Modernizing Appraisals and the Future of the Industry

The Subcommittee on Housing and Insurance held a hearing on November 16, 2016 to solicit recommendations for improvements to the current appraisal process. Testimony was giving on the current appraisal oversight and suggestions were provided on what can be done for the future of the appraisal industry. Those invited to speak included, James Park, Executive Director, Appraisal Subcommittee, David Bunton, President, The Appraisal Foundation, Joan Trice, Chief Executive Officer and Founder, Clearbox, Bill Garber, Director of Government and External Relations, Appraisal Institute, Ed Brady, Chairman of the Board, National Association of Home Builders, and Jennifer Wagner, Managing Attorney, Mountain State Justice, Inc. The hearing was recorded and can be viewed by clicking here. Below is the testimony given by Joan Trice.

Modernizing Appraisals: A Regulatory Review and the Future of the Industry
Testimony of Joan N. Trice, SRA
Before the Subcommittee on Housing and Insurance

November 16, 2016

Chairman Luetkemeyer, ranking member Cleaver and members of the Subcommittee on Housing and Insurance, thank you for the opportunity to share my thoughts regarding “Modernizing Appraisals: A Regulatory Review and the Future of the Industry”.

Today, all stakeholders suffer from an appraisal regulatory regime that is outmoded. The housing finance crisis shed a bright light on the systemic failures of the appraisal process. The structural flaws of the regulatory schema reveal a system whereby no one was held accountable. This illustration of the current regulatory structure says it all.

2016 Appraisal Oversight

It should be no surprise that given the above diagram, that the appraisal industry is being highly scrutinized. It is entirely dysfunctional. It is time for a “big and bold” plan to overhaul the system.

The appraisal profession needs a single authority to take ownership of the policy, process, practice, and procedures and the people. National licensing is needed with oversight at the state level. States must adopt a standardized process for investigation and adjudication of any disciplinary actions. Peer review and rehabilitation of the appraiser should occur at the state level.

This new entity should not carry forward any of the legacy agencies that exist today. The times calls for a fresh, holistic solution to replace the disjointed, ineffective structure that currently exists. Repeal FIRREA, Title XIV,  and replace it with this new independent agency.

Independence is the cornerstone of the appraisal process. HVCC and subsequently the AIR (appraisal independence requirements) components of Dodd Frank left an indelible mark on the appraisal profession. For the past 9 years practically every stakeholder has done their best to avoid compliance with AIR.

Appraisal is truly the weak link and our current policies and systems continue to diminish the important role that appraisers play in the housing finance ecosystem. Discussions of shortages, poor quality, cost, delayed delivery of appraisals, and the de minimus threshold are all code for efforts to further diminish the role of the appraisal process.

The events of the presidential election offer a cautionary tale. Big data failed. Models failed. Bias and lack of independence by the analysts failed. Fannie Mae and Freddie Mac would have you believe they hold all of the marbles. Once again they are competing with each other by reducing appraisal requirements. This is a race to the bottom. We’ve seen this movie before and we know how it ends. Do not think for a minute that you can replace appraisers with push button technology. Appraising is part art and part science. Create a system, whereby well trained, ethical appraisers have access to reliable data and afford them the independence to play their important role.

If Congress is truly serious about the safety and soundness of the housing finance system, then there is only one clear path for the appraisal process to thrive—establish a single authority over real estate appraisal.

The white paper entitled “Reengineering the Appraisal Process, Revisited” explores in greater detail solutions to bolster the appraisal profession. Thank you for the opportunity to share with you my thoughts on this important topic.

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