Wednesday, December 14, 2005

NAR Apppraisal Committee Position On HR 1295

During their November Conference in San Francisco, the NAR Appraisal Committee made recommendations to the Realtors® Board of Directors related to HR 1295, The Responsible Lending Act

Here are the recommendations approved by the Appraisal Committee and the NAR Board of Directors:

NAR’s Comments on the Appraisal Portion (Title IV) of H.R. 1295, The Responsible Lending Act

1. Encourage those interested in the real estate transaction from improperly influencing the appraisal. This section of the Act would allow those involved in the real estate transaction to ask the appraiser to (1) consider additional, appropriate property information, (2) provide further detail, substantiation, or explanation for the value conclusion and (3) correct errors in the appraisal report.

NAR would support because it acknowledges at the federal level the need for appraisal independence. Appraisers should have an avenue to report undue pressure and the idea of ordering an appraisal by someone not affected by the outcome is an appropriate step.

2. Improve the federal oversight of state appraisal programs by requiring the Appraisal Subcommittee of the Federal Financial Institutions Examination Council to annually report its activities to Congress. The Appraisal Subcommittee would have to provide more disclosure by holding open meetings.

NAR would support because it further codifies what the Appraisal Subcommittee is doing. The provision would require more detailed information and provides for a more open process.

3. Improve Appraisal Subcommittee’s oversight of state activity by allowing them to issue binding rules and regulations over state appraisal regulators. The rulemaking authority is intended to provide the interagency panel with a full range of supervisory sanctioning powers over state appraisal regulators.

NAR would oppose because the Appraisal Subcommittee is not a federal department/agency sanctioned by Congress with federal rulemaking authority. Federal laws may be enacted that state agencies must follow, but the state agency should remain independent of direct federal oversight.

Also, many of the “deficiencies” discovered by the Appraisal Subcommittee tend to deal with the state failing to implement some requirement of the Appraiser Qualifications Board (AQB) of the Appraisal Foundation [AQB Certified Uniform Standards of Professional Appraisal Practice (USPAP) Instructors, AQB Approved Distance Learning Criteria, AQB Mandated Continuing Education (CE), no15-Hour National USPAP Course for CE, etc.] rather than some glaring deficiency relating to the failure to discipline underperforming appraisers. For example, in some cases, when an appraiser CE course is found to be outside of what the AQB demands, expensive audits of licensees are conducted and staff time is consumed contacting errant licensees and arranging for additional education. NAR believes that the Appraisal Subcommittee unknowingly contributes to the inability of many states to enforce the law by making staff devote more time to less serious matters.

NAR supports exploring the idea of using the Appraisal Subcommittee’s surplus funds to help states comply with their responsibilities under Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). On page 18 of the Government Accountability Office (GAO) report entitled REGULATORY PROGRAMS – Opportunities to Enhance Oversight of the Real Estate Appraisal Industry (GAO-03-404) it states that “State appraiser agencies reported that they often lack funding to revise their regulations with every USPAP update and to cover the increasing cost of administering the licensing and certification processes.”

The funding problem experienced by the states would be exacerbated with the addition of another layer of rules, regulations and mandates. Supplementing their budgets to meet existing Title XI of FIRREA obligations would have a better effect.

NOTE: If Congress proceeds to amend Title XI of FIRREA to give the Appraisal Subcommittee rulemaking authority then NAR believes that the range of rules and sanctions must be clearly defined and limited. In our view, it is unreasonable to give the Appraisal Subcommittee free reign with no limits.

4. Require lenders to get a physical inspection for a property on which any "higher-cost" loan is made. Also you would have to get a second appraisal on a home whose value has risen within the last 6 months.
NAR would support because this provision recognizes the value of an appraisal especially in regards to loans requiring higher fees. NAR also supports adding the following amendment to this section:

“Lenders will be required to inform a borrower of the methods used to value a property to determine the amount of the mortgage loan. Also, since lenders often obtain multiple estimates or opinions of the value of the collateral, the consumer will be provided a copy of all the value estimates or opinions of value obtained.”

NAR believes that it is important that borrowers be educated so they have the knowledge to make informed decisions. The consumer will benefit by understanding the various valuation products and their methodologies along with disclosing all the estimates or opinions of value. This will promote responsible property ownership and thoughtful decision making.

5. Allow special consideration to be given to appraisers who have obtained special designations or training from professional appraisal organizations that are “sponsoring organizations of the Appraisal Foundation.”

NAR would support only if affiliate sponsors with their accompanying designations are included as “sponsoring organizations of the Appraisal Foundation.”

NAR believes that the public would be better served by a system that encourages appraisers to excel through appropriate professional development.

6. Authorize a state certifying or licensing agency to accept courses and seminars approved by the Appraiser Qualification Board’s Course Approval Program for educational training requirements.

NAR would support if the following change to the existing language in the bill is made:

“(h) Approved Education - A state certifying or licensing agency shall may accept, but is not limited to courses and seminars approved by the Appraiser Qualification Board’s Course Approval Program”

Also, NAR recommends examining the idea of developing a national appraisal education course accreditation organization which may not necessarily be the AQB. The organization should be subject to specific standards and appropriate federal oversight.

There is no argument with encouraging states to recognize the efforts of other groups and organizations with respect to course approvals but a federal mandate is not the proper way to proceed. NAR believes that the state’s right to choose must be preserved. NAR believes that AQB approved courses should be approved on a state by state basis just like any other class. The approval authority should remain with the State Appraisal Boards and the states should retain the right to impose their own requirements which may be more stringent. Also, other providers should not be precluded from offering courses.

The AQB has a history of adopting arbitrary requirements which have the appearance of conflicts of interest. For example, the National USPAP Course (or an equivalent) is a requirement to become a certified appraiser and the National USPAP Update Course (or an equivalent) is a biennial continuing education requirement to maintain certification. Each of these courses must be instructed by an AQB Certified Instructor. AQB courses require a license fee to be paid to the AQB. The sole means for instructors to become AQB certified is through an AQB Instructor Certification Course taught by Appraisal Standards Board (ASB) members of the Appraisal Foundation.

The AQB is the sole determinant of course equivalency and AQB Instructor qualifications. There is no oversight of either of these programs and no means of appealing any decision or determination made by the AQB. Education providers and course developers must have a means of appealing approval decisions and should not have to compete with the approving entity. In addition, the approving entity must be subject to the appropriate oversight.