. M says:

    It all gets pretty convoluted pretty quick. FTC is the Fair Trade Commission right? Fair for who? All parties, or just the ones with the best lobbyists? Where were they when the HVCC was enacted? Where were they when Dodd-Frank was enacted? While neither of these laws has language that specifically mandates unfair trade practices, they each resulted in unfair trade practices as a by-product. Maybe that was hidden from view when the HVCC went out, but not when Dodd-Frank went out. Specifically, it would be very hard to say that old-fashioned supply and demand have been in play for appraisal services in a very long time. In the wake of regulations, the bulk of appraisal users, used a small number of AMCs to handle the work load volume. That in itself is not a horrible thing, given the scope of the task and need for the organization of labor. However the ultimate affect has been a pooling of labor outside of the control of the service providers, where service providers are now competing in an atypical environment. My opinion is if you are going to regulate in a way that creates certain solutions (in this case the solution is the AMC) and that solution has a by-product of unfair or at the very least, less than free market tendencies, then the only solution to that byproduct, short of removing the original regulations, is to further regulate. This is why I support price fixing for appraisal services. The AMC model is not helping anyone but the people making money from the AMC. Isn’t it just a bit ridiculous that the borrower, thinking they are paying for an appraisal, is often paying mostly for the simple task of ordering the service? Its a cash cow/added fee scam of great magnitude. TRID doesn’t help either. How ironic the FTC is filing suit against the one state in the union attempting to rebalance the imbalance. Thanks FTC – great use of resources (that’s sarcasm and yes, I felt I need to point that out).

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  12. marion says:

    And when Alexander saw the breadth of his domain, he wept for there were no more worlds left to conquer.”

    Plutarch c. 100 AD

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Restraint of Trade Investigation

by Michael Ford time to read: 7 min
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