New Consumer Protection Bill Would Reinstate Practices that Led to Housing Bubble: Appraisal Management Group

PITTSBURGH, Jan. 25 /PRNewswire-USNewswire/ -- The Title/Appraisal Vendor Management Association (TAVMA) today announced its opposition to federal and state legislation that would dismantle new federal safeguards designed to protect appraiser independence and provide unbiased appraisals to homebuyers and lenders.

Proposed legislation (H.R.1728) on the federal level and numerous initiatives on the state level would once again permit discredited business practices that were key factors behind the real estate bubble and crash.  Specifically, they would allow mortgage brokers to select handpicked appraisers and communicate with them regarding property values.  In May 2009, Fannie Mae and Freddie Mac banned this practice and the Federal Housing Administration (FHA) is expected to enact a similar rule next month.

H.R. 1728 would in effect repeal that new Home Value Code of Conduct (HVCC), initiated by Fannie Mae and Freddie Mac to prevent appraiser pressure and inflated appraisals, even though both agencies are on record as saying that the new code has improved appraisal quality.

TAVMA warned that the new bill, if passed, would reinstate business practices that have lead to appraiser pressure. Specifically, it noted:

• Commission-based professionals like mortgage brokers and others, who get compensated only when a real estate deal is completed, would again be in a position to unduly influence transactions.  
• Without firewalls, appraisers would be subject to pressure, both overt and implied, to hit the price" and appraise a property at the value the mortgage broker or other commissioned salesperson needed to close the deal or lose future business.
• There is an inherent conflict of interest when appraisers are selected by referral sources that have a financial stake in the outcome of the appraisal.

"Unbiased home valuations protect consumers and encourage lenders to provide home financing," explained said Jeff Schurman, Executive Director of TAVMA.  "Turning back-the-clock, and letting parties who are compensated based on closed deals order and interact with appraisers will inevitably lead to pressure and inflated appraisals. This was clearly one of the major factors that inflated the unsustainable real estate bubble that has just burst and tanked our economy. If Congress wants to help consumers, and not just a small group of interested parties, it will make sure that it retains safeguards to protect appraiser independence, before it discards new rules that are already doing this job."

Background on this issue

Since the S&L Crisis of the late 1980s, various federal agencies have attempted to mandate a firewall between appraisers and mortgage brokers. But these efforts, for the most part, were unsuccessful until HVCC went into effect and said, among other things, lenders couldn't sell loans to Fannie Mae or Freddie Mac, unless they prohibited mortgage brokers and commissioned loan officers from selecting and influencing appraisers.

Since implementation last year, both of these government sponsored entities and their parent, the Federal Housing Finance Administration (FHFA) have stated that the quality of appraisals has improved significantly, since appraisal management companies have replaced mortgage brokers as the primary source of appraisal orders. These entities have also rebutted the charges made by brokers and realtors in the press that AMCs and the new code are deflating home values.

Last summer, FHFA issued the following statement: "Contrary to some suggestions, the Code does not lead to lower appraisals for property. The Code insulates appraisers from pressures that led to higher or lower appraisals and should now lead to more accurate valuations. This is in everyone's interest. Declining home prices began long before the deployment of the Code and relate to many other factors."

This has not stopped opponents from waging a campaign against HVCC and AMCs in the media and the Internet. Among their most frequent claims: AMCs hire out of market appraisers; AMC appraisers travel too far and or use the wrong "comps"; HVCC is depressing real estate prices.

The facts are:

• AMCs use licensed and certified local appraisers. In fact, 60% of all independent residential appraisers work with AMCs.
• The average AMC appraiser travels 13 miles or less to their assignment, and are chosen based on local real estate expertise.
• AMCs offer clear methods to challenge an appraisal based on incorrect or incomplete comps being used.
• AMC appraisers are licensed and bound by professional standards that prohibit them from taking assignments if they are unfamiliar with the locality or type of property.
• AMCs monitor their appraisers for performance and professionalism.

"For more than 20 years, various federal bodies have struggled with ways to prevent appraiser pressure, " said Schurman.  "Finally an effective mechanism has been put in place to prevent this practice, and in less than six months, pressure from the same groups that created the real estate crisis are on the verge of overturning it. Is our collective memory really that short?"

About TAVMA

TAVMA, the Title/Appraisal Vendor Management Association, is a non-profit professional organization that represents more than 75 companies including more than 40 of the largest Appraisal Management Companies (AMCs) with combined market share of 85 percent of the AMC market. TAVMA promotes the vendor management industry and presents its members' positions to government and media, protects its members' rights to do business without unfair and anticompetitive legislation and regulations and provides useful information about issues impacting the real estate settlement services industry. For more information about the organization, visit the website at www.tavma.org.

SOURCE Title/Appraisal Vendor Management Association (TAVMA)