CHICAGO (July 14, 2011) – Testifying before a Congressional subcommittee, the Appraisal Institute’s president-elect on Wednesday told lawmakers their intent was “right on target” and asked them to “guide the regulators’ aim” in implementing consumer-friendly real estate appraisal guidelines.
Sara W. Stephens, MAI, told members of the House Financial Services’ Subcommittee on Insurance, Housing and Community Opportunity that the Dodd-Frank Act passed by Congress last year is not being properly implemented by federal regulators.
Among other highlights, the Act calls on appraisal management companies (AMCs) to pay “customary and reasonable” fees to residential appraisers. While lenders can manage appraisal operations with internal staff, some choose to outsource these functions to third-party management companies called AMCs. These firms act as “middlemen” between lenders and appraisers
“Unfortunately, the Federal Reserve’s Interim Final Rule is not faithful to Congressional intent,” Stephens told lawmakers. “The Appraisal Institute thinks Congress’ intent was right on target. We urge Congress to guide the regulators’ aim, directing them to correct the Interim Final Rule to promote credibility over speed and cost.”
She added: “Many lenders have chosen to outsource the appraisal management function to third-party management companies who pass only a small percentage on to the appraiser actually performing the appraisal service. Current policy leaves consumers completely in the dark. Here, we need transparency between appraisal and appraisal management fees, especially since it is the consumer who pays these fees in nearly all transactions.”
Due to the low fees many AMCs pay appraisers, consumers often have to rely on valuation services from some of the least qualified and least competent appraisers hired by some AMCs. Congress intended to protect consumers by requiring AMCs to pay “customary and reasonable” fees to appraisers.
“Last year, Congress passed the most significant legislative update of the appraisal regulatory structure in two decades. In our view, this was only a beginning,” Stephens told the House subcommittee. “Moving forward, Congress must maintain an active role in oversight of appraisal regulators and build on these reforms to address ongoing weaknesses. We can ill afford to allow another 20 years to pass without a thorough audit of appraisal regulations. Consumers, lenders and taxpayers deserve much better than they have been given to date.”
Stephens also told lawmakers that the Appraisal Subcommittee, the federal oversight agency of the real estate valuation profession, “may have exceeded its Congressional authorization” by allowing The Appraisal Foundation to create a new board “with no clear purpose or boundaries.” She noted that Congress authorized the Appraisal Subcommittee “to monitor and review the activities and structure of The Appraisal Foundation, but not to direct or overrule its activities and structure.”
She added: “At a minimum, the recent actions of the Appraisal Subcommittee and Appraisal Foundation should be examined by Congress, and we urge this Committee to bring clarity and accountability to the relationship between the Appraisal Subcommittee and Appraisal Foundation where it does not exist today.”
To read the Appraisal Institute’s full written testimony, go to http://financialservices.house.gov/UploadedFiles/071311stephens.pdf.
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The Appraisal Institute is a global membership association of professional real estate appraisers, with more than 24,000 members and 91 chapters throughout the world. Its mission is to advance professionalism and ethics, global standards, methodologies, and practices through the professional development of property economics worldwide. Organized in 1932, the Appraisal Institute advocates equal opportunity and nondiscrimination in the appraisal profession and conducts its activities in accordance with applicable federal, state and local laws. Members of the Appraisal Institute benefit from an array of professional education and advocacy programs, and may hold the prestigious MAI, SRPA and SRA designations. Learn more at www.appraisalinstitute.org.