Photo credit: Mark Moz
System’s “regulatory regime surrounding appraisals” … “stuck in 1989”
The nation’s appraisal system is in need of an overhaul, according to several key industry and government leaders in a recent hearing in the Housing and Insurance Subcommittee of the House Financial Services Committee. The results of a complex and outdated system are not good: lengthier closings and increased consumer costs.
“Appraisals are one of the cornerstones of the home-buying process. Issues that impact appraisers also impact nearly every American buying or selling a home, in rural and urban areas; in high-and low-income neighborhoods,” Subcommittee Chairman Blaine Luetkemeyer (R-Missouri) said. “Yet when it comes to the regulatory regime surrounding appraisals, it seems we’re stuck in 1989.”
Luetkemeyer’s reference to 1989 is a nod to the last year the appraisal system received a meaningful update. He also noted, “Today’s hearing gave this Subcommittee an opportunity to examine the past and, more importantly, look to the future of appraisal standards in America. We can and will find a better way that increases consumer choice and maintains market confidence.”
Leaders from the Appraisal Foundation, the Appraisal Institute, Clearbox, the Appraisal Subcommittee and the National Association of Home Builders (NAHB), testified at the hearing. Some of the topics covered were Dodd-Frank’s effect on the appraisal system, and the continuing decline in the number of appraisers.
“Dodd-Frank benefited consumers by requiring lenders to provide a copy of the appraisal that was utilized in underwriting a loan,” said David S. Bunton, President, The Appraisal Foundation. “The CFPB went a step further and required lenders to provide borrowers with copies of all valuation products that were considered in conjunction with the loan application. Unfortunately, many borrowers were simply confused when receiving this information prior to closing. Some wondered why certain products reflected one opinion of value, while a different product showed another. And how was the appraisal fee the borrower paid actually applied to these various products?”
Bill Garber, Director of Government and External Relations at the Appraisal Institute, speaking on the decreasing number of appraisers in the profession: “Today, the number of real property appraisers in the United States is in decline, and concerns are being expressed by banks and real estate professionals alike about a potential shortage of appraisers. What is clear is that all appraisers are being choked by rules and regulations in nearly every facet of their business.”
Joan N. Trice, CEO and founder of Clearbox, stated that the appraisal system is “outmoded” and that the current regulatory environment is one in which “no one is held accountable. . . It should be no surprise that appraisal industry is being highly scrutinized. It is entirely dysfunctional. It is time for a ‘big and bold’ plan to overhaul the system.”
Ed Brady, Chairman of NAHB, said in response to the housing crisis, which many believe were precipitated by past appraisal policies, more restrictive appraisal policies were implemented, but they added more complexity and confusion to the process.
“Appraisal standards are not clear, best practices have not been well communicated, and enforcement is not occurring in a consistent manner. For all sectors that interact with appraisers—consumers, home builders, realtors, lenders, the Enterprises, mortgage insurers—appraisal quality and appraiser competence remain tremendous challenges.”
James R. Park, Executive Director of the Appraisal Subcommittee, posits that a state-based regulatory system should replace the current federal regulatory system, something the industry has been discussing.
“While I fully appreciate and support states’ rights to govern themselves and regulate occupations that practice within their states, I also recognize the importance of having a national minimum baseline for appraisal standards and appraiser qualifications to facilitate commerce.,” Park said. “Dismantling the system could lead to unintended consequences such as increased mortgage lending costs for lenders and consumers as well as an increased potential for added risk and fraud in real estate lending transactions.”
Although, he didn’t attend the hearings, Paul Prentice, Senior Managing Appraiser at PEMCO Limited, illustrates how the appraisal system’s non-uniformity is confusing and complex, “I think additional items to consider is more uniformity between best practices, Fannie Mae guidelines, and lender acceptance as there seems to be some disconnect between the bunch. Best practices for appraisers typically line up more closely with Fannie Mae requirements, where lenders often require more robust reporting or additional information. One example is that the majority of lenders ask for comparable photos taken by the appraiser versus comparable photos available through an MLS system. Fannie Mae does not require original photos from the appraiser but does indicate that the comparable must be driven by. It seems that if Fannie Mae does not require an original photo, it should be more widely accepted by lenders to not require original comparable photos. If there is some way to bring Fannie Mae, ASC, USPAP, and lender requirements closer together, it may help to eliminate some confusion associated with the appraisal process.”
Here’s a summary of the hearing discussions:
- The appraisal regulatory structure does not reflect 21st century marketplace advancements
- Advancements with alternative home valuation methods should be leveraged by the appraisal regulatory structure
- The Dodd-Frank Act’s impact on the appraisal profession has not made the system better for appraisers, stakeholders or consumers
- The appraisal profession is seeing a decline in the number of appraisers due to a changing marketplace along with burdensome qualifications
Financial Services Committee. Subcommittee Discusses Modernizing Appraisals to Benefit American Consumers
The MReport. Congress. Congress: Outdated Appraisal System Needs Overhaul