| U.S. Treasury Takes Steps To Lessen Coercion Of Appraisers To Inflate Appraisals
By Blanche Evans
Realty Times, February 8, 2005
The Office of the Comptroller of the Currency, otherwise known as the U.S. Treasury, has just released new standards on residential loan practices, which make it clear that any attempt to influence the independent judgment of a real estate appraiser violates federal standards.
The standards are an appendix to part 30 of its "regulations, guidelines, concerning the residential mortgage lending practices of national banks and their operating subsidiaries" to protect against "predatory, abusive, unfair, or deceptive residential mortgage lending practices." The standards are enforceable pursuant to section 39 of the Federal Deposit Insurance Act and the "implicating process set forth in part 30 of the OCC's regulations."
Key for appraisers who have been complaining that they are being forced to meet high asking prices that are not substantiated by comparables and other practices is the reiteration of what should already be known to bankers: ".....the bank must be able to effectively to manage the various risks, including credit, legal, compliance, and reputation risks....the bank must not become engaged in abusive, predatory unfair, or deceptive practices, directly, indirectly through mortgage brokers or other intermediaries, or through purchased loans."
On page 14, the standards say, "In addition, national banks and their operating subsidiaries must comply with the requirements and Guidelines affecting appraisals of residential mortgage loans and appraiser independence. 12 CFR part 34, subpart C, and the Interagency Appraisal and Evaluation Guidelines (OCC Advisory Letter 2003 - 9 (October 28, 2003)). For example, engaging in a practice of influencing the independent judgment of an appraiser with respect to a valuation of real estate that is to be security for a residential mortgage loan would violate applicable standards.
"We find that there are a number of pressure points for appraisers," says Bill Garber, director of government affairs for The Appraisal Institute, "and that pressure can come from any number of parties in a given transaction (mortgage broker, loan officer, realty agent, etc.). That said, the most pervasive pressure comes from mortgage brokers or other parties that are "volume" driven, according to our members."
Recently, many appraisers have been making complaints that appear to have gone unheard.
"Many states do not regulate mortgage brokers or loan officers, so complaints against these individuals do not see the light of day," explains Garber. "When an appraiser sends a complaint against anyone other than an appraiser to their state appraiser regulatory agency (state licensing board), that complaint will also not see the light of day, because that agency does not have jurisdiction over that entity."
Also, the array of federal and state regulators in the real estate industry is daunting for appraisers, says Garber. "There are so many players involved, last year we created a website to help appraisers navigate the regulatory landscape. The Appraisal Institute "Appraiser Independence Action Center" is intended to get people in contact with the appropriate federal or state regulatory agency, whether it is a bank, mortgage broker, mortgage bank, realty agent or other appraiser.
The problem of appraiser coercion and subsequent complaints have gotten so bad, that Garber says that the Appraisal Institute has called on the past three Congress' to pass legislation prohibiting appraiser coercion.
"With Congress taking a serious look at legislation addressing mortgage fraud and predatory lending, expect this issue to be on the table this spring (particularly in the House Committee on Finance Services)," he warns.
Fraudulent appraisals due to appraiser coercion hurts lenders, real estate agents, appraisers, but mostly it hurts consumers who foot the cost for homes that might have been purchased for less. Consumers who default because they find they can't sell their homes or pay for ballooning mortgages hurt lenders.
Garber supplies the following list for where practitioners can make complaints:
- Appraisers should go to the state licensing authority and/or professional appraisal organization (if the appraiser belongs to one)
- Real estate agents should go to their state real estate commission and/or the National Association of Realtors, if they belong to NAR
- Mortgage brokers should go to the state licensing authority (if one exists) or to the Federal Trade Commission (which has oversight over "non-bank mortgage lenders).
- Federally regulated banks should go to the appropriate federal bank regulators (OCC, OTS, FDIC, Federal Reserve, NCUA)
- State regulated banks should go to the appropriate state regulatory agency
- Mortgage banks should go to the appropriate state licensing authority of the FTC.
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