[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]




 
                  APPRAISAL OVERSIGHT: THE REGULATORY
                   IMPACT ON CONSUMERS AND BUSINESSES

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                         INSURANCE, HOUSING AND
                         COMMUNITY OPPORTUNITY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 28, 2012

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 112-140



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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                   SPENCER BACHUS, Alabama, Chairman

JEB HENSARLING, Texas, Vice          BARNEY FRANK, Massachusetts, 
    Chairman                             Ranking Member
PETER T. KING, New York              MAXINE WATERS, California
EDWARD R. ROYCE, California          CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma             LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas                      NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois         MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina      GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois               BRAD SHERMAN, California
GARY G. MILLER, California           GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia  MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas              WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
JOHN CAMPBELL, California            JOE BACA, California
MICHELE BACHMANN, Minnesota          STEPHEN F. LYNCH, Massachusetts
THADDEUS G. McCOTTER, Michigan       BRAD MILLER, North Carolina
KEVIN McCARTHY, California           DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico            AL GREEN, Texas
BILL POSEY, Florida                  EMANUEL CLEAVER, Missouri
MICHAEL G. FITZPATRICK,              GWEN MOORE, Wisconsin
    Pennsylvania                     KEITH ELLISON, Minnesota
LYNN A. WESTMORELAND, Georgia        ED PERLMUTTER, Colorado
BLAINE LUETKEMEYER, Missouri         JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan              ANDRE CARSON, Indiana
SEAN P. DUFFY, Wisconsin             JAMES A. HIMES, Connecticut
NAN A. S. HAYWORTH, New York         GARY C. PETERS, Michigan
JAMES B. RENACCI, Ohio               JOHN C. CARNEY, Jr., Delaware
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO ``QUICO'' CANSECO, Texas
STEVE STIVERS, Ohio
STEPHEN LEE FINCHER, Tennessee

           James H. Clinger, Staff Director and Chief Counsel
      Subcommittee on Insurance, Housing and Community Opportunity

                    JUDY BIGGERT, Illinois, Chairman

ROBERT HURT, Virginia, Vice          LUIS V. GUTIERREZ, Illinois, 
    Chairman                             Ranking Member
GARY G. MILLER, California           MAXINE WATERS, California
SHELLEY MOORE CAPITO, West Virginia  NYDIA M. VELAZQUEZ, New York
SCOTT GARRETT, New Jersey            EMANUEL CLEAVER, Missouri
PATRICK T. McHENRY, North Carolina   WM. LACY CLAY, Missouri
LYNN A. WESTMORELAND, Georgia        MELVIN L. WATT, North Carolina
SEAN P. DUFFY, Wisconsin             BRAD SHERMAN, California
ROBERT J. DOLD, Illinois             MICHAEL E. CAPUANO, Massachusetts
STEVE STIVERS, Ohio



                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    June 28, 2012................................................     1
Appendix:
    June 28, 2012................................................    41

                               WITNESSES
                        Thursday, June 28, 2012

Berenbaum, David, Chief Program Officer, National Community 
  Reinvestment Coalition (NCRC)..................................    16
Bunton, David S., President, The Appraisal Foundation............    18
Gregoire, Francois K., President, Gregoire & Gregoire, Inc., on 
  behalf of the National Association of REALTORS (NAR)..........    20
Kelly, Donald E., Executive Director, Real Estate Valuation 
  Advocacy Association (REVAA) on behalf of REVAA and the 
  Coalition to Facilitate Appraisal Integrity Reform (FAIR)......    21
Mann, Karen, President, Mann & Associates, on behalf of the 
  American Society of Appraisers (ASA) and the National 
  Association of Independent Fee Appraisers (NAIFA)..............    23
Park, James R., Executive Director, Appraisal Subcommittee (ASC), 
  Federal Financial Institutions Examination Council (FFIEC).....     8
Rodgers, Donald T., President, Association of Appraiser 
  Regulatory Officials (AARO)....................................     6
Shear, William B., Director, Financial Markets and Community 
  Investment, U.S. Government Accountability Office (GAO)........     5
Stephens, Sara W., President, the Appraisal Institute............    26

                                APPENDIX

Prepared statements:
    Berenbaum, David.............................................    42
    Bunton, David S..............................................    71
    Gregoire, Francois K.........................................    85
    Kelly, Donald E..............................................   103
    Mann, Karen..................................................   118
    Park, James R................................................   131
    Rodgers, Donald T............................................   149
    Shear, William B.............................................   157
    Stephens, Sara W.............................................   180

              Additional Material Submitted for the Record

Biggert, Hon. Judy:
    Written statement of Edward J. Pinto, Resident Fellow, the 
      American Enterprise Institute..............................   199
    Letter to Federal Reserve Chairman Ben Bernanke and Consumer 
      Financial Protection Bureau Director Richard Cordray from 
      the American Guild of Appraisers, dated February 21, 2012..   248
    Written statement of the Dallas/Ft. Worth Association of 
      Mortgage Brokers (DFWAMB)..................................   269
Biggert, Hon. Judy, and Miller, Hon. Gary:
    Letter from Leading Builders of America, dated June 27, 2012.   270
Biggert, Hon. Judy:
    Written statement of the Mortgage Bankers Association........   274
Biggert, Hon. Judy, and Miller, Hon. Gary:
    Written statement of the National Association of Home 
      Builders...................................................   279
Green, Hon. Al:
    Letter from the Houston Association of REALTORS, dated June 
      28, 2012...................................................   284
Miller, Hon. Gary:
    Written statement of the IMPACT Mortgage Management Advocacy 
      and Advisory Group (IMMAAG)................................   285


                  APPRAISAL OVERSIGHT: THE REGULATORY
                   IMPACT ON CONSUMERS AND BUSINESSES

                              ----------                              


                        Thursday, June 28, 2012

             U.S. House of Representatives,
                 Subcommittee on Insurance, Housing
                         and Community Opportunity,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:02 a.m., in 
room 2128, Rayburn House Office Building, Hon. Judy Biggert 
[chairwoman of the subcommittee] presiding.
    Members present: Representatives Biggert, Miller of 
California, Capito; Gutierrez, and Sherman.
    Chairwoman Biggert. This hearing of the Subcommittee on 
Insurance, Housing and Community Opportunity will come to 
order. Without objection, all Members' opening statements will 
be made a part of the record. And I will yield myself as much 
time as I may consume for an opening statement.
    Good morning. I want to welcome our witnesses. Today's 
hearing is entitled, ``Appraisal Oversight: The Regulatory 
Impact on Consumers and Businesses.''
    I would just say that timing is everything, and I think 
that hopefully some of our Members will be here shortly after 
they find out what is going on in other places.
    We are examining how appraisal-related provisions in the 
Dodd-Frank Act and other regulatory initiatives have affected 
consumers and the real estate industry. This hearing is a 
continuation of the subcommittee's oversight work related to 
the mortgage origination process.
    A key element of a vibrant and sound housing market is 
effective appraisal regulation. Regulation should facilitate 
robust competition among industry participants; it should 
ensure transparency and integrity throughout the mortgage 
origination process, while giving law enforcement officials the 
necessary tools to weed out bad actors; it should avoid placing 
unnecessary burdens on businesses; and most importantly, it 
should benefit consumers.
    During today's hearing, we will examine the Federal and 
State roles in appraisal regulation. We will also explore 
suggestions to improve the appraisal regulation structure and 
regulations. For example, can we make more efficient, 
consistent, and effective appraisal oversight by streamlining 
regulations and redundant efforts to monitor the appraisal 
industry?
    Finally, some mortgage industry participants have raised 
concerns about concentration in the appraisal industry as well 
as the quality and accuracy of appraisals. How could 
regulations enhance integrity among appraisers and ensure 
accuracy in appraisal evaluations?
    Given the broad interest in the issue of appraisal 
regulations, I would like to hold at least a second hearing 
during the 112th Congress on this subject to hear from other 
stakeholders.
    So with that, I look forward to hearing from today's 
witnesses. I hope that today's hearing will provide members of 
the subcommittee with a variety of ideas as to how appraisal 
regulation can be improved for both consumers and businesses.
    I would like to recognize our ranking member, the gentleman 
from Illinois, Mr. Gutierrez, for his opening statement.
    Mr. Gutierrez. Thank you very much for yielding, Madam 
Chairwoman, and thank you for holding this hearing.
    As we proceed with profound systemic and comprehensive 
financial system and housing finance reform, it is becoming 
increasingly clear that we will benefit greatly from a clearly 
defined, fair, sound, and well-regulated system of property 
appraisal. In other words, all of the industries involved in 
the real estate market, from builders to consumers, will 
benefit from a clear and level playing field in the appraisal 
system.
    I look forward to hearing about the GAO--what the GAO found 
in its two studies on this issue, specifically the several 
weaknesses that it identified that have limited the Appraisal 
Subcommittee's effectiveness in discharging its duties, 
specifically weak enforcement tools and reporting procedures, 
and in addition, whether the ASC is fully addressing the 
requirement to create and operate a national hotline to receive 
complaints of noncompliance with appraisal independent 
standards and uniform standards of professional appraisal 
practices.
    I look forward to learning more about the concerns of 
appraisers and the representative organizations on the impact 
appraisal management companies are having not only on the 
ability of experienced appraisers to make a living but on the 
quality of the appraisals as they impact the housing and 
financial, specifically consumers.
    Madam Chairwoman, it is important to understand the 
concerns of other stakeholders, such as REALTORS and 
mortgagers regarding this and other aspects of appraisal 
issues. But most important to me and I think to many of our 
colleagues on this side of the aisle, I want to learn how these 
appraisal issues are affecting consumers, including whether or 
not consumers are receiving their money's worth in terms of 
quality of appraisal they pay for. Are they being fully 
informed of what they are paying for and are they protected 
from fraud, and do they have the proper means to address their 
grievances?
    I understand there is much to cover in this hearing and 
this is only another step in the examination of this critical 
issue. Therefore, I thank you, and I yield back the balance of 
my time.
    Chairwoman Biggert. Thank you, Mr. Gutierrez.
    The gentlelady from West Virginia is recognized for 2 
minutes.
    Mrs. Capito. Thank you. Thank you, Madam Chairwoman, and 
Ranking Member Gutierrez.
    I thank everybody for being here today. There is just 
nothing going on in Congress today, so I am glad we are here to 
talk about appraisals.
    I would like to thank the chairwoman for looking into this. 
It is important.
    And I am going to keep this brief. I wanted to take a few 
moments to address an issue that I have heard many complaints 
about in my State of West Virginia.
    I believe that the appraisal process is absolutely 
essential and so important to the mortgage process because, as 
we know, a sound regulatory structure in which the industry can 
operate and serve the consumer is of prime importance. I hope 
to get a better clarification today as to whether the Appraisal 
Subcommittee can handle this role or whether it would be better 
left to the States to act as the primary regulator.
    My main focus, though, has been to have a marketplace for 
the consumer that the consumer can access. I represent a State 
where home values are relatively low. We don't have a lot of 
foreclosures; we didn't get out over our skis, like a lot of 
other places.
    And so, purchasing a home may appear to be very affordable. 
It still strains a lot of the home budgets, and I am concerned 
because I hear of folks who--of rising costs of appraisals and 
that appraisers in some cases are unfamiliar with the area in 
which they are making the appraisals--local markets. Even in a 
small State like West Virginia, it might not sound like much, 
but if you are coming from Elkins to appraise a home in 
Charleston, it is a totally different market. It is also 130 
miles away.
    And so, if this is the case, I know that the AMCs have had 
an increased market share since 2008 and I am curious to know 
if this has contributed by putting another layer, a middle 
layer or a more increased middle layer, has that increased the 
cost of the appraisal to the consumer? I am really concerned 
about the cost of the appraisal to the consumer and the 
accuracy of the appraisal. It is essential.
    And so, I am interested to know if Dodd-Frank provisions 
have absolutely created a more consumer-friendly process or 
not.
    So I appreciate the chairwoman for holding this hearing, 
and I welcome our panelists to the committee room. Thank you.
    Chairwoman Biggert. The gentleman from California, Mr. 
Miller, is recognized for 2 minutes for an opening statement.
    Mr. Miller of California. Thank you, Chairwoman Biggert. I 
want to thank you for having this hearing today. It is 
extremely important.
    The appraisal process was broken, and to some degree, it is 
still broken. After HVCC passed the Dodd-Frank Act, I remember 
arguing vehemently about the process and the direction that we 
are heading, and it proved to be right; it was a disaster and 
we repealed most of that.
    But there is a lot lingering after that process that we are 
still having to deal with. Out-of-area appraisals are a 
significant problem we are dealing with. Using distress sales 
as comparables--it oftentimes creates more problems than it 
does benefit because an appraiser who is not a local appraiser 
doesn't understand the difference between the distressed 
property and the rehab that is necessary to take place to make 
that a comparable property and a property that is not a rehab, 
what they are dealing with in those areas.
    So there is a lot of confusion and ambiguity and the 
process, I think, has to be dealt with. New home construction 
is another good example. You are trying to compare a new home 
to a piece of property that sold for less than sticks and 
bricks. They are not comparable; they don't meet the new 
standards, new compliances required by local agencies and 
States that pass these mandates on energy efficiency.
    Green Home in California is another one that is having to 
deal with it. Builders are putting costs into homes. Many areas 
are mandated to do that and they can't even use the cost of 
those improvements as part of the appraisal.
    I would like to enter into the record a letter from the 
National Association of Home Builders, and a second letter from 
Leading Builders of America.
    Chairwoman Biggert. Without objection, it is so ordered.
    Mr. Miller of California. Thank you. But when you talk to 
different groups and individuals, you don't hire an electrical 
contractor to bid concrete work, and you don't hire an out-of-
town appraiser to do local appraisals. You are getting them in 
areas sometimes where they don't have any expertise and you 
can't just necessarily, not knowing an area, go to a computer 
and pull up an equivalent square footage home and say, ``It 
equates to what we are trying to sell here.'' It doesn't.
    We found out the situation with HVCC when they first 
passed, and Congressman Kanjorski proposed that, my argument 
was that perhaps New York is the most problematic State in the 
Nation, but 49 other States don't have those problems, and we 
need to allow more local control. Being able to take an 
appraisal and use it, again, is not available during the old 
process we had where you required a lender to basically do the 
appraisal. That appraisal could not be taken to another lender 
to do the work.
    So there are areas that we need to deal with that I don't 
think we have. We are in a recovering market and we need to do 
what we can to make sure that the market has an opportunity to 
recover. And I think until we fix the appraisal process, that 
is not going to happen. We are not doing a service to people 
who sell their home nor are we doing a service to people who 
buy the home, and we are doing a complete disservice to the 
people who are trying to finance homes and sell homes.
    So I thank you for your generous time, and I am looking 
forward to the testimony.
    Chairwoman Biggert. Thank you.
    The gentleman from Texas, Mr. Green, is recognized for 1 
minute.
    Mr. Green. Thank you, Madam Chairwoman. And I sincerely 
thank you, Madam Chairwoman, for hosting this hearing.
    This is an important hearing and I would like to associate 
myself, if I may say so, with Mr. Miller's comments. I did not 
hear them in their entirety, so I won't associate myself with 
all of them, but what I did hear, I associate myself with.
    I would also like to enter into the record a letter from 
the Houston Association of REALTORS. This letter is signed by 
Mr. Shad Bogany, who is the Federal coordinator and also the 
State chair-elect, as well as Mr. Wayne Stroman, who is the 
chair of the board for 2012.
    Chairwoman Biggert. Without objection, it is so ordered.
    Mr. Green. Thank you.
    Madam Chairwoman, I think that Mr. Miller has made some 
salient points. We find ourselves with people making decisions 
that are not entirely familiar with the empirical evidence. I 
do believe that we have to revisit some of these issues so as 
to tweak the system that we have in place.
    My belief is that this is something that is salvageable, 
and is something that is doable. I think that we just have to 
find a way to work on this project and focus on the question 
before us.
    I have had an opportunity to talk to REALTORS so I have 
some first-hand information about what is going on in my city--
first-hand information. I have talked to many REALTORS about 
this concern. I have even gone so far as to talk to people who 
do the actual appraisals, and they too have some concerns.
    So I thank you for hosting this hearing. I am looking 
forward to hearing much of the evidence--and I have to say much 
of it because, as you know, there are many things happening 
today, without getting into all of what is going on, and I am 
being pulled in many different directions. But I have to be 
here for this because of the importance associated with it.
    Thank you again, and I yield back the balance of my 3 
seconds.
    Chairwoman Biggert. Thank you, Mr. Green.
    We are delighted to have our panelists here today. We are 
going to have two panels, and so we will start with panel 
number one.
    We have: Mr. William B. Shear, Director of Financial 
Markets and Community Investment for the U.S. Government 
Accountability Office; Mr. Don Rodgers, President, Association 
of Appraiser Regulatory Officials; and Mr. James R. Park, 
Executive Director, Appraisal Subcommittee, Federal Financial 
Institution's Examination Council.
    Thank you all so much for being here. And without 
objection, your written statements will be made a part of the 
record. You each will be recognized for a 5-minute summary of 
your testimony.
    We will begin with Mr. Shear.

STATEMENT OF WILLIAM B. SHEAR, DIRECTOR, FINANCIAL MARKETS AND 
  COMMUNITY INVESTMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 
                             (GAO)

    Mr. Shear. Thank you.
    Chairwoman Biggert, Ranking Member Gutierrez, and members 
of the subcommittee, I am pleased to be here today to discuss 
our work on real estate appraisal issues. My statement today is 
based on information from two reports we issued in response to 
mandates in the Dodd-Frank Act.
    The first, which we issued in July 2011, included an 
examination of real estate valuation methods, including 
appraisals, as well as conflict of interest in appraiser 
selection policies. The second, which we issued in January 
2012, included an assessment of the Appraisal Subcommittee's 
monitoring functions and certain challenges faced by ASC.
    In summary, we found that, first, appraisals, which provide 
an estimate of market value at a point in time, are the most 
commonly used valuation method for first-lien residential 
mortgage originations. While data on different approaches for 
conducting appraisals are limited, we found that the sales 
comparison approach is required by Fannie Mae, Freddie Mac, and 
FHA, and is reportedly used in nearly all appraisals. We also 
found that the cost approach, in which an estimate of value 
uses data on land value and what it would cost to replace or 
reproduce a residence, is often used in conjunction with a 
sales comparison approach.
    Second, conflict of interest policies have changed 
appraisal selection processes and the appraisal industry more 
broadly. Specifically, the policies have led to increased use 
of appraisal management companies.
    In our July 2011 report, we concluded that setting minimum 
standards that address key functions AMCs perform on behalf of 
lenders would enhance oversight of appraisal services and 
provide greater assurance of the credibility and quality of the 
appraisals provided by the AMCs. Therefore, we recommended that 
these regulators consider addressing several key areas, 
including criteria for selecting appraisers, as part of their 
joint rulemaking under the Dodd-Frank Act to set minimum 
standards for States to apply in registering AMCs.
    Now, I will briefly discuss our evaluation of the Appraisal 
Subcommittee. It has been performing its monitoring role under 
Title XI authority, FIRREA. We found that several weaknesses, 
which are generally associated with the lack of established 
policies and procedures and clear definitions, have potentially 
limited ASC's effectiveness.
    We recommended that ASC clarify the criteria it uses to 
assess States' compliance with Title XI and develop specific 
policies and procedures for monitoring the Federal banking 
regulators and the Appraisal Foundation. ASC is taking steps to 
implement these recommendations.
    Chairwoman Biggert and Ranking Member Gutierrez, this 
concludes my prepared statement. I would be happy to answer any 
questions.
    [The prepared statement of Mr. Shear can be found on page 
157 of the appendix.]
    Chairwoman Biggert. Thank you so much.
    Mr. Rodgers, you are recognized for 5 minutes.

   STATEMENT OF DONALD T. RODGERS, PRESIDENT, ASSOCIATION OF 
             APPRAISER REGULATORY OFFICIALS (AARO)

    Mr. Rodgers. Chairwoman Biggert, Ranking Member Gutierrez, 
and members of the subcommittee, thank you for the opportunity 
to testify today. I am the executive director of the North 
Carolina Appraisal Board and I am currently the president of 
the Association of Appraiser Regulatory Officials, which is 
comprised of the real estate appraiser licensing agencies.
    My testimony today will focus on issues that are 
particularly relevant to State regulators.
    First, lack of resources: State appraiser licensing 
programs were established as a result of FIRREA to issue 
appraiser credentials and oversee compliance by appraisers with 
standards and State laws. Some programs are part of an umbrella 
agency that handles all occupational licensing of the State. 
They often use a pool of investigators and assign legal counsel 
on a per-case basis.
    Others are stand-alone agencies that handle appraising and/
or real estate. They may have contract or staff investigators 
and full-or part-time legal assistants.
    Finally, there are States such as North Carolina that have 
an autonomous board set up by State statute. These boards do 
not receive State funding and typically hire their own staff.
    Programs that share staff may lack sufficient resources and 
may not be able to comply with Federal requirements. State 
officials do not understand why this program must be given 
priority when the backlog for other agencies is just as great.
    Second, appraisal fraud: An appraisal is an opinion of 
value, which makes it difficult to show that the appraiser 
intended to deceive someone. For this reason, law enforcement 
officials often shy away from bringing fraud charges against 
appraisers. Although State and Federal law enforcement have 
joined task forces with State regulators, they are often not 
able to share information due to concerns that their 
investigations could be compromised.
    Appraisers are not usually the originator of fraud schemes 
but are brought into it with the promise of future assignments 
instead of large payments, which would provide the smoking gun 
tying them to the fraud.
    Third, appraisal management companies: AMCs have existed 
for many years. As a result of the Home Valuation Code of 
Conduct many more AMCs were established. There were, however, 
no regulations in place defining AMCs or controlling who could 
own or operate an AMC.
    Often appraisers are prohibited from speaking with brokers, 
builders, or borrowers. This creates consumer frustration 
directed toward appraisers as consumers are not aware of the 
role of the AMC in the appraisal process.
    Appraisers have their own issues with AMCs, including 
numerous assignment conditions, requests to go outside of their 
market, and delays in receiving payment. A frequent problem for 
regulators is that they must license two entities whose 
interests are often at odds.
    Each group may attempt to change laws and rules that impact 
the other's ability to function. As complaints increase against 
AMCs, States may lack the resources to investigate out-of-State 
companies who have substantial legal resources.
    Fourth, alternate valuation services: Broker price opinions 
and other evaluation products are generally not regulated by 
appraiser licensing boards. Consumers do not realize the 
difference and may think they are receiving an appraisal when 
an appraiser was not involved in the process. There is limited 
authority to discipline brokers for errors in the development 
of these valuations and they are not sufficiently regulated.
    Fifth, evaluation of the appraisal regulatory system: Some 
of the cooperative efforts between State boards, the ASC, and 
the Appraisal Foundation are an investigator training program 
provided at no cost to the States' task forces on trainee 
supervision and consistent enforcement. The Foundation issues 
exposure drafts and requests comments when there are proposed 
changes to USPAP or the appraisal qualification criteria and 
schedules meetings to coincide with AARO conferences. The ASC 
staff attends AARO and Foundation meetings and assists the 
States in drafting rules and legislation.
    There continue, however, to be areas that show the need for 
improvement. State regulators should be represented on the 
Appraisal Subcommittee as well as on the Foundation's boards. 
There should be a national repository for appraiser and AMC 
records, either through expansion of the national registry or a 
system similar to the National Mortgage Licensing System.
    Current ASC meeting procedures discourage the public from 
attending. Universal application and complaint forms have been 
discussed but are difficult to achieve absent a Federal 
requirement.
    The ASC has been in the process of changing its policy 
statements for several months, but States have not had the 
opportunity to see a draft or to comment.
    The lack of enforcement sanctions was a serious omission 
from FIRREA and created a situation where derecognition was the 
only penalty available to the ASC for violations. The Dodd-
Frank Act has given the ASC broader enforcement options, the 
ability to make grants to the States, and oversight of the AMC 
registration process. It remains to be seen what effects these 
new tools will have on the oversight of the State appraiser 
programs.
    Thank you for the opportunity to testify before you today. 
I will be glad to answer any questions.
    [The prepared statement of Mr. Rodgers can be found on page 
149 of the appendix.]
    Chairwoman Biggert. Thank you.
    Mr. Park, you are recognized for 5 minutes.

   STATEMENT OF JAMES R. PARK, EXECUTIVE DIRECTOR, APPRAISAL 
SUBCOMMITTEE (ASC), FEDERAL FINANCIAL INSTITUTIONS EXAMINATION 
                        COUNCIL (FFIEC)

    Mr. Park. Good morning, Chairwoman Biggert, Ranking Member 
Gutierrez, and members of the subcommittee. Thank you for the 
opportunity to update you on the work of the Appraisal 
Subcommittee, also known as the ASC.
    Title XI of FIRREA created the ASC as an independent agency 
within the Federal Financial Institution's Examination Council 
(FFIEC). Title XI was passed following the savings and loan 
crisis of the 1980s to address weaknesses regarding real 
property appraisals used in connection with federally-related 
transactions.
    Title XI called for the establishment of State programs to 
credential and supervise appraisers and created a unique 
regulatory framework that involves Federal, State, and private 
entities. At the Federal level, we have the ASC; at the State 
level, the State appraiser regulatory agencies; and on the 
private side, the Appraisal Foundation.
    The ASC is made up of seven members designated by the heads 
of the Federal Financial Institution's regulatory agencies as 
well as HUD, FHFA, and the CFPB. This past January, the CFPB 
appointed its first representative to the ASC. Effective April 
1st, the FFIEC appointed the HUD representative as the new 
chairman, who is also a certified appraiser and the first 
appraiser to chair the ASC.
    The member agencies remain committed to fulfilling the 
ASC's statutory responsibilities. As part of its core 
responsibilities, the ASC monitors the State appraiser 
regulatory programs for compliance with Title XI. The ASC 
completed 27 reviews in 2011 and 31 are planned for 2012.
    The ASC also maintains the National Registry, comprised of 
appraisers eligible to perform appraisals for federally-related 
transactions. The registry contains just fewer than 105,000 
credentials, down almost 14 percent from its peak in 2007. With 
the registry fee being the ASC's sole source of revenue, the 
reduction in the number of credentials comes at a particularly 
challenging time as the scope of responsibility is increasing 
due to the Dodd-Frank Act.
    In monitoring the Foundation, ASC staff attends all public 
and private meetings of the Foundation boards. For Fiscal Year 
2012, the ASC approved a grant of approximately $900,000 to the 
Foundation. The grant includes funds for the State investigator 
training program, which has been beneficial to the States.
    Through our monitoring, the ASC is aware that the 
Foundation is currently working on a new strategic plan. The 
ASC played no role in the development of the strategic plan. 
However, when made public, the ASC will review and possibly 
comment on matters related to ASC responsibilities.
    The ASC continues to make progress in addressing the Dodd-
Frank Act requirements. Last fall, the ASC approved a plan to 
establish the Appraisal Complaint National Hotline and a great 
deal of work has been completed towards its implementation.
    ASC member agencies are currently working to finalize the 
details for internal complaint intake and disposition. Launch 
of the hotline is anticipated before the end of 2012.
    The Dodd-Frank Act also required the GAO to conduct a study 
of the ASC. In its report issued last January, the GAO made 
three recommendations.
    First, GAO recommended that the ASC clarify definitions 
used to categorize States' compliance with Title XI. In 
response, the ASC has clarified the definitions, which are now 
incorporated into all appropriate documents.
    The ASC also drafted revised policy statements that have 
been approved for publication in the Federal Register to 
solicit public comment. The revisions included new findings and 
definitions to further address this GAO recommendation.
    Second, GAO recommended that the ASC develop specific 
policies for monitoring appraisal requirements developed by the 
Federal Financial Institution's regulators. Finally, GAO 
recommended that the ASC develop specific policies for 
determining whether the Foundation's grant activities are 
related to Title XI. Staff is drafting policies for ASC 
approval to address these last two recommendations.
    Other ASC priorities include fulfilling the authority and 
responsibilities conferred by the Dodd-Frank Act in such areas 
as State grants and rulemaking. Regarding State grants, many 
State appraisal programs do not control their funds. Therefore, 
the ASC will focus on ensuring grant funds are used to support 
the program.
    While the ASC has not yet formally addressed rulemaking, 
the proposed policy statements would implement the interim 
sanctioning authority given to the ASC by the Dodd-Frank Act to 
remove appraisers from the National Registry for up to 90 days. 
Use of any additional interim sanctioning authority would 
require rulemaking.
    In conclusion, I again appreciate the opportunity to appear 
before the subcommittee, and I look forward to addressing your 
questions. Thank you.
    [The prepared statement of Mr. Park can be found on page 
131 of the appendix.]
    Chairwoman Biggert. Thank you, Mr. Park.
    This is a time when the members of the committee will ask 
questions. I will start, and yield myself 5 minutes.
    Mr. Shear, do you think that the ASC has made efforts to 
reform its policies and procedures for determining whether the 
activities of the Appraisal Foundation are Title XI-related?
    Mr. Shear. As Mr. Park said, we followed up and we are--we 
know that they have made progress in this area as far as coming 
up with a definition--that would be, how do you define Title XI 
activities? So we know they are making progress in this area.
    Chairwoman Biggert. So you think that they are moving ahead 
enough for--
    Mr. Shear. Yes. We are very glad that they agreed with our 
recommendation and that they are putting things down in a 
formal way to address these issues.
    Chairwoman Biggert. Okay. According to your testimony, and 
based on your July 2012 report, the Appraisal Subcommittee has 
not clearly defined the criteria it uses to assess a State's 
overall compliance with Title XI. Could you expand on this 
assertion?
    Mr. Shear. I would be glad to. One thing that we have 
observed over the years is that the oversight of State 
compliance with requirements has been enhanced over the years, 
so we see that and we see the establishment of many policies 
and procedures that are clearly stated.
    But from an internal controls standpoint, we just dealt 
with a--three different categories that it would bring great 
clarity and it would provide for more kind of robust oversight 
if these three categories--or whatever categories they had--
were more clearly stated and defined, and we understand that 
they are making progress in this area.
    Chairwoman Biggert. Okay. Thank you.
    And, Mr. Rodgers, you provide some suggestions on how the 
appraisal regulatory structure can be improved at the State and 
national level. Can you describe and explain some of those 
suggestions for this committee in a little more depth?
    Mr. Rodgers. Yes, ma'am. I would be glad to.
    In looking at the areas of improvement, as Mr. Park said in 
his testimony, the policy statements--which are given to the 
States to follow to show compliance with Title XI--are in the 
process of being revised. We have not at this point--understand 
that process has been going on for several months--had any 
exposure to the States nor do we have the States' comments.
    When the Appraisal Foundation makes changes to their--the 
standards or either the criteria there is a very robust 
exposure and vetting process and it allows a lot of unintended 
consequences to get out there. So I would encourage the 
subcommittee to get those to the States for comment as soon as 
possible.
    Also, we believe that the States should have representation 
both on the subcommittee as either a member or through some 
sort of liaison, and they also should have the same 
representation on the standards and qualifications boards. 
These boards directly affect policies, rules for each of the 
States, and for them to understand what impact or what 
unintended consequences might come by the result of changes to 
rules or regulations is essential, so we think that is a very 
essential point.
    With regards to the public meetings of the Appraisal 
Subcommittee, the process is very rigorous to try to attend. 
You have to register in advance, and have a photo ID. You go 
through a security process that is more extensive than getting 
in this building, and you have to be escorted to and from the 
meeting site.
    This is largely because they are held in the offices of the 
Federal financial institutions, so it is understandable the 
level of security needed in those buildings. We would suggest 
that they should be held somewhere the public could come 
without preregistration or identification. In our State, you 
come to a public meeting and you can walk right in. And so, we 
would suggest that, as well. Those are just some of my 
suggestions.
    Chairwoman Biggert. Thank you.
    I yield myself such time as I may consume for additional 
questions.
    Mr. Rodgers, there seem to be a great number of the 
appraisal industry participants who claim that real estate 
appraisal fraud is significantly increasing. As a State 
regulator, does your appraisal fraud data reflect or dispute 
this claim?
    Mr. Rodgers. Just speaking for my individual State, we have 
not seen a large increase in appraisal fraud. I think a lot of 
the flipping schemes that were taking place in the early part 
of this last decade--they are just difficult to perpetrate 
given the financial climate we are in now. The rapidly inflated 
markets made it easier to perpetrate, where now that certainly 
doesn't take place.
    We have heard of issues of what is now called flopping 
schemes, where it is misrepresented to the lending institution 
what the property is worth. They short-sell for a low amount 
and then some of the real estate professionals, in turn, sell 
the property at a large profit, so kind of a reverse of the 
flipping scheme.
    We have seen some cases in our State which were right in 
the middle of the transition to the economy falling where there 
were subdivisions where a lot of promises were made, no money 
down type investments. A lot of people bought lots for 
investment type properties and then the market crashed in the 
middle of it. So some of these were fraud in the fact that they 
were trying to entice people into making poor investment 
choices, but the actual market fell out from under them, which 
was not part of a fraud scheme.
    Chairwoman Biggert. Thank you.
    Then, Mr. Park, it is my understanding that the Appraisal 
Subcommittee was created in response to the savings and loan 
crisis in the late 1980s and early 1990s. In light of 
significant changes over the past 20 years, what is the 
relevance of the ASC in today's market?
    Mr. Park. The relevance of the ASC is the Federal oversight 
that we provide for the States as well as the monitoring of the 
Appraisal Foundation and the grants that are provided to the 
Appraisal Foundation for the work of the Appraisal Standards 
Board and the Appraiser Qualifications Board. The original--
    Chairwoman Biggert. The question is, is the model outdated 
or do you think you are in the 21st Century, as far as the 
Federal oversight?
    Mr. Park. Title XI, as originally enacted, had some flaws 
in it. The Dodd-Frank Act attempted to correct some of those 
flaws, providing more authority and responsibility to the 
Appraisal Subcommittee, and while many of those provisions of 
the Dodd-Frank Act are still being put into place, they should 
assist the subcommittee in providing greater regulatory 
oversight for the appraisal regulatory system.
    Chairwoman Biggert. Mr. Shear, do you think that there 
should be a complete overhaul of that to make sure that it is 
in the 21st Century?
    Mr. Shear. We didn't look at various options for 
restructuring, so I can't answer your question directly, but we 
did look at how Dodd-Frank changes the role of the Appraisal 
Subcommittee and the new authorities and responsibilities, and 
we think the Appraisal Subcommittee has some huge challenges 
ahead. As they move forward in implementing our recommendations 
and taking other actions, I would expect that this committee 
and others will be taking a very close look to see whether the 
Appraisal Subcommittee has the resources and the right type of 
structure to carry out these additional responsibilities, 
especially pertaining to monitoring the Federal financial 
regulators.
    Chairwoman Biggert. Okay.
    Mr. Park, obviously the ASC failed to detect a significant 
amount of appraisal fraud during the financial crisis. A lot of 
other people made a lot of mistakes too, but do you think 
because of that, the States could assume some of the role of 
the ASC?
    Mr. Park. The role of the ASC is not to detect appraisal 
fraud; that is really the realm of the States. They are the 
enforcement mechanism of the system.
    The ASC's role is to create an environment where fraud can 
be easily detected and then the States have the ability to 
enforce disciplinary actions for fraud or lesser offenses--
misleading appraisals, incompetent appraisals, and so forth.
    Chairwoman Biggert. Was there a problem with the 
environment then, that the ASC created at the time of the 
financial crisis?
    Mr. Park. The ASC has to work within the confines of Title 
XI, within the authority that is given. One of the inherent 
problems with Title XI that Dodd-Frank tried to correct is the 
fact that the only disciplinary authority that the Appraisal 
Subcommittee had to use against States that were out of 
compliance was non-recognition of the State program. Non-
recognition of the State appraisal program would, in effect, 
shut down mortgage lending in the State.
    So while it has been addressed with several States, and 
States know that is a potential outcome of compliance reviews, 
they also know that it is a very draconian measure.
    Chairwoman Biggert. The ASC oversees the States, and you 
said that you don't detect the fraud, but has the ASC put out 
any information about fraud trends and worked with the States 
to better address fraud?
    Mr. Park. During the compliance review process, our policy 
managers who actually conduct the compliance review talk to the 
States, gather information about what they are doing related to 
fraud. More and more States, we have found, are getting 
involved in various mortgage fraud committees and working with 
the FBI, and Federal and State Government officials to address 
the problem of mortgage fraud and appraisal fraud.
    Chairwoman Biggert. Okay.
    Mr. Rodgers, do you think that this is--has this happened 
in your State? Has this been a help?
    Mr. Rodgers. I do agree that there have been efforts both 
on the level of AARO and with the subcommittee reviews that 
issues that occur in other States are certainly made available 
and aware of other States. Again, the joint investigator 
training that has been alluded to allowed three regulators from 
each State to attend at no cost and to focus on some of these 
issues that you may see.
    As I pointed out in my testimony, in dealing with law 
enforcement officials, one thing is they have to have a fairly 
substantial threshold of financial harm before they can become 
interested in a fraud perpetration, and when they have 
participated in a task force, which I think has been useful in 
helping identify players in some of these mortgage frauds, it 
is sometimes difficult for the information to be shared both 
ways because they are in a criminal investigation and sometimes 
they fear that the advancement of a licensing investigation may 
compromise their criminal investigation.
    Chairwoman Biggert. Thank you.
    I have exceeded my time, and so there will be some leeway 
for Mr. Gutierrez. Mr. Gutierrez?
    Mr. Gutierrez. Thank you so much. You are so kind.
    I am in a very generous mood. My prescriptions are ready at 
the drugstore.
    I want to let the panelists know that if you have an 
appointment, you can keep it. Preexisting conditions will not 
be counted against you. If you have your kids on health care, 
it is okay. I guess it is the law of the land now, so I feel 
pretty good about that. Sorry for that little aside, but I 
thought you might want to know what the Supreme Court has 
decided, especially since you were all--I know not on your--
    [laughter]
    Note, I am not talking to the rest of you, who I know are 
very well-informed of what happened, but not our three very 
distinguished and welcomed witnesses here this morning.
    So, Mr. Shear, as we continue to look at comprehensive 
housing finance reform, a key element missing from the debate 
is comprehensive appraisal reform. I think our goal should be 
to establish an appraisal system that produces accurate values 
through all phases of the housing cycle. And the agency 
guidelines that became effective in December 2010 were a vast 
improvement over 2004 guidance but the scope was limited.
    As we confront the major systemic hurdles to appraisal 
reform, specifically the fragmented and what some of us 
consider dysfunctional nature of the appraisal system and 
regulatory oversight the question is, who has the authority 
and, more importantly, the ability to coordinate and implement 
the changes we need to accomplish?
    Mr. Shear. You raise really good questions and our work can 
address some of those questions. There is room for improvement 
with the Appraisal Subcommittee, and in particular, the new 
authorities and responsibilities provided by Dodd-Frank allow 
the Appraisal Subcommittee to do a better job of trying to 
oversee the State regulators.
    We also think it is very important and also a huge 
challenge for the Appraisal Subcommittee to try to come up with 
a way of monitoring the Federal financial regulators, given 
their structure and their small size. So there is an awful lot 
that seems to be riding on what the Appraisal Subcommittee is 
capable of doing.
    But I think the types of questions you ask are very good 
questions because even if the Appraisal Subcommittee does 
successfully implement new procedures, implements new 
authorities, and takes on new responsibilities, there still is 
the question as far as how comprehensive a system we have. And 
based on our work, I can say those are very good questions that 
become very much a part of the whole fabric of mortgage reform 
under Dodd-Frank.
    Mr. Gutierrez. Mr. Rodgers, could you help us a little more 
than--
    Mr. Rodgers. Yes--
    Mr. Gutierrez. --across the country.
    Mr. Rodgers. I think there are two questions with regards 
to what happens on the State level. The question has been 
raised about dealing with appraisal fraud and joint work with 
law enforcement. Largely, the complaints and the comments I 
have heard from the Members here today have more to do with the 
accuracy of valuation, helping to recover from the housing 
crisis, and situations like that.
    Unfortunately, on the State level you are dealing with a 
complaint system where the board receives a complaint, then it 
falls under a due process system. For example, in our State, 
immediately the respondent has 30 days to respond to the 
complaint before we even initiate the investigation.
    What you are hearing a lot from participants in the 
marketplace is they need somebody that once an appraisal does 
not meet their needs they need some sort of ability to appeal 
or to get it revisited or reviewed. I think that will have to 
be handled largely in the lending community.
    Mr. Gutierrez. Mr. Park?
    Mr. Park. Could I ask you to restate your question?
    Mr. Gutierrez. The effectiveness of the system, and to 
change and to improve, and to have new effective standards 
across the country--we have changed them. How do you see those 
standards changing? Are they changing quickly enough? Are they 
being adopted quickly enough?
    Mr. Park. The changes to the appraisal regulatory system 
have occurred very slowly. The Dodd-Frank Act contained the 
first significant changes since it was enacted back in 1989. So 
there has been--but the Dodd-Frank Act did install quite a few 
significant changes that we talked about earlier in terms of 
the subcommittee's authority--
    Mr. Gutierrez. But you think they are actually being 
carried out effectively?
    Mr. Park. Yes. We are in the process of enacting the 
different provisions that the changes--the amendments to Title 
XI that were part of the Dodd-Frank Act, and we have already 
made changes in terms of--for example, the subcommittee did not 
have the authority other than to comment on but we had no 
authority during the compliance review process to look at the 
funding and staffing of a State program. Dodd-Frank gave the 
subcommittee the authority to do that as part of our compliance 
review process.
    Mr. Gutierrez. My time has expired. Thank you so much. We 
will have more questions for you, and I thank you for the 
testimony today because maybe it is just my imagination but I 
have only met two appraisers--I have had appraisers--more than 
two homes appraised.
    But I remember meeting one about 25 years ago, and it is 
like if your car--you tell the mechanic what you think might be 
wrong with it, right? Contractor comes over to fix something 
you might tell him where you--and it was like the last time I 
had the appraiser come over, I almost felt like I was doing 
some criminal act by telling her about the beautiful tile, how 
expensive it was before I installed it and trying to tell her 
what it was about my home that made my home unique so that she 
could do a better appraisal, I thought.
    When I talk to the mechanic, he kind of listens to me and 
then does whatever he has to do to fix my car, but he doesn't 
treat me like a criminal in trying to tell him what I think is 
wrong or good or bad about my car, and I hope we don't get to 
the point where you get into an adversarial relationship 
between homeowners and their most prized possession, right, and 
what it is we think it is worth. In the end, they are going to 
make an objective determination but you can still get good 
information, I think, from the American public as you make a 
decision about what something is worth.
    I thank all of you, and I look forward to the next panel.
    Chairwoman Biggert. Thank you, Mr. Gutierrez.
    And I would like to thank the panel for their expert 
testimony and for being here. It has been very helpful to us.
    With that, we will excuse the panel, but first of all, let 
me just say that the Chair notes that some Members may have 
additional questions for this panel, which they may wish to 
submit in writing. Without objection, the hearing record will 
remain open for 30 days for Members to submit written questions 
to these witnesses and to place their response in the record.
    Thank you very much.
    And with that, we will have the second panel come forward.
    I would like to recognize the second panel, and thank you 
all for being here. And let me just go through the list.
    We have: Mr. David Berenbaum, chief program officer, 
National Community Reinvestment Coalition; Mr. David Bunton, 
president, Appraisal Foundation; Mr. Francois Gregoire, the 
2011 chair, National Association of REALTORS Appraisal 
Committee; Mr. Don Kelly, executive director, Real Estate 
Valuation Advocacy Association, REVAA, on behalf of REVAA and 
the Coalition to Facilitate Appraisal Integrity Reform; Ms. 
Karen J. Mann, president, Mann and Associates Appraisers, on 
behalf of the American Society of Appraisers; and Ms. Sara 
Stephens, president, Appraisal Institute.
    Thank you all for being here.
    We will now begin with the testimony. Without objection, 
your written statements will be made a part of the record. You 
will each be recognized for a 5-minute summary of your 
testimony, and with that, we will start with Mr. Berenbaum.
    You are recognized for 5 minutes.

 STATEMENT OF DAVID BERENBAUM, CHIEF PROGRAM OFFICER, NATIONAL 
            COMMUNITY REINVESTMENT COALITION (NCRC)

    Mr. Berenbaum. Thank you.
    Good morning, Chairwoman Biggert, Ranking Member Gutierrez, 
and other distinguished members of the subcommittee. My name is 
David Berenbaum, and I am the chief program officer for the 
National Community Reinvestment Coalition.
    On behalf of our Coalition, I am honored to testify before 
you today from both the consumer protection and the safety and 
soundness perspective in order to discuss options for improving 
the regulatory oversight of stakeholders in the home valuation 
and housing finance industry. NCRC is an association of more 
than 600 community-based organizations that promote access to 
basic banking services, including credit and savings, to create 
and sustain affordable housing, job development, and vibrant 
communities for America's working families.
    Today, the U.S. economy is mired in the worst economic 
crisis in more than half a century and valuation issues remain 
front and center in the financial reform debate. Our current 
economy has clearly earned its moniker of a ``Great Recession'' 
and this is not an equal opportunity recession.
    NCRC calls upon policymakers, the Appraisal Subcommittee, 
and regulators to act swiftly to enforce Title XI of FIRREA, 
embrace the reforms included in the Dodd-Frank Act, and 
implement the following 10 recommendations that will help all 
Americans, but particularly assist low- to moderate-income 
communities, communities of color, and communities impacted by 
the foreclosure crisis who are working to realize or sustain 
the American dream of homeownership.
    To accomplish this end, we propose the following: first, to 
develop a more modern appraisal reporting process and utilize 
more robust and uniform reporting that can be tailored to 
today's needs. The recent changes by the FHFA regarding the 
uniform appraisal data set have only added further confusion to 
the already inadequate mandated four.
    Second, require full appraisals by licensed appraisal 
professionals for all residential mortgages above $50,000, 
regardless of if they are originated or ensured by the private 
sector or Fannie Mae, Freddie Mac, or the FHA. The current 
limitations associated with the so-called de minimis value of a 
quarter of a million dollars are out of touch with today's 
realities.
    Third, the role and impact of appraisal management 
companies must be critically reviewed by the ASC to ensure that 
they are not negatively affecting appraisal quality. Congress 
should immediately investigate the emerging practice of 
mortgage originators assigning or requiring that AMCs or 
appraisal professionals they engage with for business assume 
the buy-back risk from the secondary market or insurer claims 
related to loan origination.
    Fourth, appraisal professionals enhance safety and 
soundness and protect the interests of all parties to a 
mortgage transaction, including and especially consumers, and 
they must be appropriately compensated under any usual and 
customary fee standard that is developed.
    Fifth, the banking regulators--Fannie Mae, Freddie Mac, and 
FHA--should not escape Appraisal Subcommittee evaluation, 
safety and soundness review, and enforcement.
    Sixth, while automated valuation models serve as a useful 
and cost-competitive compliance tool and an effective check 
against fraud, they should never replace the use of appraisal 
by a licensed appraiser for all mortgages that exceed $50,000.
    Seventh, there is a need for more effective consumer 
protection, transparency, and education, including a dedicated 
consumer complaint hotline managed by the CFPB in collaboration 
with not-for-profit organizations.
    Eighth, responsible appraisal practices ensure and expand 
housing opportunities in open society. It is unfortunate today 
that we still see issues of the age of housing, predominant 
value, and use of comparables, coupled with subjective remarks 
with regard to the quality of housing in America's low-income 
or minority communities.
    Ninth, inappropriate appraisal undervaluation is equally 
damaging to homeowners, communities, the taxpayers, investors, 
and insurers. We are seeing widespread undervaluation through 
the use of broker price opinions, and the short-sale process, 
or general reluctance to recognize that in some communities, 
the market is beginning to return.
    And tenth, States must suspend the inappropriate action of 
redirecting funds intended for appraisal compliance, 
professional development, licensing, and oversight to their 
general funds.
    In conclusion, it is imperative for Members of Congress, 
the CFPB, the prudential regulators, and the Appraisal 
Subcommittee to work in conjunction with one another to ensure 
that consumers and industry stakeholders benefit from a system 
of regulation that helps ensure the independence and integrity 
of the appraisal process. To accomplish this end, we urge you 
to consider the recommendations that we have made today.
    Thank you.
    [The prepared statement of Mr. Berenbaum can be found on 
page 42 of the appendix.]
    Chairwoman Biggert. Thank you so much.
    Mr. Bunton, you are recognized for 5 minutes.

    STATEMENT OF DAVID S. BUNTON, PRESIDENT, THE APPRAISAL 
                           FOUNDATION

    Mr. Bunton. Thank you very much, Madam Chairwoman. The 
Appraisal Foundation greatly appreciates the opportunity to 
appear before you today to offer our perspective on the 
regulation of real estate appraisers.
    By way of background, I have served as a senior staff 
member of the Appraisal Foundation for the past 22 years, and 
prior to that I had the privilege of serving as the chief of 
staff of one of your former colleagues. I should point out that 
I am not an appraiser.
    There are many misperceptions about the Appraisal 
Foundation, and let me start off by saying what the Appraisal 
Foundation is not. It is not a government agency, it is not a 
regulatory body, it wasn't created by Congress, it is not an 
appraisal trade association, and we have no individual members.
    What are we? We are a 501(c)(3) not-for-profit education 
organization.
    We were founded by eight national appraisal organizations, 
25 years ago, before the enactment of FIRREA. We are an 
umbrella organization composed of over 100 organizations and 
government agencies with an interest in valuation. We have 
attached a list of those organizations to our testimony. And we 
were created primarily to foster professionalism in appraising.
    What the Appraisal Foundation is, is the private sector 
expertise in the real property appraiser regulatory system 
under Title XI of FIRREA. The Foundation does not have any 
regulatory authority, but we provide the tools to the 
regulatory community.
    Specifically, we set the minimum education and experience 
requirements for someone to become a State-certified or State-
licensed real estate appraiser. We are the authors of the 
National Uniform Exam that all 55 States and territories use. 
And we are the authors of the generally recognized standards of 
professional conduct known as the Uniform Standards of 
Professional Appraisal Practice (USPAP), that all State-
licensed and certified real estate appraisers must adhere to.
    With the work of our boards, we understand the very 
importance of public trust. In fact, the words ``public trust'' 
appear in our mission statement. And we have learned over the 
years that one way to build and maintain public trust is to 
promote transparency wherever and whenever possible.
    All of our boards conduct public meetings. They adopt their 
work product in open sessions. They issue exposure drafts, 
often numerous times. And all comment letters we receive are 
posted on our Web site. In fact, the people who serve on our 
boards--we interview them in a public setting.
    In addition, as part of our commitment to promoting the 
public trust, we have worked with several U.S. Government 
agencies at their request on developing specific 
recommendations to improve their internal appraisal operations, 
to assist them in their investigative work regarding valuation, 
and to assist them in developing new policies and procedures.
    As Mr. Rodgers pointed out in the previous panel, the 
Appraisal Subcommittee, AARO, and the Foundation have had a 
very close relationship over the past few years. State 
investigator training, with over 300 State investigators now 
having been trained. We are producing several training videos. 
At a time of tight State budgets, State regulators can receive 
training at their desk without having to fly anywhere.
    And then, because all 55 States and territories are using 
the same document for enforcement, USPAP, we have created 
something called a voluntary disciplinary action matrix, and 
what that is, it lists specific violations of USPAP and then 
recommended disciplinary action. It also lists aggravating and 
mitigating circumstances. It is completely voluntary; it is 
simply a tool for States to use.
    I have been asked to touch on two internal Foundation 
issues. One of them is the Foundation's strategic plan. It is 
premature to get into the details of the plan because it will 
not be presented to our board of trustees until next month.
    Assuming it is accepted by our board, the Foundation will 
publicly expose the draft plan, as it did with its current 
plan, to all stakeholders for 90 days. This November, the board 
of trustees will take into account public comments received and 
make a final determination on approving the strategic plan.
    I was also asked to comment on the Appraisal Practices 
Board. There is a lot of misinformation about this newest board 
that was constituted in July 2010. This essentially is the how-
to board, if you will. How do I appraise it with foreclosed 
properties, and short sales, and things like that?
    There are four things I want to mention about the APB. 
First, the Appraisal Practices Board does not have any 
congressional authority. Adherence to the guidance is strictly 
voluntary.
    Second, the APB does not operate with any public funds or 
any grant money.
    Third, the APB valuation advisories do not establish new 
valuation methods or techniques. They rather are a compilation 
of existing ones into one place.
    And fourth, the APB valuation advisories are available to 
anyone at no cost.
    Earlier, we heard from the Government Accountability 
Office, and over the past decade, there have been 16,000 
disciplinary actions, 2,300 revocations, and 1,800 suspensions. 
The States have been very active.
    Title XI, while certainly unique without its flaws, is the 
glue that holds these 55 jurisdictions together and, it is 
important to remember, without the use of any appropriated 
funds.
    Madam Chairwoman, the Appraisal Foundation stands ready to 
assist in any way you believe the subcommittee can help this 
effort. Thank you.
    [The prepared statement of Mr. Bunton can be found on page 
71 of the appendix.]
    Chairwoman Biggert. Thank you so much.
    Mr. Gregoire, you are recognized for 5 minutes.

   STATEMENT OF FRANCOIS K. GREGOIRE, PRESIDENT, GREGOIRE & 
   GREGOIRE, INC., ON BEHALF OF THE NATIONAL ASSOCIATION OF 
                        REALTORS (NAR)

    Mr. Gregoire. Good morning. Thank you, Chairwoman Biggert, 
Ranking Member Gutierrez, and members of the subcommittee for 
the opportunity to testify on behalf of the National 
Association of REALTORS about appraisal and the regulatory 
impact on consumers and businesses. NAR represents more than 1 
million real estate professionals, including approximately 
30,000 licensed and certified appraisers.
    My name is Francois K. Gregoire. I go by Frank. I do not 
speak French.
    I am a REALTOR but I earn my living as a real estate 
appraiser. My qualifications are fully detailed in my written 
testimony.
    NAR believes a strong and independent appraisal profession 
is important to consumers and the real estate industry and 
vital to restoring faith in the mortgage origination process. 
Appraisals are one of the most critical components necessary 
for the housing market recovery.
    There is no question about the importance of appraisals in 
real estate and mortgage transactions. A credible valuation by 
a competent, licensed or certified professional provides 
benefits to the lender, borrower, and secondary markets. Public 
trust in the real estate profession is enhanced.
    There are obstacles to preventing the realization of these 
benefits. Among the obstacles is weakened appraiser competency.
    Despite good intentions, litigation, legislation, and 
regulation has diminished the importance of appraiser 
competency as criteria for appraiser selection and retention. 
The insertion of appraisal management companies between loan 
originators and appraisers results in a focus on fee and 
turnaround time rather than appraiser competency and 
experience.
    The most common concern expressed by our members, whether a 
broker or an appraiser, is knowledge of the local market or 
geographic competency. The Uniform Standards of Professional 
Appraisal Practice requires appraisers to have competency or to 
acquire competency to understand the nuances of a particular 
market.
    The current AMC model tends to disregard this necessary 
focus on competency. Appraiser competency may be enhanced with 
education and communication.
    Communication between appraisers and real estate agents and 
their clients is not prohibited and should, in fact, be 
encouraged. Of course, efforts to intimidate, bribe, or coerce 
an appraiser are and should continue to be prohibited.
    Some AMCs provide legitimate services for reasonable fees 
but many contribute to problems in the appraisal business and 
the overall housing market. Contrary to their claims, there is 
evidence that appraiser independence is often compromised by 
the AMC.
    Assignment conditions, such as unreasonable turnaround 
times and unrealistic scope of work for reduced fees, 
interferes with the decision-making process necessary for a 
credible appraisal. Experienced appraisers refuse these 
assignments. Instead of selecting the best appraiser for the 
job, the assignment is often awarded to the appraiser who 
responds first to a mass e-mail--not the best selection method.
    The independent judgment of appraisers is compromised when 
AMC reviewers unreasonably question comparable sales selection. 
Non-appraiser AMC staff with only a cursory knowledge of 
valuation interfere by insisting that specific information be 
included or excluded from appraisal reports.
    The altered business relationships between appraisers and 
their clients, unreasonable completion time requirements, 
diminished fees, and interference in the appraisers' 
independence all contribute to the failure to recognize 
positive movement in prices and values in many market areas.
    NAR did not support the Dodd-Frank language that regulates 
AMCs on two different tracks. We believe exempting some AMCs 
from State registration has aggravated the problems. NAR 
believes that all AMCs should be registered with State 
regulatory agencies.
    Additional appraisal challenges include limitations of the 
current standard forms, the reporting format, lagging market 
information, discrepancies in market definitions, privacy 
concerns, the funding structure of appraisal programs, and the 
declining number of appraisers. NAR is the only real estate 
trade association able to speak with authority on appraisals 
and alternative valuation products. We have long been proactive 
in ensuring credible valuation of real property for our 
industry and embrace an all-encompassing approach.
    Appraisals are certainly the gold standard for mortgage 
origination but there is a role for broker price opinions, 
comparative market analyses, and automated valuation models. 
Through our subsidiary, REALTORS Property Resource, and our 
valuation committee, NAR is able to provide comprehensive data 
sets and tools to assist in determining credible home values.
    Thank you for holding this hearing to examine an issue 
which is paramount to restoring confidence in the U.S. housing 
market. NAR is dedicated to the idea that homeownership 
matters. It contributes to our Nation, benefitting individuals, 
families, and communities. Our efforts are directed at ensuring 
that the dream of homeownership is available to the next 
generation.
    We look forward to working with the committee on this 
issue, and I am anxious to answer your questions.
    [The prepared statement of Mr. Gregoire can be found on 
page 85 of the appendix.]
    Chairwoman Biggert. Thank you, Mr. Gregoire.
    Mr. Kelly, you are recognized for 5 minutes.

 STATEMENT OF DONALD E. KELLY, EXECUTIVE DIRECTOR, REAL ESTATE 
 VALUATION ADVOCACY ASSOCIATION (REVAA) ON BEHALF OF REVAA AND 
 THE COALITION TO FACILITATE APPRAISAL INTEGRITY REFORM (FAIR)

    Mr. Kelly. Thank you, Madam Chairwoman. I am delighted to 
be here again. It is good to see you. I believe that you and 
your staff have hit a homerun here. If you look at the panels 
that have been put together here, a tremendous amount of 
experience, so many of us have known each other in this 
business for so long--and I won't say how long, just to protect 
the innocent here. And despite some of our disagreements, I 
must say that on behalf of REVAA and the FAIR Coalition, I will 
say that personally, I love appraisers. I have been working 
with appraisers for 30 years and they have tremendous 
professionalism and it has been a delight to work with them.
    My members love appraisers as well because without good 
appraisers, there would be no appraisal management companies.
    Allow me to summarize my testimony. First, regarding 
appraisal management company operations, REVAA and FAIR members 
provide necessary services to financial institutions as well as 
benefits to appraisers and consumers in the course of a 
mortgage transaction.
    Second, in regard to regulation, we are working proactively 
with the Federal Government and the States to implement the 
regulatory requirements of the Dodd-Frank Act and State 
legislation. Third, we encourage the Consumer Financial 
Protection Bureau to continue to rely on the reasoning utilized 
by the Federal Reserve Board for payment of customary and 
reasonable fees.
    To my first point, our members manage the production and 
the delivery of real estate valuation products. They have been 
responsible for advancements in technologies that benefit 
mortgage investors, servicers, originators, appraisers, and 
ultimately consumers.
    AMCs typically operate national networks of employee-based 
and independent contractors for the completion of appraisal 
reports. Because mortgage lending is a national undertaking, 
AMCs act as a centralized resource for mortgage lenders and 
servicers that operate nationwide.
    There are approximately 315 AMCs in operation today, owing 
to the diversity of the lending industry and the competitive 
marketplace. AMC has worked to match assignments with qualified 
local appraisers. The average appraiser utilized by an AMC has 
15 years of experience and typically travels less than 13 miles 
on any given assignment.
    AMCs perform extensive administrative and quality control 
functions on behalf of both the appraiser and the lender to 
ensure delivery of high-quality reports. Member companies rely 
on competent and qualified appraisers and work diligently to 
ensure quality.
    As part of the selection criteria, our members typically 
confirm the physical location of the appraiser's office. That 
location is what they call ``geo-coded'' and used to calculate 
the distance to subject properties and other metrics. In 
addition, objective metrics are applied to an appraiser's 
performance and appraisals are reviewed by quality assurance 
teams who specialize in product development and review.
    Contrary to what some have suggested, appraisers directly 
benefit by working with an AMC by having an advocate to ensure 
appraisal independence, to make sure that no attempt is made to 
improperly influence the appraisal process. In addition, AMCs 
provide significant value-added services to appraisers, such as 
quality control, review, marketing, insurance, technical 
support, and billing processes.
    With loan rate lock-ins and time-sensitive negotiations, 
AMCs help consumers by reducing the time required for appraisal 
delivery.
    To my second point regarding regulation, AMCs are subject 
to new regulatory requirements under Dodd-Frank, and prior to 
passage of the Act, several States had begun the process of 
enacting laws to require registration of AMCs. We have been 
actively involved with the States from the inception of these 
registration laws and have long supported transparency and 
independence in the appraisal process.
    We believe it is important to work towards consistency and 
uniformity in State laws and regulations to ensure that AMCs 
can effectively operate on a national basis. We believe the 
Appraisal Subcommittee and the relevant banking agencies can 
and should contribute to ensuring a consistent set of national 
requirements in this regard.
    Finally, Dodd-Frank requires that lenders and their agents, 
AMCs, compensate appraisers at a customary and reasonable rate 
for appraisal services. We believe the Federal Reserve Board 
acted appropriately and logically to implement the 
congressional intent in this provision.
    The board has recognized that appraisal services are not 
one-size-fits-all and has created a compliance structure for 
fees that reflects market realities and ensures that the 
appraisal cost borne by consumers will remain competitive and 
fair. While the board's interim final rule remains effective 
without further finalization, we believe the CFPB should 
maintain the criteria articulated by the Federal Reserve Board. 
To reconsider the issue could result in additional confusion 
and even lead to setting a fixed fee which may not reflect 
local market and industry conditions.
    Since we last met, States have been active in establishing 
registration programs for AMCs. By and large, States have been 
diligent with consistently required registration for a set fee, 
background checks for AMCs and employees, surety bonds, minimum 
education requirements, and built-in protections for appraisers 
engaged by AMCs.
    However, because mortgage lending is national in scope, we 
believe it is important to work towards greater consistency and 
uniformity in State AMC laws and regulations. We support 
reasonable and appropriate laws and standards to improve the 
appraisal industry as a whole, but we also believe the Federal 
banking agencies should provide clarification and guidance for 
the industry.
    Thank you for the opportunity to testify. I look forward to 
your questions.
    [The prepared statement of Mr. Kelly can be found on page 
103 of the appendix.]
    Chairwoman Biggert. Thank you, Mr. Kelly.
    Ms. Mann, you are recognized for 5 minutes.

   STATEMENT OF KAREN MANN, PRESIDENT, MANN & ASSOCIATES, ON 
  BEHALF OF THE AMERICAN SOCIETY OF APPRAISERS (ASA) AND THE 
   NATIONAL ASSOCIATION OF INDEPENDENT FEE APPRAISERS (NAIFA)

    Ms. Mann. Thank you very much.
    Good morning, Chairwoman Biggert, Ranking Member Gutierrez, 
and members of the subcommittee. My name is Karen Mann, and I 
am an appraiser. I have been an appraiser for 32 years and I am 
currently the president of my firm, Mann and Associates, in 
Northern California.
    Today, I am here to testify on behalf of the American 
Society of Appraisers, ASA, and the National Association of 
Independent Fee Appraisers, NAIFA. I am speaking on their 
behalf today.
    The current appraisal regulatory structure is a dramatic 
improvement over what was in place prior to the savings and 
loan debacle. Prior to that, you could own a clipboard, you get 
a business card, get a tape measure, and you go out and call 
yourself an appraiser. The problem is it became like the Wild 
West where people thought that they could be an appraiser at 
any time.
    Thanks to the implementation of Title XI, we found that 
there were rules and regulations that appraisers had to follow, 
and it was good. That doesn't mean we always wanted to follow 
the rules, but we had to, and that makes a more organized 
society. It is very important.
    The role of the appraiser had to recognize that the 
appraisal industry had changed over the years. As a result of 
that, we needed something that was a foundation for us, a 
basis.
    So now we have a standard of accountability, and this 
standard of accountability was--the basis was Title XI, and now 
with augmentation of the Dodd-Frank Act, we will have a fine-
tuning of that original standard format.
    We also believe that the Appraisal Foundation has been and 
continues to be an indispensible and positive factor in the 
growth of the appraisal profession. Currently, some 65 percent 
of practicing appraisers are not a part of a professional 
appraisal organization for guidance. The Appraisal Foundation 
has been an important element for these appraisers.
    Professional appraisal organizations have been around since 
the 1930s. However, the presence of approximately 65,000 
licensed and certified appraisers relying on some source of a 
foundation requires the use and the implementation of the 
Appraisal Foundation guidance.
    It is important to note that the Foundation decisions 
involving standards, best practices, and qualifications are 
made in a transparent manner and are open for comment, review, 
and recommendation by appraisers and stakeholders.
    Improving the current system is currently in process with 
the proposed implementation of the appraisal portion of the 
Dodd-Frank Act. The current regulatory system is adequate, 
however, we recognize, like anything that is being developed, 
one must tweak it, one must go in and improve it.
    So we agree with the 2012 GAO report regarding the need for 
greater effectiveness at the Appraisal Subcommittee. However, 
we also believe the Appraisal Subcommittee is showing 
improvement. They are trying to increase their skill sets and 
to be more effective and more efficient.
    We have several issues facing appraisers in today's 
environment: first and foremost, as an appraiser, customary and 
reasonable fees. With the implementation of the AMCs--we don't 
disagree that having an AMC is appropriate or could be 
appropriate, but the problem is that the experienced appraisers 
don't want to work for the AMCs because the fees are so low.
    The AMCs typically will charge--and it is customary for the 
V.A. to publish that fees for appraisers are approximately 
$450. The AMCs keep between 30 and 40 percent, which means that 
the remainder goes to the appraiser. The appraiser then has a 
lower fee. In today's business practice, having a lower fee 
when your expenses are the same or increasing, makes it very 
difficult to stay in business.
    A lot of the newer and less experienced appraisers are 
choosing to work for the AMCs, which is not a good thing for 
consumers because the consumers may not be getting necessarily 
the most qualified appraiser. I hear this every day from 
homeowners who contact me and say, ``This person came from 
Fresno and they are appraising a property in San Francisco.'' 
That is 400 miles and that is a long distance. Completely 
different markets.
    The next item we have to recognize is that the Dodd-Frank 
reform has not yet fully been implemented. So the fact that it 
hasn't been fully implemented--we are working on the 
presumption that it is going to happen, but once it is 
implemented we anticipate that the improvement to the entire 
process will be accelerated immensely.
    The good faith estimate and settlement form mortgage 
disclosures do not disclose that the appraisal fee paid by the 
consumer is actually two pieces. One piece is what goes to the 
AMC and the remainder goes to the appraiser.
    The homeowner--the property owner--should really know which 
part goes to which because they think that--when we go out 
there they say, ``We paid you $500 for this appraisal,'' and 
when they find out that the appraiser is only getting $300 of 
it, the homeowner feels deceived and they wonder what is going 
on with the process.
    One other factor that has been a bone of contention for 
appraisers for years is eliminated the--and reducing the de 
minimis. Currently, the de minimis means that properties with a 
price--a value less than $250,000 for residential properties 
and a million dollars for commercial properties do not 
necessarily need a--the typical appraisal and other types of 
valuation products may be used. We firmly believe that that 
compromises the system and it compromises the homeowner--the 
consumer--of properties worth less than $250,000, which is a 
considerable amount when you consider the average price of the 
home in the United States.
    Finally, we have other issues with day-to-day operations, 
but we don't think that your subcommittee should worry about 
our minor little issues. We will try to endeavor to participate 
and encourage and to try to develop processes that work and 
help the committee and each other improve our system so that we 
have a professional appraisal group of professional appraisers 
for every single consumer.
    Thank you for allowing me to represent my organizations.
    [The prepared statement of Ms. Mann can be found on page 
118 of the appendix.]
    Chairwoman Biggert. Thank you, Ms. Mann.
    Ms. Stephens, you are recognized for 5 minutes.

    STATEMENT OF SARA W. STEPHENS, PRESIDENT, THE APPRAISAL 
                           INSTITUTE

    Ms. Stephens. Thank you.
    Chairwoman Biggert, Ranking Member Gutierrez, my name is 
Sara W. Stephens and I am president of the Appraisal Institute, 
the largest association of real estate appraisers in the United 
States, representing 23,000 professionals and more than half of 
all professionally designated appraisers in the United States.
    In 2007 Chief Justice Roberts, writing for a unanimous U.S. 
Supreme Court stated, ``Valuation is not a matter of 
mathematics. Rather, the calculation of true market value is an 
applied science, even a craft. Most appraisers estimate market 
value by employing not one methodology but a combination. These 
various methods generate a range of possible market values, 
which the appraiser uses to derive what he considers to be an 
accurate estimate of market value based on careful scrutiny of 
all data available.''
    These words are so true. Appraisal methods and techniques 
require judgment by the appraiser. The choice of methods and 
techniques are the responsibility of the appraiser.
    For instance, in valuing a parcel of residential and 
commercial real estate, appraisers are trained to decide 
whether or not to use replacement cost and when and how to 
adjust for seller sales concessions. These decisions by the 
appraiser are dependent on the actions of the marketplace and 
should not be mandated. Sadly, this tenet is at risk.
    Established under a false premise that timely guidance on 
appraisal methods and techniques does not exist, the Appraisal 
Practices Board of the Appraisal Foundation is attempting to 
assert itself as the authority over appraisal methodology, a 
move that flies in the face of the decision of the Supreme 
Court case that I just quoted. Despite having no authorization 
from Congress in this area, proponents of the Appraisal 
Practices Board are attempting to dictate appraisal 
methodology.
    In fact, even though the Appraisal Foundation maintains 
that the guidance documents are voluntary, the Appraisal 
Foundation is now encouraging States to adopt them as 
compulsory. Furthermore, the Appraisal Foundation has professed 
to reference them in the latest document edition of the Uniform 
Standards of Professional Appraisal Practice, essentially 
codifying them into State law.
    We believe that Congress should exercise oversight over 
this insidious attempt to confuse the public by subtly abusing 
existing congressional authority. The appraisal process is not 
aided by more rules. Instead, the appraisal profession is at 
risk of having innovation curtailed.
    Furthermore, the Appraisal Institute supports realigning 
the appraisal regulatory structure with those of other 
industries in the real estate and mortgage sectors. As a model, 
we believe Congress could turn to the national mortgage 
licensing system for mortgage loan originators, which is 
mandated by the SAFE Act and is overseen by the Consumer 
Financial Protection Bureau.
    This is not a self-regulatory organization but one that is 
owned and operated by the State bank regulators. We see several 
benefits to a realignment of the appraiser and certification 
system, including enhanced communication among regulators and 
reduced red tape for appraisers.
    Congress saw reason to authorize this body to assist others 
within the real estate sector. So, too, can it be for 
appraisers and appraisal regulators.
    Congress also should remain engaged on the issues involving 
appraisal procurement and appraisal management companies, 
including the payment of customary and reasonable fees and 
consumer disclosure of fees paid to appraisal management 
companies. We often hear from real estate agents, homebuilders, 
and others that poorly performed appraisals are killing deals 
and/or holding back economic recovery. These accusations are 
unfounded and misguided, as appraisers do not make the market; 
they report the market.
    The purpose of an appraisal is not to support a contract 
sales price but instead is an integral part of lender risk 
management. Any crisis of confidence regarding appraisals is a 
direct result of the way in which lenders under the oversight 
of bank regulatory agencies procure appraisals today.
    Here, the predominant factors in the appraisal hiring 
decision are often price and turnaround time of the appraisal, 
not quality of service or geographic or market competency of 
the appraiser. The dumbing down of appraisals cannot continue 
and we ask Congress for its continued oversight.
    Lastly, we know nothing is perfect. The regulatory system 
that appraisers operate with today is 20 years old and we 
believe it is time for a fresh look.
    Appraisers do not need a set of arbitrary rules. As the 
Supreme Court has stated, ``The careful scrutiny of data should 
be at the forefront of the appraisal process and is essential 
to maintaining its integrity.'' We ask for your oversight of 
these matters. I thank you very much for the opportunity to be 
here and I would be glad to answer your questions.
    [The prepared statement of Ms. Stephens can be found on 
page 180 of the appendix.]
    Chairwoman Biggert. Thank you, Ms. Stephens.
    We will now proceed to questions, and I will yield myself 5 
minutes.
    The Appraisal Subcommittee is in the process of developing 
the new standards or rules as required by the Dodd-Frank Act, 
and Dodd-Frank was enacted in 2010, almost 2 years ago. This 
question is for all of you: Do you believe that the Appraisal 
Subcommittee has been effective by taking more than 2 years, 
and counting, to comply with the Dodd-Frank Act?
    Let's start with you, Mr. Berenbaum, and just go down the 
line.
    Mr. Berenbaum. Thank you. I think that is a very important 
question. We are anxious for the Appraisal Subcommittee to move 
ahead very quickly in this phase, particularly with regard to 
monitoring the activities of the other prudential regulators. 
We have raised issues such as flopping, such as the quality of 
appraisal compensation, such as issues with regard to expanded 
use of automated valuation models to, in fact, the prudential 
regulators.
    And despite the lessons that should have been learned in 
this financial crises, it appears to us, working with consumers 
across the country, that the prudential regulators are not 
acting quickly enough. And so, the ASC will and should be 
playing a critical role in that space as well as, frankly, 
working with the FHA, as well.
    Chairwoman Biggert. Thank you.
    Mr. Bunton?
    And please be brief, because I have some other questions, 
too.
    Mr. Bunton. I think they are doing much better. The 
Appraisal Subcommittee today is a far different organization 
than it was just 7 months ago. I believe 4 of the 7 members 
were not serving 7 months ago. They are new; they are higher 
level policy people. For the first time, you have a Chair who 
is an appraiser.
    I attend every one of their public meetings and the 
difference between it then and now is night and day.
    Chairwoman Biggert. Thank you.
    Mr. Gregoire?
    Mr. Gregoire. The National Association of REALTORS does 
not have a specific policy related to your question. However, I 
can tell you that unlike a lot of other Federal agencies, the 
ASC operates without an appropriation; they operate on an 
appraiser tax. So they don't have the flexibility or the funds 
to move in the same way that a lot of Federal agencies do.
    And I believe that has to be taken into account. The folks 
who are funding the operation of the Appraisal Subcommittee are 
actual licensed and certified appraisers, and as Mr. Park 
testified, that number of folks is diminishing.
    Chairwoman Biggert. Thank you.
    Mr. Kelly?
    Mr. Kelly. Thank you. We would like to see the ASC move a 
little quicker. As I testified, States are already proceeding 
with registration and other standard development, and so I 
believe that the ASC could be helpful with moving along with 
their agenda.
    Chairwoman Biggert. Ms. Mann?
    Ms. Mann. Thank you. There is a pressing need for speedy 
implementation by rulemaking of many of the Dodd-Frank 
appraisal provisions, which have yet to be addressed.
    These provisions involve enormously important issues, 
including supervision, registration of AMCs, development of 
quality control standards for AVM, that is automated valuation 
models, establishment of an appraisal complaint hotline, and 
the CFPB's consideration of whether the banking agencies' 
existing dollar threshold, or the de minimis, is adequate. So 
we look forward to this.
    Chairwoman Biggert. Okay. Thank you.
    Ms. Stephens?
    Ms. Stephens. Yes, I think that one of the biggest problems 
we see is that the current structure really assumes that the 
States are not capable of administering this entire process of 
certification and entire process of overview. We would like to 
see that changed. And that is one of the reasons we make the 
suggestion that a good look be taken at the way that our whole 
entire system is set up.
    Chairwoman Biggert. Thank you.
    Now, I have two questions that are just a yes-or-no answer, 
so the first one is--and we will start with you, Ms. Stephens, 
and go the other way. Is the Appraisal Subcommittee effective?
    Ms. Stephens. In my opinion, no.
    Chairwoman Biggert. Ms. Mann?
    Ms. Mann. I believe it is, and it is going to get better.
    Chairwoman Biggert. Mr. Kelly?
    Mr. Kelly. Yes.
    Chairwoman Biggert. Mr. Gregoire?
    Mr. Gregoire. Somewhat.
    Chairwoman Biggert. Mr. Bunton?
    Mr. Bunton. It needs improvement.
    Chairwoman Biggert. Mr. Berenbaum?
    Mr. Berenbaum. [Off mike.]
    Chairwoman Biggert. Okay.
    Now, another question, yes or no: Should Congress consider 
a complete overhaul of appraisal regulations and improve it for 
consumers and businesses alike?
    Mr. Berenbaum?
    Mr. Berenbaum. I think there is a serious need to look at 
how--
    Chairwoman Biggert. Yes or no?
    Mr. Berenbaum. Yes or no? There is a need to look at it.
    Chairwoman Biggert. Mr. Bunton?
    Mr. Bunton. [Off mike.]
    Chairwoman Biggert. Mr. Gregoire?
    Mr. Gregoire. [Off mike.]
    Chairwoman Biggert. Okay.
    Mr. Kelly?
    Mr. Kelly. We should continue to look at it, yes.
    Chairwoman Biggert. Okay.
    Ms. Mann?
    Ms. Mann. Improve the existing system.
    Chairwoman Biggert. Okay.
    Ms. Stephens?
    Ms. Stephens. Yes.
    Chairwoman Biggert. Okay, thank you.
    All right. My time has expired.
    Mr. Sherman, from California, is recognized for 5 minutes.
    Mr. Sherman. Thank you, Madam Chairwoman.
    Mr. Gregoire, the GSEs have created this new uniform 
appraisal database, the UAD, which is used on all GSE 
appraisals, also for the FHA. How is it all working out?
    Mr. Gregoire. Fortunately, because of the work that I do, I 
have not had to complete one of those reports. However, I have 
heard from dozens if not hundreds of appraisers about their 
experience, and also from consumers. The UAD method of 
reporting was not implemented to enhance the quality or the 
credibility of an appraisal report. What it does enhance is 
data-gathering.
    It does not improve an appraiser's performance or ability 
to accurately or credibly estimate an opinion of value. And in 
fact, I believe that it makes the appraisal report more 
confusing and less useful to the consumer.
    Granted, the consumer is not an intended user of an 
appraisal that is completed for mortgage finance transaction. 
However, the wording in the form clearly anticipates that the 
borrower will be placing some credence in that, and the report, 
according to Federal law, is required to be provided to the 
borrower prior to the closing of the transaction.
    That UAD does not improve the usefulness of that report to 
the consumer.
    Mr. Sherman. So at a very minimum, we need to change how it 
is presented so that the consumer can understand it?
    Mr. Gregoire. I believe that the reporting format that is 
instituted by the GSEs is not designed to result in a more 
accurate estimate of value; it is designed for the convenience 
of the GSEs. And things that make things more useful to 
consumers are very often excluded from the report due to the 
manner in which the report is delivered to the GSEs.
    And there are also privacy concerns. The GSEs are now 
insisting on a whole slew of interior photographs and the 
borrower and the seller and the lender don't control the 
distribution of that appraisal report, and a lot of our members 
are very concerned about privacy.
    Mr. Sherman. The only thing I have been told about real 
estate is that it has something to do with location, and 
location, and location. What can we do to make sure that the 
appraisers actually understand the neighborhoods that they are 
appraising, Mr. Gregoire?
    Mr. Gregoire. Thank you, again. Unlike some of the 
discussion here concerning geographic competency, I don't 
believe that geographic competency is determined solely by the 
appraiser's proximity to the property that is being appraised. 
Geographic competency is determined by the appraiser's 
knowledge of a particular market or knowledge of a particular 
neighborhood or of a particular location. It is also determined 
by the appraiser's knowledge of a particular property type.
    And competency can be--it is not absolutely, positively 
necessary at the time the appraiser accepts the assignment as 
long as the appraiser takes the steps necessary to acquire the 
competency. But you don't acquire competency in a manner of 
minutes or hours, and I believe that appraisers are fully 
capable of gaining the necessary competence if they are given 
the appropriate and the necessary time to spend in a market, 
interview the folks necessary to gather market information, and 
given the time necessary to appropriately complete the 
appraisal report.
    Mr. Sherman. But even a very competent appraiser who is 
given just one job in some community he doesn't know, he is 
only paid a few hundred dollars so he can't spend hours and 
hours studying everything. That competent appraiser, if he is 
only going to do one appraisal in that neighborhood is probably 
going to miss some things.
    Mr. Gregoire. I agree, and I think that the Uniform 
Standards for Professional Appraisal Practice provides the 
appraiser guidance as what to do in such a circumstance, and 
that is to decline the assignment. And I believe that we have 
to hold appraisers to that standard. They have to know when it 
is appropriate for them to accept an assignment and when it is 
appropriate for them to decline the assignment.
    Mr. Sherman. If I can squeeze in one more question, how are 
appraisals and valuations affecting the housing recovery, or 
what we hope to be a housing recovery?
    Mr. Gregoire. That is a pretty broad question, but I 
believe the concern of the National Association of REALTORS is 
that there is interference in an appraiser's independence to 
call things the way they see it. I have plenty of anecdotal 
evidence of appraisers--and I work and appraise in Pinellas 
County, Florida. It is a county which is not monolithic. There 
are areas that are improving--some dramatically, some not so 
much--and areas that are stable. There are appraisers who have 
identified improving areas, and as a result of their data and 
analysis in reaching an opinion that an area is improving have 
reported that to their clients, and they have made the 
appropriate positive adjustments to comparable sales to make 
sure that those comparable sales are adjusted to reflect what 
they would have sold for on the effective date of the 
appraisal. The result that has been reported is that you better 
rethink those date-of-sale time adjustments. That is 
interference with an appraiser's independence and it results in 
a misleading appraisal report and an appraisal report that does 
not reflect a current and an improving market in a specific 
area.
    Chairwoman Biggert. The gentleman yields back.
    The gentleman from California, Mr. Miller, is recognized 
for 5 minutes.
    Mr. Miller of California. Thank you, Madam Chairwoman.
    So the problem I have, and I guess this panel really 
doesn't--we really don't have a mortgage broker on here; we 
don't have--these problems, but the data I have seen, 80 
percent of all the appraisals being done are refinances, so 
let's put those in one category. That is just somebody 
refinancing their home, whatever.
    HVCC was so efficient at changing the landscape that even 
though Congress came back and said, ``No, we don't like that,'' 
FHFA and FHA never listened. They are still implementing the 
concept of HVCC, which was a disaster. There was a time, like 
ordering an appraisal when a mortgage broker, now called an 
originator, could do something.
    But they are excluded from participating in the appraisal 
process as they were in the past, and many times trying to 
represent a client--a REALTOR comes in with a client, mortgage 
broker, they try to figure out what the house is going to sell 
for, how the buyer is going it buy it, and they could do an 
appraisal and they could go out and go to a lender, if the 
lender's appraisal didn't come in the same line they could say, 
why are there differences in the appraisals? Is there an error 
in the appraisal? Are there different issues we need to 
consider here?
    Those are off the table, and in Dodd-Frank I made sure the 
language included in there that said appraisal would be 
portable, but they are not. They are just not being done. You 
go to one lender and they do an in-house appraisal, and they 
are not giving their appraisal to the other lender. So now 
somebody has to go back and pay for two appraisals or three 
appraisals when it could have been done the first time by 
understanding what the house is really worth based on 
somebody's understanding of what an appraisal should be and who 
should do an appraisal.
    And, geography, should that matter? I think it does if an--
and I think appraisals are wonderful. I have no problem with 
that. But if he is 2 hours away, and he has one appraisal in a 
neighborhood, that makes it really tough. And when you are 
dealing with a marketplace that is tough, is an appraiser 
likely to say, ``I think I should forego taking this job when I 
can go on a computer and come up with something and present an 
appraisal?''
    So I think there is an inherent conflict in the industry 
when you put that onus on the individual to say, ``No, I am 
going to turn the work down.'' It has been a bad market. It has 
been tough. People are trying to grow their businesses back.
    But portability is huge, and it is not taking place. And a 
problem I have is, especially in the industry today you are 
appraising many distressed homes at a value and unless the 
appraiser is out there on site looking and making sure he knows 
it is distressed versus when it is not distressed they really 
don't know. So you have to actually drive up to the door and 
actually look and understand what you are dealing with.
    And especially when it applies to new marketplace today, 
when--I don't believe this country's economy is going to come 
back until the housing industry comes back. I just don't 
believe it. There is nothing showing me that it is going to 
happen until the industry comes back full swing and this 
economy turns around.
    So you have builders in communities that are buying lots 
basically through this down marketplace in the recent years for 
less than it costs to do the improvements. So you have an 
appraiser who is going out there appraising it on values less 
than it would cost to do the improvements today and buy land 
today. Land is supposed to be free but it is not, and even all 
the new requirements placed on them aren't being considered in 
appraisal value.
    And I am not impugning appraisers. I don't mean that at 
all. It is just very tough and you have to have somebody local 
who understands it, understands the issue, understands the 
market and can come up with a realistic value of that home 
based on current market conditions.
    And if that doesn't happen, you are going to continue to 
distress the marketplace. New product can't be built today 
unless you are using realistic values of what fair market value 
is for that home in today's market.
    But when you have a buyer willing to buy and a seller 
willing to sell and the appraiser comes down here everybody is 
looking at each other scratching their heads saying, ``What do 
we do?'' And that is where the problem is today.
    You need to be able to say, ``I think you made some 
mistakes in your appraisal here,'' but you are excluded from 
that now. You can't do that. It is a conflict of interest 
almost, the way they are looking at it.
    You have to get back to some realistic approach to the 
concept of value at market rate and putting a lender together 
with that buyer and seller to be able to move forward in the 
marketplace. And I think we are hurting ourselves and hurting 
this economy by not realistically looking at that.
    I guess when you look at the State appraiser expected to be 
selected from individuals assigned based on completely the 
performance of an appraisal, knowledge of an areas, and type of 
a product, Ms. Stephens, is that happening? If not, what steps 
are being taken to make sure that appraiser understands what 
they are looking at?
    And I am not impugning appraisers. I am just saying that we 
restricted it through HVCC and that we have not come full 
circle in correcting it.
    Ms. Stephens. We are hearing from many of our appraisers 
and many of their clients that this is not happening, that we 
are not sending people into an area who are familiar. And one 
of the big problems is, again, that most of the function of 
today's residential lending market is vested in hiring people 
based on fee and turnaround time.
    We are not saying that all of the AMCs that are working out 
there are not doing a good job, but we are saying that there 
are instances where people are traveling great distances to 
work on a residential assignment when there are qualified 
people--professional people--in the area who would do that job 
if the fee were commensurate with their--
    Mr. Miller of California. And the problem with traveling 
that great distance is it is a cost factor for the appraiser. 
They are traveling; they are not doing something else. It is 
time lost in the car when they could do two appraisals 
somewhere else.
    And I think the inherent conflict being placed on the 
industry today is that nobody wants to turn a job down, and I 
don't blame them. But there is not adequate compensation based 
on the impact associated with what they have to do to get the 
appraisal done to expect a reasonable approach to the appraisal 
process.
    And I know you have been generous, Madam Chairwoman, and my 
time is way up. I had eight more questions, but I yield back. 
Thank you very much.
    I ask unanimous insert to insert into the record a written 
statement by William Kidwell, president of Impact Mortgage 
Management Advocacy and Advisor Group, IMMAAG.
    Chairwoman Biggert. Without objection, it is so ordered.
    Mr. Miller of California. Thank you, Madam Chairwoman.
    Chairwoman Biggert. Mr. Miller, I am going to ask a few 
more questions, so if you would like to--
    Mr. Miller of California. I can finish. Yes I would love--
    Chairwoman Biggert. All right.
    Mr. Miller of California. Mr. Gregoire, an out-of-area 
appraiser is one of the most common complaints. I know I just 
said that. But what can be done, in your opinion, to fix that 
problem?
    The chairwoman gave me the time. Go for it.
    Mr. Gregoire. I just had an e-mail forwarded to me from a 
Tallahassee appraiser. This appraiser is in Tallahassee and he 
wanted to let me know about an assignment that he was given 
yesterday. They are a nationwide appraisal management company, 
has a conventional 1004 MC appraisal for a purchase located on 
a property in Karo, Georgia. I don't know where Karo, Georgia 
is, but it is in Georgia, not in Florida.
    ``If you are interested in working with us on this and 
future appraisals please reply to this e-mail with your 
estimated turnaround time and fee.''
    This appraiser is licensed--actually, is certified in 
Florida, not in Georgia. That is an example. And I don't know 
how many other appraisers in Florida received the same e-mail.
    That is a primary driver of a lot of AMCs' determination as 
to who gets the assignment--the turnaround time and the fee. No 
question here whether or not he even is certified in Georgia or 
what his qualifications are, whether or not he is a designated 
appraiser. The--
    Mr. Miller of California. And the problem with that--and I 
do like appraisers. I am not impugning anybody. Please don't 
anybody mischaracterize. What I am saying is everybody shopping 
for business today, and when a lender receives an estimate from 
this appraiser that says, ``We will do your appraisals for this 
amount of money,'' and the lender says, ``That is a good 
deal,'' it doesn't matter if they are 800 miles away.
    Mr. Gregoire. Thank you.
    Now, as to how it can be corrected, first off, I believe 
that consumers should be entitled to an appraisal report that 
is commensurate with the fee that the consumer pays for the 
appraisal report. They are not getting that now.
    They are getting only a fraction of what they are paying 
for because the bulk of the fee is going to a party other than 
the person who is completing the assignment. The bulk of the 
fee is going to an organization, a company, that adds no value 
to the transaction.
    They are strictly a broker, strictly a middleman, and 
despite all the claim of the quality control and the adherence 
to the appraiser's qualifications, in most cases it is not. It 
is simply a means of siphoning off money. Very often, the 
appraisal management company is associated with or affiliated 
with the lender, and it is a means for the lender to increase 
his bottom line.
    Mr. Miller of California. Done on a contract basis?
    Mr. Gregoire. Yes.
    Mr. Miller of California. Yes.
    Mr. Gregoire. So we have to think that the consumer needs 
to get what they are paying for, and if the lender wants to use 
the services of an appraisal management company to broker these 
valuation services--the AMCs claim that they are operating as 
an agent for the lender. Well, by golly, let the lender pay for 
that service, don't make the appraiser pay for it or don't make 
the consumer pay for it. The lender is the one that is getting 
the benefit; make the lender pay for that benefit.
    Mr. Miller of California. I agree.
    I guess I am admitting I am getting old, but I have been in 
the real estate and building industry for over 40 years and I 
really have tremendous respect for appraisers, especially when 
I used to make application to a bank to build a subdivision and 
they relied on their usually in-house appraiser to go out and 
give a fair market appraisal because they were taking a risk 
lending me the money, so--and the individual actually went out 
and did what I considered a fair market appraisal. They did a 
good job.
    And when we would buy or sell the house they would take and 
go and appraise the individual house and they based it on--they 
appraised the house the block away and they appraised the house 
a mile down the road, and they really understood the area. And 
what we did with HVCC was overturn the apple cart to such a 
degree that nobody has figured out, even though we have 
directed them, how to put it back the way it was.
    Government doesn't change rapidly. For some reason, they 
did with HVCC, but coming back the other way, it has not done a 
good job.
    I think it has done a disservice to the appraisers in this 
country who do excellent work. It has hurt them. It has created 
a situation where the lenders are no longer having appraisals 
to compare with theirs and they can't deal with the issues of 
errors like we could in the past, having multiple appraisals, 
and the appraisal can't be used somewhere else because one 
person has already paid for it and it is proprietary.
    And we have created a situation where they are putting out 
and they are bidding these things on a bulk basis and whoever 
gives them the best price is going to get all of them, 
irrespective of the letter you read to me about geography.
    I took notes on what you said earlier, and you talked about 
geography, you talked about fully capable, and you talked about 
guidance. Every one of them was followed with an if, and 
proximity doesn't matter if, fully capable if, provide guidance 
if. The problem is defining if. I had--Bill Clinton of what the 
definition of is is, but ``if'' opens up a huge problem that we 
started and we have to correct.
    Now, the REALTORS are out trying to provide a service to a 
buyer and seller. The mortgage brokers are trying to provide a 
service to the buyer, seller, REALTOR. And the appraisers are 
trying to provide service to everybody. And we have put them in 
such a difficult situation that it is just not working, and we 
have put them in a situation where it is, I believe, in some 
fashion stifling the ability of the economy to recover because 
we have decimated value in homes out there with this downturn 
in the economy that we are not doing what is necessary that we 
have hit a bottom to start building it back up or letting it 
come back on a natural basis.
    We are stepping it steps and we are stopping it right there 
because we have mandated things that don't work. And now I hope 
somebody is starting to listen that, ``Hey, we are not happy 
with what we did; we messed up. But we are also not happy with 
you not listening to us wanting you to correct what we did 
wrong,'' and that is a problem today.
    We have to fix it. It has to be done, and somebody needs to 
listen.
    And, Madam Chairwoman, you have been more than generous. I 
would yield back my time twice. Thank you.
    Chairwoman Biggert. Thank goodness.
    Mr. Kelly. Madam Chairwoman?
    Chairwoman Biggert. Mr. Kelly?
    Mr. Kelly. Might I just respond quickly to Congressman 
Miller's--I appreciate your summary and the description of the 
plight and I agree with much of what you said. However, I don't 
believe that you should consider legislating on the basis of 
anomalies or hearsay.
    I have heard the stories, too, about--
    Mr. Miller of California. And I didn't mean to do that--
    Mr. Kelly. I know you wouldn't, and I appreciate that. But 
AMCs--there are 350 of them in the country. Are they all the 
best and good? No. Are there good and great ones? Yes, there 
are, and I think they are associated with my association. But 
they do, indeed, provide real value to the process, and the 
reputable AMCs indeed do help protect the appraiser but they 
also allow for the types of transactions that you are talking 
about to be facilitated.
    We mentioned in our testimony earlier that BPOs, ABMs, and 
other methodologies can be utilized to either check appraisals 
or to give a sense of what the trends are in any given 
neighborhood or any given property, and those sorts of tools 
are very much available and in use in today's world.
    I was delighted to see my friend Karen Mann using an iPad 
to give her testimony today. And as you know from your real 
estate experience, the big technology of the day back in our 
day was the memory card in a Selectric typewriter.
    So things have changed. Things are, indeed, available--
    Mr. Miller of California. Sure.
    Mr. Kelly. --today that can help, I think, go to the issues 
that--
    Mr. Miller of California. Ms. Stephens, what is your 
opinion on what he just said?
    Ms. Stephens. I think that there are a couple of things 
that are incumbent on all of us and that we need to make sure 
change, and one of those is that lenders are held accountable 
for these appraisals and for the opinions and for their 
actions. But we also need to make sure that people who are 
regulating this industry, who are the regulators who are coming 
in, are well-versed and that we have a sufficient staff to take 
care of the problems that are coming and to make sure that what 
is happening in the appraisal business is well-maintained and 
understood as they try to do their job.
    Mr. Miller of California. Madam Chairwoman, if you give me 
1 second--Mr. Kelly, I agree with--I am not disagreeing with 
what you said. What I was saying is we all make mistakes. We 
did. Congress did. And we came back and tried to correct that.
    But what we did was exclude everybody from being able to be 
involved and participating in this appraisal process--use 
matching appraisals dealing with areas we think that were done 
wrong, errors that might have been made. And they happen in 
appraisals. They just do. Happens in every business.
    But we have taken and excluded that ability to be 
competitive, comparative, and being to deal with mistakes that 
just occur. And that is what I am saying is where we have 
messed up. It is not impugning any appraiser anywhere. It is 
saying, let's get back to a system of accountability and 
portability and reliability.
    And that was all I was saying, so if anybody in any way 
took any statement impugning anybody it was never intended to 
be that way. I am saying we goofed up. And other people make 
mistakes, too. Let's get back to a system where we can correct 
those mistakes and come up with something that is really good 
for everybody.
    And thank you, Madam Chairwoman.
    Chairwoman Biggert. Thank you.
    I will recognize myself for 5 minutes.
    In that line of thinking, Ms. Stephens, you have offered an 
alternative regulatory structure for real estate appraisers. 
How would this structure differ from the one we have today?
    Ms. Stephens. Let me start by emphasizing that what the 
Appraisal Institute is speaking about and what we are proposing 
is not a self-regulatory organization, like some have 
mentioned. Self-regulatory organizations involve industry, 
whereas the national mortgage licensing system is owned and 
operated by bank regulators, in this case State bank 
supervisors.
    Those are the fundamentals of the State appraiser 
certification and licensure and adherence to enforceable 
Uniform Standards of Professional Appraisal Practice would 
remain unchanged. At a high level, as I alluded to before, the 
current regulatory structure assumes that States are not 
capable of administering a system of certification, creating a 
specific agency to intervene with the process. The mortgage 
licensing system assumes that a State can assume the 
responsibility and administer State certification, maintaining 
a Federal presence out of a last resort.
    For many years, Congress and others have sought a way to 
advance regulator communication, and this mortgage licensing 
system has developed a solution. We understand that they are 
offering the system to State regulators outside the mortgage 
loan origination business, and as there are common problems 
that all State regulators face. So it would not be elite 
appraiser regulators to participate in this system.
    Thank you.
    Chairwoman Biggert. Thank you.
    And then, just one last question. Ms. Mann, on page 2 of 
your testimony, you call a Federal Reserve rule on customary 
and reasonable fees as required by Dodd-Frank, ``stunning and 
completely inappropriate,'' and you also mention that this rule 
creates a loophole. Could you expound on these points?
    Ms. Mann. Let me catch up with you here.
    Chairwoman Biggert. Okay. Page 2.
    Ms. Mann. It creates a loophole whereas the AMCs were 
allowed to go out and check customary fees, but within the 
scope of their investigation they used AMC fees as part of the 
equation, as part of the array. We feel that customary fees 
should be outside of the AMC realm and it should be from the 
general marketplace.
    For instance, V.A., FHA, appraisals done for other 
purposes, whether it be for dissolution or for estate work, 
just to get an ideas as to what the customary fee is for an 
independent appraiser in the field trying to make a living in 
their small business.
    Chairwoman Biggert. Okay.
    Mr. Kelly, do you have a response to that?
    Mr. Kelly. Yes, I do. We believe that appraisers should be 
paid appropriately. Fees for appraisers--compensation for 
appraisers--has always been set by the market. It is a supply 
and demand equation, quite frankly. Appraisers indeed deserve a 
reasonable, customary fee to be paid for the services that they 
provide.
    The notion that AMCs are somehow driving down fees for 
appraisers I think is really mistaken. We don't set fees for 
appraisers; we work for lenders. We are the agents of the 
lender. We are doing the risk assessment pieces of what the 
lenders have traditionally done. We provide, as I indicated in 
our testimony, services for lenders and for appraisers.
    One of the things that I have been told in all the years 
that I was with the Appraisal Institute is that one of the 
largest costs for appraisers was marketing. That in addition to 
the risk--no insurance and warranties and those types of things 
are real costs for appraisers, say, doing retail assignments.
    Much if not all of that has been offloaded to the AMCs, and 
so there is a sharing of that compensation. That risk and those 
duties are no longer done by the traditional appraiser and the 
consequent fee that they get is one that they agree to and have 
been negotiated with to say, ``Will you go do this assignment 
on 123 Maple? It is a 1004, etc., etc. What is your fee?'' They 
say it is $300 or whatever it might be, and you strike an 
agreement.
    So there may be anomalies on that, just like we have talked 
about anomalies on traveling, but those are truly anomalies, as 
far as I can tell. I haven't seen any evidence of that--
    Chairwoman Biggert. Thank you.
    Would anyone else like to comment on that?
    Mr. Berenbaum?
    Mr. Berenbaum. Thank you very much.
    I think it is very important to distinguish the importance 
of what has happened over the past 8 years. At the height of 
the market, 60 percent of mortgages were originated by mortgage 
brokers, the majority of whom were professional lenders.
    However, we all know that we saw many problematic 
nontraditional, subprime loans. We also saw issues where 
appraisers were working exclusively with companies such as 
Ameriquest or brokers and they were overvaluing properties.
    The intent of the Home Valuation Code of Conduct was to 
ensure that arm's length transaction, which was part of USPAP. 
We agree it should be changed.
    The reality today, jumping forward to today, is some of the 
unintended consequences of efforts to improve performance in 
the marketplace. Appraisers tell us, when we ask them about 
valuations given to consumers, with regard to accuracy issues, 
in the past they would have a day or more to produce an 
appraisal for a lender. Today, AMCs expect them to do two to 
three appraisals in the same time period.
    The fact of the matter is, appraisers are leaving the 
practice, the profession, in droves because they can't make 
ends meet. That is not a product of quality. These appraisers 
are committed to providing quality products.
    But it is a product, unfortunately, of a changing 
marketplace, and what we are not seeing, and I hope we do see, 
back to the purpose of this hearing, is that we do see, in 
fact, the subcommittee working with the CFPB, working with the 
prudential regulators, to ensure safety and soundness and the 
return of robust lending.
    Thank you.
    Chairwoman Biggert. Thank you.
    I ask unanimous consent to insert the following material 
into the record: a June 28, 2012, statement from the National 
Association of Home Builders; a June 28, 2012, statement from 
the American Enterprise Institute; a June 28, 2012, statement 
from the American Guild of Appraisers; a June 28, 2012, 
statement from the Mortgage Bankers Association; a June 28, 
2012, statement from the Dallas-Fort Worth Association of 
Mortgage Brokers; and a June 28, 2012, statement from the 
Leading Builders of America.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 30 days for Members to submit written questions to these 
witnesses and to place their responses in the record.
    With that, I would really like to thank you for your 
expertise that you have brought to this panel, and for helping 
us as we move forward. And so, I thank you all for being here.
    And with that, this hearing is adjourned.
    [Whereupon, at 12:06 p.m., the hearing was adjourned.]



                            A P P E N D I X



                             June 28, 2012



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