[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]





                        WHAT'S YOUR HOME WORTH? 
                            A REVIEW OF THE 
                           APPRAISAL INDUSTRY 
=======================================================================

                                HEARING

                               BEFORE THE

                        SUBCOMMITTEE ON HOUSING,
                         COMMUNITY DEVELOPMENT,
                             AND INSURANCE

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 20, 2019

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 116-34
                           
                           
 
 
             [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
                           
                           
                           
                               __________

                      U.S. GOVERNMENT PUBLISHING OFFICE
                      
39-495 pdf                 WASHINGTON : 2020 
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 MAXINE WATERS, California, Chairwoman

CAROLYN B. MALONEY, New York         PATRICK McHENRY, North Carolina, 
NYDIA M. VELAZQUEZ, New York             Ranking Member
BRAD SHERMAN, California             PETER T. KING, New York
GREGORY W. MEEKS, New York           FRANK D. LUCAS, Oklahoma
WM. LACY CLAY, Missouri              BILL POSEY, Florida
DAVID SCOTT, Georgia                 BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas                      BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri            SEAN P. DUFFY, Wisconsin
ED PERLMUTTER, Colorado              STEVE STIVERS, Ohio
JIM A. HIMES, Connecticut            ANN WAGNER, Missouri
BILL FOSTER, Illinois                ANDY BARR, Kentucky
JOYCE BEATTY, Ohio                   SCOTT TIPTON, Colorado
DENNY HECK, Washington               ROGER WILLIAMS, Texas
JUAN VARGAS, California              FRENCH HILL, Arkansas
JOSH GOTTHEIMER, New Jersey          TOM EMMER, Minnesota
VICENTE GONZALEZ, Texas              LEE M. ZELDIN, New York
AL LAWSON, Florida                   BARRY LOUDERMILK, Georgia
MICHAEL SAN NICOLAS, Guam            ALEXANDER X. MOONEY, West Virginia
RASHIDA TLAIB, Michigan              WARREN DAVIDSON, Ohio
KATIE PORTER, California             TED BUDD, North Carolina
CINDY AXNE, Iowa                     DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois                TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts       ANTHONY GONZALEZ, Ohio
BEN McADAMS, Utah                    JOHN ROSE, Tennessee
ALEXANDRIA OCASIO-CORTEZ, New York   BRYAN STEIL, Wisconsin
JENNIFER WEXTON, Virginia            LANCE GOODEN, Texas
STEPHEN F. LYNCH, Massachusetts      DENVER RIGGLEMAN, Virginia
TULSI GABBARD, Hawaii
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota

                   Charla Ouertatani, Staff Director
                  Subcommittee on Housing, Community 
                       Development, and Insurance

                   WM. LACY CLAY, Missouri, Chairman

NYDIA M. VELAZQUEZ, New York         SEAN P. DUFFY, Wisconsin, Ranking 
EMANUEL CLEAVER, Missouri                Member
BRAD SHERMAN, California             BLAINE LUETKEMEYER, Missouri
JOYCE BEATTY, Ohio                   BILL HUIZENGA, Michigan
AL GREEN, Texas                      SCOTT TIPTON, Colorado
VICENTE GONZALEZ, Texas              LEE M. ZELDIN, New York
CAROLYN B. MALONEY, New York         DAVID KUSTOFF, Tennessee
DENNY HECK, Washington               ANTHONY GONZALEZ, Ohio
JUAN VARGAS, California              JOHN ROSE, Tennessee
AL LAWSON, Florida                   BRYAN STEIL, Wisconsin
RASHIDA TLAIB, Michigan              LANCE GOODEN, Texas, Vice Ranking 
CINDY AXNE, Iowa                         Member 
















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    June 20, 2019................................................     1
Appendix:
    June 20, 2019................................................    31

                               WITNESSES
                        Thursday, June 20, 2019

Bunton, David S. President, The Appraisal Foundation.............     4
Dickstein, Jeff, Chief Compliance Officer, Pro Teck Valuation 
  Services, on behalf of the Real Estate Valuation Advocacy 
  Association....................................................     7
Perry, Andre M., David M. Rubenstein Fellow, Metropolitan Policy 
  Program, the Brookings Institution.............................     9
Trice, Joan N., Founder, Collateral Risk Network.................    10
Wagner, Stephen S., 2019 president, the Appraisal Institute......     6

                                APPENDIX

Prepared statements:
    Bunton, David S..............................................    32
    Dickstein, Jeff..............................................    56
    Perry, Andre M...............................................    68
    Trice, Joan N................................................    80
    Wagner, Stephen S............................................    98

 
                        WHAT'S YOUR HOME WORTH? 
                            A REVIEW OF THE 
                           APPRAISAL INDUSTRY 

                              ----------                              


                        Thursday, June 20, 2019

             U.S. House of Representatives,
                           Subcommittee on Housing,
                             Community Development,
                                     and Insurance,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2:08 p.m., in 
room 2128, Rayburn House Office Building, Hon. Wm. Lacy Clay 
[chairman of the subcommittee] presiding.
    Members present: Representatives Clay, Sherman, Beatty, 
Green, Maloney, Vargas, Tlaib, Axne; Duffy, Luetkemeyer, 
Huizenga, Tipton, Zeldin, Rose, Steil, and Gooden.
    Chairman Clay. The Subcommittee on Housing, Community 
Development, and Insurance,will come to order.
    Without objection, the Chair is authorized to declare a 
recess of the subcommittee at any time.
    Also, without objection, members of the full Financial 
Services Committee who are not members of the subcommittee are 
authorized to participate in today's hearing.
    Today's hearing is entitled, ``What's Your Home Worth? A 
Review of the Appraisal Industry.''
    Our last Housing Subcommittee hearing examined the state of 
minority home ownership and provided us with additional data, 
research, and background on the impact of home ownership on the 
racial wealth gap. This hearing is a follow-up as we explore 
the racial wealth gap in the context of inaccurate appraisals.
    I stress that we look forward to working on structured 
policy solutions because we are, at our core, an optimistic 
nation. We fix problems. And I invite all of my colleagues to 
come together and work to find solutions to make the appraisal 
process more equitable to every American community.
    While this hearing will touch on a number of critical 
topics affecting the industry, such as the de minimis 
threshold, appraiser independence, and the role of technology 
in appraisals, we would be missing the mark if the disparity in 
appraisals was not part of today's discussion.
    For many Americans, the purchase of a home is a gateway to 
financial security and wealth, but if your path to growth is 
blocked by an inaccurate or skewed appraisal because you are 
living in the wrong ZIP Code, you are stifled. And in my 
district, if you are a black person in north St. Louis, north 
of Delmar Boulevard, you may have more reasons to worry. The 
Greenlining Project noted in their 2018 St. Louis metro report 
that the current framework gives the appraiser tremendous 
discretion. Appraisers decide the significant neighborhood 
parameters and physical boundaries that, although may appear 
racially neutral, can at times serve as a racial or class 
boundary.
    The undervaluation of homes in minority communities 
nationwide creates an appraisal gap, which can effectively 
limit mortgage lending in specific geographic areas. In a 
typical lending scenario, the appraisal is lower than the real 
value of the home because there are additional costs to bring 
the home up to code in distressed and disinvested 
neighborhoods.
    In a neighborhood in my district called the Greater Ville 
Neighborhood, for example, say you seek to purchase a home for, 
say, $35,000, and provide an additional $50,000 for 
rehabilitation of the home. However, the home only appraises 
for $70,000, far less than the $85,000 needed to purchase and 
renovate. Because of this appraisal gap, the loan is denied. 
Consequently, homes in impacted communities stay vacant and 
fall further into disrepair. Families are unable to become 
homeowners. It becomes an unending cycle and the racial wealth 
gap is further exacerbated.
    I look forward to hearing from the witnesses today about 
solutions. All hardworking Americans deserve the opportunity to 
achieve the American Dream of home ownership.
    And at this point, I will recognize the ranking member of 
the subcommittee, my colleague and friend from Wisconsin, Mr. 
Duffy.
    Mr. Duffy. Thank you, Mr. Chairman.
    And I want to thank you for holding this hearing today. I 
want to also thank our panel for being here as well. I'm 
looking forward to a robust discussion on some of the issues 
you all see in the industry, and solutions that we can take as 
a Congress to remedy those problems that you discuss today.
    I want to also get your input on a bill that Mr. Sherman 
has introduced, his appraisal certification bill, which I have 
been working with him on as well. A common concern I hear from 
the appraisal industry is the lack of appraisers nationwide. It 
is definitely a problem in rural areas, which gets exacerbated 
by the distance that the already limited number of appraisers 
have to cover by the drive time to go from community to 
community in rural America.
    I look forward to working with Mr. Sherman on this bill on 
the standardization of the qualifications requirements for 
appraisers to evaluate loans backed by the FHA, VA, USDA, 
Fannie Mae and Freddie Mac. I have a few suggested changes, but 
hopefully this will open up some of the licensed appraisers who 
currently cannot appraise properties related to these programs.
    I have had the opportunity to sit down with Mr. Clay, and 
we have discussed the issue of appraisals one-on-one. And 
miraculously, we are not too far apart, which would be shocking 
to some people as they evaluate the Congress these days.
    I think we all learned in the 2008 crisis that there were 
overvaluations and there were undervaluations in some 
neighborhoods, and I don't think we want to go back to a cycle 
where we are not accurately appraising homes and their values.
    I want to mention a recent legislative change that I think 
is helping people who live in rural areas, such as my 
constituents in central and northern Wisconsin, which I believe 
was in Senate bill 2155, that allows for rural properties worth 
less than $400,000 to forego the appraisal requirement. I also 
want to stress that you can still get an appraisal if you think 
the home is worth a different value; it is just not a 
requirement under the law. Now, I know that has created some 
concern in regard to how that has been interpreted and an 
expansion of that S.2155 by the regulators. Maybe we can 
discuss that further today.
    Lastly, I want to bring up technology and how it can help 
reduce cost and speed the time it takes to buy a home, 
particularly utomated valuation models or computerized models 
that help determine worth of a property using this AVM 
technology. I am not saying this is for everyone, but they are 
being utilized by many of the industries to help expedite the 
closing process for those who may not have access to 
appraisals, such as what we have in northern Wisconsin.
    The digitization and development of large troves of data 
holding millions of property records has also helped develop 
algorithms and streamline valuations. At the end of the day, we 
also have to make sure people still have the option to get a 
physical appraisal for any modifications or additions they have 
made to their home. In certain markets, physical appraisals may 
still not be necessary, but you have to look at each property 
and what it offers in regard to its value, whether it is the 
lot size, its amenities, its age, its roof, its new kitchen, 
maybe its invisible fence. I don't know if that adds any value 
to a place or not. But we do know that eyes on properties also 
provide probably the best insight into the value of that 
property.
    So, I am looking forward to your testimony today. I want to 
thank you all for being here and I am looking forward to your 
recommendations for what this subcommittee should do, moving 
forward.
    I yield back.
    Chairman Clay. I thank the ranking member.
    And I now recognize the gentleman from California, Mr. 
Sherman, for 1 minute for an opening statement.
    Mr. Sherman. Thank you. There is no more important day in 
the economic life of a family than the day they buy a home. 
Appraisers play an important role in that. I have a bill to 
change the rules a bit on FHA appraisals, to bring them more in 
line with those appraising for loans by Fannie Mae and Freddie 
Mac, and to deal with the backlog that we are experiencing.
    And I look forward to learning from our witnesses how the 
appraisal process can be speedier, whether it is an FHA, GSE, 
or otherwise outside governmental involvement loan, and how we 
can keep costs at a reasonable level.
    With that, I yield back.
    Chairman Clay. I thank the gentleman for yielding back.
    And today, we welcome the testimony of Mr. David Bunton, 
president of The Appraisal Foundation; Mr. Stephen Wagner, 2019 
president of the Appraisal Institute; Mr. Jeff Dickstein, chief 
compliance officer of Pro Teck Valuation Services, on behalf of 
the Real Estate Valuation Advocacy Association; Mr. Andre 
Perry, the David M. Rubenstein Fellow at the Metropolitan 
Policy Program, housed at the Brookings Institution; and Ms. 
Joan Trice, founder of the Collateral Risk Network.
    Witnesses are reminded that your oral testimony will be 
limited to 5 minutes.
    And, without objection, your written statements will be 
made a part of the record.
    We will start with Mr. Bunton.
    You are now recognized for 5 minutes to give an oral 
presentation of your testimony. You may proceed.

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

    Mr. Bunton. Thank you, Mr. Chairman, Ranking Member Duffy, 
and members of the subcommittee. The Appraisal Foundation 
greatly appreciates the opportunity to appear before you today 
to offer our perspective on the state of the real estate 
appraisal profession.
    By way of background, I have served as the senior staff 
member of the Foundation for the past 29 years and prior to 
that, I had the privilege of serving as a senior congressional 
staff member for a dozen years.
    Let me begin with a few words about who we are and what 
makes us different. We are a nonprofit organization founded 32 
years ago before the enactment of the Financial Institutions 
Reform Recovery, and Enforcement Act of 1989 (FIRREA). We are 
not an advocacy group. We are not a trade association. We don't 
have any individual members. Rather, we are an umbrella 
organization composed of about 100 organizations and government 
agencies with an interest in valuation. We were created to 
foster excellence, unity, and trust in appraising. We are the 
private sector expertise in the real property appraiser 
regulatory system under Title XI of FIRREA. The Foundation does 
not have any regulatory authority, but we provide the tools for 
the regulatory community.
    Specifically, we set the minimum education and experience 
requirements one must meet in order to obtain a State 
credential. We are the authors of the national uniform 
appraiser exams that are used by all 55 States and Territories. 
And, lastly, we are the authors of the generally recognized 
standards of conduct known as the Uniform Standards of 
Professional Appraisal Practice that all State-licensed and 
certified appraisers must adhere to. In addition, we have been 
a resource to numerous Federal Government agencies and 
currently have a cooperative agreement with the U.S. Department 
of the Interior.
    Mr. Chairman, this hearing is of particular importance, and 
we applaud you for its timing. Thirty years ago, Congress 
passed Title XI of FIRREA, which created the appraiser 
regulatory system we have in place today. Unfortunately, that 
system is being significantly undermined by being circumvented. 
Let me explain why. Title XI contains a provision which allows 
the Federal financial institution regulatory agencies to exempt 
certain transactions from requiring an appraisal. As a 
baseline, in 1990, the financial institution regulators set 
that threshold at $50,000, with the exception of the Federal 
Reserve, which set it at $100,000.
    Now, fast forward to today. According to the U.S. Consumer 
Price Index, that $50,000 threshold in 1990 would be about 
$99,500 today, and the $100,000 threshold would be about 
$199,000. But the current proposal by the financial institution 
regulators is to increase that threshold to $400,000.
    The National Association of REALTORS reports that in April, 
the median price for an existing home was $267,300. But how can 
the baseline exemption threshold be 66 percent above the median 
sales price? Let's take a look at the enabling legislation, 
Title XI of FIRREA. Title XI contains 7,200 words. Ironically, 
the word ``evaluation'' appears one time, and that is in 
reference to a GAO study. Why is it only in there one time? 
That is because Congress viewed transactions below the 
threshold as exemptions to the process, not the common practice 
that it has become today.
    So, today, instead of using competent individuals who have 
been trained, tested, and who adhere to standards and are 
accountable to a public board, evaluations can be performed by 
individuals who are not appraisers, who don't need to follow 
performance or ethical standards of conduct, and are not held 
accountable to a public board. Another workaround being 
embraced is automatic valuation models. Unfortunately, there 
are no quality control standards for these products and how 
they work is shrouded in secrecy.
    What was put in place 30 years ago has been hollowed out, a 
shell of what the original congressional intent was. This could 
have serious ramifications for our Deposit Insurance Fund, the 
home buying public, and every U.S. taxpayer. As you know, 
borrowers are entitled to a copy of any valuation product 
ordered by a bank in conjunction with their loan. I think it is 
safe to say that most borrowers would be confused, not knowing 
the difference between a professionally performed appraisal and 
alternative higher risk valuation products.
    Mr. Chairman, we look forward to today's discussion on this 
and other important valuation issues that you have raised: 
appraiser independence; impact of technology on appraising; 
diversity in the profession; and performing appraisals without 
bias. The testimony we have submitted contains 10 specific 
recommendations regarding this issue.
    Again, The Appraisal Foundation appreciates the opportunity 
to share its perspective with you today, and we urge this 
subcommittee and all Members of Congress to continue to use The 
Foundation as a fair, impartial, and objective resource on all 
valuation-related issues.
    In closing, the title of this hearing begins with the 
phrase, ``How much is my home worth?'' We are simply requesting 
that the question be answered by a professionally trained 
appraiser. Thank you very much for the time.
    [The prepared statement of Mr. Bunton can be found on page 
32 of the appendix.]
    Chairman Clay. Thank you, Mr. Bunton, for your testimony.
    Mr. Wagner, you are now recognized for 5 minutes.

 STATEMENT OF STEPHEN S. WAGNER, 2019 PREIDENT, THE APPRAISAL 
                           INSTITUTE

    Mr. Wagner. Thank you. It is an honor to speak before the 
subcommittee today. My compliments to you for your timely 
consideration of real issues facing the appraisal profession 
and the impacts they have on consumers. And we are pleased with 
your direction, in terms of the FHA and registry fee bills 
currently under consideration. In addition, we applaud greater 
consumer transparency of fees associated with appraisal 
management.
    Since the Great Depression, real estate appraisal has been 
an integral piece of the housing finance system used to ensure 
safety and soundness and protect the consumer. Today, the 
appraisal profession faces disruption on multiple levels, 
impacting practitioners and compounding difficulties in 
attracting the next generation of appraisers.
    Altogether, the changes facing the profession are creating 
confusion and driving to undercut the critical role played by 
appraisers. Today's bank regulatory regime is promoting 
optionality to appraisal requirements, which is contrary to the 
original intent of FIRREA. These actions are sowing the seeds 
for future financial difficulties and that endangers consumers 
and taxpayers.
    Specifically, the bank regulators are reversing course from 
a recommendation to maintain the residential appraisal 
threshold level and disregarding a measure enacted by the last 
Congress, purely with regulatory relief in mind. Further, we 
are witnessing battles between credit union and bank 
regulators, perpetuating a race to the bottom on risk 
mitigation. This is outrageous and should be concerning to all 
taxpayers and consumers.
    2018 was the first year in more than a decade where we did 
not experience a bank failure. We have learned important 
lessons since the financial crisis, but measures taken for risk 
mitigation seem to be unraveling. Technology is being adopted 
and integrated by appraisers, but also is potentially 
disrupting fundamental practices within appraisal itself. The 
mortgage sector is utilizing waivers and hybrid approaches to 
speed up the loan-making and appraisal process.
    There are standard of care questions here that remain 
outstanding and unresolved. We understand appraisers may need 
to adapt to new or hybrid approaches. However, we caution 
against the use of hybrids becoming a standard or the norm. 
Machines or secondary labor forces cannot replace the trained 
eyes of appraisers when it comes to risks associated with the 
property or positive attributes that contribute to value. There 
is nothing like observing the subject property to an appraiser 
or a trainee associated with the appraiser. A picture may be 
worth a thousand words, but it is not all of the words.
    In addition, those inspecting properties for valuation 
purposes should have valuation training. If we are looking for 
ways to speed up the appraisal process, we suggest scrutinizing 
appraisal management companies, where we hear of delays related 
to both the ordering and review process. Lender and underwriter 
guidelines are also too often treated as rules. There needs to 
be more flexibility regarding the lender and underwriter 
guidelines to reduce second-guessing of appraisers. This will 
allow practitioners to wield their expertise in complex markets 
where sales data and activity may be limited or virtually 
nonexistent.
    We also need a common-sense approach to courting appraisal 
services, particularly in terms of today's TILA-RESPA 
Integrated Disclosure Rule (TRID) requirements. Appraisers are 
often asked to bid on assignments without complete property 
information, which is understandable. However, we should 
acknowledge that once the appraiser sees the property, the 
ultimate scope of work could easily change. This can affect 
timing and fee. Therefore, the lender needs flexibility not 
found in today's zero tolerance environment.
    Despite this, we see real opportunities ahead in addressing 
the concerns of the subcommittee and appraisers. We applaud the 
approach of the hearing today and the two bills before the 
subcommittee. We endorse full consumer transparency and 
separation of fees paid to appraisers and AMCs. Looking ahead, 
we urge this committee to explore other regulatory 
improvements, such as the establishment of a nationwide 
licensing system for appraisers to manage license applications, 
renewals, education records, and background checks, where 
required.
    We look forward to working with you, Federal and State 
regulators, The Appraisal Foundation, and others to accomplish 
these goals. Thank you again, and I look forward to answering 
any questions you may have.
    [The prepared statement of Mr. Wagner can be found on page 
98 of the appendix.]
    Chairman Clay. Thank you, Mr. Wagner.
    And, Mr. Dickstein, you are recognized for 5 minutes.

STATEMENT OF JEFF DICKSTEIN, CHIEF COMPLIANCE OFFICER, PRO TECK 
  VALUATION SERVICES, ON BEHALF OF THE REAL ESTATE VALUATION 
                      ADVOCACY ASSOCIATION

    Mr. Dickstein. Good afternoon, Chairman Clay, Ranking 
Member Duffy, and members of the subcommittee. Thank you for 
the privilege of sharing the perspective of appraisal 
management companies at the subcommittee hearing today.
    I have been a certified residential appraiser for 30 years, 
and I hold that credential in 17 different States. As chief 
compliance officer of Pro Teck Valuation Services, a national 
appraisal management company, I am responsible for the 
company's compliance with all Federal, State, and industry 
regulations.
    I am here today representing the Real Estate Valuation 
Advocacy Association (REVAA), a national trade organization 
representing appraisal management companies (AMCs) and lender 
valuation providers. We appreciate the opportunity to provide 
insight into the appraisal industry from the perspective of the 
appraisal management company.
    Passage of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act of 2010, nearly a decade ago, has generated 
profound changes in the appraisal industry, just as Congress 
intended. AMCs are third-party service providers engaged by 
banks and non-bank lenders to work with appraisers on 
residential appraisals in compliance with Federal appraisal 
independence requirements. AMCs have been in existence since 
the 1960s. We did see growth in popularity among smaller and 
midsized lenders following the 2010 financial crisis.
    Dodd-Frank also adopted several important consumer 
protections that REVAA supports, including but not limited to: 
maintain and promote appraisal independence; and to include 
AMCs within the scope of appraisal activities overseen by the 
Appraisal Subcommittee.
    Dodd-Frank also set up a framework to amend FIRREA for 
voluntary State regulations of appraisal management companies. 
That vision has largely been realized as we approach the August 
10, 2019, deadline. As of today, 49 States have implemented AMC 
registration programs, consistent with Federal law and rule. 
Massachusetts legislation is proceeding, and we do expect that 
to close. The only U.S. States and jurisdictions that are 
poised to opt out are the District of Columbia, Puerto Rico, 
Guam, the Virgin Islands, and the Northern Marianas Islands.
    This Appraisal Subcommittee has begun reviewing State AMC 
licensing programs for compliance. Additionally, the national 
AMC registry is operating and will be fully populated by June 
2020. We support legislation to grant the Appraisal 
Subcommittee discretion to amend AMC fees, if appropriate, to 
reduce some financial burdens. State regulators now provide 
oversight of appraisal management company activities in their 
States, along with the ability to investigate complaints and 
enforce violations.
    REVAA supports several collaborative industry initiatives 
to make a real difference in attracting and training the next 
generation of appraisers, including possible addition of 
trainee appraisers to the national registry, The Appraisal 
Foundation AQB new education and experience requirements for 
new appraisers entering the field, as well as the creation of 
PAREA.
    We also support industry efforts to recruit military 
veterans and other people to consider becoming appraisers, and 
REVAA strongly supports and would be willing to partner in any 
efforts to help sustain and diversify the appraisal profession. 
REVAA feels strongly that the future of appraisal needs to 
retain a human component, which is why we support the 
recruitment of new appraisers to help revitalize the profession 
for the next generation. The future isn't going to be solely 
reliant upon new technologies and data. Modernization won't 
replace appraisers. It will complement the appraiser's role in 
utilizing their experience, education, and local market 
knowledge to analyze the subject property, and to develop a 
credible opinion of value.
    Beyond appraisals, there are a wide range of valuation 
products that can be available to financial institutions, 
mortgage companies, investors, and others making real estate 
collateral decisions: AVMs; evaluations; and hybrid, or desktop 
appraisals. REVAA supports the use of these products for 
permitted purposes. We do recognize that these products are not 
appropriate for all collateral valuation decisions when a 
complete full appraisal by a credentialed appraiser is 
warranted.
    REVAA appreciates the opportunity to review the November 
2018 report by the Metropolitan Program at Brookings. The 
information has been shared with our members, and we continue 
to review and assess the conclusions contained in that report. 
AMCs do employ many controls to ensure that appraisers and AMCs 
do not engage in any discriminatory behavior.
    As we look forward to discussing the future of the 
industry, constructive dialogue and collaboration must 
continue. In that effort, REVAA fully respects and requests 
that Congress: pass H.R. 2852, the Homebuyer Assistance Act of 
2019, which would permit licensed real estate appraisers to 
perform FHA appraisals; pass legislation to permit States to 
report appraiser trainees to the Appraisal Subcommittee 
register; pass legislation to grant regulatory flexibility to 
the subcommittee regarding AMC fees; and support the 
registration oversight of AMCs in all States, Territories, and 
the District of Columbia.
    That is my statement. Thank you.
    [The prepared statement of Mr. Dickstein can be found on 
page 56 of the appendix.]
    Chairman Clay. Thank you so much, Mr. Dickstein.
    Mr. Perry, you are now recognized for 5 minutes.

   STATEMENT OF ANDRE M. PERRY, DAVID M. RUBENSTEIN FELLOW, 
     METROPOLITAN POLICY PROGRAM, THE BROOKINGS INSTITUTION

    Mr. Perry. Thank you, Chairman Clay, and Ranking Member 
Duffy. Home ownership lies at the heart of the American Dream, 
representing success, opportunity, and wealth, as it should. 
The equity that typically comes from owning a home may 
ultimately open a business, send a child to college, or start a 
family.
    The data I will present today will show that racism is at 
the present day extracting money from homeowners in black 
communities to a painful sum of $156 billion, keeping those who 
are striving for the American Dream from actually reaping its 
benefits.
    We have known for some time that racism limited black 
people's housing options in ways that lowered the values of 
their home. De jure and de facto segregation as well as 
racially restrictive housing covenants prohibited blacks from 
buying in certain areas throughout the 20th Century. Racially 
biased, federally backed redlining isolated people in 
neighborhoods that saw lower levels of investment than their 
white counterparts.
    My study that is presented in the written testimony shows 
that in the average U.S. metropolitan area, homes in 
neighborhoods where the share of the black population or the 
share of the population that is at least 50 percent black are 
valued at roughly half the price as homes in neighborhoods with 
little to no black residents.
    Many assume the 50 percent price difference isn't about 
racial bias. They attribute lower prices to inferior housing, 
underfunded schools, and crime. My colleagues--Jonathan 
Rothwell at Gallup, and David Harshbarger, also with the 
Brookings Institution--and I tested those assumptions. We 
examined homes of similar quality in analogous neighborhoods 
with the exception of racial demographics to make an apples-to-
apples comparison between black and white neighborhoods. What 
we found astounds. Differences in home and neighborhood quality 
do not fully explain price difference. After controlling for 
factors such as housing quality, education, crime, and other 
influences, homes in majority black neighborhoods are worth 23 
percent less. That amounts to $48,000 per home, on average. 
Nationally, that is a whopping $156 billion that homeowners 
lost because their homes were not priced at market rates.
    The study also found that areas that had high devaluation 
exhibited low economic mobility for its residents. Racial bias 
reflected in the pricing and price is robbing money that people 
can use to uplift communities. The valuation means 
municipalities with a significant percentage of African 
Americans lose tax revenue that could be put towards government 
services and infrastructure. Take St. Louis, for example. Black 
neighborhoods in this metro area see a 28-percent price 
difference, amounting to a $30,000 loss per home. In the 
Houston metro area, there is a 27-percent difference, resulting 
in a $53,000 loss. The Columbus, Ohio, metro area sees homes 
devalued by 21 percent, on average, or $23,000. And in the 
metro area with the largest majority black City in the nation, 
Detroit, Michigan, there is a 37-percent difference, resulting 
in a $28,000 in loss equity per home.
    Let's put that $156 billion in perspective: $156 billion 
could have started 4.4 million black-owned businesses, based on 
the average amount of funds blacks use to start a company; or 
it could have paid for 8.1 million 4-year degrees, based on the 
average tuition of public universities in 2016. These are real 
wealth-building opportunities that could have catapulted the 
black population to greater heights. Also, $156 billion could 
have replaced pipes in Flint, Michigan, 3,000 times over, and 
paid for nearly all of the damage caused by Hurricane Katrina. 
That $156 billion is more than double our country's efforts to 
combat the opioid crisis.
    In effect, bigotry imposes a black tax on residents of 
majority black neighborhoods while throttling opportunities for 
economic mobility. Let's be clear: Discrimination in home 
valuations impacts everyone. White and Latino homeowners in 
black neighborhoods are also losing equity as well. There are 
exceptions. Madison, Wisconsin, realizes a 70-percent added 
value in black neighborhoods, and there are others.
    Clearly, we still need better policies to give homes in 
black neighborhoods their proper value. Assessment tools are 
not neutral. People are not neutral. You will hear the argument 
that we need more people. People are part of the problem. But 
what is clear is that black people are not part of the problem. 
I often say there is nothing wrong with black people that 
ending racism can't solve. Whether we go to more automated 
systems or more people, we still must have a neutral arbiter 
that will look at these valuations critically.
    [The prepared statement of Mr. Perry can be found on page 
68 of the appendix.]
    Chairman Clay. Thank you, Mr. Perry, for your testimony.
    And Ms. Trice, you are recognized for 5 minutes.

  STATEMENT OF JOAN N. TRICE, FOUNDER, COLLATERAL RISK NETWORK

    Ms. Trice. Chairman Clay, Ranking Member Duffy, and members 
of the Subcommittee on Housing, Community Development, and 
Insurance, thank you for the opportunity to share my thoughts 
regarding, ``What is Your Home Worth? A Review of the Appraisal 
Industry.''
    I am going to deviate a little bit from my written 
testimony that I submitted and just sort of do a summation, if 
I may, of what you have heard so far. The appraisal industry is 
quite complex, as you have learned by now. It is an incredibly 
important part of the housing finance infrastructure. And after 
the last hearing that we had in 2016, I had the pleasure of 
getting together with the Executive Council of the Collateral 
Risk Network, which is a group of chief appraisers, risk 
managers, real estate appraisers, and a few regulators that we 
put together in a room and just sat down with a white board and 
said, ``Okay. What is our mission here? Let's take a look at a 
postmortem of the last crisis. How did we get here? Is our 
current regulatory structure actually meeting the needs of a 
modern 21st Century housing finance system?''
    And the guiding principle in all that was, let's put 
together a plan that works best for the health, safety, and 
welfare of real estate finance. So what we came out with on the 
other end was a plan to consolidate, if you will, all of the 
different entities and regulators that impact and touch the 
appraisal process today.
    And, hopefully, you all will remember me as the gal who 
created the spaghetti chart. If you are all a little confused 
as to how we operate, you should be. It is confusing to 
appraisers. It is confusing to regulators. It certainly has to 
be confusing to consumers. Today, housing finance is a lot more 
sophisticated than it was when I entered in 1981 at a savings 
and loan in Baltimore, Maryland. Today, we have a vibrant 
capital market that is much larger than it was pre-mortgage 
crisis. And yet today, I don't see any progress towards 
appraisal independence, more credible appraisal reports, and we 
certainly aren't seeing any regulation of even new tenets that 
we put into place with Dodd-Frank.
    Our concern is that we do need to modernize. As Congressman 
Duffy pointed out, technology--and there is also lots to be 
discussed around data privacy; who owns the data? This real 
estate data is being input into models. Who is monitoring the 
models? We have had capital markets, long-term capital 
management. We had some world-class Pulitzer Prize-winning 
economists who built algorithms that were supposed to be 
genius. There is a great book called, ``When Genius Failed.''
    So, we have to be very careful about how we proceed forward 
when we are taking real estate data that begins with the 
appraiser, the boots on the ground, and carry it through the 
system. There are a lot of people who touch it. And in the end, 
we need to ensure that we are having credible appraisals 
performed by licensed, qualified local market experts. Thank 
you.
    [The prepared statement of Ms. Trice can be found on page 
80 of the appendix.]
    Chairman Clay. Thank you so much, Ms. Trice.
    And let me thank the entire witness panel for your 
testimony.
    We will now move to the 5-minute phase of questioning of 
the panel, and I will start with 5 minutes.
    Let me start with Mr. Perry. Mr. Perry, I have read your 
study and heard your testimony. Can you offer up to this 
committee some solutions to how we get to equitable evaluation 
of home values?
    Mr. Perry. First of all, again, thank you for having me. 
Something that is not mentioned enough, particularly in black 
communities, is there needs to be some type of micro-loan 
program so that people can actually keep their homes up-to-code 
and up-to-speed. Many, particularly black Americans suffer from 
the same financial insecurities just from the overall market. 
And so, when you don't have the discretionary resources to fix 
up your home, it is going to lag.
    Chairman Clay. Don't leave out the fact that also, when you 
go to a financial institution for a home improvement loan, your 
house is valued less.
    Mr. Perry. I was going to get to that. But the devaluation 
of your property impacts all of those things, your ability to 
get an additional loan.
    What was also clear is the consistency in the data of how 
the valuation really hit black communities. And I am actually 
very interested in hearing the rest of the panel's perspective 
on training because it is almost as if people look at black 
communities and they see worse education, they see more crime, 
they see worse property, so when the assessments come out, they 
are much lower. But from our vantage point, using the data that 
we have, we can clearly see if you theoretically helicoptered 
one property into a white neighborhood, it would increase in 
value.
    Chairman Clay. Let me go to Ms. Trice, because you touched 
on this somewhat. How should the reporting or the appraisal 
process change to improve on appraisals and weed out the 
individual racial biases? How could we address that?
    Ms. Trice. That is a complex question, and it is going to 
take a complex answer. But I will try to keep it as simple as 
possible.
    I think we need to actually go back to fundamental 
appraisal 101. There are three approaches to value: the cost; 
the income; and the market approach. Today, we have a system 
where the regulators have actually devolved the process to a 
single leg of that three-legged stool, and it is the sales 
price approach to value.
    I respectfully submit that the codified definition of 
market value needs to be modernized. And there is a lot of 
confusion even amongst appraisers on price versus value. As 
Warren Buffett said, ``Price is what you pay; value is what you 
get.'' It is a pretty simple concept if you look at it from 
that context and that construct.
    So I think we have to have better education, better trained 
local market experts, and less reliability on automated tools 
because there is going to be disparate treatment. And that is 
really my biggest concern is that if we remove and waive 
appraisals for people with high credit scores, we are 
disparately mistreating, I think, the affordable housing 
sector.
    Chairman Clay. Thank you.
    Mr. Wagner, I have a draft of a bill that would provide the 
AFC with increased flexibility to set fees assessed on AMCs and 
increase flexibility in allocating the proceeds of such fees. 
It would also allow trainee appraisers to be added to a 
national registry.
    Based on your experience as an appraiser, what do you 
believe are the root causes of the devaluation of minority 
homes, and what do you believe the solution should be?
    Mr. Wagner. First of all, Congressman, I appreciate the 
question and empathize with your concern relative to the 
communities that you have mentioned. It is actually a concern 
that is really larger than the realm of appraisal. It involves, 
I think, lending in general.
    Having said that, I will emphasize that a residential 
appraiser is bound by standards, and cannot consider racial, 
ethnic, or income makeup of a particular neighborhood or 
community. And this is a complex challenge. But perhaps a 
lending program similar to what is under development in Detroit 
and St. Louis, greenlining, might be helpful.
    And, furthermore, I would like to add that we look forward 
to being a part of the conversation with you and your staff on 
this complex issue.
    Chairman Clay. I thank you for your response. My time has 
expired.
    I now go to Mr. Duffy.
    Mr. Duffy. Thank you, Mr. Chairman.
    Mr. Perry, if you would just kind of dig into this a little 
bit for me so I can understand. Do we have in predominantly 
African-American communities non-African Americans doing the 
appraisals in your study?
    Mr. Perry. Yes. I mean, the industry is largely white. I 
want to say it is roughly 90 percent white in terms of 
appraisals. And that is part of it. We do know that 
representation matters in terms of how you view or measure 
something. And so, in any kind of measurement, who is doing the 
measuring matters.
    Mr. Duffy. If you have ever tried to refinance or you have 
tried to sell a home and your appraisal comes in under the 
value that you think it should be, there is nothing more 
frustrating that will anger you more than that. I am speaking 
from experience on that myself.
    Is it a chicken or an egg situation? Do we have comparable 
pricing that doesn't work? I guess if we have sales of 
comparable properties at one level and then the appraiser is 
coming in at a lower level, that is a problem, or we just 
fundamentally have lower valuations and lower sale prices?
    Mr. Perry. I will echo Mr. Wagner's comments that this is 
also about lending practices, real estate agent practices, and 
appraisal. So, it is all combined. But what is clear from the 
research is that we can actually control for neighborhood 
conditions, the housing structure. We can find similar homes 
across-the-board. And the only difference is the concentration 
of black folks around that home that accounts for the price.
    So, all of those factors, there is some type of racial bias 
occurring. It is not just appraisals, but it is also in the 
lending and real estate agent practices. But what is easy to 
do, and I encourage the industry to at least have a neutral--an 
empirically rigorous database so that they can then say, okay, 
how off are our assessments? Because clearly, something is off 
kilter.
    Mr. Duffy. And I look forward to working with you. I know 
Mr. Clay does as well. This shouldn't happen.
    But just to make another note, if you drop my house from 
Wausau, Wisconsin, to somewhere out here, it would probably go 
up 4 times in value myself.
    Mr. Perry. But if you--
    Mr. Duffy. Neighborhood to neighborhood, I know your point, 
but I wanted to make the point that I would be a lot wealthier.
    Quickly, how many of you are appraisers? Some in the 
background too are all raising their hands. I have two 
appraisers, three appraisers on the panel. Obviously, we are 
using more technology. And I guess I am not opposed to 
technology, but I have a hard time seeing how technology and 
data can replace an appraiser going to my property and looking 
at all the intricacies of what my property has in regard to its 
value.
    Any concerns on the panel if we are going to a far more 
data-driven non-human set of policies, and is that good for our 
housing industry, and can we get the wrong valuations? And when 
we get the wrong valuations, bad things happen, as we saw in 
2008. I am asking a lot of questions. So, Mr. Wagner, if you 
want to go first, raise your hand.
    Mr. Wagner. Thank you, Congressman.
    You know, you bring up some interesting points there. In 
some instances, technology with regard to, say, automated 
valuation models (AVMs), might have some place relative to very 
homogeneous type of housing and so forth where there are not a 
lot of differences. But also, with respect to AVMs, they are 
oftentimes based on a lot of, say, assessment record data, 
which may be inaccurate.
    Mr. Duffy. Mr. Wagner, with regard to that data they are 
using, the appraisal on my home could have been how long ago 
when I actually had an appraiser there? If you were in a close 
timeline, that might make some sense, but if the last appraisal 
was 8 years ago, a lot of things happen to a home in 8 years.
    Again, if you are close in time, I might say, ``Listen, I 
know you want your 600 bucks, but we just did an appraisal last 
year; come on, don't make me do another one.''
    Five years ago, 8 years ago, I don't see how data replaces 
the role of a man or a woman coming to my property.
    Mr. Wagner. And I agree with you, because the market 
conditions change and properties change. So a lot of times the 
data is imperfect at best. At the end of the day, there is 
nothing better than an appraiser laying his eyes on the 
property. I can't tell you the number of times that I have 
changed my mind after I have looked at the comparables, I have 
looked at the subject, and so forth.
    Mr. Duffy. I just noticed my time is up, but to save a few 
bucks to get this wrong has devastating impacts on everybody in 
America in a profound way. And to save a few dollars to 
potentially have a massive crisis like we had in 2008, I don't 
think is actually worth it. I would think we should err on the 
side of safety as opposed to technology and a few dollars saved 
in a closing.
    With that, Mr. Chairman, my time is up, and I yield back.
    Chairman Clay. Mr. Bunton, you looked like you wanted to 
say something. Go ahead.
    Mr. Bunton. Thank you, Mr. Chairman.
    At least for now, anyway, computers don't buy houses, 
people do. And computers are very good at coming up with 
tangible, the square footage, the number of bedrooms and 
bathrooms and all that. But it is a uniquely human quality. 
There are a lot of intangibles. Call it curb appeal, call it 
whatever you want, but that is going to impact on whether or 
not that house sells. So, AVMs are a great tool, but appraisers 
should be involved in the process.
    Chairman Clay. Thank you, Mr. Bunton.
    I now recognize the gentleman from California, Mr. Sherman, 
for 5 minutes.
    Mr. Sherman. One of the two bills we are focusing on in 
this hearing is the Home Buyer Assistance Act, and it deals 
with the requirements for an FHA-financed home. Over 83 percent 
of the FHA home purchases made last year were obtained by 
first-time home buyers, and one-third of all FHA loans were 
obtained by those in minority households. So, we have a real 
interest in making sure that the FHA process is one that works 
well.
    Fannie Mae, Freddie Mac, the other major process, allows 
for either licensed or certified appraisers, and yet the FHA 
continues to require certified appraisers. Now, it is my 
understanding that this requirement goes back to the days when 
there were no national standards for licensed appraisers, but 
this committee took action to pass the Housing and Economic 
Recovery Act, which now imposes minimum national standards on 
licensed appraisers.
    So, we have a circumstance where FHA is requiring certified 
and the other major finance agencies are saying licensed or 
certified. And I have a bill to correct that. I want to focus 
on that the bill is supposed to deal only with single family 
homes. You can make an argument that if one is financing a very 
complex property, that one should go with a certified 
appraiser.
    I will ask Mr. Wagner and Mr. Dickstein, who both represent 
the industry participants here, is a licensed appraiser 
competent to appraise for FHA purposes the purchase of a single 
family home? Put another way, should we require a certified 
appraisal for the GSEs, Fannie and Freddie? Mr. Wagner?
    Mr. Wagner. I appreciate the question, Congressman. And I 
think the answer is yes, I think that licensed appraisers can 
do those appraisals as long as there is an education component 
because FHA requirements are over and above what you typically 
see for conventional type lending, the GSE type lending that 
you mentioned, or loan purchasing. So as long as that education 
component is there, we see an opportunity that is worthwhile.
    Mr. Sherman. Mr. Bunton?
    Mr. Bunton. Yes. Our qualifications board has established 
qualifications to be a licensed appraiser for 2 or 3 decades, 
but with the Dodd-Frank Act in 2010, now that is the threshold, 
the floor. But we have felt all along that licensed appraisers 
should be able to perform residential lending for FHA and 
strongly support what you are doing.
    The restriction on certified appraisers has really had a 
negative impact in rural America, where you had licensed 
appraisers who were only doing one or two appraisals a month. 
They let their license lapse because it wasn't worth it to go 
back and get that higher certification. So, this is good news.
    Mr. Sherman. Do certified appraisers charge more?
    Mr. Bunton. I'm sorry. I didn't hear the question.
    Mr. Sherman. If you are going to get an appraiser, you have 
a choice between a licensed one and a certified one. Does the 
certified cost more?
    Mr. Bunton. It shouldn't. No, no. The certified versus 
licensed has to do with the scope that you can appraise. In 
other words, you can appraise commercial properties, the value.
    Mr. Sherman. And, obviously, if it is a complex commercial 
property, they would charge more. But to appraise the same 
house, it is the same fee?
    Mr. Bunton. Correct.
    Mr. Sherman. And what does an appraiser need to do for an 
FHA mortgage beyond what they need to do for a Fannie or 
Freddie mortgage?
    Mr. Bunton. I am not competent to answer that one. One of 
the appraisers could do it.
    Mr. Wagner. Typically, the FHA appraisals involve more in 
the appraisal inspection process. They are looking for certain 
things, safe, sound, sanitary, with respect to the home and so 
forth. And they take into account and point out a number of 
issues that they see. So there is more to--
    Mr. Sherman. So FHA just requires more work to be done, 
more things to be checked before you come in with that 
appraisal number?
    Mr. Wagner. I think that is a fair way to put it, sir.
    Mr. Sherman. I yield back.
    Chairman Clay. Thank you.
    I now recognize the gentleman from Colorado, Mr. Tipton, 
for 5 minutes.
    Mr. Tipton. Thank you, Mr. Chairman. And I thank the panel 
for taking the time to be here.
    I would like to broaden out maybe some of the discussion a 
little bit that we are having here today. I come from rural 
Colorado. And we have a lot of our rural communities that 
obviously have some real challenges that they are being faced 
with in terms of even being able to find an appraiser to be 
able to come in and to actually be able to look at the 
property.
    Under S.2155, which, just for clarification, was actually a 
House bill slightly modified that we should have been able to 
take credit for, when that was signed into law, we did have the 
provisions that were put in there in regards to the exemption 
with certain qualifications to try and be able to address that.
    And I would just like to be able to hear maybe some of your 
thoughts on where some of that was right, maybe some of the 
shortcomings, your thoughts on S.2155, and did we do enough to 
be able to address some of the issues for appraisers? Mr. 
Bunton?
    Mr. Bunton. Yes, thank you very much. A couple of things 
regarding shortages in rural America, and there are underserved 
areas, no question. One of the things we are trying to do is 
have virtual training for appraisers. Instead of going out and 
finding a supervising appraiser, you could do it from your 
home, computer-based. Think of it like airline flight 
simulators and things like that. It is a work in progress. We 
hope to have it done in the not-too-distant future. But now, if 
you are in a rural county somewhere where you can't find a 
supervising appraiser, which is part of the qualifications 
process, you will be able to use this high-tech version. I 
think that will make a big difference as well.
    We have also changed the qualifications to become a 
licensed appraiser and a certified appraiser where there are 
different pathways now, where you can do it through your 
experience, education in lieu of a bachelor's degree, an 
associate's degree. So we are allowing the pool of people to be 
larger who could actually get the credential from the State.
    Mr. Tipton. Great. Mr. Wagner, do you have any thoughts on 
that?
    Mr. Wagner. I do. And S.2155 was something that we 
supported. And the idea that there could be an exemption from 
getting an appraisal in a rural area if the lender had made 
contact with several appraisers and weren't able to locate 
somebody, that that possibility existed. We did support that. 
However, it really hasn't had that much of a chance to be 
tested yet.
    And now the regulators are actually looking to increase 
from $250,000 to $400,000, which really ignores the whole 
appraisal aspect altogether at that point, as far as safety and 
soundness, consumer protection. So, we would advocate certainly 
that S.2155 gets its chance.
    Mr. Tipton. Any other thoughts on this?
    Mr. Dickstein. I would just like to add that we have seen 
comments from Freddie Mac, I believe at Ms. Trice's valuation 
expo conference a few times, a presentation where they have 
taken their appraisal submissions to their UCDP portal and put 
that up against mortgage submissions and stretched that out 
over time. And they have seen that there is some shortage in 
some areas, but it really is seasonally and that there is some 
correction based on the season. But we have seen some shortage 
at seasonal times.
    Mr. Tipton. Great. Just to be able to let a little bit of 
framework, part of my district has what is called the Four 
Corners area. It is where Utah, New Mexico, Arizona, and 
Colorado all come together. In each one of the States, within 
close proximity to each other, you have communities that are 
across State lines. And under current appraisal requirements, 
it is State by State to be authorized on that.
    Mr. Wagner, maybe you could speak a little bit about maybe 
the possibility, the benefits or lack thereof of being able to 
have some kind of a national sort of appraisal rating?
    Mr. Wagner. Thank you for the question, Congressman.
    We are in favor of looking at some sort of mortgage 
license--excuse me, some appraisal licensing type platform, a 
portal where appraisers could actually submit all of their 
applications, renewal applications, education records; if 
background checks were necessary, that as well. And we look at 
it as a win-win for all the stakeholders because, not only 
would that cut red tape for appraisers, because they have 
different requirements among the States and different timing 
among the States oftentimes for their licenses, but it would 
also make it easy access for the State regulators to pull down 
that information when application requests come in.
    And what you are talking about in a proximity situation 
like that with Four Corners, oftentimes appraisers are licensed 
in multiple States. So, that would be a big benefit.
    Mr. Tipton. Thank you for that.
    And, Mr. Chairman, Mr. Bunton had spoken to some ideas as 
well. We have a lot of our conversation, which is always framed 
typically around our urban areas, and I just want to really 
encourage our committee to remember that rural America plays a 
very important role in this economy as well and to make sure 
that when we are talking about appraisal, the access to be able 
to get homes, we do not leave out rural America as well.
    Chairman Clay. And I couldn't agree with the gentleman 
more. This subcommittee looks at all of America, rural, urban, 
suburban. So, thank you.
    Mr. Tipton. Thank you, Mr. Chairman.
    Chairman Clay. The gentleman from Texas, Mr. Green, who is 
also the Chair of our Subcommittee on Oversight and 
Investigations, is recognized for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman, and I thank the ranking 
member and the witnesses for appearing.
    I would like to agree with the chairperson that we do look 
at all aspects of issues. A good many members of my family live 
in rural America, so I am greatly concerned about them.
    But, today, permit me to say to Mr. Perry, Mr. Perry, I 
would have paid good money to hear your report. I am just blown 
away by what you said. And you are with the Brookings 
Institution, is that correct?
    Mr. Perry. That is correct.
    Mr. Green. Okay. If you are on the panel and you are 
familiar with the Brookings Institution, would you just raise 
your hand? Okay. Everybody is familiar--all right. Everybody 
else out there, raise your hand? Brookings, okay. Everybody is 
familiar. Not for profit, doesn't take a position on issues but 
presents intelligence, facts, and what you have presented is 
astounding. Just for edification purposes, some things bear 
repeating: Homes of similar quality in neighborhoods with 
similar amenities are worth 23 percent less in majority black 
neighborhoods compared to those with very few or no black 
residents.
    Now, at some point, we can say that this is a complex issue 
and I agree, but it can also be a complexion issue. There is 
something going on here that is very hard to deny, given the 
information that you have shared with us. I have in my office 
photographs of persons from hearings very similar to this. In 
fact, I brought a couple of photographs in today from a 
previous hearing where I had persons raise their hands when I 
asked a question. And one of these photographs has under it, 
``Ask me about this picture.'' It is my way of publishing 
beyond these hearings what takes place in these hearings.
    So, this is going to be a photograph for my office. I will 
have under this photograph, ``Ask me about this picture.'' I am 
sharing this with you because I want you to know this is a 
pretty important question for me, and if you care about your 
station in life as it relates to this picture, it may be 
important to you. Do you believe that invidious 
discrimination--``invidious'' means harmful--plays a role in 
the devaluation of property in neighborhoods that are 
predominated with minorities but, more specifically, black 
people? If you do believe this, raise your hand. I want my 
staff who are recording this to be sure to get this picture. 
Would you raise your hand again, please? Only one person 
believes that invidious discrimination plays a role. So let me 
ask again for fear that you didn't understand.
    If you think black people are being discriminated against 
when their property is being appraised, would you kindly raise 
your hand? One person on the panel. If you think that--for fear 
that I am not communicating well, if you think that black 
people are not being discriminated against when their property 
is being appraised, if you think they are not being 
discriminated against, kindly raise your hand. Okay. Hands now. 
We are getting some consternation, I see.
    Yes, sir, Mr. Wagner?
    Mr. Wagner. Could you repeat the question? Could you 
clarify that for me a little bit more? Your question was, do we 
believe they are not being discriminated against?
    Mr. Green. Let's do it again. I will give you a do-over. If 
you believe that black people are being discriminated against 
when their property is being appraised, not all, but in these 
neighborhoods where you have more than 50 percent of the 
neighborhood is black people, and the property values are 
similar to other--property is similar but the values are not? 
Do you think there is discrimination involved in this 
devaluation of that property? If so, raise your hand? One hand. 
All right. Well, the picture will be up for all to see, and I 
will probably bring it to future hearings. I will not let these 
things go. At some point, we have to deal with racism. We call 
it unintentional bias, and some of it is done with 
intentionality. So, this is my way of dealing with it.
    I yield back the balance of my time. Thank you.
    Chairman Clay. The gentleman's time has expired.
    The gentleman from Tennessee, Mr. Rose, is recognized for 5 
minutes.
    Mr. Rose. Thank you, Mr. Chairman.
    There is a broader conversation going on right now about 
potential housing finance reform. Most of the discussion over 
the past few years regarding housing financial reform has 
focused on the secondary market. However, it is important to 
also discuss the primary market. Not only do the originators of 
mortgages play an important role, but so do appraisers, given 
their important role in the origination process.
    Do you think there are some potential changes to the 
appraisal regulatory structure that should be included in this 
effort? And I will start with Mr. Bunton on that.
    Mr. Bunton. Yes. I think, as I pointed out in my opening 
comments there, that we need to have professional appraisers 
determining what the value is of property that is the 
collateral for the loan. Somehow requiring the financial 
regulators to go back to using appraisers, to work with The 
Appraisal Foundation, we can come up with standards for 
evaluations as well as we have standards for appraisals. But, 
right now, they have developed a great big work-around, and 
they have circumvented everything that you all have put in 
place.
    Mr. Rose. Ms. Trice, would you speak to that?
    Ms. Trice. Gladly. We have spent a considerable amount of 
time devising what a new regulatory structure should look like. 
The appraisal is used not only in the origination, as you said, 
but also all the way through the system to the secondary 
market.
    There are a lot of people who touch an appraisal along the 
way and rely on a credible appraisal report. I think today we 
are--FIRREA was probably the right thing at the right time. 
That was 1989. I think the most popular car in 1989 was an 
Oldsmobile Cutlass. If there is still one on the road today, it 
is probably being held together with duct tape. And I 
respectfully submit we have an outmoded, old, tired regulatory 
structure and that it is time for an overhaul.
    Mr. Rose. How important are accurate appraisals to ensure 
that federally backed mortgages, whether they be pulled in 
Ginnie Mae securities or into the uniform mortgage-backed 
security that Fannie and Freddie will be issuing, are quality 
credits?
    Ms. Trice?
    Ms. Trice. The data today--I think that most people 
actually are going to find this a little astounding. There is 
less information on the collateral and the collateral value 
available to investors today than there was pre-crisis. I find 
that astounding. If you have ever watched, ``The Big Short,'' 
you are, like, how did that happen? Well, we are doing it 
again. Today, in a credit risk transfer, the investor doesn't 
even get the property address, so how could they possibly do 
any sort of due diligence on the collateral valuation? They 
can't. They are completely--it is a blind bet. And so what the 
investor is relying on 100 percent is the full faith and credit 
of the United States, and that, my understanding is, we are 
trying to get away from a government backstop. But that implied 
guarantee is not allowing us to move into a more vibrant 
housing finance system, in my opinion.
    Mr. Rose. And I would ask all the panel this. To your 
knowledge, is there any reliable data that tells us whether the 
de minimis exception properties are being checked to be sure 
that there is real value there? In other words, is that de 
minimis exception being gained, if you will, and what risk do 
we see there? Yes, Mr. Bunton?
    Mr. Bunton. The valuations are being performed by 
nonprofessionals or can be performed by nonprofessionals. They 
don't have to adhere to a written set of standards, and they 
are not held accountable to a public board. So, if a homeowner 
has an evaluation below the threshold, hasn't complained about 
it, what recourse do they have? If it is an appraiser, you go 
to the appraiser board, so it is gaming the system. I think 
those were your words. I agree with you.
    Mr. Rose. All right. And then is there a danger that, 
without proper regulatory structure, appraisals could be gamed 
in order to comply with Fannie/Freddie conforming loan limits? 
Mr. Wagner, what is your opinion on that?
    Mr. Wagner. I think that if the de minimis is raised and 
use of evaluations increases, you are going to have increased 
risk as well because, at this point, as Mr. Bunton has said, 
the evaluations don't have to be done by anybody who subscribes 
to a strict code of ethics and standards.
    Mr. Rose. All right. Thank you.
    I yield back.
    Chairman Clay. The gentleman's time has expired.
    The gentleman from California, Mr. Vargas, is recognized 
for 5 minutes.
    Mr. Vargas. Thank you, Mr. Chairman.
    I appreciate the opportunity to speak, and I appreciate you 
very much for having this hearing, and I also want to thank the 
ranking member. I want to ask a few questions along the line of 
my good friend, Mr. Green from Texas. I believe that there is 
discrimination. I don't think there is any doubt about that in 
housing. In fact, we have had redlining before. In fact, we 
hear all the stories. They are anecdotal, but someone is moving 
into the neighborhood. It is going to bring the property values 
down. I know that was the case when my family moved from one 
place to another. ``Here come the Latinos.'' And so, I 
definitely think that there is some discrimination going on. 
Mr. Perry, you placed it at 23 percent less the valuation. Just 
out of curiosity, do you have any percentage for Latino, 
majority Latino neighborhoods?
    Mr. Perry. No, but we will be producing a report on 
majority brown cities as well.
    Mr. Vargas. Okay. I definitely think that is the case. I 
have to say that sometimes--I bought a number of properties in 
my day and still own a number of properties, and the appraisal 
sometimes works in your favor when it comes in low, too. It 
depends. I have bought a number of properties where they are in 
majority minority areas, and the appraisal comes in low, so you 
can negotiate the price down even further. You just have to put 
more cash into the deal, but it actually comes out in your 
favor. And if you have faith in that community and that 
neighborhood, the value is what you ultimately think it is. I 
agree with what Ms. Trice said, that is the value. The value to 
you is what you think it is going to be worth. And so I have 
done that a number of times, and I have come out more than 
okay.
    So I will ask that question. It seems to me that you were 
saying that there is no discrimination, that there is no--that, 
to me, sounds so far off the ball that it is almost laughable.
    Mr. Bunton, I will give you an opportunity to speak. Go 
ahead, sir?
    Mr. Bunton. Appraisals are reflecting what could be 
discrimination out there. Are homes selling for less in 
minorities areas? According to appraisers, they are, according 
to Mr. Perry's stats. But that is a reflection not on the 
appraiser. The appraiser should be reflecting what the market 
is. They don't make the market; they reflect it. Are people 
willing to pay less for minority neighborhoods? Apparently, 
that is the case.
    Mr. Vargas. I am not sure that they are not making the 
market, but I guess that is what I would argue. So, if the 
appraisal comes in lower, in fact, you can push the price down. 
I know I have done that a couple of times because I thought the 
appraisal was going to come in lower than it should, but I had 
cash to put into the deal. So I said, depending on the 
appraisal, and the appraisal came in low as I expected because 
of the neighborhood, then I was able to negotiate the price 
down in at least two instances because I thought this is what 
is going to happen. They are going to appraise this very low 
because of the neighborhood. I think the value is much higher 
because of location, location, location, and it worked out 
quite well for me. And so I do think that the appraiser--
because the big deal with appraising, and I know you guys have 
mentioned it briefly--is comparables. They are always looking 
for the comps, what are the comps in the area. That is the big 
deal. But you also have to take a look at, what is the value? 
What do you feel it is worth? What is its proximity to downtown 
or whatever, saying it is around the bay or whatever it is? So 
I do think the appraisals do create part of the value of that 
neighborhood, and, again, I know that, in my own case, I have 
been able to negotiate what I think have been very good deals 
and sold them for very good profit because the appraisal was 
going to come in low because of what I thought was going to be 
discrimination.
    Now, it might have been simple chance. I know it worked for 
me, but it seems to me that that is discrimination. Mr. Perry, 
you wanted to say something?
    Mr. Perry. I just want to add that we see this in cities 
where there is a large influx of white people coming into 
cities. They come in. Property values are very low. Within an 
instant, property values go up. And the research is pretty 
clear on this in terms of lending, appraisals, real estate 
behavior. We have cited discrimination at every turn. The price 
just reflects all of that and then some. So I don't think there 
is any question there is discrimination. We have concrete 
evidence, and I encourage people to read some of the review in 
the report that alludes to some of that, but there is 
discrimination. The housing market was predicated on 
suppressing black prices in particular areas. Those areas still 
exist, but more importantly, those behaviors are still there.
    So, as long as you devalue black people, the tools you use 
will devalue black property.
    Mr. Vargas. I agree with you. My time has expired, but 
again, thank you very much.
    Thank you, Mr. Chairman.
    Chairman Clay. The gentleman's time has expired.
    The gentleman from Missouri, Mr. Luetkemeyer, is recognized 
for 5 minutes.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    Mr. Bunton, you are with a group that sets standards for 
appraisers, is that correct?
    Mr. Bunton. Yes. That is correct.
    Mr. Luetkemeyer. I chaired this subcommittee a couple of 
years ago, and one of the things we were talking about at that 
time was a problem with appraisers, the certification of them 
from the standpoint, one of the criteria was that they had to 
have a college education, and I think they filled a 2-year 
apprenticeship after that. Is that still the case today, or 
have you changed that?
    Mr. Bunton. Effective May 1, 2018, that has been changed.
    Mr. Luetkemeyer. Okay. What did you change it to?
    Mr. Bunton. For the certified residential, it was a 4-year 
degree. Now, it is an associate's degree instead of a 
bachelor's degree, and it also--there are alternate pathways 
where you can take 10 college credits that would be equivalent 
to an associate's degree. As far as the experience, it has now 
been cut to 1,500 hours over 12 months. It was 2,000 hours over 
24 before.
    Mr. Luetkemeyer. Because when you have a shortage of 
appraisers, I live in rural Missouri, a very rural town, 336 
people, so we don't even have appraisers in our county, and so 
it is very difficult to find somebody. You have to go outside 
the county to find an appraiser. And my appraiser friends were 
telling me, hey, this threshold of a college degree and 2 years 
apprenticeship was killing them, not being able to get new 
appraisers into the business to then be able to go do these 
appraisals. So, thank you for doing that.
    With regards to an appraisal itself, we have been 
discussing a little bit here about appraisals, but I think we 
need to remember that an appraisal is just a snapshot in time 
as to what the value of the property is today. My youngest 
daughter lives in Denver, which if you are an appraiser, you 
know the values out there just explode every day. She and her 
husband bought this house 5 years ago. They sold it recently 
for 60 percent more than they paid for it. During the crash of 
2008, in Denver, the prices never went down. But in places like 
Georgia, those prices crashed, because they wound up losing 90 
banks because of the value of the real estate.
    I can go on and on in my own district. We had an area that 
crashed because of what happened with the markets. And it is 
not necessarily the neighborhoods; it was the fact that whether 
you wound up with inability to buy homes because you didn't 
have a job, whether it was new schools, new roads, losing 
factories, losing jobs. All of these things have an effect on 
the value of the property. And for all of you to try and sort 
through all this is quite an ordeal.
    So, having been in the financial services industry for 40 
years, I am familiar with a snapshot in time what that thing is 
worth, which brings me to the question, I guess, with regards 
to thresholds.
    I know you are all unhappy about the threshold increase, 
but I am just kind of curious. Have you done any studies to see 
once what the loss ratio--how much it would increase by going 
from $250,000 to $400,000? Has anybody done a study on that? 
Nobody has done a study on it? Are you all against raising it 
from $250,000 to $400,000? Raise your hand if you are against 
it? Anybody neutral on it? Okay. So, if you are against it, 
tell me why if you are against it, if you can't prove your 
point.
    Mr. Wagner. You know, at the outset, I would say, 
Congressman, that it is an indication of a degradation in risk 
management in general. It signals a degradation in that vein, 
and do we know--
    Mr. Luetkemeyer. When was the $250,000 set in law or as a 
rule or suggestion?
    Mr. Bunton. In 1994.
    Mr. Luetkemeyer. So, 1994. What kind of inflation amount 
have we experienced from 1994 to 2019? At least double? At 
least 50, 100 percent?
    Mr. Bunton. I guess it is probably in the low 400s.
    Mr. Luetkemeyer. Okay. So, if you put an inflation 
multiplier on $250,000, where would you come up to, then, if 
you raised your threshold to match what it was in 1994? 
$400,000?
    Mr. Wagner. Somewhere in that range, but I think it is 
important to keep in mind what Mr. Bunton was pointing out 
earlier with the median price of a home. It is nowhere near 
that level. So, there were a whole lot of loans out there--
    Mr. Luetkemeyer. I can tell you from being a regulator in a 
previous life as well, when you go into a bank and you look at 
their mortgage loan portfolio, you don't look at every loan. 
You have what they call a cut, and you take a certain level, 
and all the loans above that, which are the big loans, which 
are the ones that if you lost it, you lost a lot of money. With 
little loans below that, while there is exposure there, because 
they are small and because if you lost one, yes, you would lose 
a little bit of money. But compared to losing a big one, if you 
cut at $40,000 versus $400,000, that is a big deal. I think for 
perspective point of view here, I am not for or against it at 
this point, I am just trying to discuss it, but I think we have 
to keep in mind the values, the inflation factor, the area of 
the country that we are in, and the fact that if you look in 
the large sense of a portfolio, is that really a risk to the 
entire portfolio?
    Thank you, Mr. Chairman.
    Chairman Clay. I thank my friend from Missouri, and his 
time has expired.
    The gentlewoman from Michigan, Ms. Tlaib, is recognized for 
5 minutes.
    Ms. Tlaib. Thank you, Mr. Chairman.
    Thank you all so much for being here. We have a home 
ownership crisis in my district and across Michigan. We have 
lost more black home ownership than any other State in the 
country, in part because traditional mortgages are so difficult 
for people in my district to acquire.
    Take Detroit as an example. In 2007, when my black 
neighbors made up 82 percent of the population, they received 
about 75 percent of Detroit home loans. By 2017, black 
Detroiters, despite still being 79 percent of the population, 
received just about 48 percent of home loans. When people can't 
get mortgages, they are forced to turn to land contracts, which 
I am working on to address, to realize their American Dream. 
And while land contracts can provide an important path to home 
ownership, due to the lack of oversight, too many in our 
community are being taken advantage of, and many are scamming 
folks out of their money in labor.
    This situation has all been created in part by flaws in the 
appraisal process. Appraisals are lagging behind in sale 
prices, meaning folks are unable to get mortgages large enough 
to complete the deals and face a hurdle to the security and 
stability home ownership provides. Lagging appraisals put 
moving into many of our vacant homes and renovating them out of 
reach and perpetuates neighborhood decline.
    This question is for Mr. Bunton. One of the things--when 
investors renovate the homes in Detroit and some of my Wayne 
County communities I represent, ultimately, it drives some of 
the property values up. Can original lower sale prices still be 
used as comparables for neighboring appraisals?
    Mr. Bunton. I am going to defer to the appraiser members on 
the panel. That doesn't sound correct, but I would defer to the 
appraiser members.
    Mr. Wagner. I am just going to say, and I think the 
gentleman earlier was talking about the comparable sales that 
get used. At the end of the day, based on sales, say, in a 
sales comparison approach, the value is the value, okay? Market 
value basically means, if you stick a sign in the yard, what 
will the property sell for? And if the market data in the area 
indicates a particular value, then it is what it is. And that 
is why, earlier, while I am very empathetic to this situation 
that you are referencing, it is bigger than the realm of 
appraisal. It involves lending and so forth, and I mentioned 
earlier that--
    Ms. Tlaib. And I mention that a lot. Can you talk in 
detail, because what I have read and researched on is about how 
appraisal management companies perpetuate pressures from 
lenders to appraise a home at a cost different from the home's 
worth? With your membership in the appraisal community, are you 
all getting pressure to appraise at a higher cost?
    Mr. Wagner. There are times when we see pressure, and some 
of it is less than overt. There can be times when appraisers 
are actually supporting adjustments or attempting to support 
adjustments, and they are being questioned, second-guessed on 
their support and even for positive things, all right.
    As far as actual pressure for hitting a certain number, 
that's not quite as prevalent, I think, as it once was. But, 
nevertheless, there are other kinds of pressures that 
appraisers experience with unreasonable turnaround times and so 
forth.
    Ms. Tlaib. Thank you, Mr. Wagner. I appreciate it.
    Mr. Perry, you were very thoughtful. I could take you home 
to my district, and everyone would be nodding their head. I 
have the third poorest congressional district in the country, 
and I always tell people: If you want to see what doing nothing 
looks like in communities of color, I will show you, and we end 
up paying as Americans twofold in trying to address poverty.
    Land contracts are a huge struggle right now in my 
district. Many turn to land contracts. How can we make land 
contracts safer for home buyers? I am just curious about your 
opinion.
    Mr. Perry. I don't have an opinion on land contracts. I 
will say this, that there needs to be a lot of support for home 
buyers and sellers, that our devaluation report clearly 
identified areas where someone who is renting can actually buy 
a home.
    Ms. Tlaib. That is right.
    Mr. Perry. We need to prioritize people living in districts 
where there is severe devaluation, provide them first-time home 
buyer assistance beyond what is given currently and give them 
the ability to buy a home, particularly in places like Detroit, 
because the conversation now is how to bring the middle class 
back in Detroit. You know, we should not bring in people to buy 
in Detroit at the expense of poor people because folks just 
don't go away. They move to other areas. So, there is an 
opportunity here.
    Ms. Tlaib. Thank you, Mr. Chairman.
    I yield back.
    Chairman Clay. You are welcome, and the gentlewoman's time 
has expired.
    The gentleman from New York, Mr. Zeldin, is recognized for 
5 minutes.
    Mr. Zeldin. Thank you, Mr. Chairman.
    Thank you to the whole panel for being here today.
    Ensuring that our consumers have accurate, transparent, and 
fair appraisal data is a critical priority in my district on 
Long Island and nationwide. That applies to potential home 
buyers or sellers or the professionals in the real estate 
industry. We definitely need more innovative ways to do this, 
and the rules and regulations need to be consistent and clear, 
but one thing that would not be helpful is several different 
sets of rules that could hurt the market, and most importantly, 
the consumers.
    A question first for Ms. Trice. Are the appraisal rules and 
regulations for mortgages under the GSEs like Fannie and 
Freddie the same for FHA mortgages?
    Ms. Trice. No, they are not.
    Mr. Zeldin. Is it good policy to have a separate set of 
rules for FHA mortgages versus mortgages that are securitized 
by Fannie and Freddie or for other totally private mortgages?
    Ms. Trice. I think consistency and a clear roadmap is how 
you get credible appraisal reports and reliable information.
    Mr. Zeldin. How much influence do the GSEs--Fannie Mae and 
Freddie Mac--exert over the appraisal process today?
    Ms. Trice. They virtually own it. They are the de facto 
regulator, if you will. They create the forms that the entire 
industry uses. The VA and the FHA use the Fannie and Freddie-
devised form that is under development now for a new form, and 
there is even pressure being put upon the VA--I think there is 
some proposed regulation that the VA is being asked to use 
unlicensed individuals to inspect properties because that fits 
the mold that the GSEs are going towards.
    Mr. Zeldin. Do the GSEs consistently require the use of 
appraisals on the loans they purchase?
    Ms. Trice. I'm sorry, say it one more time?
    Mr. Zeldin. Do the GSEs consistently require the use of 
appraisals?
    Ms. Trice. No. They have a waiver program where there is a 
reps and warrants relief to the lender. Both entities have 
different programs, and today, they are piloting a hybrid 
appraisal report where the inspection is being done by 
unlicensed individuals. Literally, there are no qualifications. 
You could be an Uber driver today and show up to inspect a home 
tomorrow. That will be input into the appraisal process.
    Mr. Zeldin. I appreciate that. I am actually going to yield 
the remainder of my time to Mr. Duffy.
    Mr. Duffy. I appreciate the gentleman for yielding.
    I just want to note that I thought it was a good point to 
make that appraisers don't make markets; they reflect the 
pricing in the market. I don't think we can lose sight of that.
    But, also, Mr. Perry, you made me think a lot, and I 
appreciate your testimony. I don't want you to take this out of 
context. I am trying to see, what is causing the problem? What 
are the solutions to problems? But we have had a lot of 
conversations in this room about affordability. And what 
happens to communities if we say, ``You know what, the market 
says,'' as someone puts a sign in their yard and they get an 
offer on it, ``the home is worth this much, you know,'' supply 
and demand, and buyers and sellers come together at a meeting 
of the minds; if we bring those prices up 23 percent, what 
happens to the affordability of those homes in the neighborhood 
in which we are talking about? It probably makes it less 
affordable, right?
    Mr. Perry. That is why I said this is about providing 
support on the supply and the demand, that people, one, have to 
receive--it could be anything from a tax credit to make up for 
differences to also additional loan support, but clearly, there 
is market failure. I would differ in the sense of the market is 
the market.
    Mr. Duffy. But we get in trouble--if we give people 
mortgages on houses they can't afford, and they can't pay for 
them, and then, all of a sudden, we have done something wrong 
about giving mortgages that they can't pay for. I look at it, 
as the prices have gone up, I don't think there is any racial 
overlay of what has happened at The Wharf or the Navy Yard down 
here, but prices have gone up dramatically. People who own the 
properties, they made a lot of money. But what has happened 
with--I don't know anyone on this panel who can buy a place 
down there. What has happened? There is a gentrification 
problem that has gone on too, and you have all of a sudden 
moved people out of one area.
    Mr. Perry. I just want to emphasize, the type of 
devaluation we are seeing is--you have to assume that there is 
something systemic. And the market is failing if you have 
communities where you have 50 percent comparable homes priced 
50 percent or more or less than that same home a few blocks 
away. So what I am getting at is there has to be some effort to 
say: Hey, assessors, lenders, we have to recalibrate this.
    Mr. Duffy. I know my time is up, but I would like to work 
with you more on this. I want to understand your study a little 
further. I would imagine, though, that if an offer comes in 50 
percent or 25 percent higher, and the appraiser is appraising 
it at 25 percent less, and so he can't get a mortgage on the 
property, now, that would be a problem.
    But if we are having a meeting of the minds where the 
buyers and sellers are meeting and the appraisal comes in where 
the buyers and sellers have matched on price, I would see that 
as less of a problem. I would like to talk to you more if you 
are willing and kind of drive into this because I am picking up 
what you are putting down and I think we should engage further.
    Chairman Clay. At this point--no, no. We are going to enter 
into a second phase. We are going to call it a lightning round 
where each Member is limited to 2 minutes.
    Mr. Duffy. Mr. Chairman, we make up the rules as we go, 
right?
    Chairman Clay. That is right. It is 2 minutes, but it will 
be equal time. And so let me start by saying that, Mr. Perry, I 
appreciate the fact that you have highlighted the disparities 
in the process of appraisals, and I would urge the rest of the 
panel, in order to address the wealth gap, the racial wealth 
gap, that we think outside of the box, that we actually look at 
other methods than comparable sales in the appraisal process if 
there is a geographic area that you are not getting the market 
value of the homes. Look at the cost of replacement of the 
home. We can think outside the box, and we can come up with 
solutions as far as how many or how we allow others to enter 
this profession as apprentices, how we increase diversity in 
that area.
    And so, Mr. Dickstein, perhaps you can tell us, how could 
we do this in a method that is outside of the traditional box 
that you now operate in?
    Mr. Dickstein. We currently have three methods as 
appraisers that are acceptable: first, we have one you alluded 
to, the sales comparison; second, we have the cost approach; 
and third, we have the income approach. So appraisers do have 
the ability to look at a cost approach, looking at the value of 
the land, a new structure. We have the ability to look at rents 
in the area and determine value based on rents. But like 
whatwas said earlier, I think it is the chicken or the egg. You 
have so many lenders, investors, servicers who, as soon as the 
loan goes into a default situation, they are now left with--I 
think Mr. Perry alluded to maintenance of the home. A lot of 
these people in some of these areas just can't afford to 
maintain the home properly. So now that passes on to a lender 
and investor, and now they have an asset that they are holding 
onto that is in disrepair. They now have holding costs in the 
form of property taxes, upkeep in the neighborhood, property 
preservation. Now, they want this asset off their book so they 
throw it on the market priced for a quick sale.
    Chairman Clay. At a discount.
    Mr. Dickstein. At a discounted price. So what happens is 
sometimes if you get a market that is going through a downturn, 
whether it be job loss in the area, loss of manufacturing, loss 
of any type of income stability for that neighborhood, there is 
a trickle down, and it affects the neighborhood as a whole.
    Chairman Clay. It is cyclical.
    Mr. Dickstein. Absolutely. And appraisers are just 
reporting what is happening.
    Chairman Clay. All right. And I appreciate that.
    And now, Mr. Zeldin, would you like to--
    Mr. Zeldin. I would like to yield my 2 minutes to Mr. 
Duffy.
    Mr. Duffy. Thank you.
    Chairman Clay. Go right ahead.
    Mr. Duffy. Can I just ask, what should our takeaways be 
from this hearing? Give us the snapshot of the top lines of 
what Mr. Clay and I and this subcommittee should be working on 
as we leave today. Mr. Bunton, we will start with you.
    Mr. Bunton. The first one is, let's use valuation 
professionals to determine the value of the collateral for 
loans, and more and more, we are getting away from that, 
whether it is ABM or nonappraisers.
    Mr. Duffy. You like human beings.
    Mr. Bunton. Pardon me?
    Mr. Duffy. You like human beings.
    Mr. Bunton. Correct.
    Mr. Duffy. All right. Mr. Wagner?
    Mr. Bunton. With technological tools. Absolutely.
    Mr. Wagner. I would like to emphasize the use of human 
beings as well, and I would also like to emphasize one other 
thing relative to thinking outside the box, so to speak. I 
tried to touch on it earlier, and that is some of the programs 
that are under development in Detroit and St. Louis, and it 
involves lending and how a loan is structured.
    And, also, in terms of promoting diversity within the 
industry, just as an example, the Appraisal Institute has a 
number of ongoing--
    Mr. Duffy. You have to go quickly, Mr. Wagner. I have three 
more witnesses to get to. What is my takeaway?
    Mr. Wagner. That we are promoting diversity as well.
    Mr. Duffy. Okay. Mr. Dickstein?
    Mr. Dickstein. I echo the sentiments of both Mr. Bunton and 
Mr. Wagner.
    Mr. Duffy. Human beings.
    Mr. Perry?
    Mr. Perry. I am going to emphasize data. It is clear that 
human beings have burdened some and not advantaged others, that 
the decisions that are made at the appraisal process have to be 
countered with data in the report that I authored.
    Mr. Duffy. Ms. Trice?
    Ms. Trice. Appraisal reforms with a focus on safety and 
soundness so that we have a safe housing system for all 
Americans.
    Mr. Duffy. Thank you. Listen, I think you all have done a 
great job today giving us your feedback and viewpoint, very 
diverse, but I think very useful to us, and I appreciate your 
time and your testimony.
    I yield back.
    Chairman Clay. Thank you so much.
    And, Ms. Tlaib, we will let you finish it off.
    Ms. Tlaib. I was getting into it with Mr. Perry. So, the 
one thing that I noticed is, I think I saw some statistics that 
a majority of my residents in the 13th Congressional District, 
close to half of them are renters now. We used to be, like, 70 
percent home ownership. It created stability, even built up our 
school system. Everything is so connected to home ownership. 
The one area I kept looking at was the fact that they were 
paying 30 percent more in their income. So if I got them into a 
home, which sometimes some are worth, you know, outside of the 
7.2 miles in downtown Detroit, in those areas, was able to--
homes that are, like, valued at $40,000, $50,000, but people 
are not lending at those kinds of low prices, is them not being 
able to get access to that. But even when they came out to 
appraise in one neighborhood specifically, it came out even 
lower than that, and then they would have to come up with the 
cash difference.
    And all of the appraisals--all of you folks are obviously 
working in a broken system, but I also ask all of you, and Mr. 
Perry, maybe you can help in creating this, that I don't think 
everything fits into just one little box and that we are 
looking at all of the circumstances, all of the things. Even 
projecting out what is happening now in the 7.2 miles, how that 
is going to trickle down into the other neighborhoods. I have 
to tell you what I am seeing is that there are neighborhoods, 
honestly, where the houses look the same. It is the exact same 
house, exact same issues, high rates of this or that way. But 
because more white people are moving into that neighborhood, 
the prices skyrocketed. I don't understand why.
    And then there are some of my residents who obviously 
benefit from that because they are, like, you know, I am going 
to turn around and just sell it and go to the suburbs where it 
is cheaper to live because now the pricing is high, and they 
have to pay income tax in Detroit and all of those things.
    Even my colleague on the other side of the aisle, trying to 
get down whether it is human or not, I just feel like, even 
with appraisals, we are just sticking to these, like, 
checklists of things. And I feel like if it is in a low- to 
moderate-income neighborhood, that you all need a little bit 
more flexibility in how you value a home with all of the--and, 
Mr. Perry, you know, every time--
    I am a social worker at heart. I come from the nonprofit 
sector. I just know for 12 years that one of my residents--this 
is a true story--is paying $700 a month on rent, but I can get 
him into a house for $400 a month in a mortgage. I don't 
understand but for the fact that he can't, in the same 
neighborhood, get it to be appraised for what--it is, like, 
that difference is why he can't because he doesn't have the 
cash in hand. I just don't understand why the system is built 
that way.
    Mr. Perry. I just always remind people that we have been in 
this period before. After World War II, we enacted policies 
that enabled people to buy a home. We can create Federal policy 
that is creative, that is innovative to get black and brown 
people into homes. We keep trying to avoid the policy 
conversation to get people into homes and back into our sectors 
that are clearly biased. Again, it is not just appraisals. It 
is lending. It is real estate agents. It is the economic 
structure. There are a lot of things, but we all have a 
responsibility to have some legislation to address racism and 
structural bias. We have a responsibility to do that.
    Chairman Clay. Thank you. And on that note, as I close, 
thank you, Mr. Perry, and I thank the entire panel of witnesses 
for your contribution to this hearing today. I found it quite 
educational. And as I close, I will note the assistance of the 
Metropolitan St. Louis Equal Housing and Opportunity Council, 
and I look forward to their continued guidance in the area of 
appraisals.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    This hearing is adjourned. Thank you.
    [Whereupon, at 3:49 p.m., the hearing was adjourned.]

                            A P P E N D I X



                             June 20, 2019


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