The Board of Governors of the Federal Reserve System, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency and the Federal Housing Finance Agency have issued a final rule that implements minimum requirements for the registration and supervision of appraisal management companies.
That decision can be traced to the origins of the Global Financial Crisis of 2008, a crisis so monumental its repercussions are still being felt and authorities up to this time keep struggling to create ways to deal with them and aid in the economic recovery of the United States.
According to The financial crisis inquiry report, a petition was delivered to Washington officials by a coalition of appraisal organizations right before the Global Finance Crisis erupted, affirming that “lenders were ‘blacklisting honest appraisers’ and instead assigning business only to appraisers who would hit the desired price targets”; they felt pressured to inflate their evaluations of real state in order to force the hand of banks to lend money to borrowers and guarantee that there would be a deal which otherwise would not move forward. Not just that, but changes in regulation, lack of oversight of appraisers and rising housing prices also contributed to the issue.
The report goes on to cement that practice as one of the prominent reasons behind the crisis and, as such, the creation of a means of regulation for appraisal management companies comes as a measure of preventing the mistakes that led to that point to be made again. Besides that, the ruling is useful as a means to help appraisers get proper compensation for a work that is considered highly necessary on the path to economic recovery.
Leslie Sellers, the President of the Appraisal Institute in Chicago says that the bill “will protect consumers by encouraging the use of highly trained and competent real estate appraisers with much-needed resources for oversight and enforcement,” and is a step up from the Home Valuation Code of Conduct (HVCC), a disappointing attempt at combating the practice of inflating evaluations that was one of the causes of the Global Financial Crisis in the first place.
Thus, with the implementation of the rules, the risk of an appraiser issuing a fictionalized value on a real estate property because of external pressures is lessened. Also of note is that it counters the criticisms directed at the Home Valuation Code of Conduct; criticisms that boiled down to complaints directed at the appraisal management companies, accused of taking sizeable cuts of the appraisers’ fee and sending them to properties far from neighborhoods they knew well, as put by Marcie Geffner from Bankrate, a problem the new regulation solves by strengthening the appraisers’ independence and requiring reasonable and customary fees be paid to them, an importance similar to what they would be paid if they did their jobs unaffiliated from an appraisal management company, a change that Leslie Sellers considers to be “badly needed to assist with the economic recovery”, as the previous practice “has been a significant obstacle for many highly trained appraisers,” and she believes that “with distressed sales prevalent in the market, it is critical that (they) be actively involved in the mortgage market.”
The biggest concern regarding the regulation, according to the American Bankers Association, is in the case of banks from states that opt-out of the regulatory structure, entities that would be forced to move to a fee appraiser model and “have to alter numerous operational elements to, among other things, ensure that there are no bank staff communications with appraisers that could be perceived as inducements and/or coercions for value, ensure that there are no mischaracterizations of value by staff or appraisers, and ensure that there are no conflicts of interests in the staff,” although, as Brian Coester from Housing Wire puts it, “the stipulation that it would be barred from operating in the state under federally regulated transactions makes (the opting in to the regulation by a state) a must have”. As of yet, thirty-eight states already opted-in to the regulation and the others shall soon follow suit.
In conclusion, the minimum requirements set by the new regulations find their footing on a healing post-crisis market and in correcting the unintended consequences of the first measures taken to attempt a solution to the issue. As of the value of the ruling, in more specific terms, they are a helpful and welcome change in the sense that they lessen the risk of appraisal bloating, avoiding another disaster similar to the Global Financial Crisis, helping certified and highly trained appraisers by not having their fees cut short and giving them more independence, which in turn helps the healing process of the country’s economy following the crisis.
