The appraisal system is complex and outdated, resulting in more lengthy closings and increased costs to consumers, and therefore in need of an overhaul, according to a hearing on Wednesday in the Housing and Insurance Subcommittee of the House Financial Services Committee.
“Appraisals are one of the cornerstones of the homebuying 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 noted that the topic of appraisals is not often covered in the mainstream news media, yet it is an important issue that greatly affects the residential housing market. The year 1989 was the last time the appraisal system’s structure received any meaningful update, he said.
“Today’s hearing gave this Subcommittee an opportunity to examine the past and, more importantly, look to the future of appraisal standards in America,” Luetkemeyer said. “We can and will find a better way that increases consumer choice and maintains market confidence.”
Six witnesses testified at Wednesday’s hearing, including leaders from the Appraisal Institute, Appraisal Foundation, Appraisal Subcommittee, Clearbox, and the National Association of Home Builders (NAHB). Among the topics the Subcommittee tackled were the effect of Dodd-Frank on the appraisal system, the declining number of appraisers which is largely due to burdensome qualifications, and the benefits of alternative valuation methods.
“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, Appraisal Institute, took on the issue of the dwindling number of appraisers in the industry: “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 current system is “outmoded” and that the current regulatory scheme reveals a system 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 that the more restrictive appraisal policies implemented in response to criticisms that lax appraisal guidelines caused the financial crisis have resulted in a myriad of appraisal guidelines that are confusing and complex.
“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, argued that the current federal regulatory system for appraisals should not be replaced with a state-based regulatory structure, as has been discussed in the industry.
“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.”
Click on the witness’s name below to read the complete prepared testimony of that witness:
- James R. Park, Executive Director, Appraisal Subcommittee
- David S. Bunton, President, The Appraisal Foundation
- Joan N. Trice, Chief Executive Officer and Founder, Clearbox
- Bill Garber, Director of Government and External Relations, Appraisal Institute
- Ed Brady, Chairman of the Board, National Association of Home Builders
- Jennifer S. Wagner, Managing Attorney, Mountain State Justice, Inc.
Click here to view the Committee Memorandum.