Housing Bubble
Call for appraiser safeguards to be preserved in RESPA
February 26, 2003
To protect consumers from potential fraud in the residential real estate market, Appraisal Institute President Alan E. Hummel, SRA, called for appraiser safeguards to be preserved in the Real Estate Settlement Procedures Act (RESPA). Mr. Hummel's remarks on behalf of more than 25,000 appraisal professionals of the American Society of Appraisers and the Appraisal Institute were made in testimony yesterday before the House Financial Services Committee's Subcommittee on Housing and Community Opportunity. The Subcommittee is considering revisions being proposed by the Department of Housing and Urban Development to RESPA, which governs settlement fees paid by homebuyers.
"In light of recent mortgage fraud and predatory lending cases, it's important to maintain safeguards which protect homebuyers from unscrupulous actors in the market," Mr. Hummel said. "Although the appraiser is typically hired by the lender, it is the appraiser's objectivity that protects both the lender and the consumer. It is vital that relationship be preserved under HUD's proposed reforms."
In his remarks, Mr. Hummel applauded HUD for working to reduce the volume of paperwork required to obtain a home mortgage, but expressed concerns that consumer protections might be compromised in the rush to simplify the process.
"We agree with RESPA's overriding goal to improve the process of obtaining mortgages," he said, "but under the proposed Guaranteed Mortgage Package (GMP), the consumer won't know what kind of appraisal or valuation was performed, what was charged for those services and how much they are paying for these services at closing. Packaging may help simplify the process from the lender's point of view, but the type of valuation performed and the borrower's fees will be obscured. We believe the borrower deserves more protection than that."
RESPA was originally passed into law in 1974 to keep settlement costs down by targeting illegal unearned fees, splits of fees, referral fees and kickbacks. Over the years, HUD believes that RESPA rules have impeded the offering of guaranteed packages of settlement services and mortgages that could lower costs and enable consumers to more easily shop for mortgages.
Mr. Hummel also testified the proposed RESPA rule has the potential to increase appraiser exposure to inappropriate client pressure, which can be detrimental to the lending process. He told the Subcommittee that this pressure can have a negative effect in the marketplace, as consumers face the threat of obtaining a mortgage that is greater than the actual market value of their new home. He also noted that offering a guaranteed price for a package of settlement services could lead to a shortage of qualified real estate appraisers available to perform appraisal assignments. Such a shortage would result in delays and, ultimately, higher costs for the consumer.
"We aren't recommending that the GMP proposal be done away with altogether," he said. "We simply call for the rule to be modified to allow for full disclosure of the appraisal fees, which HUD has admitted is of interest and value to the consumer." Mr. Hummel also suggested that HUD include language in the final RESPA rule that prohibits client pressure, to make such policies accessible to appraisers, and to require lenders to pay for all third-party services regardless of loan status.
In concluding his testimony, Mr. Hummel called for HUD to create an exemption for loans secured by historic, high-value or otherwise atypical properties, with the requirement for accurate Good Faith Estimates. "A 'one- size-fits-all' approach to packaging is likely to lead to greater standardization of fees for appraisal services," he said. "Such standardized fees will not allow for the premiums that are warranted for complex appraisal assignments."
Source: Appraisal Institute
