[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]


ASSESSING VA APPROVED APPRAISERS AND HOW TO IMPROVE THE PROGRAM FOR THE 
                              21ST CENTURY

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

                                 HEARING

                               BEFORE THE

                  SUBCOMMITTEE ON ECONOMIC OPPORTUNITY

                                 OF THE

                     COMMITTEE ON VETERANS' AFFAIRS
                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                         TUESDAY, APRIL 4, 2017

                               __________

                           Serial No. 115-10

                               __________

       Printed for the use of the Committee on Veterans' Affairs
       
       
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                     COMMITTEE ON VETERANS' AFFAIRS

                   DAVID P. ROE, Tennessee, Chairman

GUS M. BILIRAKIS, Florida, Vice-     TIM WALZ, Minnesota, Ranking 
    Chairman                             Member
MIKE COFFMAN, Colorado               MARK TAKANO, California
BRAD R. WENSTRUP, Ohio               JULIA BROWNLEY, California
AMATA COLEMAN RADEWAGEN, American    ANN M. KUSTER, New Hampshire
    Samoa                            BETO O'ROURKE, Texas
MIKE BOST, Illinois                  KATHLEEN RICE, New York
BRUCE POLIQUIN, Maine                J. LUIS CORREA, California
NEAL DUNN, Florida                   KILILI SABLAN, Northern Mariana 
JODEY ARRINGTON, Texas                   Islands
JOHN RUTHERFORD, Florida             ELIZABETH ESTY, Connecticut
CLAY HIGGINS, Louisiana              SCOTT PETERS, California
JACK BERGMAN, Michigan
JIM BANKS, Indiana
JENNIFFER GONZALEZ-COLON, Puerto 
    Rico
                       Jon Towers, Staff Director
                 Ray Kelley, Democratic Staff Director

                  SUBCOMMITTEE ON ECONOMIC OPPORTUNITY

                    JODEY ARRINGTON, Texas, Chairman

GUS BILIRAKIS, Florida               BETO O'ROURKE, Texas, Ranking 
BRAD WENSTRUP, Ohio                      Member
JOHN RUTHERFORD, Florida             MARK TAKANO, California
JIM BANKS, Indiana                   LUIS CORREA, California
                                     KATHLEEN RICE, New York

Pursuant to clause 2(e)(4) of rule XI of the Rules of the House, public 
hearing records of the Committee on Veterans' Affairs are also 
published in electronic form. The printed hearing record remains the 
official version. Because electronic submissions are used to prepare 
both printed and electronic versions of the hearing record, the process 
of converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
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                            C O N T E N T S

                              ----------                              

                         Tuesday, April 4, 2017

                                                                   Page

Assessing VA Approved Appraisers And How To Improve The Program 
  For The 21St Century...........................................     1

                           OPENING STATEMENTS

Honorable Jodey Arrington, Chairman..............................     1
Honorable Beto O'Rourke, Ranking Member..........................     2
Honorable David P. Roe, Chairman, Full Committee.................     3

                               WITNESSES

Mr. Jeffrey London, Director, Loan Guaranty Service, Veterans 
  Benefits Administration, U.S. Department of Veterans Affairs...     4

        Accompanied by:

    Mr. Gerald Kifer, Supervisory Appraiser, Loan Guaranty 
        Service, Veterans Benefits Administration, U. S. 
        Department of Veterans Affairs

Ms. Michelle Bradley, 2016 Real Property Valuation Committee 
  Chair, National Association of Realtors........................     5
    Prepared Statement...........................................    26
Mr. Stephen S. Wagner, MAI, SRA, AI-GRS, Vice President, 
  Appraisal Institute............................................     7
    Prepared Statement...........................................    31
Mr. Russell Johnson, Chief Revenue Officer, Clear Capital........     8
    Prepared Statement...........................................    35

                       STATEMENTS FOR THE RECORD

Honorable Greg Walden, U.S. Representative, Oregon's Second 
  District.......................................................    38

 
ASSESSING VA APPROVED APPRAISERS AND HOW TO IMPROVE THE PROGRAM FOR THE 
                              21ST CENTURY

                              ----------                              


                         Tuesday, April 4, 2017

            Committee on Veterans' Affairs,
                    U. S. House of Representatives,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to notice, at 2:34 p.m., in 
Room 334, Cannon House Office Building, Hon. Jodey Arrington, 
[Chairman of the Subcommittee] presiding.
    Present: Representatives Arrington, Bilirakis, Wenstrup, 
Rutherford, Banks, O'Rourke, Takano, Rice, Correa.
    Also Present: Representatives Roe, Walden, Bergman.

         OPENING STATEMENT OF JODEY ARRINGTON, CHAIRMAN

    Mr. Arrington. Good afternoon. The Subcommittee will come 
to order. I want to welcome everyone to today's Subcommittee on 
Economic Opportunity Oversight Hearing entitled ``Assessing VA 
Approved Appraisers and How to Improve the Program for the 21st 
Century.''
    Before we begin, I ask unanimous consent that our 
colleagues Chairman Walden and Mr. Bergman be allowed to sit at 
the dais and ask questions.
    Hearing no objection, so ordered.
    The benefits administered by VA's Loan Guaranty Program are 
one of the crown jewels of benefits that are provided to 
American servicemembers and veterans. Since its inception in 
1944, the program has helped over 22 million veterans achieve 
their piece of the American dream.
    I am proud to say that this program is also a win-win for 
taxpayers. Unlike most other VA benefit programs, the home loan 
program operates as a partnership between the VA and the 
private sector. It is because of the partnership and VA's high 
underwriting standards that VA-backed loans consistently have 
one of the lowest foreclosure and delinquency rates in the 
country. This means more veterans are staying in their homes 
and fewer taxpayers are footing the bill.
    While this program is clearly performing well, it is the 
Subcommittee's job to conduct oversight over this program, as 
well as propose changes when needed. We need to examine all of 
VA's processes to ensure that requirements for appraisals are 
aligned with industry and that we are not hurting veterans' 
chances for purchasing homes because of outdated or unnecessary 
regulations.
    It is also our duty to the veteran who is the customer here 
and to the taxpayers to modernize processes, so the 
administration of this program doesn't fall behind emerging 
technologies used in the private sector and end up like the 
systems in place to process disability claims which created the 
long wait times and backlogs that are still occurring.
    Today we are specifically going to discuss VA's appraisal 
process for veteran home buyers. Receiving an accurate and 
timely appraisal is crucial to protecting the homeowner in any 
situation and it is even more important for VA-guaranteed loans 
so that we protect the taxpayers' interest if the veteran does 
default on the loan.
    Currently, VA uses its own panel of approved appraisers and 
the cost of these appraisals are paid for by the veteran as a 
part of their closing costs. While the timeline for completing 
a VA-approved appraisal remains efficient for the veteran in 
most instances, there are growing concerns that with some 
veterans in highly rural areas and with a shrinking economy of 
appraisers nationwide that this timeline could begin to 
increase. This is important for today's discussion, because 
these wait times and higher costs could begin to affect the 
veteran's ability to close on a home.
    While I understand that in many of these instances VA's 
hands are tied because the only option they really have is to 
increase the allowable fee for appraisals, I think it is time 
to examine new and emerging technologies to cut down on wait 
times and reduce the out-of-pocket cost to the veteran. My goal 
is to not advocate necessarily for wholesale replacement of the 
current appraisal process, but we should look at every 
regulation, every process to ensure that they are meeting the 
veteran's needs, which is the goal that I know everybody on the 
panel and my colleagues on the Subcommittee share.
    Before I yield to the Ranking Member, I want to thank the 
witnesses for being here today after given somewhat short 
notice, and I want to specifically thank Mr. London with VA for 
the professional and timely assistance he and his staff have 
always provided and continue to provide to this Subcommittee on 
any home loan issue.
    The Loan Guaranty Service and in fact all the business 
lines under the VA Office of Economic Opportunity, including 
the Education Service, continue to be a model for the rest of 
the department as to how positive interactions with Congress 
should work. And that is why Chairman Roe named me Chairman of 
this Subcommittee, right? He wanted to give me something that 
worked really well as a new Member of Congress and I appreciate 
that.
    I again thank the witnesses for being here this afternoon. 
I look forward, as I am sure my colleagues do, to your 
testimony. I now want to yield to my friend from the great 
State of Texas, Ranking Member Beto O'Rourke.

       OPENING STATEMENT OF BETO O'ROURKE, RANKING MEMBER

    Mr. O'Rourke. Thank you, Mr. Chairman. And I want to thank 
you for calling this hearing and bringing together these 
witnesses, who I am so excited to hear from, and to thank you 
also for highlighting some concerns that are reflected in 
communities that we care about throughout this country and 
certainly in Texas. We spoke to a realty company in Odessa, 
Trower Realtors, who reflected the concern in the long wait 
times and the fact that there are not enough VA appraisers 
right now. Those are things that we need to work on.
    I agree with you we do not need to replace the system, we 
need to find out where we can improve it without sacrificing or 
diminishing the terrific success that the VA has had in 
ensuring that veterans, Americans have access to affordable 
home loans that perform, outperform the rest of the market. I 
think we can accomplish both things.
    I am so interested in hearing from our witnesses today, Mr. 
Chairman, that I will prove it by concluding my opening remarks 
now and turning it back over to you.
    Mr. Arrington. Thank you, Mr. O'Rourke.
    I want to recognize Dr. Phil Roe, the Chairman of what I 
call our parent Committee, the VA Committee or the Committee on 
VA Affairs. Dr. Roe.

  OPENING STATEMENT OF DAVID P. ROE, CHAIRMAN, FULL COMMITTEE

    Mr. Roe. Thank you, Mr. Chairman Arrington and Ranking 
Member O'Rourke, for allowing me to be here today to discuss 
the VA's home loan program and the appraisal process.
    And I want to commend the work of the Loan Guaranty 
Service, as it is one of the most well run business lines 
within the Veterans Business Administration.
    With that being said, I know there are rising concerns 
about the dwindling population of appraisers, as Mr. O'Rourke 
just said, across the nation, not just VA appraisers, and I 
want to ensure that we do everything we can to pursue and 
ensure veterans do not begin to experience long wait times to 
receive an appraisal.
    I thank the Chairman for holding our hearing today, so we 
can discuss how to continue and to provide timely and efficient 
appraisals to veterans who are using their VA home loan 
benefits, but also improve the process where necessary so that 
veterans, especially those in more rural areas where I live, 
receive an appraisal in a reasonable amount of time and in a 
way that doesn't force them to spend more out-of-pocket money.
    And I can tell you having just sold a piece of property 
here in Washington, D.C., it ain't cheap to do it here. And 
when you see the fees and so forth, if you take a first-time 
home buyer, and I have been a first-time home buyer, that can 
be really an obstacle to you purchasing a home. I mean, when 
you have very limited dollars and so much of it is chewed up on 
this fee, and you wonder what is that for and this appraisal is 
for and that and so on, I'm afraid it scares people away.
    But again I want to thank you all for being here, and thank 
both Chairman Arrington and Ranking Member O'Rourke for 
allowing me to be here, and I yield back my time.
    Mr. Arrington. Thank you, Mr. Chairman, and thank you, Mr. 
O'Rourke.
    I now want to recognize our first and only panel of 
witnesses. Today with us we have Mr. Jeffrey London, Director 
of VA's Loan Guaranty Service, and he is accompanied by Mr. 
Gerald Kifer, who is the Supervisory Appraiser for VA's Loan 
Guaranty Service. We also have Michelle Bradley, the 2016 Real 
Property Valuation Committee Chair for the National Association 
of Realtors; Mr. Stephen Wagner, Vice President of the 
Appraisal Institute; and Mr. Russell Johnson, Chief Revenue 
Officer for Clear Capital.
    Thank you all for being here today.
    Mr. London, let's begin with you, and you have five minutes 
for your opening statement.

                  STATEMENT OF JEFFREY LONDON

    Mr. London. Good afternoon, Chairman Arrington, Ranking 
Member O'Rourke, and other Members of the Subcommittee. Thank 
you for the opportunity to appear before you today to discuss 
the Department of Veterans Affairs Home Loan Program and its 
appraisal system and process.
    With me today is Gerald Kifer, Supervisory Appraiser, 
Department of Veterans Affairs Home Loan Guaranty Program.
    Our program's mission is a very simple one: we work to 
maximize opportunities for veterans and servicemembers to 
obtain, retain and adapt homes. However, our program does not 
generally make loans, build or sell houses, service loans, nor 
do we build adapted homes. Instead, we rely on lenders, 
realtors, appraisers, servicers, builders, and many others in 
the mortgage industry to help us deliver these benefits to our 
veterans, benefits which they have earned, many at great 
sacrifice.
    Through these strong partnerships, our focus on veterans 
and our continuous drive to innovatively [sic] enhance 
operations and performance, we have built a program that has 
guaranteed over 22 million loans totaling over $1.9 trillion 
since the original GI Bill in 1944.
    During 2016, at a time when the home ownership rate was at 
the lowest in 51 years, VA guaranteed over 705,000 loans, an 
all-time record last year. VA appraisal volume also rose over 
70 percent between fiscal year 2012 and fiscal year 2016, from 
361,000 to 615,000. And despite the worst housing market crash 
since the Great Depression which began around 2008, VA has 
successfully worked with private sector loan servicers to help 
over 630,000 veterans and their families retain their homes or 
avoid foreclosure since 2009.
    Further, VA's foreclosure inventory rate, the percentage of 
loans in foreclosure has been one of the lowest foreclosure 
rates in the industry over the past eight years, second only to 
prime loans. In fact, VA outperformed prime loans during and 
immediately following the market crash for six of the last 
eight years.
    VA has worked to increase our program's efficiency and 
effectiveness by partnering with our mortgage industry 
stakeholders like our colleagues here today, the National 
Association of Realtors and the Appraisal Institute. These 
stakeholders have helped make our program work better for our 
nation's veterans.
    To ensure our partnerships remain effective, we maintain a 
robust oversight and risk-management program to secure a world-
class veteran experience, ensuring these private sector 
stakeholders adhere to our program goals, values, statutes, and 
regulations.
    In the appraisal program the last few years have been 
challenging as we strive to meet our mission to provide 
veterans with accurate assessments of property values and 
reasonable assurance that the property meets basic standards 
for a safe, sound, and sanitary home.
    In recent years, the arena of residential property 
valuations, we like all of the mortgage industry have seen a 
decrease in the availability of qualified appraisers, 
particularly in remote or rural areas. As a result, there have 
been longer turn times for appraisals and competition for 
available appraisers. Fees in these areas have increased as 
lenders and programs compete to maintain a semblance of timely 
appraisal delivery.
    We have worked to streamline our appraisal business process 
to ensure there are no bottlenecks in delivering a timely 
appraisal.
    We have also undertaken several initiatives in the past 
fiscal year to increase appraisal fees, personalize and 
redouble appraiser recruitment efforts, and enhance our 
technology, all toward the goal of increasing the speed and 
quality of appraisals while decreasing wait times for appraisal 
assignments.
    These efforts have been successful in significantly 
reducing the inventory of outstanding unsigned appraisals, but 
some remaining inventory exists because no appraiser is 
available to immediately take the case. For the first time in 
recent history, though, we have seen that our attempts at 
recruitment have been declined. Appraisers cite they are too 
busy to take on additional work.
    We know the appraisal industry as a whole is challenged by 
the situation with finding, training, and retaining qualified 
appraisers. We look forward to working with our industry 
partners to collaborate on programs and policies that will 
bring qualified and talented individuals into the industry.
    Mr. Chairman, I appreciate the opportunity to speak today, 
and I look forward to answering any questions that you or the 
other Members of the Subcommittee might have.

    [The prepared statement of Jeffrey London appears in the 
Appendix]

    Mr. Arrington. Thank you, Mr. London.
    Ms. Bradley, you are now recognized for five minutes.

                 STATEMENT OF MICHELLE BRADLEY

    Ms. Bradley. Thank you, Chairman Arrington, Ranking Member 
O'Rourke, and Members of the Subcommittee.
    My name is Michelle Bradley. I have been a realtor for 31 
years and a VA appraiser for 20 years. I served as the 2016 
Chair of the Real Property Valuation Committee with the 
National Association of Realtors, and today I'm representing 
more than 1.2 million members working in all aspects of real 
estate. NAR is a strong supporter of housing opportunities for 
veterans.
    The VA Home Loan Guaranty program is a vital tool, 
providing veterans with centralized, affordable and accessible 
method of financing home purchases with a zero down payment 
option. According to a recent NAR study, veterans made up 18 
percent of all recent home buyers and 54 percent of them used a 
VA guaranty loan.
    VA loans are among the safest loans made with one of the 
lowest foreclosure rates. Much of the credit can be given to 
the VA appraisal system and its appraisers.
    The VA uses a panel of approved appraisers and appraisals 
are assigned in rotation. Every VA appraiser must have a 
minimum of five years' experience and must provide several 
letters of recommendation attesting to their knowledge and 
their character.
    These appraisers, myself included, strive to provide well-
documented, credited appraisals in a timely manner using both 
cutting-edge technology and traditional methods of analysis. Of 
course, nothing is perfect.
    NAR is aware of complaints that have surfaced regarding the 
VA's appraisal system, particularly in rural markets. From the 
buyer's or agent's point of view, it takes too long to get an 
appraisal, so there must be a shortage. The sales price and the 
appraised value are sometimes far apart.
    As a VA appraiser in rural Western Pennsylvania, I know 
these issues well, but there is more to the story. Let me give 
you an example.
    There is a rural county near me where there are only two 
VA-approved appraisers. These individuals also happen to be 
sales agents who are related, but work for competing companies. 
If a buyer uses a VA loan to purchase a home in that area and 
one of these two related appraisers happened to be involved in 
the sale, both have a conflict of interest and neither can 
complete the appraisal. The VA then has to find an appraiser 
from an adjoining county, which results in a delay in loan 
processing.
    Now, there are qualified appraisers in that county; 
however, they are not choosing to seek appointment to the VA 
panel. In my personal opinion, I am not speaking for NAR here, 
this is my personal opinion, this is because the VA fees are 
not always adequate in light of the requirements for completing 
highly rural market assignments. This is especially true in 
these rural areas where simply making exterior inspections and 
driving by the outside of our comparables may take several 
hours.
    Over 50 percent of appraisers are dissatisfied with their 
compensation and feel overburdened by regulations. This is not 
just an issue in the VA system, but this is a general concern 
in the industry. Many appraisers are having difficulty taking 
on trainees and the requirements to enter the profession can be 
quite burdensome, which could affect future numbers of 
appraisers. NAR has been hearing stories of buyers regardless 
of the type financing losing out on a home because the 
appraised value is different than the sales price.
    Unlike other forms of financing, the VA has a process 
called the reconsideration of value, sometimes referred to as 
the Tidewater Initiative. This allows a lender a way to provide 
relevant market data to appraisers prior to the completion of 
the value opinion. The purpose of Tidewater is not to make sure 
the transaction works, the purpose as it is intended is to 
assure the veteran and the lender that the appraiser has 
reviewed all relevant data. If the sales price is not supported 
by the appraisal, this protects the veteran from paying too 
much, and is also a reason the VA enjoys a very low foreclosure 
rate.
    NAR is willing to work with Members of this Committee and 
the VA to address the issues brought up in this hearing, and I 
commend you Members of this Committee for your support of our 
veterans and thank you for the opportunity to address you today 
on this important issue.

    [The prepared statement of Michelle Bradley appears in the 
Appendix]

    Mr. Arrington. Thank you, Ms. Bradley.
    Mr. Wagner, you are now recognized for five minutes.

                 STATEMENT OF STEPHEN S. WAGNER

    Mr. Wagner. Good afternoon, everyone. On behalf of the 
Appraisal Institute, thank you, Chairman Arrington, Ranking 
Member O'Rourke, and Members of the Subcommittee for the 
opportunity to testify on improving the VA Appraiser Fee Panel.
    The Appraisal Institute supports the basic framework of the 
VA fee panel in contrast to what is currently found in the 
Federal Housing Administration or the private sector. By 
comparison, the structure of the fee panel facilitates a better 
degree of appraisal independence and represents a much more 
positive environment for real estate appraisers.
    Outside of the VA, appraisers often face a litany of 
challenges, ranging from marginally qualified lender review 
processes to stifling fee compression. The panel is somewhat 
insulated from these trends in that it is a screened list of 
approved appraisers that are on a rotation.
    The VA Appraiser Fee Panel enjoys support from other 
objective observers. A recent review by a reputable think tank 
concluded that the VA processes and procedures provide more 
taxpayer protection, and help to produce lower defaults and 
loss severity.
    Generally speaking, the VA fee schedules tend to be more 
indicative of customary and reasonable than what is found in 
the private sector today. This is largely because the schedule 
is developed independently by the VA through surveys of local 
market participants.
    Another positive: the VA has in place an innovative process 
referred to as the Tidewater Initiative that requires the 
appraiser to contact a party to the transaction when the 
appraisal does not support the sale price. This provides an 
opportunity to offer more information to the appraiser for 
consideration.
    As a former VA panel appraiser, the VA staff I encountered 
were extraordinarily dedicated to veterans. I either personally 
witnessed or hears stories of veterans being treated with 
respect and assistance in times of challenge that have 
protected and benefitted them. In that vein, the panel is 
integral to protecting veterans, the VA, and the public 
interest.
    Significantly changing the VA roster platform that provides 
for a critical level of independence would be a mistake. 
Furthermore, seeking alternative valuation products such as 
automated valuation models or even desktop appraisals would 
also be a mistake in terms of collateral risk mitigation.
    I will acknowledge, on occasion the lending industry 
experiences high loan demand which can lead to appraisal 
delivery times that are elevated to less than optimum levels. 
Though these intervals can be somewhat protracted, they are 
temporary, as witnessed recently. Changing a working system is 
not the answer. Instead, we offer suggestions to enhance an 
already workable and successful system.
    From time to time the VA recruits appraisers to the fee 
panel. Some of our members report an inconsistent response with 
regard to approvals. We recommend the VA enhance recruitment 
efforts by targeting appraisers who have completed peer-review 
requirements for professional appraiser designations. The panel 
would benefit from greater involvement by highly qualified 
appraisers, along with exploring a standby list of appraisers.
    We also recommend to improve VA lender processes relative 
to timeliness issues by encouraging lenders to provide 
appraisers with better property information on the front end of 
the appraisal assignment.
    Lastly, we believe the panel would be much more attractive 
to appraisers if concerns about past due or delinquent 
appraisal fee payments were rectified by the VA.
    We think these enhancements can preserve the integrity of 
the panel, first and foremost to the benefit of veterans.
    Thank you for the opportunity to testify today and I look 
forward to taking your questions.

    [The prepared statement of Stephen S. Wagner appears in the 
Appendix]

    Mr. Arrington. Thank you, Mr. Bradley--actually, Mr. 
Wagner, that would be your name. Sorry.
    [Laughter.]
    Mr. Arrington. Finally, Mr. Johnson, you are now recognized 
for five minutes.

                  STATEMENT OF RUSSELL JOHNSON

    Mr. Johnson. Chairman Arrington, Ranking Member O'Rourke, 
and Members of this Committee, on behalf of Clear Capital I am 
pleased to appear today to talk about new ideas of efficient 
appraisals and how they can help veterans realize home 
ownership by utilizing the Home Loan Program from the United 
States Department of Veterans Affairs.
    I am veteran of the United States military. I was a deep 
sea diver in the U.S. Navy for four years.
    When I left the U.S. Navy, becoming a homeowner was a top 
priority. I wanted to start a family, provide a safe place for 
my family to grow and call home.
    I started the process by asking questions of the 
professionals in the real estate and lending industry, 
questions that would help me navigate this process that most 
people only experience a couple times in their lives. I always 
asked if I could use my VA loan benefit. I was told it is more 
expensive, I was told it takes longer, and that sellers are 
less likely to accept a VA-backed offer.
    I realized that I was steered away from using my benefit 
and toward conventional mortgages. We know this isn't the 
position of the VA or relevant national, state and local trade 
organizations; nonetheless, this was my experience.
    I work for Clear Capital now. Clear Capital's focus is 
applying new technologies to solve real estate valuation 
problems with the highest degree of integrity, quality and 
customer service to the mortgage, lending, investing, and 
housing industry.
    Over the past few years and across all home purchase 
products, VA and non-VA loans, appraisal wait times and costs 
have risen significantly in some pockets of the country. In 
large part this is a result of a shortage of appraisers in some 
markets.
    The shortage of appraisers is slightly exaggerated with the 
VA program, because as I understand it the appraisal is more 
specialized, using separately approved appraisers to ensure 
greater protection of the veteran home buyer. This is a 
valuable benefit.
    Clear Capital suggests that the VA consider the use of a 
desktop appraisal based on physical inspection of a subject 
property by an industry professional. The product is a hybrid 
of the traditional appraisal process and leverages a qualified, 
arm's length professional performing a visual inspection of the 
subject property, and providing other market insight and 
analytics.
    Desktop appraisals are compliant with both Uniform 
Standards of Professional Appraisal Practice, USPAP, and the 
Interagency Appraisal and Evaluation Guidelines. The desktop 
appraisal process allows a single appraiser to complete several 
more appraisals per day than is possible with a traditional 
approach.
    In some parts of the country, an appraiser spends 30 
percent of his or her time driving to and from a property. This 
is not a productive use of time for these specially trained, 
skilled, and knowledgeable professionals.
    Today's technology makes it possible for detailed property 
measurements, characteristics, market comparables, and other 
detailed information to be delivered to the appraiser within 
minutes of collection. This wasn't possible decades ago when 
the current model was created. Today we can quickly provide the 
appraisers with the information they need to perform accurate 
and timely appraisals of the highest quality.
    Appraisers completing these reports would remain subject to 
the same licensing and certification requirements, as well as 
the standards provided under USPAP. Likewise, the process could 
be rolled out in agreed-upon cases for completion by appraisers 
on the VA panel and subject to appropriate quality-assurance 
reviews.
    To conclude, the VA Home Guaranty Program provides our 
veterans and active duty personnel with an incredible and 
unique earned benefit. It has allowed them to improve their 
economic opportunity by accruing home ownership equity.
    This earned benefit, thanks to the VA staff and lenders, 
performed exceptionally well, as stated earlier, in the last 
downturn. At the same time, we must work together to ensure 
that going forward this program continues to serve the veterans 
and active duty servicemembers efficiently, cost-effectively, 
and carefully.
    I want to thank the Economic Opportunity Subcommittee for 
having me in today, and I thank the VA staff for their 
dedication and service to veterans.

    [The prepared statement of Russell Johnson appears in the 
Appendix]

    Mr. Arrington. Thank you, Mr. Johnson.
    I am delighted to have with us Chairman Greg Walden from 
the Energy and Commerce Committee. I know he has a great 
interest in this issue. And in the interest of your time, sir, 
I would like to give you five minutes for comments, questions.
    Mr. Walden. Well, I thank the gentleman. Mr. Chairman, 
thank you very much.
    And to the Members of the Committee, thanks for your 
courtesy in letting me come and share a few comments. And I 
appreciate what the witnesses have had to say, your testimony 
is most helpful, and I appreciate your Committee taking a look 
at this topic.
    Throughout my district, I have heard from veterans who are 
waiting a long time, too long, frankly, to be able to get an 
appraisal on their VA-backed home loans. You all know this is 
going on. I have had a dozen or more different veterans contact 
me for assistance while facing significant delays in receiving 
their VA-guaranteed home loans due to this appraisal backlog.
    I have also heard from realtors and loan officers who find 
that in their efforts to secure homes for veterans and their 
families receiving a VA-approved appraisal is the most 
challenging and time-consuming requirement. I have had seven 
town hall meetings in my district so far this year and I think 
in just about every one this topic has come up as an issue 
affecting our veterans and these are in different parts of 
Oregon.
    Some of these veterans and their advocates have waited up 
to nine weeks to even have an appraiser assigned to their case, 
Mr. Chairman, nine weeks, making them far less competitive as 
prospective buyers in the housing market. One veteran even lost 
his prospective home when his interest rate lock expired as he 
waited for an appraisal and, I think we would all agree, that 
is simply unacceptable.
    At the end of last year, I wrote to the VA Regional Loan 
Center to ask how we could address this problem head-on, and I 
hope in your hearing today we can get some answers to that.
    I know that higher appraisal fees have been approved for 
some counties in my district. I heard that was one of the 
issues, that if you were doing a VA appraisal you didn't get 
paid as much if you were doing another kind, and I know they 
have tried to address that.
    The VA has managed to cut down on some of the appraisal 
backlogs in rural Oregon and I appreciate your attention to 
that, but in my conversations with realtors, veterans groups, 
and VA approval I have heard that the appraisal shortage is a 
market-wide issue that may soon spill over into other federal 
programs and eventually into the private sector.
    Increased federal regulations and barriers to entry for 
would-be appraisers seem to be moving us in the wrong 
direction. I think that is something we all have to figure out 
and that is not just the purview of this Committee, Mr. Chair, 
but I think Financial Services and other Committees probably 
have a role in this as well, but it is serious. An increase in 
VA appraisal fees may help in the short run, but it looks like 
we need some other policy changes as well.
    So we have to look at the longer-term issue, but in the 
meantime we must take care of veterans; we must make sure they 
are not handcuffed by a process when they are just trying to 
get a roof over their heads.
    So I look forward to working with you, Mr. Chairman, and 
Chairman Roe and my colleagues on this Committee to fix the 
problem here for our veterans, but also for others across our 
country. And I greatly appreciate the courtesy of being able to 
share those comments and I appreciate your leadership on this, 
Mr. Chairman, and I thank you and I return the balance of my 
time.
    Mr. Arrington. Thank you, Chairman Walden, and thanks for 
your great interest on this issue and for your time.
    Now I would like to yield five minutes to the Ranking 
Member. Mr. O'Rourke.
    Mr. O'Rourke. Thank you, Mr. Chairman.
    I would like to thank the panel for their comments and for 
ensuring that we understand your concerns, but also what I 
think what we are grateful for is some of the suggestions that 
you have offered to improve the process.
    I wanted to ask Mr. London, how often is the Tidewater 
provision employed?
    Mr. London. Yes, thank you for that question. To my 
knowledge, the Tidewater Initiative is invoked, but we do not 
keep regular statistics about how often that initiative is 
invoked. But I am going to turn to Mr. Kifer, who may have more 
information about, generally speaking, how often that 
initiative is invoked.
    Mr. Kifer. Thank you, Chairman Arrington and Mr. O'Rourke.
    We do have automated systems these days to track some of 
these issues and we do track, just recently have started 
tracking what is called the Tidewater Initiative. It has been 
described briefly and it was developed in the Tidewater area of 
Virginia where we were experiencing very much the situation we 
are hearing about today with delays and property value 
appraisals not meeting sale prices, and so on and so forth. 
That was back--
    Mr. O'Rourke. I think what I am trying to get at and I am 
sorry to interrupt you, but just because I do not have a ton of 
time, but I want to know how often that is used and what that 
adds to the wait for someone, because then I want to get to the 
recommendation made by Mr. Wagner that there be better property 
information on the front end and I wonder if that would obviate 
the need to use Tidewater. And I may not understand the process 
totally.
    So if you can tell me how often it is used and how much 
that adds to it, that would be helpful, and then that helps us 
assess Mr. Wagner's recommendation in terms of the impact.
    Mr. Kifer. Our recent data shows that the Tidewater 
Initiative is employed approximately 24 percent of the time. It 
adds typically two days to the appraisal process. The process 
calls for the appraiser when they recognize they are not going 
to meet the sale price that they must contact the lender or the 
lender's point of contact and give them two days to submit 
additional support for the case.
    So it typically is a two-day issue.
    Mr. O'Rourke. That is helpful. When we heard from the 
Chairman of the Energy and Commerce Committee, the gentleman 
from Oregon, his concern about folks waiting nine weeks, the 
concern is probably with those appraisers who choose not to 
work with the VA and within this system, and perhaps just the 
number of appraisers in general who are willing to do this kind 
of work, that we need more appraisers in those under-served 
communities.
    I wonder if Mr. London or Mr. Kifer could also comment on 
Mr. Johnson's recommendation for desktop appraisals. It seems 
like, you know, we know more and more, especially with Mr. 
Wagner's suggestion that we include more on the front end about 
the properties and relative valuations in the area, that all 
that could be put in in the front end, and we could have a 
pretty good idea of valuation and a pretty good idea of the 
borrower's ability to pay back.
    What are your thoughts on his recommendation?
    Mr. London. Yes, first I want to respond by saying that VA 
currently has a process where we use front-end data. We have a 
tool that has been developed by CoreLogic Corporation where not 
only are they an AMC or appraisal management company, but they 
also are a data aggregator, and they collect front-end 
information across the entire marketplace. So today every VA 
appraisal that is completed actually goes through CoreLogic's 
system to look at the market data that is available on the 
front end, and we actually grade every single appraiser and 
every single appraisal to ensure that it meets VA standards and 
that it also is using good information to determine value.
    The other thing that it helps us to do is to allow us to 
conduct oversight of the appraisal process as well.
    One of the challenges that we have had, and I think this is 
a market problem, is in some of the rural and remote areas 
these systems do not have enough data to have the integrity 
that you would need to have the confidence that you can rely on 
the data. So that is one of the limitations that the industry 
is dealing with.
    So having a geographic competency to actually go in and 
look at the properties, especially if you are an appraiser who 
is familiar with that territory, has been something that has 
been very helpful.
    But I will turn it to Mr. Kifer to see if he has additional 
thoughts.
    Mr. O'Rourke. You know what, I am going to have to take 
that for the record. I am out of time, but I appreciate the 
answers, and I have got some follow-up questions that we may we 
submit for the record.
    So thank you very much.
    Mr. London. I look forward to addressing those. Thank you.
    Mr. O'Rourke. Yes.
    Mr. Arrington. Thank you, Mr. O'Rourke.
    I now want to yield five minutes to Dr. Wenstrup.
    Mr. Wenstrup. Thank you, Mr. Chairman, and I would like to 
yield to Mr. Bergman.
    Mr. Bergman. Thank you, Dr. Wenstrup.
    Thank you, Mr. Chairman, and thank you for inviting me to 
be here for a few minutes today.
    Veterans have given a lot for their country. In life, they 
took on life, you know, in tough situations, we shouldn't make 
it tougher for them when they come back. We know that, that is 
why we are here having these hearings.
    I represent the 1st District of Michigan, a lot of 
veterans, higher than the national average, almost double the 
rest of the veterans in districts within Michigan, but a very 
rural district.
    Now, do I understand correctly, and this is anybody to 
answer, I don't have this specific, when a veteran applies for 
a VA loan for a specific home or project they need three 
comparables?
    Mr. London. That is correct, sir. In our policy we do say 
that the appraiser submits at least three comparable 
properties.
    Mr. Bergman. Is there a geographic distance, put the pin in 
the middle of the project and what the distance is?
    Mr. London. In our guidance, we are somewhat general, we 
say that the comparables have to be in close proximity to the 
properties. But as I alluded to, in some rural or remote areas 
the next comparable could be miles away and the appraiser would 
have that knowledge, so they are able to use that.
    Mr. Bergman. How about potentially hundreds of miles? And 
the point is, what do we have in your system for relief when we 
have a delay in the process because the appraiser cannot meet 
the requirements for the comparables, yet everything is 
validated, I guess. I have heard from veterans, I have heard 
from realtors, I have heard from home builders in our area, 
they can't comply with the rules because of the sparse 
population. What do we do?
    Mr. London. Well, again, we say that you need to have at 
least three comparable sales. However, we do have some latitude 
in our process to accept the available information that the 
appraiser has, including if the property is not in close 
proximity, because one of the things that you would look to, 
and I turn it to my appraiser professionals to explain it a 
little bit more in depth, but you can look at like properties 
that have similar characteristics of the subject property that 
you are examining.
    Mr. Bergman. The challenge we have is the tyranny of 
distance and because of veterans coming, a lot of times we will 
be building a new project, potentially getting a VA loan and 
there hasn't been a whole lot of new housing. So what we are 
looking for is a way for those appraisers to somehow create a 
valid appraisal so that the loan be approved, so that veteran 
can either buy or build that home when there really isn't three 
comparables within any relatively close distance, and that is 
all I am looking for is how do we do that.
    Mr. Wagner. There are some conditions at times where it can 
be a really big challenge for an appraiser to accumulate data 
that would fit within the parameters such as Mr. London was 
referencing. In those situations, when you have a professional 
appraiser out there in the field taking a look at that type of 
situation, he can use his judgment to say go back in time. Not 
all the comparables have to be six to twelve months, within six 
to twelve months, unfortunately, maybe it's 18 months or 
something like that and find a comparable perhaps in a 
competitive market that is representative of the subject 
property.
    So there is more than one way to do this. Certainly the 
parameters that Mr. London mentioned would be ideal to begin 
with and that is where you start, but sometimes you have to 
make adjustments and be flexible and use your judgment.
    Mr. Bergman. Okay. So what I hear you saying is, when I go 
back to the 1st District I can find out who the appraisers are 
and I can tell them that they can use their best judgment?
    Mr. Wagner. I think that they can use their best judgment 
with an awful lot of support and explanation.
    Mr. Bergman. Well, no problem. The commonalities are easy 
to handle, it is the differences between the norm and the edges 
where in life some situations fall through the cracks and I 
just happen to live in a district where that is quite honestly 
the majority of our 24,000 square miles.
    Mr. Wagner. Clearly, that is a challenge, and in the 
underwriting area they need to be able to have adequate support 
and explanation from the appraiser that shows that this is the 
best that can be done at this point, and that should make it 
acceptable.
    Mr. Bergman. Well, thank you.
    Mr. Chairman, thank you very much for the time and I yield 
back.
    Mr. Arrington. Thank you, General Bergman, for your time 
and interest.
    And now I will yield five minutes to Mr. Takano.
    Mr. Takano. Thank you, Mr. Chairman. And I want to ask Mr. 
London a few questions.
    Mr. London, thank you for the work you do to ensure that 
eligible veterans and their families are getting into safe and 
structurally sound homes and, through the appraisal panel 
process, owning homes that represent a sound financial 
investment. Clearly, these efforts on behalf of veterans by the 
Loan Guaranty Service have been successful in that, as you 
said, VA's foreclosure inventory is so low.
    Can you describe a little more in detail how you are 
attempting to deal with the shortage of VA-approved appraisers 
in rural locations?
    Mr. London. Yes, thank you for that question.
    What we have done, especially in areas where we have 
identified that either they are rural or remote areas, or they 
are hot real estate markets, we have taken a look at the 
appraisal Subcommittee's available appraiser list and we have 
literally contacted every single licensed appraiser in those 
remote and rural areas to invite them to apply to be Members of 
our panel.
    We have had some success over the last year in doing so. 
Because of this initiative, nationwide we have added over 700 
appraisers to our fee panel. And specifically in Washington, 
Oregon and Colorado, in the past six months we have added over 
120 appraisers to our panel through this recruitment effort.
    So the first thing that we did is just identify where we 
are in a severe need and we again contacted every single 
licensed appraiser to invite them to apply to the panel.
    Mr. Takano. How do you decide what is customary and 
reasonable compensation in booming markets where appraisers are 
in high demand?
    Mr. London. Yes, we actually survey lenders and other 
program participants who are actually on the ground in those 
specific geographic markets, and we ask them for real-time 
information and what they are experiencing of what the going 
rate for an appraisal in that particular area.
    We used to do those surveys on an annual basis or sometimes 
on a biannual basis, but more recently we have been looking at 
these fees on a quarterly basis to make sure that we are 
reflective of the current marketplace.
    Mr. Takano. Wow, you can change that fast.
    How do the VA panel appraisers and lenders negotiate a 
mutually acceptable fee in a high-demand situation and when it 
is inconsistent with those set forth in the VA schedules, what 
does VA do?
    Mr. London. So from a VA perspective, the fee that we 
permit the veteran to pay is the fee that we set forth. 
However, that does not preclude a veteran if he or she wishes 
to choose to pay a premium for an appraisal assignment, the 
lender could offer that and the veteran can make a decision on 
whether or not he or she is willing to pay the difference, but 
VA's fee is the fee that we say is permissible for that 
assignment.
    Mr. Takano. And what should industry be doing to encourage 
qualified appraisers to join local VA panels?
    Mr. London. Well, one of the things that we have to do is 
make sure that the appraisers don't have a misconception about 
the VA program, because some may be thinking about old 
experiences that they have had or even some of their colleagues 
have had sometimes a decade or more ago. The VA program is 
extremely flexible and we make sure that we provide the 
appraisers with clear guidance on what we expect and we also 
ensure that they understand that we are good partners with 
them.
    So that is the first thing that we have to do is make sure 
that we get over the misperception.
    And I will also use a second point, which you were 
questioning me about and with the fees, we want to make sure 
that we have competitive fees. And I think that one of the 
things that we really don't have to educate appraisers on is 
the fact that when they do a VA assignment they are getting the 
full fee, whereas if they were doing a conventional appraisal, 
sometimes they do that through an appraisal management company 
that may take a portion of the fee.
    So it was discussed earlier that sometimes appraisers have 
to travel long distances to go to their assignment and they 
have that burden of those extra expenses, with the VA fee you 
get the full fee for that assignment.
    Mr. Takano. Did you anticipate the 70-percent appraisal 
volume increase from the years 2012 to 2016?
    Mr. London. Well, we have enjoyed in the last few years an 
increase in the program and veterans and servicemembers taking 
advantage of their benefit, so we were aware of the increase. 
And that is one of the reasons why we implemented the tool that 
I mentioned, the tool that we have with CoreLogic, so that we 
can make sure that we have an appraisal processing system that 
can meet veterans' needs and demands.
    And actually the recruitment process that I described 
actually began a few years ago where we noticed that we were 
losing some fee panel members and we had various recruitment 
efforts over the years to ensure that we had adequate appraisal 
fee panel members around the country.
    Mr. Takano. Thank you.
    I'm sorry, Mr. Chairman, I went over time.
    Mr. Arrington. Thank you, Mr. Takano.
    And I now yield five minutes to Dr. Wenstrup.
    Mr. Wenstrup. Thank you, Mr. Chairman.
    I appreciate everybody being here today. I mean, in my 
opinion, this is what we are supposed to be doing, right? To be 
able to sit and discuss any nuances or problems that we are 
having within our programs and try and work those out, and I 
appreciate the efforts of everybody involved here today.
    Mr. London, one question I have is, what is the reason or 
origin for the different standards between VA appraisers and 
FHA appraisers from the beginning?
    Mr. London. Some of the requirements that we have are 
statutory. For instance, it was described earlier that you have 
to have recommendations from other appraisers to join the 
panel, also that you have to go through a background check, 
things of that nature. Some of those requirements are 
statutory, so it begins there.
    Mr. Wenstrup. No, I appreciate that. I have a VA home loan, 
I am pleased to say, actually. I think one of the things that 
helped us is that we were looking both at VA and then outside 
of a VA home loan through the bank, and our appraiser happened 
to also be a VA appraiser and so things went pretty smoothly. 
So at one point people thought it was going to be a glitch, but 
it ended up working out for us.
    But again, that is really the only question I have, and I 
do appreciate everybody being here. And hopefully we will make 
the process smoother and continue to help more veterans through 
the process.
    Thank you.
    Mr. London. Thank you.
    Mr. Arrington. Thank you, Dr. Wenstrup.
    And now we will yield five minutes to Miss Rice.
    Miss Rice. Thank you, Mr. Chairman.
    So we spent a lot of time talking about the effect of the 
appraiser process in rural areas. I happen to come from the 
State of New York, which has some of the highest home prices in 
the country. And I know that there have been times when 
veterans have come in expressing frustration with the fact that 
it is almost impossible to get a loan in the amount that you 
need to to put a roof over your head in the places where you 
want to live.
    Just one quick question. There was a note in here that said 
that there was loan that was guaranteed in Malibu, California 
for $9 million, I was just curious about what that is all 
about.
    Mr. London. Yes, I am familiar with that case and I 
actually looked at that appraisal myself to make sure that it 
was accurate. Fortunately, some of our veterans and 
servicemembers, just like other Americans, they do well.
    Miss Rice. I just wanted to make sure that that was the 
reason.
    Mr. London. That is correct.
    Miss Rice. It was not just a total--
    Mr. London. And the interesting thing about that particular 
case is that veteran obviously had the means to purchase a very 
expensive home, but as we stated earlier this program is a 
benefit entitlement program and that retired officer wanted to 
use his VA benefit, and he obviously put down a sizeable down 
payment on that loan.
    Miss Rice. Well, as well as he should have been able to for 
sure, he or she who could afford it.
    So what are the instances where there is a long period of 
time to get an appraisal and in how many instances does that 
affect the interest rate, say, that a veteran can get from a 
financial institution that is working on this program?
    Mr. London. One of the things that we encourage our lender 
partners to do is if they have a deal that there is a risk the 
seller will no longer be involved in the transaction or in the 
instance that you're saying, that the interest rate is about to 
expire, we encourage lenders to contact VA so that we can get 
involved to make sure that we can find an available appraiser 
on our fee panel to take that assignment more quickly. And more 
times than not, when lenders do reach out to us, we are able to 
work with the lender and with our appraisal partners to find an 
appraiser to take on that assignment more expeditiously.
    Miss Rice. And so in a place like New York where home 
prices, like other places in the country, are high, I mean, is 
there an access issue here? I mean, I know today we are talking 
about the appraisal process, but that is just one aspect of it. 
I mean, if you are living in an urban or city area that, you 
know, in any of the boroughs of New York, I mean, it used to 
just be Manhattan that you were priced out of, now it is hard 
to find a home in Queens or Brooklyn that you can afford.
    So how do you address that, especially in the instance 
where they are not required to put any money down and in those 
instances do you have higher default rates than you do 
elsewhere around the country? Because I know that it didn't say 
the percentage, but whatever your default rate is, it seemed 
pretty low, you know, as compared to the private sector.
    Mr. London. Sure, and thank you for that question. The 
first point that I would like to make is that VA by statute is 
limited on the amount that we will guarantee. So right now we 
are currently tied to the Freddie Mac conforming loan limit; 
however, that does not preclude a veteran from using his or her 
VA loan eligibility to purchase a property.
    Basically, what a veteran would do in a situation in a 
high-cost area that the Freddie Mac conforming loan limit does 
not meet the sales price of the home is he or she would have to 
pay a down payment at that point for 25 percent of the 
difference of the amount above the Freddie Mac conforming loan 
limit. So the veterans can still take advantage of the VA Home 
Loan Program and certainly can make a smaller down payment than 
if they chose another loan product.
    The second thing that I would say is that when it comes to 
cost, you know, I think we see a lot of veterans take advantage 
of the program not only because of the down payment aspect, but 
because the fees for VA are much less than other alternative 
loan products. So even in high-cost areas veterans can take 
advantage and save some of the money that they have or would 
not have to come with so much money to the table because the 
fees for VA are much lower.
    And for almost the last two years VA loans have enjoyed the 
lowest interest rate in the marketplace than any other loan 
product. So veterans are incentivized to use the VA loan 
program even in high-cost areas.
    Miss Rice. Well, and they certainly should be the 
recipients of that benefit. I think it is one of the great 
moral failures of this country that we have even one homeless 
or jobless veteran. So thank you all for everything you are 
doing.
    Mr. London. And I do want to address the one that you made 
about loan performance, I apologize. Based on our analysis 
internally in VA, we found that high-cost loans, if you will, 
even though VA loans overall enjoy a low foreclosure rate and a 
low serious delinquency rate, we found that the higher-cost 
loans actually perform better than even the lower-cost loans.
    Miss Rice. Well, maybe you can let us in on that little 
secret, how that is happening, that would be great.
    Thank you all very much.
    I yield back. Thank you.
    Mr. Arrington. Thank you, Miss Rice.
    Now I would like to yield five minutes to Mr. Rutherford.
    Mr. Rutherford. Thank you, Mr. Chairman.
    Ms. Bradley, let me ask on your study that the National 
Association of Realtors conducted, I noticed that the 
foreclosure rate for the VA is great actually, if you look at 
it, particularly between 2009 and 2014, they were the lowest of 
any other loan, what I am wondering, did you--so that is a good 
thing. So the quality of what they are doing in protecting 
veterans, because it is a protection for them too, because they 
don't get foreclosed on by buying a home that they can't 
afford, did you look at rural versus urban in the wait time 
situation?
    Ms. Bradley. I was not part of that original study. The VA 
foreclosure rate is enjoying a very low foreclosure rate 
because of the dual--there is the lender can overwrite, 
underwrite the appraisal, the VA then does their own oversight, 
so that dual protection protects the veteran, ultimately giving 
a zero down payment.
    And if I may address the rural aspect of that. It is not 
just about fees, folks, it is not just about the appraisal 
fees, sometimes the VA--or the appraiser, excuse me, simply 
cannot take the assignment. If we do not have the data to 
develop geographic competency in that market, we simply cannot 
take on that assignment. So not just the--
    Mr. Rutherford. And that kind of leads to my next question 
for you.
    Mr. London, when did CoreLogic come into use in the 
appraisal process?
    Mr. London. A little over three years ago.
    Mr. Rutherford. Okay, so that would have been '14 roughly?
    Mr. London. Yeah, about '13, 2013.
    Mr. Rutherford. Okay. And has there been a change, Ms. 
Bradley, in the wait time since then, do you know?
    Ms. Bradley. I would like to emphasize that overall the 
wait times are not extraordinary.
    Mr. Rutherford. Okay.
    Ms. Bradley. We have had a perfect storm in our country 
over the past few years. We have historically low interest 
rates, we have pent-up housing demand from all of these 
borrowers who wanted to buy a home but were nervous after the 
ten years ago we had the biggest housing collapse in our recent 
history. So we have a pent-up demand and we also have a lot of 
veterans looking to purchase a home now because we have so many 
more vets.
    So we have a perfect storm of a situation. It is not a 
nationwide problem, this is in highly rural markets that they 
are experiencing that. I am from a rural market myself and the 
VA has called me often and asked me to do appraisals in an 
adjoining county. If I don't have access to that data to be 
able to develop a competent appraisal that is credible, that 
could protect the veteran by making sure that there is 
sufficient collateral for that loan, I can't take that 
assignment.
    Mr. Rutherford. Right. Let me ask you this. From 2004 to 
2015, there was a great loss of certified appraisers, but there 
was a huge--I'm sorry, licensed appraisers, there was a huge 
drop in the licensed appraisers, but there was a 20-percent 
increase in certified appraisers. Does VA use certified 
appraisers and is that part of the issue here as well?
    Ms. Bradley. No, actually VA uses both licensed and 
certified appraisers.
    Mr. Rutherford. Okay.
    Ms. Bradley. They have to have a minimum five years' 
experience. That is not part of the issue.
    Mr. Rutherford. So that is not an issue at all. Okay.
    And I would also ask, Mr. London, what is your view of 
desktop-based appraisals? Mr. Johnson I think sounded very 
supportive of them, thinks that they are effective. Does VA use 
that very often or at all?
    Mr. London. We currently do not do desktop appraisals as 
described today; however, as I mentioned, we do have the 
CoreLogic system that does have that information available. And 
again, one of the limitations that we have of that current 
system--and again, this is not a CoreLogic issue, this is an 
issue across the industry--is that for these rural and remote 
areas the data simply just is not there to do those type of 
assignments through a desktop.
    Again, that is why we are harkening back to geographic 
competence from an individual who is familiar with that 
particular geographic area.
    And I attend many industry conferences and obviously meet 
with many lenders who participate in our program, and what 
lenders tell me is that they because of risk, because the data 
has not been proven, most lenders tell me that they are not 
supportive of that type of review, that they feel more 
comfortable with the current appraisal process.
    Mr. Rutherford. Okay, I see I am out of time.
    Thank you all very much for what you are doing for our 
veterans. Thank you.
    Mr. Chairman, I yield back.
    Mr. Arrington. Thank you, Mr. Rutherford.
    And now we will yield five minutes to Mr. Banks.
    Mr. Banks. Thank you, Mr. Chairman. And thanks to each of 
you.
    There is nothing more infuriating to me than when we 
discuss issues or restrictions, government bureaucracy or rules 
that prevent us from serving our veteran population better. So 
on one hand, while I am pleased that we are having the 
discussion that we are having today, it is very difficult at 
times to understand why we make it so much more difficult than 
it has to be to better serve our veteran population.
    So with that, Mr. London, one area where I am scratching my 
head is how exactly do we justify the more stringent, 
significantly more stringent vetting process for the VA than 
what the FHA has for appraisers? What is the justification, how 
do I defend that to the veteran constituents in my district who 
are frustrated?
    Mr. London. Sure. Thank you for that question.
    As I alluded to earlier, VA is simply following the 
statute. The statute requires us to go through this vetting 
process. But what I will add to that comment is the fact that, 
again, this is a benefit that veterans and servicemembers have 
earned, again, as I stated earlier, many at great sacrifice. 
And so not only does the vetting process and our overall 
appraisal process protect the government and the risk that it 
may take if the home goes to foreclosure, but it also protects 
that veteran and servicemembers when he or she is purchasing 
the home because they know that they are getting a home, even 
though the VA appraisal process is not an insurance program, 
because it can't give the veteran an insurance, we request that 
they get a home inspection to get added assurance.
    But the appraisal process that we have, because we look at 
minimum property requirements to make sure that the home is 
sound, safe, and sanitary, that is giving that veteran and 
servicemember that extra comfort that not only are they 
utilizing the benefit that they have earned, but they are 
getting a sound asset as well.
    Mr. Banks. So I am brand new, I am a freshman Member of 
Congress, brand new to this Committee, I have a lot to learn, 
but I did serve in the state house for six years. You said the 
more stringent vetting rules are per the statute?
    Mr. London. That is correct.
    Mr. Banks. Is that a statute of rules, administrative rules 
from the VA, or are those congressionally approved rules that 
have created that more stringent process?
    Mr. London. The statutory reference is 38 U.S.C. 3731, so 
congressional.
    Mr. Banks. So are those rules that your organization could 
repeal?
    Mr. London. No, sir.
    Mr. Banks. Make less stringent?
    Mr. London. No, sir, we cannot, not without a statutory 
change.
    Mr. Banks. So you are pointing the finger at this 
Committee, the Congress to solve that rather than through the 
administrative process that you would be involved with?
    Mr. London. Well, let me make sure we are clear when we 
talk about a more stringent, you know, process.
    First and foremost, as Ms. Bradley indicated, VA can use 
licensed appraisers, whereas FHA in comparison have to use a 
certified residential appraiser, which is a bar above.
    Mr. Banks. Well, what I am trying to get to the bottom of 
is who has created this more stringent rules?
    Mr. London. Understood. It is statutory, is my 
understanding.
    Mr. Banks. It is your understanding?
    Mr. London. That is correct.
    Mr. Banks. So it sounds like maybe we need to do a little 
bit more homework. Maybe you and I, maybe us together with you 
to find out how we scale back those more stringent rules.
    Mr. London. I will assist you in any way I can and any 
other Member of the Committee.
    Mr. Banks. I appreciate your willingness to do that.
    And I appreciate the interest of this Committee on this 
topic, as it is a source of frustration of so many veterans who 
do deal with this process.
    And with that, Mr. Chairman, I yield back.
    Mr. Arrington. Thank you, Mr. Banks.
    I yield myself five minutes.
    I want to follow the line of questioning of my colleague 
Mr. Banks. I just want to start with the fundamental question, 
why do we need a certification? Why do we need government 
certification? We are exposed, as my understanding, 25 percent 
of the loan, the private sector has 75 percent exposure, they 
have more risk in this. Why would we need additional standards 
beyond, and I am looking at one of the surveys, the 
conventional prime, you know, process for appraising, why do we 
need more than that?
    I know you didn't write the law, I am not blaming you, Mr. 
London, but let's just say you have a blank slate. Let's say 
that there are no statutory requirements and restrictions on 
you. What would you do to change the law so that we could 
manage risk and serve the customer, being the veteran?
    Mr. London. Well, as I stated, I will be happy to work with 
you and other Members of the Subcommittee on any legislation 
that you may propose to improve the appraisal process.
    One of the things that I can say about the current system 
and process that we have is I think in part it bears out in the 
performance that we stated today with the low foreclosure rate 
and the low delinquency rate. The fact that, for instance just 
use one of the examples of one of the vetting steps that you 
have to go through to serve on the panel, is you have to have 
recommendations from other appraisers, and a second step that 
is also statutory is that you have to have a demonstration 
project or demonstration appraisal to show that you have the 
competency.
    So the fact that we actually look at the fact of whether or 
not the person is competent and that their peers will attest to 
their competency, I think that has helped with the current 
success that the program is enjoying to serve our veterans.
    Mr. Arrington. I do think that the foreclosure rate is good 
but, you know, it is comparable to the conventional prime, I 
mean, it is right there, and yet when the NAR did a survey of 
appraisers and asked which ones are least desirable among a 
long list, the number one by far that was least desirable was 
to conduct appraisals for VA loans. And then when she cited, 
Ms. Bradley, the regulatory burden is the top reason that 
appraisers are leaving the profession, that leads one to 
believe that there may be too many regulations, too much 
regulatory burden.
    So, you know, I could mitigate risk to almost zero, but not 
serve my customer very well. So there is a balance, I think you 
would appreciate that.
    Help me again understand--well, what are the unnecessary 
regulatory restrictions, in your opinion, those things that 
don't have a cost-benefit value in this process?
    Mr. London. Well, if I look at the statutory construct, 
again, the way that I understand it, the fact that we are 
asking for, if you have experience as an appraiser that we are 
asking for an example of the work that you have completed and 
also recommendations from your peers, from just a pure burden 
standpoint, in my view I don't think that that is an extremely 
high bar for entry to be on the fee panel.
    Mr. Arrington. Okay. Ms. Bradley, could you help me with 
identifying those requirements that are unnecessary and may be 
a barrier to serving the veteran, rural or otherwise?
    Ms. Bradley. As a VA appraiser for the past 20 years, I 
worked for FHA and I work in the conventional market, the VA is 
the gold standard, it does not need to be changed, in my 
personal opinion.
    Mr. Arrington. Why do so many appraisers say it is the 
least desirable, I mean significantly, exponentially greater 
than most of them on that list?
    Ms. Bradley. The question asked I believe was which entity 
are you least likely to work for and if that appraiser didn't 
happen to be on the VA-approved panel they are going to answer 
no. And perhaps there are many appraisers that choose, as we 
had said, not to request appointment to the VA panel because of 
misinformation about over-regulation, I believe that is the 
reason it was chosen.
    Moving forward, I believe for the VA's recruitment of 
appraisers, if they provided continual education and they do 
regional training, I believe if they bring in new appraisers 
who maybe have a misconception that there is too much 
regulation, that can help them.
    Appraisers who have never done a VA appraisal before think 
I don't know what a minimum property requirement is, I am too 
concerned to do it for liability purposes. If there were 
training for new appraisers to join the panel in conjunction 
with the open enrollment, I think that would dissuade people 
from being concerned.
    Again, it is highly rural markets that we are talking 
about, this is not the norm throughout the country. And I need 
to reiterate, please, the VA is the gold standard for appraisal 
independence.
    Mr. Arrington. So thank you.
    I have exceeded my own time restriction and so I am going 
to ask my colleague Mr. O'Rourke if he has further questions or 
comments.
    Mr. O'Rourke. Thank you, Mr. Chairman.
    Mr. Arrington. And I yield the full five minutes.
    Mr. O'Rourke. Thank you. Again, I want to thank you for 
bringing everyone together and addressing an important issue 
that in the going on five years that I have been on the 
Committee we really have not addressed. I am grateful for that 
and I think something good is going to come of it.
    I do want to stress, because there is very legitimate 
concern today about availability of timely VA loans and 
appraisals in rural areas, especially those that are 
experiencing an economic boon as the Chairman's district in 
Oregon is and as we are seeing in some parts of Texas. I want 
to make sure that we meet that need and address that concern in 
a way that is going to be effective without at all diminishing 
or undermining the extraordinary success that this VA loan 
program has had. Samantha on my team was just telling me that 
there was a 24-month period between 2014 and 2016 where these 
VA loans were the lowest average rate in the country.
    So we are providing a tremendous earned benefit to the 
veterans who put their lives on the line and are getting that 
extra help, as they should, and we are also protecting the 
taxpayer, as we should, and we are also increasing the rate of 
home ownership significantly, as we should. So lower rates, 
lower foreclosures, more home ownership, all very good things. 
Let's meet the demand in some of these extraordinary, you know, 
unique cases. As the Chairman brought up and as we are seeing, 
we were talking about Odessa, Texas earlier today and I know 
there are other parts of the country that face this.
    I wonder, and I am of course speaking just on my behalf, 
but whether or not this panel could come back to us with a 
unified approach to addressing this that may or may not require 
more legislation. If only 42 percent of appraisers in this 
country choose to work for the VA, how do we increase the rate 
of participation? If we are having these unique challenges in 
rural and under-served districts, how do we meet them? Do we 
need to change statute and law, is it an act of Congress 
literally?
    Again from the benefit of, you know, four-plus years in 
this place, it is very hard to get something through this 
Committee, the House, the Senate, and onto the President's desk 
and signed into law. So if this is urgent and if this is a 
crisis, let's not wait for statute. If the five of you could 
agree on something and come back to us within a month and say 
here--and you offered a number of ideas, but they were each 
offered individually and separately--if these are consensus 
opinions or you could arrive at them and come back to us.
    Perhaps the VA voluntarily says, you know what, here's some 
stuff that does not require a statute, we are going to do it 
because it is going to ensure more veterans get into more homes 
more quickly. Or you may need to make some tweaks to law, you 
know, that's on us, or here is a way to reach out to appraisers 
in some of these markets. Or as the Committee staff just 
suggested, is there some way to cross state lines where you 
have the capacity in California in the north of that state that 
can serve Oregon, you know, in the south of that state. I don't 
know, but you all know this stuff, you are going to have the 
solutions. I know just having worked with the Chairman now for 
a little over three months, he gets on this stuff and he is 
already probably working on, if I had to guess on legislation, 
which I would really like to see and I think could make it 
better. If we can do something in addition to that legislation 
or in place of that, all the better.
    Forgive me, Mr. Chairman, I am not trying to predict what 
you are doing, just this is such an important issue I want to 
make sure that we don't wait on it. If you could come back to 
us within a month, the five of you together--
    Mr. Arrington. Absolutely.
    Mr. O'Rourke [continued]. --that would be great.
    Mr. Arrington. Would the gentleman yield?
    Mr. O'Rourke. So I yield back.
    Mr. Arrington. You took the words out of my mouth. And, you 
know, you have been here a few more years and so look how you 
just beat me to the punch and shamed me in front of my 
colleagues like that.
    Mr. O'Rourke. No, no, no.
    Mr. Arrington. I couldn't agree more. You guys are closest 
to the problem. I have heard good responses, but I think if we 
could frame them and maybe the Ranking Member and I can work on 
framing this with more than just one central question, maybe 
three to five questions, you guys work on it and come back and 
submit those for further discussion.
    But this ought to be something we can solve, this ought to 
be the most easy-to-get-to bipartisan solution with stakeholder 
input of anything I have encountered yet. And so I know there 
is no problem that is easy, but relatively speaking, we ought 
to be able to tackle this.
    So I appreciate your suggestion. Right on, I second that.
    And may I just ask one more question of Mr. Johnson,
    just would you all indulge me for just a minute?
    Your product, how would your product apply to this problem-
solving exercise and is it mature enough and nuanced to meet 
this particular problem? I would like to hear more from you 
about how we can bring technology to bear to provide greater 
access, especially in the rural areas.
    Mr. Johnson. Absolutely. Thank you for the question and the 
opportunity.
    I see this as primarily an efficiency utilization. How do 
we best utilize the resources that we have available to us? As 
has already been stated, the VA program is the gold standard 
and the VA has done a wonderful job servicing veterans, 
especially in light of this increase in demand; they have 
increased fees, they have increased their recruitment programs, 
they have on-boarded several more appraisers, so they have been 
doing an excellent job with what they have available to them.
    I think that the product that we are talking about today, 
the desktop appraisal, allows appraisers to focus on where they 
apply their knowledge and their skill set. As opposed to 
driving hundreds of miles every day to look at homes and take 
pictures and do measurements, other qualified professionals in 
the industry can perform those duties at different locations 
while the appraiser is looking at the data that is provided. 
Right now we can provide that information within moments, as 
opposed to decades ago when this process was created it took a 
lot of time.
    So if somebody else can, you know, another industry 
professional can take the photos, drive out to the locations, 
maybe they live nearby anyway, then you supply the appraiser 
with the data they need to apply the skills that they have 
learned and the expertise that they have, and they don't have 
to spend their time doing those other tasks.
    So it is more about the efficiency utilization of the 
resources in a couple of different areas, that is one example.
    The other example is that there is a large portion of 
properties that do fit into a standard category to where they 
are not so complex. And if we can apply this technology into 
the non-complex properties, we free up time again for the 
appraiser to go visit out in the rural areas and be able to 
attack those problems.
    So I think there's a couple of different ways that the 
product does help the situation, help the appraiser be more 
efficient and more effective, and help the veteran to be able 
to get into the homes that they want without having to wait 
with these unknown lead times and unknown costs.
    Mr. Arrington. All right, thank you for your comments.
    Mr. O'Rourke, do you want to close this with any comments?
    Mr. O'Rourke. No, sir.
    Mr. Arrington. Are you okay?
    Well, like the Ranking Member said and I agree 
wholeheartedly, let us frame this, and if you are willing, Mr. 
London, we'll just submit those to you to frame it up. And then 
I would like for you to work with the stakeholders present and 
come back with recommendations.
    Don't let the current statute or law restrict your vision 
for a better construct to serve the customer, which is the 
veteran, as we steward, manage the risk and steward the 
taxpayer monies, but there has got to be a better way. There 
has got to be some creative solutions here and I think you guys 
are just the right team to give us some recommendations.
    I really appreciate your time and your preparation and your 
thoughtful responses.
    So I now ask unanimous consent that all Members have five 
legislative days in which to revise and extend their remarks, 
and include any extraneous material on today's hearing.
    Without objection, so ordered.
    Thank you all again for being here today. This hearing is 
now adjourned.

    [Whereupon, at 3:59 p.m., the Subcommittee was adjourned.]


                            A P P E N D I X

                              ----------                              

                 Prepared Statement of Michelle Bradley
    Introduction
    Chairman Arrington, Ranking Member O'Rourke, and members of the 
Subcommittee, my name is Michelle Bradley. I am a third generation 
REALTOR with 31 years' experience as a state-certified general real 
property appraiser and a licensed real estate broker in Pennsylvania. I 
am here representing the more than 1.2 million members of the NATIONAL 
ASSOCIATION OF REALTORS (NAR) who work in all aspects of real estate. 
NAR represents a wide variety of real estate industry professionals, 
including approximately 25,000 licensed and certified appraisers, 
committed to the development and preservation of the nation's housing 
stock and making it available to the widest range of potential 
homebuyers.
    I am currently on the VA appraiser panel and the FHA appraiser 
roster. In addition to being a full-time appraiser-practitioner, I am 
also a principal with Bradley Consultants, a real estate appraisal 
school. In this capacity, I author and present education courses for 
both real estate licensees and appraisers in multiple states. I am one 
of only 500 instructors certified by The Appraisal Foundation to teach 
courses on the Uniform Standards of Professional Appraisal Practice 
(USPAP). I have served as chair of the Pennsylvania Association of 
REALTORS Appraisers' Forum, as well as the 2016 Chair of the National 
Association of REALTORS Real Property Valuation Committee. I currently 
serve as the chair of the Appraisal Standards Board Issues Committee 
with The Appraisal Foundation Advisory Council (TAFAC).
    NAR believes a strong and independent appraisal industry is vital 
to the home buying process and to the housing industry as a whole. A 
credible valuation provided by a qualified professional (1) ensures the 
property value is sufficient to collateralize the mortgage, (2) 
protects the buyer, (3) allows secondary markets to have confidence in 
the mortgage products and mortgage-backed securities, and (4) builds 
trust in the real estate profession.
    NAR commends the Committee for holding this hearing on an issue 
that is key to the safety and soundness of the Department of Veterans 
Affairs (VA) Veterans Home Loan Guaranty Program. NAR is a strong 
supporter of housing opportunities for veterans and active-service 
members.
    The VA Home Loan Guaranty Program and the Role of the Appraisal
    According to the U.S. Census, there were 19.3 million military 
veterans in the United States in 2014. The VA Home Loan Guaranty 
program serves a large veteran population and is doing it well. The 
homeownership rate for veterans was 76 percent in 2014 - well above the 
national average of 64 percent.
    For over 70 years, the VA Home Loan Guaranty Program has been a 
vital tool that provides veterans and active-service members with a 
centralized, affordable, and accessible method of financing home 
purchases as a benefit for their service to our nation. This 
entitlement program encourages private lenders to offer favorable home 
loan terms to qualified veterans and active-service members. According 
to NAR's 2016 Veterans and Active Military Home Buyers and Sellers 
Profile, veterans make up 18 percent of all recent homebuyers, while 
active-service members make up 2.0 percent. Of these buyers, 74 percent 
of active-service members and 54 percent of veterans use a VA loan to 
finance their home purchase. \1\
---------------------------------------------------------------------------
    \1\ National Association of REALTORS, 2016 Veterans and Active 
Military Home Buyers and Sellers Profile.
---------------------------------------------------------------------------
    VA's strong yet flexible underwriting standards allow veterans and 
active-service members the ability to purchase a home of their own 
without depleting their savings. More than 81 percent of veterans and 
active-service members utilize the zero-down payment option provided by 
VA. Yet, despite this, VA's foreclosure rate is very low:

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

    In fact, during the height of the foreclosure crisis, VA's 
foreclosure rate was lower than that of conventional mortgages. For the 
second half of 2016, VA's foreclosure rate of 1.1 percent was 
comparable to that of conventional loans, which had a 0.9 percent 
foreclosure rate. Since 2009, more than half a million veterans, 
active-service members, and survivors kept their homes, at a savings to 
the U.S. Government of over $16.3 billion.
    The success of the VA Home Loan Program is the result of the strong 
underwriting standards expected of VA lenders. VA requires 
participating lenders to ensure that the loan payments are appropriate 
for the veteran or active-service member's present and anticipated 
income and expenses and solidly underwrite the loans using debt-to-
income ratios and credit history. Additionally, in contrast to 
conventional lending and even FHA, VA also uses a residual income test. 
Residual income calculates how much income a borrower will have left 
for other monthly expenses after home payments. This calculation 
considers the borrower's complete financial picture, and ensures money 
is available for emergencies or other contingencies. VA also requires 
the use of manual underwriting for those veterans and active-service 
members who marginally qualify. For these borrowers, lenders must look 
at non-traditional factors and give veterans and active-service members 
the benefit of the doubt when making a decision.
    A major element of the strong underwriting provided by VA lenders 
is the well-developed appraisal system and high quality of VA 
appraisers that the VA employs to estimate the value of a given 
property. The VA appraisal is important because it assures the lender 
the property provides adequate collateral for the loan and protects the 
veteran or active-service member from overpaying for a property. The 
typical VA appraisal report will include the necessary data and 
analysis to estimate the market value for loan underwriting and 
determining the home meets the VA's requirements. The VA allows for two 
levels of appraisal scrutiny (1) the lender reviews the appraisal, and 
(2) the VA Regional Loan Centers then reviews the appraisal for any 
errors or concerns. This double oversight procedure creates a safety 
net for the veteran or active-service member that assures their home 
meets the VA's minimum property requirements and contains enough value 
to act as collateral against the loan.
    The VA recognizes the value of qualified appraisers that create 
sound valuations, which protect VA buyers and lenders. Only appraisers 
that meet a high level of work quality and experience are able to 
become members of the VA appraiser panel. Every VA appraiser must be a 
state licensed or certified appraiser with a minimum of five years' 
experience in appraising residential properties. The VA also requires 
letters of recommendation attesting to the applicant's character and 
experience as a residential appraiser. As a result, VA appraisers are 
serious about their profession, their duty to the veterans and active-
service members they are serving, and thus strive to produce well-
documented, credible appraisal reports in a timely manner.
    The VA maintains a closed panel of appraisers that receive VA 
appraisal assignments on a rotating basis. This ensures strict 
appraiser independence by removing the possibility of collusion between 
the lender and the appraiser. An independent and impartial analysis of 
real property is a critical component of the mortgage transaction, 
which is consistent with the Dodd-Frank Wall Street Reform and Consumer 
Protection Act that implemented rules and regulations to protect the 
independence of the appraiser.

The Perceived Appraiser Shortage

    NAR has been closely following the growing concern over a perceived 
shortage of appraisers reported by real estate professionals from 
various geographic areas, including markets with quickly increasing 
home values such as Portland, OR and Denver, CO, as well as rural areas 
in Kansas and Texas. NAR members report long waits to schedule an 
appraisal, increasing turn-around times for appraisals, and the need to 
pay rush or expedited fees to obtain an appraisal in a timely manner. 
NAR is also aware of difficulty in recruiting new appraisers into the 
field and the growing frustrations of current appraisers with the state 
of the appraisal industry.
    All this suggests a drop in the number of appraisers in the U.S. 
Yet, the data provided by David Bunton, President of The Appraisal 
Foundation, shows less than a 1,000 person reduction in appraisers from 
2004 to 2015. Digging deeper into the data, the number of licensed 
appraisers decreased by several thousand while certified appraisers 
increased by roughly 20 percent. \2\ So why are many markets facing 
situations that suggest a much greater shortage of appraisers? To gain 
a richer understanding of these matters, NAR conducted a survey of 
REALTOR appraisers in early 2017. \3\
---------------------------------------------------------------------------
    \2\ https://www.appraisalbuzz.com/a-shortage-of-appraisers/
    \3\ National Association of REALTORS, 2017 Appraisal Trends 
Survey.
---------------------------------------------------------------------------
    NAR found that appraisers are generally dissatisfied with most 
elements of their job. Over 50 percent felt dissatisfied with their 
level of compensation and overburdened by the level of regulation in 
the appraisal industry. Those appraisers intending to leave the 
profession in the next five years cited excessive regulation and 
insufficient compensation as the two main reasons for their departure.

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

    One element of this issue is that appraisers, like individuals in 
any free-market based profession, have the ability to choose the 
assignments based on their skills, limitations, financial needs and 
interests. Many qualified appraisers indicated a reluctance to take on 
certain assignments.

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

    NAR found that 47.1 percent of the survey respondents chose not to 
perform VA appraisals. Of course, some of the appraisers surveyed are 
likely not qualified to be a member of the VA appraisal board. However, 
it is also likely that some appraisers who are well qualified to join a 
VA appraisal panel may be unwilling to accept VA assignments. Given the 
current low-interest rate environment, growth in the economy, and the 
resurgence of a demand for housing \4\, the opportunity for appraisers 
to be selective in choosing assignments has likely increased. The VA 
should consider whether the current VA Appraisal Fee Schedules provide 
adequate and reasonable compensation in light of the work and 
competence necessary to perform a VA appraisal. While the VA allows for 
the appraiser and the lender to negotiate a mutually acceptable fee for 
complex assignments, that can be a time-consuming, cumbersome, and thus 
costly endeavor. There is also no guarantee that the parties will reach 
an agreement or that VA will even consider or agree to a fee that is 
inconsistent with those set forth in the VA schedules.
---------------------------------------------------------------------------
    \4\ https://www.nar.realtor/news-releases/2016/11/nar-2017-
forecast-existing-home-sales-up-a-turning-point-for-first-time-buyers

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Overly Burdensome Trainee Appraiser Requirements

    It is more difficult than ever to become an appraiser. Individuals 
interested in becoming appraisers must meet education requirements, 
experience requirements, and pass state administered national 
examinations. To become a state-certified appraiser, individuals are 
required to take 200 hours of education coursework and complete 2,500 
hours of experience in a minimum of 24-month period. \5\
---------------------------------------------------------------------------
    \5\ Real Property Appraiser Qualification Criteria. 2015.
---------------------------------------------------------------------------
    These are minimum standards as established by The Appraisal 
Foundation's Appraisal Qualifications Board (AQB). States may require 
additional training. The experience requirement, which is effectively 
an apprentice program, is extremely difficult to meet. This is 
compounded by the fact that some appraisers do not take on trainees. 
For example, less than one in five appraisers surveyed by NAR currently 
take on trainees. Of the appraisers that currently do not take on 
trainees, over half previously did so. The lack of compensation for 
teaching and the refusal of lenders to accept work product done by 
trainees are the main reasons cited for refusing to take on new 
trainees. \6\ Simply stated, the apprentice system is in need of 
reform.
---------------------------------------------------------------------------
    \6\ National Association of REALTORS, 2017 Appraiser Trends 
Survey.
---------------------------------------------------------------------------
    The AQB is in the process of revising the qualification 
requirements as a way to help bring new appraisers into the industry. 
Recent proposed changes include introducing alternative way to comply 
with the current Bachelor's degree requirement and the practical 
experience components. NAR has engaged with the AQB on these matters 
for over a year and is hopeful that non-class based alternatives to the 
education requirement and reconsideration of the structure of the 
experience requirements will be developed in a way that creates highly 
skilled and competent new appraisers.

How VA Appraisals Function in Rural Areas

    Rural real estate transactions have always presented their own 
unique appraisal challenges. Many of the properties in rural areas are 
``unique'' and do not easily fit into a well-defined metric for 
determining the value. In some cases, an appraiser is dealing with a 
farmhouse or ranch on several hundred acres of land with the closest 
neighbors miles away. It is common for an appraiser serving a rural 
area to drive over an hour just to view a comparable home sale. Rural 
appraisers have to factor in time and gas costs that exceed those of 
suburban or urban appraisers. According to NAR's Appraiser Trends 
Survey, appraisals for unique or odd lots, which many rural properties 
are, take nearly 50% longer than a standard appraisal.
    It is important to note that Uniform Standards of Professional 
Appraisal Practice (USPAP) does NOT limit the distance an appraiser may 
travel to an assignment. While a distance traveled limit sounds like a 
simple solution it is far from effective. This is because markets vary 
widely - an appropriate distance limit in an urban market may not be 
appropriate in a nearby rural area. What is important is that clients 
retain services from appraisers with a level of geographic competence 
sufficient to complete the assignment with credibility. Geographic 
competency entails more than a deep analysis of the sales and 
demographic data. Appraisers must take the time to learn the 
characteristics and qualities of the specific market, including the 
current housing supply and demand for that area.
    REALTORS from rural Michigan document the challenges faced. For 
example, a REALTOR working with veteran clients in rural Michigan is 
aware of only two VA appraisers that take on assignments in their area. 
One of these appraisers comes from one hour away. The other works in a 
town a three-hour drive away. Unfortunately, the experience of 
REALTORS in Michigan is that the appraisals in VA transactions have 
recently been coming in well below the agreed upon selling price, in 
one situation $60,000 lower. REALTORS across the country, including 
Texas and Oklahoma, have shared similar anecdotes.
    Recently, many home purchase transactions across the country have 
come undone due to a difference in the sales price and the appraised 
value of a home. Unlike with other forms of financing, in a VA loan 
transaction, when an appraiser realizes that the appraised value of a 
property is coming in below the sales price, they are to stop work and 
notify the lender's point of contact. This process is called the 
Reconsideration of Value, often referred to as the ``Tidewater 
Initiative''. After notification by the appraiser, the lender's point 
of contact has two days to provide support for the sales price, which 
can include additional comparable home sales. The appraiser reviews any 
information provided and then completes the appraisal report. In some 
cases, it may result in a revised appraised value for the property. In 
the Michigan example cited, it did not; the appraised value remained 
below the listing value and the deal fell apart.
    NAR's members understand the reality is that sometimes real estate 
deals will fall apart over a difference in appraisal value versus the 
agreed upon selling price. Nevertheless, there are best practices to 
address these situations and ideally reach a satisfactory conclusion. 
An effective solution to these conflicts with the appraisal and the 
buyer's expectation is to improve the understanding between the 
parties. Contact between appraisers and real estate agents and their 
clients is not prohibited and should, in fact, be encouraged by the VA. 
Appraisers should feel comfortable with offering their competency to 
stakeholders. Real estate agents and their clients should ask questions 
to get a better understanding of the appraiser's qualifications, 
education, experience, and professional designations. While 
understanding should be encouraged, NAR also believes that coercion and 
other attempts to influence value are, and should continue to be, 
prohibited. If all parties feel that contact and information was 
received properly, the ability to understand the difficult outcome of 
failing to purchase a particular house is much easier for the veteran 
or active-service member to handle.

Conclusion

    The NATIONAL ASSOCIATION OF REALTORS strongly supports housing 
opportunities for our nation's veterans and active-service military 
professionals. The VA Home Loan Guaranty Program appraisal system is an 
imperfect but necessary element to ensure our veterans and active-
service members are protected when using a VA home loan. NAR is willing 
to work with the VA and the members of this Committee to address many 
of needs of the current system, including the re-evaluation of 
requirements for trainee appraisers, ensuring good understanding 
between the appraiser and the veteran or active-service homebuyer, and 
recognizing the realities of the market in terms of appraiser choice in 
assignment. NAR firmly believes that the VA Home Loan Guaranty Program 
will continue to provide a vital benefit to the men and women who 
bravely fought for our country, so they may find a home that serves 
them and their needs.

                                 
                Prepared Statement of Stephen S. Wagner
    Chairman Arrington, Ranking Member O'Rourke and Members of the 
Subcommittee on Economic Opportunity, thank you for the opportunity to 
testify on improving the VA Appraiser Fee Panel on behalf of the 19,000 
members of the Appraisal Institute, the largest professional 
association of real estate appraisers in the United States.

EXECUTIVE SUMMARY

      The U.S. Department of Veterans Affairs (VA) Appraiser 
Fee Panel purposefully is unique, given the charge of supporting our 
nation's veterans. The VA loan program is an important veteran benefit 
that performs better than other government loan programs, in part, 
because it has strong appraisal independence mechanisms.
      The VA appraisal staff are some of the most accessible 
and responsive within the federal government relative to real estate 
appraisal issues. They often help resolve payment and underwriting 
issues between VA appraisers and VA lenders.
      The Appraisal Institute opposes changing the VA Fee Panel 
to one that mirrors what is found in the Federal Housing Administration 
or the private sector. We do not believe that this would reduce 
turnaround times for appraisals, nor would it be in the best interest 
of veterans.
      Measures may be taken to improve the consistency of the 
program and to maintain its competitiveness with the private sector, as 
discussed in greater detail in Part 3:
      Maintain an independent Fee Panel of VA appraisers;
      Develop a ``stand-by'' list of approved VA appraisers;
      Enhance appraiser recruitment efforts;
      Encourage lenders to provide better information at the 
time of the appraisal assignment; and
      Address appraiser concerns about unpaid appraisal fees.

Part 1. Background and Private Sector Issues

VA Fee Panel

    The Veterans Administration (VA) maintains a Fee Panel of approved 
real estate appraisers who work on behalf of the agency in providing 
collateral risk assessment in support of the VA Home Loan program. The 
Fee Panel is directly managed by the VA and consists of a pool of 
several thousand appraisers who accept VA appraisal assignments on a 
rotating basis.
    The Federal Housing Administration once maintained a panel similar 
to the VA Fee Panel, but in the 1990s that program was changed to what 
is known as ``Lender Select.'' This allowed FHA Direct Endorsement 
lenders to manage the appraisal process and to engage appraisers 
directly. The FHA Lender Select program operates similarly to the 
conventional mortgage market.
    By comparison, the VA Fee Panel is a much stronger proponent of 
appraisal independence and presents a much more positive environment 
for real estate appraisers than what is found in other government 
programs or the private sector. Outside of the VA, appraisers often 
face a litany of challenges ranging from marginally qualified appraisal 
review processes to stifling fee compression. This, along with a 
complicated national regulatory structure that is in need of 
modernization \1\, has produced an overall unattractive environment for 
real estate appraisers, particularly residential appraisers.
---------------------------------------------------------------------------
    \1\ On November 16, 2016, The House Financial Services Committee 
Subcommittee on Housing and Insurance held a hearing on, ``Modernizing 
Appraisals - A Regulatory Review and the Future of the Industry.'' 
Available at http://financialservices.house.gov/calendar/
eventsingle.aspx?EventID=401174

---------------------------------------------------------------------------
Appraiser Population Trends

    The Appraisal Institute has been tracking appraiser population 
trends for many years. The trend has been downward for several years, 
with the ranks of residential appraisal accounting for nearly the 
entire decline. Real fees for residential mortgage appraisers have been 
in decline for many years, while the costs of doing business (I.e., 
licensing fees, continuing education, books, supplies, vendor fees, 
etc.) have gone up. When one adds in fee-splitting with appraisal 
management companies, many residential appraisers actually are making 
much less than they were some 20-30 years ago (see attached chart - 
U.S. Appraiser Population Estimates

Licensed/Certified Residential).

    We anticipate a continued decline in the number of practicing 
appraisers, between 20-25 percent, over the next 5-10 years.
    AI data does not indicate a national shortage of appraisers at this 
time, but there are indications of temporary shortages in some markets. 
We anticipate, however, that longer-term shortages will appear going 
forward should the projected decline materialize.
    The VA Fee Panel is somewhat insulated from these national trends 
in that it is a hand-picked list of approved appraisers. While the 
national pool of appraisers has narrowed in recent years, there still 
is an ample number of appraisers to support the VA Home Loan program. 
Moreover, the national figures better represent the status of private 
sector residential appraisal issues and problems than issues 
transpiring within the VA Home Loan program.

Interim Final Rule & Customary and Reasonable Fees

    The Dodd-Frank Act requires creditors and their agents to pay 
``customary and reasonable'' fees to appraisers to reflect what an 
appraiser typically would earn for an assignment absent the involvement 
of an appraisal management company. Under the Act, evidence for such 
fees may be established by objective third-party information, such as 
government agency fee schedules, academic studies and independent 
private sector surveys.
    Rules that have been promulgated by the Federal Reserve (Interim 
Final Rule) and the Consumer Financial Protection Bureau (Final Rule) 
are not consistent with the plain language and intent of the Dodd-Frank 
Act \2\. Two presumptions of compliance are provided by the Federal 
Reserve and accepted by the CFPB that are internally inconsistent. One 
presumption requires independent studies or fee schedules that align 
with retail appraisal fees direct from the appraiser, while the other 
accepts internally-generated results that include what amounts to 
wholesale fees involving third parties.
---------------------------------------------------------------------------
    \2\ The Appraisal Institute's comment letter on the issue of 
customary and reasonable fees is available at http://
www.appraisalinstitute.org/file.aspx?Document=AI-ASFMRA-ASA-NAIFA--on--
IFR-Final.pdf
---------------------------------------------------------------------------
    The CFPB adopted a final rule earlier this year, leaving these 
presumptions unchanged. We continue to have concerns with the internal 
inconsistencies found in the two presumptions for compliance.
    The problem of customary and reasonable fees paid to appraisers is 
masked by consumer disclosure rules that allow the co-mingling of the 
fee paid to the appraiser and separate appraisal management company 
fees on the Appraisal line of the Consumer Disclosure form issued by 
the CFPB. This co-mingling confuses consumers into believing that they 
are paying appraisers more for services today, when, in fact, 
compensation levels may have declined significantly because appraisal 
management companies are taking a sizable portion of the total cost 
paid by the consumer.
    The Dodd Frank Act authorized the CFPB to require the disclosure of 
AMC fees separate from fees paid to appraisers. In developing the final 
TRID (TILA-RESPA Integrated Disclosure) rule, the CFPB conducted 
consumer testing of sample Closing Disclosure forms. This testing 
concluded that consumers were indifferent to the disclosure of AMC fees 
separate from appraisal fees. Consumers were not confused by a 
disclosed appraisal management company fee. Despite this, the CFPB 
opted to allow disclosure simply on a voluntary basis, but not to 
mandate it. Today, while some lenders break out the fees paid to AMCs 
separate from appraisal fees, most do not do so.
    As discussed below, the VA Fee Schedule essentially is the only 
government agency fee schedule that exists, and it is a strong measure 
of our concern and the inconsistencies between retail appraisal fees 
and those paid by some appraisal management companies. Changing the VA 
Fee Panel to the model employed by the private sector would result in 
stiff fee compression for VA appraisers and come at the expense of the 
strong appraisal independence components and expertise found in the 
current VA Fee Panel.

Loan Program Performance and Taxpayer Protection

    The VA Appraiser Fee Panel enjoys support from other objective 
observers. Recently, the American Enterprise Institute reviewed the VA 
appraisal program in comparison with the FHA operations and concluded 
that the VA processes and procedures provide more taxpayer protection 
and helped to produce lower defaults and loss severity. VA appraiser 
engagement helps to create a more positive environment for risk 
management and loan performance, among other things, the report 
concluded \3\.
---------------------------------------------------------------------------
    \3\ Pinto, E. (2013). Alignment of Incentives - VA Best Practices. 
American Enterprise Institute. Available at http://www.aei.org/wp-
content/uploads/2013/08/-pinto-alignment-of-incentives-va-best-
practices-082613--110818557056.pdf

---------------------------------------------------------------------------
Part 2. VA Appraisal Issues

VA Fee Schedules

    Generally speaking, the VA fee schedules are much more indicative 
of customary and reasonable than what is found in the private sector 
today. This largely is because the schedule is developed by surveying 
local market participants. As such, the schedule has become an 
important measure for customary and reasonable fees in the marketplace. 
In recent years, several states have recognized the VA Fee Schedule in 
assessing customary and reasonable fees.
    Below is the current Fee Schedule from the Phoenix VA Regional Loan 
Center for Arizona, California, New Mexico and Nevada, effective 
December 1, 2016:

Fees and Timeliness

    Effective for all VA appraisals, repair inspections and compliance 
inspections, please see the following table:

 
----------------------------------------------------------------------------------------------------------------
   Fannie Mae    1004 1004C 1073     2055 1075      1025 Multi-      Appraisal     1004d Repair      Appraiser
     Forms        Single Family*     Exterior         Family*       Updates All     Inspection      Timeliness
----------------------------------------------------------------------------------------------------------------
     Arizona,          $600.00         $450.00         $750.00         $200.00            $100      7 Business
              California,                                                                                 Days
   New Mexico,
        Nevada
----------------------------------------------------------------------------------------------------------------
*If the appraisal is completed for liquidation appraisal purposes, appraisers are authorized to charge an
  additional $50.


    In contrast, we contacted an AI professional in the California 
market and asked what was being offered by several national appraisal 
management companies that bundle the fee paid to the appraiser and the 
appraisal management company fees, as opposed to a ``cost-plus'' model 
that would charge the management fee on top of the appraiser service 
fee:

National Appraisal Management Company A:

      $350 for 1004 (Fannie Mae form) Single Family

National Appraisal Management Company B:

      $255 for 1004 (Fannie Mae form) Single Family

National Appraisal Management Company C:

      $255 for 1004 (Fannie Mae form) Single Family

    This professional indicated several banks that engage appraisers 
directly (as opposed to using appraisal management companies as third 
parties) in this particular market are paying appraisers $450, on 
average, for the same service request.

Timeliness

    The VA also maintains timeliness requirements of seven (7) business 
days for the VA Fee Panel, as you can see in the VA fee schedule cited 
above. We are aware of complaints about appraisal timeliness in some 
markets. This was particularly acute last year where loan volumes were 
strong in many markets. We do not believe this was a national problem, 
but it was experienced in many markets around the country, particularly 
in rural areas. Here, turnaround times for appraisals may have exceeded 
more than 30 days in some areas.
    We understand that many of these markets have normalized since 
December when interest rates increased. As such, appraisal volumes have 
declined and we expect that turnaround times have declined in these 
markets, as well. Further, we do not believe that the experiences in 
some markets last year were unique to the VA Fee Panel, as similar 
concerns were expressed in the conventional market in many of these 
areas.

Underwriting and Review

    VA lenders are using an automated appraisal review program that 
attempts to warn them of items to check in the report narrative. 
However, lenders often take it as a cue to call the appraiser and ask 
for more of the same language in a different place in a revised report. 
Further, lenders frequently confuse the VA requirements with those of 
FHA or Fannie Mae/Freddie Mac. This is particularly bad whenever a new 
VA lender comes online.

    As one VA Panel Appraiser/AI Member stated recently:

    On the positive, it is good that VA says the appraiser can use 
their three best comps (we are often lucky to have one good one in 
rural areas, while the other two are the best of a sorry lot), and that 
if a lender wants more, they have to pay extra. VA does a pretty good 
job of backing up the appraiser to the lender, and, as you know, the 
assignments are on rotation. As one who is very well qualified, I 
dislike working at the same fee as a newbie, but at least the 
assignments are fair.
    Personally speaking, as one who has been a VA Panel appraiser in 
the not-too-distant past, I believe in the VA appraisal program and 
truly believe it to be of great benefit to Veterans. The personnel I 
have encountered at the VA, during my time on the panel, were 
extraordinarily dedicated to Veterans. I either personally witnessed or 
heard stories of Veterans being treated with respect and assistance in 
times of challenge that have protected and benefited them. In that 
vein, the VA appraiser panel is integral to protecting Veterans, the VA 
and the public interest. Maintaining a roster of objective, qualified 
and professional appraisers is the way that effective real estate 
collateral risk mitigation is accomplished.
    Dismantling or significantly changing the VA Roster platform that 
provides for a critical level of independence would be a mistake. 
Furthermore, seeking alternative valuation products, such as desktop 
appraisals, also would be a mistake in terms of collateral risk 
mitigation. I will acknowledge that from time-to-time we experience 
high volume demand for appraisals and delivery times are elevated to 
less-than-optimum levels. Nevertheless, although these intervals can be 
somewhat protracted, they are temporary. Dismantling a working system 
is not the answer. The Appraisal Institute would like to offer some 
suggestions to enhance an already-workable and successful system.

Lender Payment Concerns

    Our members report that some lenders fail to pay for services 
rendered or push payment off for months - even years. Some appraisers 
write off a certain number of fees every month, knowing that lenders 
will fail to pay. What is even more frustrating for VA Fee Appraisers 
is being forced to complete assignments for the same lender that is in 
arrears with the appraiser. This serves as a major disincentive for 
some appraisers who otherwise would be interested in applying to be on 
the VA Fee Panel.

``Tidewater Initiative''

    The VA maintains a process that requires the appraiser to contact 
the agent or seller when the appraisal does not support the sales 
price. This provides the agency/seller with the opportunity to provide 
more information to the appraiser for consideration.
    We had our doubts about the Tidewater Initiative when it first was 
released, but according to our members who participate in the program, 
it has worked relatively well. Many appraisers proactively request 
information from the agent and seller on the front end to avoid 
complication after the appraisal is complete. We now are supportive of 
the program and believe that it could be replicated by other agencies 
and the private sector.
    In our opinion, the whole system would be improved if we could 
adopt the VA appraisal model of a limited panel of appraisers who 
routinely are reviewed by someone without an agenda, and which uses 
fair rotation and establishes some sort of fee range to reward 
experience and qualification.

VA Fee Panel Recruitment

    The VA recruits appraisers on an ongoing basis to the Fee Panel, 
and the AI even has assisted the agency in marketing the opportunity to 
the appraisal community. But some of our members report an uneven 
response from the VA regarding their applications. While those 
appraisers who currently are on the VA Fee Panel generally give it high 
marks, those who are not on the Fee Panel and are interested in doing 
so have expressed some frustration about the length of approval time or 
their outright rejection.
    VA officials report that it actively recruits existing licensed and 
certified appraisers to the Fee Panel, which currently stands at 
roughly 5,700 appraisers nationally. The agency has apparently 
undertaken efforts to proactively contact licensed and certified 
appraisers encouraging application to the Fee Panel. However, if 
appraisers are choosing not to apply or deferring work in favor of the 
conventional appraisal assignments, that would indicate the agency must 
do more to remain attractive to appraisers in the marketplace, such as 
increasing fees or reducing administrative burdens. We understand that 
the recent fee increases in states such as Oregon have produced 
positive results, and we would encourage similar actions elsewhere.

Part 3. Recommendations

    As Congress reviews appraisal issues, we would like to suggest 
several reforms to help improve the VA Home Loan program and the VA 
Appraiser Fee Panel, as follows:

    1.Avoid the pitfalls found in the private sector and other 
government agencies by maintaining an independent Fee Panel of VA 
appraisers. By comparison, we do not believe that a move to a lender 
select program, such as those found in the conventional or FHA mortgage 
markets, would improve timeliness, nor would it be in the best 
interests of veterans.

    2.Develop a ``stand-by'' list of approved VA appraisers to serve as 
a ``buffer'' against surges in loan demand. This would help avoid what 
may have been observed in some markets last year.

    3.Enhance appraiser recruitment efforts by targeting appraisers who 
have completed peer review and/or demonstration appraisal requirements 
for professional appraisal designations from nationally recognized 
professional appraisal organizations. The VA Fee Panel would benefit 
from greater involvement by highly-qualified appraisers.

    4.The VA should make several improvements to VA lender processes, 
including:

    a.Improve timeliness by encouraging lenders to provide appraisers 
with better information, such as the legal description, on the front 
end of the appraisal assignment. We often see the form VA 26-1805-1 
form incompletely filled out. In areas where there are ingress-egress 
easements, this can eat up a tremendous amount of time trying to obtain 
property-access details, which is a critical mortgage security and 
collateral value component.

    b.Improve the attractiveness of the VA Fee Panel by addressing 
prompt payment concerns. Authorize VA Appraisers to reject appraisal 
assignments when lenders are in arrears more than 60 days.

    Thank you for the opportunity to testify on this important issue. I 
would be happy to answers any questions.

                                 
                 Prepared Statement of Russell Johnson
    Chairman Arrington, Ranking Member O'Rourke, and members of this 
Subcommittee: on behalf of Clear Capital, I am pleased to appear today 
to talk about how new ideas of efficient appraisals can help veterans 
realize homeownership by utilizing the Home Loan program from the 
United States Department of Veterans Affairs.
    I am a veteran of the US military, having served more than 4 years 
in the United States Navy as a Deep Sea Diver. My duty stations 
include: SIMA Dive Locker Guantanamo Bay Cuba, USS Acadia (AD-42) Dive 
Team, Mobile Diving and Salvage Unit Det. 1, Explosive Ordnance 
Disposal Group Coronado.
    I have purchased homes but have not used my Department of Veterans 
Affairs housing benefit. In my experience, I have personally dealt with 
real estate brokers and lenders who portray the VA program as too 
complex, expensive, and time consuming.
    Thus, I realize that I was steered away from using my benefit and 
toward conventional mortgages. I also know that such actions are not 
practiced by most real estate brokers or lenders and are certainly not 
the policy espoused by state, local or national associations such as 
the National Association of Realtors (NAR) or the various lending 
associations. Nonetheless, this was my personal experience in the 
lending process. I believe that veterans should enjoy using the VA's 
mortgage guaranty benefit provided to them for their service. They have 
truly earned this benefit, and our country is better served when 
veterans are appreciated and when they become homeowners.
    The VA home loan benefit should be perceived by veterans, and the 
broader market, as an efficient, expeditious, and positive experience. 
I am here today in a capacity where I believe I can help my fellow 
veterans have an improved home buying experience and increase usage of 
this benefit and the program. The VA Home Loan benefit is an 
extraordinary benefit that, not only assists with the financial aspects 
of purchasing a home, but also provides a service to help veterans with 
one of the biggest financial decisions of their lives. This is 
particularly important because, similar to many Americans, most 
veterans have very little experience with purchasing a home and working 
with the mortgage lending community.
    I work for an organization called Clear Capital. Clear Capital's 
focus is applying new technologies to solve real estate valuation 
problems with the highest degree of integrity, quality, and customer 
service to the mortgage lending, investing, and housing industry. My 
experience with Clear Capital has allowed me to observe a way veterans 
could be served in a more efficient manner, and improve the experience 
of using the Veterans Home Loan Guaranty Benefit. I would like to 
explore these methods of using technology and new approaches to solve 
real problems affecting our veterans today.
    Over the past few years and across all home purchase products - VA 
and non-VA loans - appraisal wait times and costs have risen 
significantly in some pockets of the country. In large part, this is a 
result of a shortage of appraisers in some markets. The shortage of 
appraisers is slightly exaggerated with the VA program because, as I 
understand it, the appraisal is more specialized, using separately-
approved appraisers, to ensure greater protection of the veteran 
homebuyer. Unfortunately, during some peak lending periods, the result 
in some areas of the country has been that veterans must wait weeks for 
an appraisal that can cost hundreds of dollars more to obtain. Since 
the mortgage applicant pays directly for an appraisal the extra cost is 
borne by the veteran mortgage applicants. (Although the cost of an 
appraisal in the non-VA market is also borne by the borrower, such 
costs are somewhat less.)
    In addition, the perception of lengthy cycle times for appraisals 
can result in a veteran being steered away from this valuable earned 
benefit in favor of a quicker process through a conventional or FHA 
program. While the VA has lead an effort with other stakeholders to 
make the VA home mortgage more accepted by market participants, 
including real estate agents and lenders, some steering likely occurs 
due to the different and sometimes lengthier appraisal times.
    In fact, in a recent survey by the National Association of 
Realtors, VA loans were identified as the appraisal assignments that 
responding appraisers were most likely not to perform.
    I have been asked to provide Congress with information on 
alternative appraisal options in addition to the traditional appraisal 
process used today. In doing so, I'd like to pose two key questions to 
evaluate any such new ideas:
    First, do any new potential appraisal approaches save a veteran 
money, and speed the process of obtaining for the veteran this valuable 
mortgage guaranty benefit?
    Second, do these approaches provide the necessary Quality Control 
over time to protect both the veteran and the soundness of the VA 
Mortgage Guaranty program?
    If yes to the first two questions, what would a proper timeframe 
and implementation process look like?
    The appraisal remains an integral component of the mortgage finance 
industry. In the 1980's the United States experienced a major financial 
crisis in the Savings and Loan industry that was fueled in part by 
faulty and fraudulent appraisals. Congress passed the Financial 
Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) to 
address the crisis and implement industry reforms. Title XI of FIRREA 
created the appraiser regulatory system we have in place today. 
Subsequently the standards for independence of the appraiser were 
enhanced by the Home Valuation Code of Conduct (HVCC). And finally, 
after the 2008 housing crisis, the appraisal independence system was 
codified in Dodd-Frank. The latter two developments were to ensure and 
to increase the independence of appraisers from interested parties in a 
real estate transaction.
    The appraiser regulatory structure implemented by the passage of 
the Dodd-Frank Act in 2010 greatly expanded the federal government's 
role in appraisal oversight with new requirements for appraisals, 
appraisers, and appraisal management companies. Regulatory authority 
was transferred to the newly formed Consumer Financial Protection 
Bureau to further support protections to borrowers designed to 
eliminate predatory lending practices.
    The real estate valuation industry is evolving in a number of ways 
that we believe can aid the efficiency of appraisers in the important 
role they play in the mortgage lending process. New data and analytics 
are being developed to assist the appraiser in their consideration of a 
property, its local market and ultimately its value. Efforts are 
underway to attract more participants into the appraisal profession, 
and to reinvigorate the use of trainees in support of an efficient and 
reliable appraisal process.
    With the advent of new products, services and analytics, Clear 
Capital suggests that the VA consider the use of a desktop appraisal, 
based on the physical inspection of a subject property by an industry 
professional, where appropriate as an option by the Department of 
Veterans Affairs. The product is a hybrid of traditional appraisal 
process and methods and leverages a qualified, arms-length, real estate 
professional, such as a real estate broker or agent, performing a 
visual inspection of the subject property and providing other market 
insight and analytics.
    The inspection and other market data are provided to a 
geographically-competent, licensed appraiser for analysis, along with 
supporting data such as real-time MLS information, public records, and 
local market data and analytics. The appraiser analyzes all the 
information and data and concludes the final value of the property.
    Desktop appraisals continue to evolve in conformity with both the 
Uniform Standards of Professional Appraisal Practice (USPAP) as well as 
the evaluation requirements in the Interagency Appraisal and Evaluation 
Guidelines.
    It is important to note that the desktop appraisal is not new to 
the marketplace. It is currently used in the home equity space, the 
servicing space, and within financial markets with great success. 
Applying these methods and techniques that are currently already used 
by many market participants will allow our valued veterans to improve 
their experience with the VA program.
    Now let's return to our key questions. First, how does this help 
the veteran?
    The desktop appraisal process allows a single appraiser to complete 
several more appraisals per day than is possible with the traditional 
approach. In some parts of the country, an appraiser spends 30% of his 
or her time driving to and from a property. This is not a productive 
use of time for these skilled and knowledgeable professionals. Neither 
should an appraiser necessarily need to spend valuable time taking room 
measurements. Rather, wherever possible the appraiser should be 
applying their expertise and knowledge by performing the analysis of 
data and information about a property, in order to arrive at a solid 
property valuation. He or she should not need to be an Uber-driver, or 
handle a tape measure, or be a photographer, for hours on end for every 
valuation assignment. This only drives up the cost of an appraisal-to 
the veteran, remember-and slows the decision-making process.
    Today's technology makes it possible for detailed property 
measurements, characteristics, market comparables and other detailed 
information to be delivered to the appraisers within minutes of 
collection. This wasn't possible 40 years ago when the current model 
was created. Today we can very quickly provide the appraisers with the 
information they need to perform accurate and timely appraisals of the 
highest quality.
    Second, does this option provide the necessary Quality Control to 
protect both the veteran and the integrity and soundness of the VA 
program? Yes.
    We believe that high quality desktop valuation reports can be 
generated in a broad range of scenarios by leveraging increased access 
to data and analytics in the real estate industry and focusing an 
appraiser's professional expertise on efficiently evaluating the 
credible information provided for analysis. Appraisers completing these 
reports would remain subject to the same licensing and certification 
requirements, as well as the standards provided under USPAP. Likewise, 
the process could be rolled out in agreed upon use cases for completion 
by appraisers on the VA panel, and subject to appropriate quality 
assurance reviews.
    In many situations, value thresholds and other complexity factors 
will require a traditional appraisal; in addition, in some parts of the 
country, veterans do not experience price squeezes or extended wait 
times. However, where lead times are long, costs are high, and 
resources are increasingly scarce we must create a more efficient 
model. Providing a solution that allows an appraiser to apply their 
expertise in an environment of highest quality and reduced time to 
complete each appraisal will reduce costs to the veteran, will reduce 
the time to close, and greatly improve the veteran's experience when 
using this benefit, thus increasing veteran adoption of this good 
program and increasing veteran home ownership.
    To conclude, the VA home guarantee program is a gem. It has 
rewarded our veterans and active-duty personnel with an incredible, and 
unique, earned benefit. It has allowed them to improve their economic 
opportunity by accruing home ownership equity. This earned benefit 
program, thanks to the VA staff and lenders, performed exceptionally 
well during the last downturn, avoiding the problems other mortgage 
programs had with faulty underwriting and inadequate servicing 
processes. It's a program of which we should all be proud. At the same 
time, we must work together to ensure that going forward, this program 
continues to serve the veterans and active-duty servicemembers 
efficiently, cost-effectively, and carefully. I want to thank the 
Economic Opportunity Subcommittee for having me in today, and thank the 
VA staff for their dedication.

                                 
                       Statements For The Record

                         HONORABLE GREG WALDEN
    December 15, 2016

    Ms. Melanie Renaye Murphy
    Director
    U.S. Department of Veterans Affairs
    Denver Regional Office
    155 Van Gordon Street
    Lakewood , CO 80228

    I write to express my concern about the difficulty veterans in my d 
istrict are having in getting an appraiser assigned to thei r VA-
guaranteed home loan.

    Over the past several weeks, Ihave heard from more than a dozen 
different veterans throughout my district who have experienced 
significant delays in receiv ing their VA- guaranteed home loan due to 
the backlog in appraisals for these loans. I have also heard from 
several realtors and loan officers who find that in their efforts to 
secure homes for veterans and their families, receiving a VA-approved 
appraisal is the most challenging and time- consuming requirement. Some 
of these veterans and their advocates have waited up to nine weeks to 
even have an appraiser assigned to their case, making them far less 
competitive as prospective buyers in the housing market.

    These lengthy delays present a hardship both financially and 
logistically by creating unce11ainty of housing for veterans. One 
veteran in Deschutes County, Oregon, for example, recently asked me for 
help when he realized that he and his family would soon be homeless if 
their current home was sold and they had not secured a new place to 
live because they were waiting for an appraisal. Another veteran in 
Gilliam County, Oregon, tried to refinance his home through the VA, but 
waited over seven weeks to have his case assigned to an appraiser and 
received no response or status update from the VA despite repeated 
attempts to contact them. Another veteran waited so long for his 
appraisal that his interest rate lock expired and he lost the home due 
to interest rate increases.

    These cases speak to the larger issue that is plaguing veteran s in 
both rural and more urban areas in my district. My office has been in 
contact with staff members of the Regional Loan Center in Denver, CO, 
and I understand that everyone is aware of the larger trends leading to 
a decreasing appraiser population across the country. With those 
impending challenges in mind, l ask that you please report on what 
strategies, if any, the VA is utilizing to account for this overall 
shortage in the appraiser market and reduce the average wait times for 
veterans seeking an appraisal for a VA-backed home loan. I also fear 
that this shortage of appraisers wilJ soon have an effect on other 
government agencies and on the market at large, so please include any 
discussions you have had with state or national realtors associations, 
appraiser certification and licensing boards,and relevant federal 
regulators such as the Appraisal Subcommittee (ASC), or the three 
independent appraisal boards that ASC oversees. Thank you for your 
attention to this matter.

    Best regards,

    Greg Walden
    U.S. Representative
    Oregon's Second District

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