Declaration of Appraisal Independence
Real Estate Appraisers of America: Declare appraiser independence by prohibiting lenders from having any ownership or stake in the real estate appraisal process.
This declaration of the real estate appraisal workers of the United States of America and those who stand together with the appraisal industry is made subject to the understanding that commercial and financial events guide growth and development of society, and that financial products and services are integral to the necessary and successful health of our citizens. It is further understood and recognized that the fair and independent valuation of underlying assets backing financial products are critical to investors, borrowers and all others who rely upon the safety and soundness of these financial products.
United we hold truths and beliefs, that all men and woman in their pursuit of life, liberty and happiness, must preserve their unalienable rights to buy a home, borrow money, invest in financial instruments, and plan for retirement without fear that their life savings are being exposed to unnecessary and preventable risk.
To secure these rights, it is necessary to ensure the fruits of our labor are not eroded or confiscated through actions of others. When it becomes apparent over the course of history that there are those who create financial products for merely their own self interest and have no regard for the harm they are bringing to mankind, and are furthermore allowed to continue to grow larger without the necessary checks and balances that are required in a functioning democratic society – the time has come to act.
Mortgages provide a significant portion of the balance sheet assets of many of the world’s largest financial institutions, including banks, insurance companies and pension funds. Mortgages are used to secure derivative products that are sold by Wall Street to the workers of the world through their company or public retirement funds.
Families and individuals must be able to depend upon credible, fair and nonbiased valuations of the underlying real estate assets that secure their retirement and savings. Congress recognized the importance of real estate appraisals to a successfully functioning financial economy in the last two major market corrections. The Financial Reform, Recovery and Enforcement Act of 1989 established licensing laws for appraisers in mortgage transactions and provided a state regulated framework for supervision. The Dodd Frank Wall Street Reform and Consumer Protection Act of 2010 outlined strict appraiser independence rules.
While a regulatory framework exists for an independent appraisal industry, complete separation between those that create and sell financial products and those that value said transactions – does not exist. Lenders are exempted from many of the rules established by Dodd-Frank and continue to be allowed to own and control the production of appraisals.
Recently proposed rules promulgated by the federal banking regulators are attempting to further erode appraisal independence by allowing entities, including correspondent lenders, to bring the appraisal function in-house and avoid many of the laws passed by Congress to protect the independent valuation of real estate assets.
An inherent conflict exists when those that originate or securitize mortgages are allowed to own or control the selection of the appraiser. Division of responsibilities within an organization cannot mitigate this conflict. It is common knowledge in the industry that mortgage banking organizations continue to select appraisers based on the preferences of commissioned loan officers. While this practice is illegal, the industry has to this point only made unsuccessful attempts to cure the root ailment. This scenario cannot be allowed to continue if the appraisal profession, which is so vital to a healthy economy, is to remain credible and viable.
Beyond these conflicts of interest, many lenders are using their ever-growing size and strength as a weapon to intimidate appraisers with enormous requirement creep, unnecessary blacklisting, exclusive panels, downward fee pressure, and value pressure. Lenders relentlessly work towards further consolidating their power, and by doing so increase their leveraging strength over appraisers. Correcting this serious market structure problem as it relates to the appraisal function is also requisite to the long-term health of appraisers and the valuations that citizens depend on them to provide.
To solve these problems, we declare that any organization originating loans that might be sold into the secondary market must be strictly prohibited from having any form of ownership or other conflict of interest in the appraisal function. Origination of these loans must be supported by at least one truly independent appraisal that is subject to review by borrowers and investors. Since lenders should not be allowed to own or control an appraiser, the loan officer should be tasked with routing the appraisal order to an approved and vetted third party to manage the appraisal process, instead of being forced to route the appraisal order to the lender’s internal appraisal pipeline where various abuses are currently taking place. The third party must be totally independent and able to demonstrate absolutely zero conflict of interest. Using loan officers to select among approved, vetted, independent and now heavily regulated third parties, gives power back to the people in the communities where the service is performed and will force these third parties to compete for appraisal orders by way of best practices, thereby benefiting all parties involved. Furthermore, once valuations are truly independent, they should be easily portable between lenders, no longer forcing borrowers to incur unneeded, redundant and expensive second valuations.
The time has come for the total separation of valuation from loan production. The importance of a healthy profession capable of delivering truly independent, accurate and fair valuations of assets is too critical.
Submit your signature by visiting APC’s Declaration of Appraisal Independence Signature Page