Appraisal Industry Problems Worry Lenders
Hornblass, Jonathan S., American Banker
Almost five years after a major push for reform, the real estate appraisal industry remains troubled.
The problems are numerous, lenders and appraisers say. A major complaint is that appraisal quality has not improved significantly since the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 singled out appraisers as one of its major targets for change.
The continuing disarray in the appraisal business is worrisome to lenders, who base loan amounts in part on what appraisers report.
Even small miscalculations can result in significant losses, said Robert O'Toole, an economist with the Mortgage Bankers Association of America. He said that is especially true as loan-to-value ratios get higher.
Lender Pressure Cited
But appraisers also complain that lenders sometimes pressure them into making inflated appraisals to facilitate loans.
Some key issues facing appraisers and lenders:
* Certification of appraisers, as required by the 1989 law, is problem-laden. The troubles range from burdensome paperwork and complex and everchanging regulations to lack of reciprocity among states.
* New regulations will allow fewer loans to be appraised by certified appraisers -- exactly what the new law tried to avoid -- and reduce the amount of work available to appraisers.
Title XI of FIRREA was passed to clean up the appraisal industry. The thrift-rescue act required all government-related properties to be appraised by certified appraisers.
83,000 Licenses Issued
Each state was instructed to create a certification or licensing system. An appraisal subcommittee of the Federal Financial Institutions Examination Council was created, in part to evaluate each state's system.
According to the subcommittee, some 83,000 appraiser licenses have been issued. With some appraisers receiving more than one license, the subcommittee estimates there are 75,000 to 80,000 appraisers nationwide.
Edwin W. Baker, executive director of the appraisal subcommittee, thinks the thrift act has been successful -- for a relatively new program.
"To say it was completely mature would be an exaggeration," Mr. Baker said.
His main complaint about the system is reciprocity. …