Editor’s Note: Lawmakers got an ear full from appraisers last month in Washington. This time, it appears Congress is listening.
Appraisers Talk, Congress Listens
by David Brauner and Isaac Peck
After last month’s Congressional hearing, rest assured that Capitol Hill is well aware of appraisal industry issues, including customary and reasonable fees, unreasonable turn-time demands, geographic competency, the lack of transparency with respect to AMC fee splits, continued appraiser independence pressures, the efficacy (or lack thereof) of the Universal Appraisal Dataset, and a peek behind the curtain at internal disagreements among the industry’s power players over how best to regulate you and your business.
Also underlined time and again is the importance of licensed and competent real estate appraisers to the soundness of the real estate and banking sectors of our economy.
The June 28 hearing was an opportunity for the appraisal industry to provide input on appraisal regulations and their impact on the still lagging single-family real estate market. Members of the Congressional Committee (Insurance, Housing and Community Opportunity Subcommittee of the U.S. House Committee on Financial Services) included: Rep. Judy Biggert, (R-IL), Chairman; Rep. Gary G. Miller, (R-CA); Rep. Luis V. Gutierrez, (D-IL), Ranking Member Rep. Al Green, (D-TX).
The hearing, Appraisal Oversight: The Regulatory Impact on Consumers and Businesses, was addressed by two panels. The first panel included government officials from federal regulatory agencies. The second represented independent professional organizations and associations, including the National Association of Realtors (NAR), the Appraisal Foundation (TAF), the Appraisal Institute (AI), the American Society of Appraisers (ASA), and the Real Estate Valuation Advocacy Association (REVAA).
William B. Shear, Director, Financial Markets and Community Investment, Government Accountability Office
Don Rodgers, President, Association of Appraiser Regulatory Officials
James R. Park, Executive Director, Appraisal Subcommittee, Federal Financial Institutions Examination Council
David Berenbaum, Chief Program Officer, National Community Reinvestment Coalition
David Bunton, President, Appraisal Foundation
Francois K. Gregoire, 2011 Chair, National Association of Realtors, Appraisal Committee
Don Kelly, Executive Director, Real Estate Valuation Advocacy Association (REVAA), on behalf of REVAA and the Coalition to Facilitate Appraisal Integrity Reform
Karen J. Mann, President, Mann & Associates Appraisers, on behalf of the American Society of Appraisers
Sara Stephens, President, Appraisal Institute
Astonishingly, Rep. Gary Miller (R-CA) characterized the Home Valuation Code of Conduct (HVCC) as a “disaster” and said he is equally disappointed with attempts by Congress and other government agencies to fix the problems. He noted that the disastrous effects of HVCC were immediate, but unfortunately, attempts to redress them by government have not been as quick. He went on to say that much of the worst of HVCC is institutionalized now by Fannie Mae and Freddie Mac, and its successor Federal Finance Housing Agency (FHFA), and Federal Housing Administration (FHA).
His negative assessment of HVCC is a far cry from FHFA leadership, and others in high places, who insisted over the years that the Code was/is effective at improving the quality of appraisals and the independence of appraisers. The fact that appraiser reality is now commonly accepted in Washington, D.C., despite the years of misdirection, is a clear vindication and positive development for rank and file appraisers.
In his comments, Rep. Miller seemed to blame HVCC for “low appraisals,” killed deals and a stifled housing recovery- all due to the inability of parties involved in the real estate transaction to communicate freely with each other. He said that if the lender and buyer agree, they should “be able to move forward in the marketplace.” This led to a discussion on how low fees paid to appraisers by AMCs is leading to lower quality appraisals. Regarding HVCC and its aftermath, Rep. Miller said, “We messed up. We’re not happy with what we did but we’re equally not happy with you (regulators and others) not listening to us wanting to correct what we did. We have got to fix it.”
All sides were ably defended, including AMCs, by their representative Don Kelly. He made the argument that AMCs provide value to appraisers in many areas, including marketing and quality control, and characterized the assertion that AMCs select appraisers based on low fees and quick turn-around times as being “based on anomalies and hearsay.” In contrast, the appraiser panelists, while disagreeing over some issues, were united in testifying that the AMC model, in its current form, is driving good appraisers out of the business and hurting appraisal quality.
The Congressional Panel seemed to have the Appraisal Subcommittee (ASC) in its crosshairs, with direct questions to the panels about how well the agency is doing its job- especially as it pertains to its unfinished business of implementing appraisal provisions in Dodd-Frank. Most agree that there is a “pressing need” for speedy implementation of Dodd-Frank. Chairwoman Judy Biggert (R-IL) asked a “yes or no” question whether the Subcommittee is effective. Answers from the panel ranged from a resounding “yes,” from Bunton of TAF, to Stephens from AI, who answered, “A good look should be taken at the way the whole entire system is set up.”
The rift between TAF and AI also was apparent with respect to the Appraisal Practices Board (APB), now part of TAF. Bunton defended the newly created Board. Stephens said about APB, “Appraisal practice is not aided by more rules.” Stephens charged the Board with attempting to limit the ability of the independent appraiser to exercise their own judgment in the appraisal process by strictly dictating appraisal methodology. The friction between the AI and TAF came to a head in Sept. 2010 when AI resigned from TAF.
There were clear calls on behalf of consumers for transparency on closing documents with respect to separating AMC and appraiser fees. Gregoire said that consumers are entitled to an appraisal report that is commensurate with the fee they pay. “Consumers should get what they’re paying for. If the lender wants to use an AMC to broker appraisals, then let the lender pay for that service. Don’t make the appraiser pay for it and don’t make the consumer pay for it, the lender is the one who benefits from that service, let the lender pay for it,” Gregoire said.
Regarding customary and reasonable fees, Kelly said appraiser fees today are market driven- a function of supply and demand and that, after all, appraisers agree to whatever fee they are paid. Berenbaum and others argued that low fees are hurting consumers because they lead to lower appraisal quality. Both Stephens and Gregoire pointed out that most AMCs prioritize low fees and turn-around time, which leads to appraisers traveling great distances, many times out of their area of geographic competence, when there are more qualified and experienced people in the area who will not accept the low fee.
Given the questions posed by the Committee and their statements, it’s possible this story is not fully written yet. You can listen to the hearings here: http://www.c-span.org/Events/C-SPAN-Event/10737431981/