Housing Bubble

Appraisal Groups urge Congress to examine appraiser regulatory structure

May 21, 2003

CHICAGO, /PRNewswire/ -- In response to the General Accounting Office (GAO) report outlining numerous problems with the appraiser regulatory structure, the American Society of Appraisers, American Society of Farm Managers and Rural Appraisers, Appraisal Institute and National Association of REALTORS submitted a letter to the House Financial Services Committee and the Senate Banking Committee urging Congress to examine the appraiser regulatory structure, stating that action by Congress is necessary to fully investigate the shortcomings of the current system.

"As the leading professional organizations for real estate appraisers, we urge you to hold hearings to examine the impact of such an ineffective regulatory system on the safety and soundness of our nation's financial institutions," remarked Appraisal Institute President Alan E. Hummel, SRA. "Proper valuation of real estate held as collateral is of vital importance especially in this time of economic uncertainty. Competent and qualified real estate appraisers serve as a crucial safeguard in our banking system, but lax enforcement and ineffective federal oversight will only serve to diminish this safeguard."

The GAO report, released May 14, 2003, focuses on the state and federal appraisal regulatory systems as set forth in Title XI of the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) of 1989. Title XI of FIRREA was enacted to protect federal financial and public policy interests in real estate related transactions by requiring that real estate appraisals be performed by individuals having demonstrated competency in the profession.

In the report the GAO makes several important observations, beginning with the point that federal, state and private entities report facing impediments to carrying out essential activities called for and authorized by FIRREA. Agency regulatory officials, mortgage industry representatives, the Department of Housing and Urban Development and government sponsored enterprises such as Fannie Mae and Freddie Mac all raised concerns to the GAO about the regulatory structure created by Title XI.

In addition to the GAO report, the Appraisal Subcommittee of the Federal Financial Institutions Examinations Council submitted its 2002 Annual Report to Congress. According to the report, 43 percent of the state appraisal regulatory agencies reviewed in 2002 failed to resolve complaints against real estate appraisers expeditiously; were inconsistent in applying disciplinary sanctions; and failed to pursue all alleged violations of the Uniform Standards of Professional Appraisal Practice or did not adequately document enforcement-related files.

"The fact that 43 percent of state appraisal boards failed to resolve complaints against real estate appraisers in an expeditious manner is troubling," remarked Mr. Hummel. "Nevertheless our organizations are not surprised about the problems within the current system. The regulatory structure that developed as a result of FIRREA has become increasingly complex and inconsistent from state to state. It is for these reasons that we are calling attention the ineffectiveness of the current structure."

Since the enactment of FIRREA more than ten years ago, a patchwork of state laws and ineffective federal oversight have emerged, establishing only "minimum" qualifications criteria for appraisal licensure and certification. FIRREA has failed to raise the bar of professionalism within the appraisal industry by failing to create incentives for appraisers to seek additional training, education and experience, the letter states. Too often complaints against real estate appraisers are not reviewed by state appraiser boards, and recommendations from federal regulators to state appraisal boards go ignored.

"There is an immediate need to find solutions to the deficiencies in the appraisal regulatory system," remarked Mr. Hummel. "We believe that the GAO investigation is one step in addressing the issue of mortgage fraud but we need to do more. Our organizations are committed to assisting Congress in identifying solutions to these problems."

As the leading organization for professional real estate appraisers, the Appraisal Institute represents more than 18,000 members worldwide. Members benefit from an array of professional education and advocacy programs, and may hold the prestigious MAI, SRPA and SRA designations. Appraisal Institute members adhere to a strictly enforced Code of Professional Ethics and Standards of Professional Appraisal Practice. For more information regarding the Appraisal Institute, please visit www.appraisalinstitute.org

Source: Appraisal Institute