Appraisal changes get mixed reviews
Changes set in motion by FIRREA will affect lenders and appraisers alike. An end to in-house appraisals?
Come July 1 of next year, real estate appraisers and lenders will leave the known world for a world dictated by federal law.
In the known world, an individual pretty much can hang out a shingle and call himself an appraiser on his own say so. It is a world where a lender has to rely on an appraiser's reputation, demonstrated ability, and, possibly, a professional society's designation to separate the good from the poor. It is also a world where lenders are known to push appraisers to produce appraisals that support loans, and where appraisers put in that position worry about future employment if they don't toe the line.
The new world has its roots in concerns that poor appraisal practices and usage contributed to the thrift crisis and bank troubles in the Southwest and elsewhere.
Congressional attention, combined with the efforts of the appraisal and other industries, culminated in Title XI of the Financial Institutions Reform, Recovery and Enforcement Act. The title laid plans for a special federal body to oversee appraisal practices; new federal rules on appraisal usage by lenders; and state-level appraisal licensing and certification subject to federal oversight. (See "Background and Details" on following page.)
The precise boundaries and climate of the new world are still forming. Appraisers say the new world will be an improvement over the old one, but will not be perfect.
"What all this really means is that all appraisers in the United States will be put under the same standards of professional practice and ethics," says A. Scruggs Love, president of the American Institute of Real Estate Appraisers. Love's firm, Love & Dugger, is the largest appraisal firm in San Antonio. He points out that much more than poor appraisals was behind the real estate problems in Texas, but he believes having a regulatory system in place could have made a difference.
Unconvinced. Some bankers expect improvement from the new rules, but others are skeptical.
"Coming from Texas, I have doubts about the accuracy of some appraisals," says Robert Taylor, chairman and CEO of $25 million-assets Independence Bank-Plano. He expects the cast of characters to be the same after the new setup comes in--they'll just have licenses or certifications.
In a letter to the Appraisal Subcommittee, Sammy J. Bonnette, president and CEO of $20 million-assets Colfax (La.) Banking Co., wrote:
"During the decade of the 1980s, nothing gave us more pleasure than to see some of the appraisals done in our parish [county] by out-of-parish licensed appraisers with credentials a mile long. Their appraisals, for the most part, were extremely exaggerated and in most cases those properties are now in the inventory of the Resolution Trust Corp.
"I don't feel, for one minute, that licensing of appraisers will prevent what happened to the financial industry in the 1980s," Bonnette continued. "Only expert regulatory agencies, properly managed staff, and good financial institution managers will prevent that kind of disaster from occurring in the future."
Rubber stamp? Banker Paul A. Best is also skeptical.
Best, senior vice-president at $5 billion-assets First National Bank of Louisville, Ky., worries that in some states licensing will be somewhat perfunctory--perhaps little more than a means to collect licensing fees.
"I don't think it's going to amount to a whole lot" of improvement, says Best, who is in charge of commercial real estate and lines of credit to mortgage bankers. "I'm afraid it's going to be a bit like a driver's license. And having driver's licenses doesn't weed out many bad drivers."
Kevin M. Blakely, chairman of the Appraisal Subcommittee, a unit of the Federal Financial Institutions Examination Council created by FIRREA to monitor state appraiser programs, stresses that licensing is meant to be a serious effort. …