Obscure Federal Official Has Hatched ‘Sick Chicken’ in Housing Sector

Obscure Federal Official Has Hatched ‘Sick Chicken’ in Housing Sector

The case eventually found its way to the U.S. Supreme Court, where it came to be known to the public as the “Sick Chicken Case” 

It was the Great Depression’s bleakest year – 1933. At President Roosevelt’s urging, Congress passed the National Industrial Recovery Act, a New Deal bill that partially ceded lawmaking authority to private organizations and industry boards to develop codes of conduct that would then be enforced on citizens as binding law.

The owners of poultry producer Schechter Poultry Corp. were indicted for violating the new private business code for the poultry industry. The chicken men lawyered up, claiming the new law was a violation of the U.S. Constitution’s non-delegation doctrine. The case eventually found its way to the U.S. Supreme Court, where it came to be known to the public as the “Sick Chicken Case” – known to constitutional scholars as A.L.A. Schechter Poultry Corp. v. United States.

Under Chief Justice Charles Hughes – a Hoover appointee and former secretary of state – the court unanimously held that the act was an unconstitutional delegation of government authority. The court ruled that Congress had wrongly delegated its authority to the president, who then delegated it to another party (in this case, to a private organization for poultry producers) without enacting adequate safeguards. Justice Cardozo wrote a concurring opinion, which was joined by Justice Stone. That was 1935.

More than 50 years later, amid another crisis – the largely forgotten Savings and Loan Crisis of the late ‘80s – Congress authorized a nonprofit publisher to create a set of standards that would govern how collateral behind trillions of dollars in federally backed mortgages would be valued.

As a safeguard stemming from the Sick Chicken Case, Congress set up a new federal agency as part of the bill. It tasked the agency with putting any private standard the government sought to establish through a federal notice-and-comment or public hearing process.

The bill was enacted by the 101st Congress and signed into law by President George H.W. Bush. Even without this special safeguard, existing regulations and case law already required any version of any federally established private code to be named by its specific version or edition and to preclude any future version from being automatically recognized. The Sick Chicken Case was not far in the background.

Fast-forward to 2024. A single rogue federal official atop the obscure federal agency violates the safeguards the 101st Congress required it to follow when it authorized the agency’s creation more than three decades ago. The official has personally and single-handedly created chaos in the housing sector. He has allowed the private publisher, which brings in about $5 million annually and has ties to special interests, to continually create binding law on its own initiative that determines how the collateral for trillions in federally backed mortgages is valued. The federal official’s misfeasance has also clogged the Code of Federal Regulations with dead-letter regulations – defective rules that could never be enforced if challenged.

The obscure federal official is called James Park. He is the executive director of the tortuously named Appraisal Subcommittee of the Federal Financial Institutions Examination Council. It is part of the housing-industrial complex. Park is a former employee of the publisher, known as the Appraisal Foundation.

Today, Park and his tiny agency openly violate the aforementioned federal statute, which can be found at 12 U.S. Code § 3336. It requires “the publication of notice and receipt of written comments or the holding of public hearings with respect to any standards or requirements proposed to be established” by his agency. In case there is any confusion, the redundant “Sick Chicken”-influenced federal regulation known as 1 CFR 51.1(f) states “Incorporation by reference of a publication is limited to the edition of the publication that is approved. Future amendments or revisions of the publication are not included.”

Park is required by statute to expose versions of the publisher’s copyrighted standards he wishes to establish to a federal notice-and-comment rulemaking. He hasn’t. Not a single one. There have been 25 different versions of the fluid standards over the years. Legally, the standards don’t exist.

In a 2022 podcast with journalist Kyle Campbell of American Banker, Park conceded that the appraisal function he regulates is in constant turmoil due to the publisher’s continual changes to the appraisal standards, which automatically become binding law in many jurisdictions. Park’s recent comments indicate he is either shockingly ignorant of federal procedural laws that apply to his agency or is in on the game. There’s no room for much else.

This month, Consumer Financial Protection Bureau Director Rohit Chopra criticized the Appraisal Foundation – the private publisher and beneficiary of Park’s misfeasance – in a written report for being “an insular body controlled by a small circle, operating behind closed doors.” That’s putting it mildly.

Park’s misfeasance is not very sexy stuff but it’s concerning to administrative law scholars, like Columbia law professor Peter L. Strauss, who calls such a situation an unconstitutional “rolling incorporation by reference.” A federal agency isn’t permitted to delegate the making of binding regulations on an open-ended basis to a private organization. It’s an unlawful delegation of authority, said Strauss.

As the direct result of Park’s negligence, garbage federal regulations that unlawfully incorporate the private standards – known as the Uniform Standards of Professional Appraisal Practice – can be found across the Code of Federal Regulations, for example in 12 CFR 722.4; 12 CFR Part 225, Subpart G; 49 CFR Sec. 24.103; and 43 CFR Subtitle A, Sec. 47.60.

An official at the Director of the Federal Register’s Office (part of the National Archives and Records Administration) told appraiser-author Jeremy Bagott a couple years ago that, regrettably, the Director doesn’t have a police force and can’t police unlawful or defective regulations, or violations of the U.S. Administrative Procedure Act. Nonetheless, someone should.

Jeremy Bagott
Image credit flickr - Artem Beliaikin
Jeremy Bagott

Jeremy Bagott

Jeremy Bagott is a real estate appraiser and former newspaperman. His most recent book, “The Ichthyologist’s Guide to the Subprime Meltdown,” is a concise almanac that distills the cataclysmic financial crisis of 2007-2008 to its essence. This pithy guide to the upheaval includes essays, chronologies, roundups and key lists, weaving together the stories of the politics-infused Freddie and Fannie; the doomed Wall Street investment banks Lehman and Bear Stearns; the dereliction of duty by the Big Three credit-rating services; the mayhem caused by the shadowy nonbank lenders; and the massive government bailouts. It provides a rapid-fire succession of “ah-hah” moments as it lays out the meltdown, convulsion by convulsion.

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8 Responses

  1. Avatar DGK says:

    Ahh-ha, the trickle down we all have felt for years perhaps has decided to open its eyes. I would encourage John Hassler and all investigators for the California Bureau of Real Estate Appraisers be required to read this article with specific attention to the author and the obvious fallacies to which we are forced to adhere, while maintaining timely compliance with each and every change and with such compliance tied to the timing of the publication rather that the common sense and logic that dominates the human process of forming an opinion based on fact. It is my intent to read and understand the Bagott publication before responding to any inquiry regarding this comment. Hopefully those inquiring would do the same in advance. Jeremy Bagott seeks accuracy and support for his article before putting words to paper, and it is much appreciated. There is a very obscure (apparently) federal law that mandates the completion of complaint resolution by a State agency (like BREA) within one year from the date of the complaint. The State Attorney General’s office is unable to provide me with that statute, and the federal government has not responded to direct inquiry, but based on the recent history of the Board, this may be an excellent statute to expose and discuss. Just sayin….. the problems are mountainous and manipulated at every level, and this statement is not at all intended to be confrontational….. simply a disclosure of personal experience.

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  2. Avatar Deborah L Smith says:

    Thank you from one old timer who has witnessed the degradation of our profession by political interests!

    House appraisers are uncommonly unaware of the changes in the 80s when many appraisers were MBAs and invented programs that were easily manipulated by “businessmen” who injected their influence but we don’t use that analysis for house appraisals. While tech evolved and left their mark on our jobs, people like Park were selling out everything we learned to be objective. We all know some who give values that meet the broker’s or property owners want. They get more repeat clients and keep handing out value like candy to keep afloat.

    Now we have zillow and algorithms that reduce the work we get, and they sell it because we, as a group have been identified as racist. All lies and sting operations revealing traps for appraisers! Shall we fight this? Yes! When I look at any property, especially a home, it is an exercise in Behavioral Economics that helps understanding what motivates a buyer. Now that the former AI CEO Amorin has written a sales pitch book to suggest that ARTIFICIAL intelligence is better than a trained and educated, licensed or designated appraiser and they are separating the steps like research, confirmation, analysis and conclusions have helped build Fannie and Freddy into a criminal enterprise. They have driven the house appraisers out of the profession and computer analysis does not consider nuances because every cell of your report must match what is expected based on their instructions based on misinformation, lies and appraisers are fighting for their living.

    The moving target is what Jeremy tells us when he explains what goes on behind our obedient backs. Get fighting and we need a book to counter Amorin’s delusions of grandeur. Let’s speak out publicly about this unjustified abuse of professional appraisers! Let’s thank Jeremy for his work!

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    • Avatar Jim Amorin says:

      Very respectfully, it is clear you have not read the book. I take great care to emphasize the need for a professional appraiser and that artificial intelligence is no replacement. In the hands of a seasoned and conscientious appraiser, Ai tools can assist, but should never be used solely and without great care. They are prone to “hallucinations” much like part of the statement in your post. Professional appraisers should always verify the output.

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  3. Avatar Fitz says:

    So, where does that put the IRS requirement, new bank regulations, and Maryland Appraisal regulations: to follow USPAP when appraising? Was and is the original FIRREA regulation completed correctly? Is that what we should still be following? I may still have the original, or I can find it in the Federal Register. Thanks for the article but I need more info.

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  4. Avatar GKBNM says:

    Great information but I guess the bottom line is how does one go about the political quagmire to enforce the law is a relevant question. Just frustrating that these laws are on the books and get stepped on as though they are simply a nuisance. Jeremy really knows his stuff that is gold however what good is it if no actions are being taken by anyone? So, if they are breaking the law how is it possible, they can enforce things that shouldn’t even exist? This whole thing is screwed up and they need to dump everything and go back to the drawing board.

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  5. Baggins Baggins says:

    Deb, great comments. it’s going to take a miracle. Various algorithms are already skewed in favor of a propped up market. Systemic data inaccuracy which allowed for market manipulation is no longer the exception, rather a normalized process. Enter corporate investors now heavily speculating in residential housing.

    Fitz, a compelling question. Checked TAF USPAP ‘previous editions’ in their store, 2018 is the oldest copy available. What does this mean if appraisers do not have access to the original USPAP version? Referencing the federal register on the original USPAP? Brilliant. Ask and ye shall receive. I just read the entire thing, takes about an hour.
    https://archives.federalregister.gov/issue_slice/1990/7/5/27758-27773.pdf

    ‘A real estate appraisal is one of several essential components of the lending process.’ They did intend for one more USPAP version, an update, in order to have the necessary rule making compliance, to then publish the final version. They set up this process to create a revision. Then they revised again, and again, and again, and never stopped. The spirit of the law. The intent of the statute. Safe and sound banking practices. Abundance of caution. I think we’ve experienced a near complete departure from those concepts. Every ‘update’ has been a special favor hand out, chipping away at stringent rules. The human appraiser was the key person whom justified the existence of these institutions in the first place. If the full service human appraiser is no longer needed, my vote is for a total wind down and abolishment of TAF and ASB, subsequently the amc industry as well. Clearly these institutions are no longer in alignment with the original intent of their formation. All they do is argue against using appraisers, find every possible way to justify our absence and exclusion from the process.

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    • Avatar Fitz says:

      Wow, interesting, If my memory serves me, when you review an appraisal you must review it based upon the USPAP that was in force in the year of the appraisal report.

      2018 to present is 6 years, we are supposed to keep them for 5 year unless it went to court, and then more years after the conclusion of the court.

      The IRS believes that in the case of fraud, there is no deadline on how far back they may go.

      But if there is no copy of the USPAP for the period, how would we know if the report was in compliance?

      The rule for keeping appraisals, according to the excelappraise website, was first adopted by the Foundation in 2011, so perhaps the keeping records rule is out.

      HaHa.

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Obscure Federal Official Has Hatched ‘Sick Chicken’ in Housing Sector

by Jeremy Bagott time to read: 4 min
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