AGA Statement to House Financial Services Committee Hearing
The American Guild of Appraisers Statement to House Financial Services Committee Hearing
Madam Chairman and Members of the Committee, on behalf of the American Guild of Appraisers/OPEIU Guild 44 (AGA) thank you for the opportunity to submit this statement in connection with today’s hearing on the real estate appraisal profession and the regulation of appraisers and appraisal practice.
The AGA is a membership organization that seeks to represent the interests of appraisers related to federal and state regulation of appraisal practice and to industry practices that impact on appraisers and appraisals. In addition, working closely with other like-minded organizations including the National Community Reinvestment Coalition which is testifying this morning, the AGA educates consumers about appraisals, the appraisers’ independent and unbiased role in the valuation process and seeks to foster accountability of both the appraisal profession and the financial institutions to which the appraiser provides services.
The impact of the increasing reliance on Appraisal Management Companies (AMC) as a conduit for real estate appraisals in loan transactions is of great concern to most appraisers. The practices of many appraisal management companies are threatening the reliability of appraisals to the detriment of borrowers and taxpayers and causing large numbers of experienced appraisers to leave the profession. Borrowers and lenders alike in theory rely on the honesty and accuracy of appraisals in making lending and borrowing decisions. The ongoing challenge to the integrity of appraisals seriously risks turning the entire mortgage process into a farce again undermining the process of the collateral asset valuation with the potential of creating more instability in the fragile economic recovery. We have seen this play out in different contexts before. Ultimately, the losers are the borrowers and the taxpayers and the appraisers.
Over the past year, the AGA has been seeking to have the Federal Reserve Board and the new Consumer Financial Protection Bureau (CFPB) rein in the practices of the AMC’s that are undermining the credibility of real estate appraisals and driving many good real estate appraisers out of the profession. This is not the first time that powerful economic interests have sought to control appraisers and appraisals but in many respects what is going on today is more serious and impactful than in the past.
In February of this year, the AGA filed a petition with the CFPB and the Fed seeking a revision to regulations implementing the appraisal independence provisions of the Dodd Frank law to make the regulation conform to the requirements of the law. In brief, Congress intended to insure that appraisals would be free from undue influence and competently performed, in part, by requiring that appraisers be compensated fairly with “customary and reasonable” fees. The law prohibits using the fees paid to appraisers by AMCs as a measure of what constitutes a customary and reasonable fee. Yet the rule adopted by the Fed appears to permit practices that are prohibited by the Dodd Frank law. We request that this petition which sets forth in some detail the legal, policy and factual aspects of this issue be included in the record of this hearing. Madam Chairman, in addition, we urge the Committee to ask the Fed and the CFPB to respond to the AGA petition and to address the concerns that it raises as we had received no response from either agency to date.
While the petition focuses on the payment of fees to appraisers, we believe the fee crisis is only a symptom of much deeper problems in the appraisal process. The problems associated with the dominance of AMCs also go much further than just fees. Many AMCs impose unreasonable turn around times for appraisals that make it difficult or impossible to do a careful and comprehensive job. AMCs are prone to using appraisers who are not familiar with the locality and neighborhoods where the properties are located. AMCs often pressure appraisers to compromise their integrity or face the prospect of being blacklisted as uncooperative. So where HVCC prohibited pressuring appraisers to meet a value, the new problem is pressuring appraisers to meet unreasonable timeframes with additional reporting requirements.
The professional appraiser is the last independent voice in the lending chain that does not have commission-based compensation and provides a vital service to the consumer of an independent valuation of the single largest asset that most will ever own. If present AMC practices continue, the appraisal profession will not be able to attract or retain the quality and numbers of appraisers necessary to perform appraisals with competence and integrity. We hope this Committee will lead an effort to insure that does not happen.
As part of the solution, we believe that consumers need to be better educated about the value of a professional appraisal and, contrary to current practices, should be encouraged to talk to the appraiser and even hire one of their own to protect their interests. This Committee can provide a vital public service by helping to educate consumers about the importance and value of an independent valuation of their property.
The spirit of the Appraisal Independence Rules as implemented by the Interim Final Rule are often interpreted as “no one should talk to the appraiser” when in fact the rules are quite clear that only the commissioned sales and loan production staff should be shielded from selecting or speaking to appraisers. But consumers and others need to be able to share information with professional appraisers who will determine the material nature of that information and should be free to confer with the appraiser to understand better the reasons for their property’s valuation.
Another important change implemented from Dodd-Frank is mandatory reporting of USPAP violations. Appraisal regulation relies heavily on state boards and agencies to interpret and enforce federal law and industry standards. However, state boards typically lack the resources and a consistent national digital framework to receive, reconcile and remediate violation reports. We currently cannot even see states track licensure or report status in the same manner. Unbridled parties (realtor, lenders, and appraisers) are inundating the boards with frivolous complaints distracting from proper investigation. Good appraisers are irreversibly harmed. Bad appraisers sometimes slip through the cracks, in some cases by simply moving to another state before reciprocity can catch up, or by holding multiple states licensure and shifting business to another geography.
One final issue we would like to bring to your attention concerns the requirements in Dodd-Frank for registration and monitoring of Appraisal Management companies (AMCs) which we strongly support. As part of state monitoring and enforcement, state boards should be encouraged to enforce the appraisal fee provisions of Dodd Frank. Appraisers need to be paid fairly for the valuation assignments and the liability that they assume therein in accordance with the law. If AMCs and lenders mutually agree to services that go beyond the appraisal, they are free to do so. However, AMC’s should be paid for their services by the lender who hires them NOT by the consumer and NOT by the appraiser.
The primary emphasis of this regulatory initiative has been related to oversight of payment of reasonable and customary fees to appraisers, however, concerns remain regarding the lack of oversight resources at the state and federal level to monitor and enforce the rules. Additionally, while Dodd-Frank sets a minimum standard for AMC registration, many challenges remain because of disparate approaches and resources on a per state basis.
Furthermore, AMCs have been reminded by various regulatory agencies that when they act as an agent of a federally regulated institution, they are bound by the same rules as that institution. Many AMCs view the liability that they should share as being the sole responsibility of their lending client. The Interagency Guidelines are clear on this matter but enforcement at the AMC level is not well executed. AGA supports the structures that have been added in this area by Dodd-Frank and urges enforcement.
We appreciate this opportunity to contribute to the important work that the Committee has undertaken in this area. The AGA stands ready to assist the Committee in all ways that we can to help the Committee address the issues we and other are raising in connection with real estate appraisals.