    Regulatory Programs: Opportunities to Enhance Oversight of the
    Real Estate Appraisal Industry (14-MAY-03, GAO-03-404).

    Since the passage of Title XI of the Financial Institutions
    Reform, Recovery, and Enforcement Act of 1989, the appraisal and
    mortgage lending industry has changed dramatically. Some have
    concluded that the law is obsolete because the problems Title XI
    was intended to address--the risk to federal deposit insurance
    funds and the lack of uniform standards and qualifications--no
    longer exist. Others argue that the law's purpose and scope
    should be expanded. To help Congress better understand these
    issues, GAO looked at the roles of the private, state, and
    federal entities that oversee the appraisal industry, the
    challenges Title XI presented to these entities, and industry
    participants' concerns about the effectiveness of the Title XI
    regulatory structure.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-03-404
        ACCNO:   A06859
      TITLE:     Regulatory Programs: Opportunities to Enhance Oversight
    of the Real Estate Appraisal Industry
         DATE:   05/14/2003
      SUBJECT:   Appraisals
    	     Federal legislation
    	     Federal/state relations
    	     Financial institutions
    	     Internal controls
    	     Strategic planning

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    GAO-03-404

                                           A

    Le t t e r

    May 14, 2003 The Honorable Paul S. Sarbanes Ranking Minority Member Senate
    Committee on Banking, Housing, and Urban Affairs

    United States Senate The Honorable Zell Miller United States Senate

    Recent predatory mortgage lending cases, involving fraudulent and inflated
    appraisals, have highlighted the need for accurate real estate appraisals
    in preventing losses to the federal government and significant financial
    harm to individual consumers. When making mortgage loans, lenders need an
    objective and accurate assessment of the value of properties used as
    collateral to help avoid losses in the event that borrowers do not repay
    the loans. Congress enacted Title XI of the Financial Institutions Reform,
    Recovery, and Enforcement Act of 1989 (FIRREA) in response to concerns
    that faulty and fraudulent appraisals played a major role in the savings
    and loans crisis of the 1980s. Title XI provisions address both the
    quality of

    appraisals and the qualifications of appraisers. Specifically, Title XI
    requires that real estate appraisals used in connection with federally
    related transactions be performed (1) in writing, in accordance with
    uniform professional standards, and (2) by individuals whose competency
    has been demonstrated and whose professional conduct is subject to
    effective supervision. 1 To ensure that the purpose of the legislation was
    carried out, Title XI

    created a regulatory structure to monitor and oversee the real estate
    appraisal industry. Among other things, it established a federal entity
    called the Appraisal Subcommittee to monitor the Title*s implementation.
    Title XI provides for national uniformity in appraisal standards and
    minimal national qualification requirements for some, but not all,
    appraisers. The Title XI regulatory structure was set up primarily to
    protect federally

    1 As defined in Title XI, federally related transactions are real estate
    transactions involving financial institutions regulated by the federal
    government. These include banks, thrifts, and credit unions. Real estate
    transactions of mortgage bankers, brokers, pension funds, and

    insurance companies are not included.

    insured depository institutions from losses and by extension the federal
    deposit insurance funds.

    Because of your concerns about the effectiveness of the current regulatory
    structure, you requested that we assess the appraisal oversight structure
    established in response to Title XI. As agreed with your offices, this
    report describes (1) the specific responsibilities under Title XI of the
    private, state, and federal entities that oversee the appraisal industry
    and the way these entities perform their roles; (2) factors that these
    entities identified as potential impediments to carrying out their Title
    XI responsibilities; and (3) concerns expressed by regulatory entities and
    industry participants about the effectiveness of the existing regulatory
    structure.

    To answer these questions, we reviewed FIRREA and its legislative history;
    interviewed representatives of the private, state, and federal entities
    involved in the Title XI regulatory scheme; and, using a mailed

    questionnaire, surveyed appraiser regulatory agencies in the 50 states,
    the District of Columbia, and 4 U. S. territories. 2 A copy of the
    questionnaire, including summary responses to each question, can be found
    in appendix I. Additionally, we contacted industry participants, including
    trade groups that represent appraisers and lenders; Fannie Mae and Freddie
    Mac, two government- sponsored enterprises (GSE) that establish standards
    for appraisals used in connection with mortgages that they purchase; the
    Department of Housing and Urban Development (HUD), which establishes
    requirements for appraisals used in connection with mortgages it insures;
    representatives of appraiser education providers; and academic experts on

    issues related to real estate appraisals. We also obtained and reviewed
    records of the Appraisal Subcommittee*s state oversight activities, as
    well as information on appraisers maintained in the subcommittee*s
    national registry database. We conducted our work between March 2002 and
    March 2003 in accordance with generally accepted government auditing
    standards. Appendix II provides a detailed discussion of our scope and
    methodology, and appendix III contains a list of the entities that we

    contacted. 2 The territories included in our survey are Guam, Northern
    Mariana Islands, Puerto Rico, and the Virgin Islands. The only other U. S.
    territory* American Samoa* does not have a regulatory oversight structure
    for appraisers because real estate there can only be inherited. In this
    report, the term *states and territories* refers to the 50 states, the
    District of Columbia, and the 4 territories.

    Results in Brief Title XI created a complex regulatory system that relies
    upon the actions of private, state, and federal entities to help assure
    the quality of appraisals

    and the qualifications of appraisers used in federally related
    transactions.  The two private entities* the Appraisal Standards Board
    and Appraiser

    Qualifications Board* respectively establish (1) uniform rules for
    preparing and reporting real estate appraisals and (2) minimum
    qualification criteria for certified real estate appraisers. Certified
    real estate appraisers are one of the two categories of appraisers listed
    in Title XI, the other being licensed real estate appraisers.

     Title XI defers to the states with respect to the minimum qualification
    criteria for the licensed appraisers. In addition, Title XI relies on the
    states to (1) implement the certification and licensing of all real estate
    appraisers and (2) monitor and supervise compliance with appraisal

    standards and requirements. To assure the availability of certified and
    licensed appraisers, all of the states and territories have adopted
    structures to regulate and supervise the appraisal industry. These
    structures typically consist of a state regulatory agency coupled with a
    board or commission to establish education and experience requirements,
    license and certify appraisers, and monitor and enforce appraiser
    compliance.

     The federal financial institution regulators* defined in Title XI as the
    Federal Reserve System (FRS), Federal Deposit Insurance Corporation
    (FDIC), Office of the Comptroller of the Currency (OCC), Office of

    Thrift Supervision (OTS), and National Credit Union Administration (NCUA)*
    are responsible for ensuring that federally insured depository
    institutions comply with Title XI requirements. To meet these
    responsibilities, the regulators have (1) adopted rules and policies
    specifying transactions for which regulated financial institutions are
    required to obtain an appraisal by a certified or licensed appraiser, (2)
    developed examination procedures to ensure that regulated financial
    institutions are in compliance with Title XI, and (3) appointed agency
    representatives to the Appraisal Subcommittee.

     The Appraisal Subcommittee is responsible for monitoring the
    implementation of Title XI by all parties* private, state, and federal.
    The subcommittee monitors the efforts of the federal financial institution
    regulators in developing and adopting appraisal- related regulations and
    policies, conducts periodic reviews of each state*s licensing and

    certification program, and provides grants to the Appraisal Foundation to
    support the Title XI- related activities of its two boards* Appraisal
    Standards Board and Appraiser Qualifications Board. The private, state,
    and federal entities involved in the Title XI regulatory

    structure described a number of factors that they believe could constrain
    their ability to perform more effectively and efficiently. For example,
    officials of the Appraisal Standards Board and the Appraiser
    Qualifications Board told us that insufficient federal grant funding may
    impede their ability in the future to ensure that standards and
    qualifications evolve with changing conditions, such as how to appraise
    contaminated or polluted properties. State appraiser agencies* which are
    funded at the state level*

    reported resource limitations as the primary impediment in carrying out
    their oversight responsibilities. For example, of the 54 states and
    territories that responded to our survey, 26 reported that the current
    number of investigators was insufficient for meeting its regulatory
    responsibilities, 37 cited a need for increasing the staff directed at
    investigations, and 22 cited a need for more resources to support
    litigation. Officials of the five federal

    financial institution regulators reported no major impediments to
    accomplishing their Title XI responsibilities. The Appraisal Subcommittee
    reported that rule- making authority and additional enforcement sanctions
    could facilitate its oversight of state compliance with Title XI.
    Subcommittee officials stated that the only enforcement action they can
    take under Title XI is to decertify a state, which would prohibit all
    licensed

    or certified appraisers from that state from performing appraisals in
    conjunction with federally related transactions. Subcommittee officials
    stated that using this sanction would have a devastating effect on the
    real estate markets and financial institutions within the state. However,
    the Appraisal Subcommittee stated that it has always been able to achieve
    states* compliance under the current enforcement and regulatory structure.

    In addition to the impediments described above, officials of the
    regulatory agencies, appraiser trade groups, education providers, mortgage
    industry, HUD, and the GSEs raised concerns about the Title XI regulatory
    structure. However, there was no clear consensus regarding the need for or
    impact of possible changes. Some industry participants stated that a
    growing number of real estate transactions, such as those placed through
    mortgage brokers and those involving dollar amounts below the threshold
    level established by the federal financial institution regulators, are not
    universally subject to Title XI appraisal requirements. In addition, some
    industry participants cited concerns with the lack of a national
    qualification standard for the licensed real estate appraiser category.
    Education providers and appraiser

    trade groups expressed concerns about the Appraiser Qualifications Board*s
    fees and requirements for instructor certification and course approval.
    Federal and state regulatory officials expressed concern about

    the apparent reluctance of lending institutions to make referrals or
    complaints regarding questionable appraisals they identify. HUD and GSE
    officials expressed concerns about a lack of consistent and effective
    enforcement actions by the states on referred cases and the adequacy of
    the Appraisal Subcommittee*s oversight of state programs. This report
    makes recommendations to the Appraisal Subcommittee intended to enhance
    the effectiveness of the existing regulatory structure.

    We received written comments on a draft of this report from the Appraisal
    Subcommittee, the Appraisal Foundation, HUD, Fannie Mae, and Freddie Mac.
    In addition, we received technical comments from the federal financial
    institutions regulators, who indicated that their overall comments had
    been incorporated into those provided by the Appraisal Subcommittee. The
    Appraisal Subcommittee agreed to take action on our recommendation to
    develop and apply consistent criteria for determining and reporting
    states* compliance with Title XI, and did not comment on our
    recommendation for greater coordination with HUD, Fannie Mae, and Freddie
    Mac on referrals of problem appraisers. Concerning the remaining two
    recommendations, the Appraisal Subcommittee

     agreed that additional funding for the states would improve compliance
    with Title XI, but stated that the Subcommittee is not the answer to that
    issue. Because the recommendation is to explore additional funding as well
    as other options for assisting the states, we did not revise it.

     agreed that the Appraisal Foundation faces future grant funding
    constraints, but stated that using the Subcommittee*s surplus is not a
    long- term solution. We modified the report to emphasize that we are
    recommending that the subcommittee explore options, including drawing on
    the subcommittee*s surplus, if necessary, for addressing future Appraisal
    Foundation grant shortfalls.

    HUD agreed with our recommendation for greater coordination on referrals
    of problem appraisers to state appraiser agencies. Both Fannie Mae and
    Freddie Mac expressed concern about this recommendation, commenting that
    they are not regulatory entities. We revised the wording of our
    recommendation to emphasize the role that HUD, Fannie Mae, and Freddie Mac
    can play in helping the subcommittee carry out its oversight
    responsibilities.

    Background An appraisal is a decision- making tool used to facilitate a
    real estate transaction. The primary role of appraisals in the loan
    underwriting

    process is to provide evidence that the collateral value of the property
    is sufficient to avoid losses on loans if the borrower was unable to repay
    the loan. Consumers often mistakenly assume that appraisals are intended
    to validate the purchase price of the property in question. Furthermore,
    appraisals are sometimes confused with home inspections, which are
    intended to warn consumers about serious defects in the home being
    purchased that should be repaired. In a loan transaction, the lender
    rather than the borrower engages the appraiser and this usually occurs
    after the borrower has agreed to purchase the property. The primary intent
    of the appraisal reforms contained in Title XI was to protect the federal
    deposit insurance funds-- and, by extension, mortgage lenders-- from
    avoidable losses.

    An appraisal is an opinion of the value of a property as of a specific
    date. Appraisers generally consider the property*s value from three points
    of view* cost, income, and comparable sales* and determine an estimated
    value based upon weighing the three valuation methods. The cost approach
    is based on an estimate of the value of the land plus what it would cost
    to replace or reproduce the improvements minus the physical deterioration,

    functional obsolescence, and economic obsolescence. The income approach is
    of primary importance in ascertaining the value of income producing
    properties and is an objective estimate of what a prudent investor would
    pay based upon the net income the property produces. The comparable sales
    approach compares and contrasts the property under appraisal with recent
    offerings and sales of similar property. This approach is usually
    considered the most appropriate valuation approach for estimating the
    value of residential real estate property.

    In 1986, the House Committee on Government Operations issued a report
    concluding that faulty and fraudulent appraisals were an important
    contributor to the losses that the federal government suffered during the
    savings and loan crisis. 3 In response, Congress incorporated provisions
    in Title XI of FIRREA that were intended to ensure that federally related
    transactions had appraisals that were (1) performed by real estate

    3 Impact of Appraisal Problems on Real Estate Lending, Mortgage Insurance,
    and Investment in the Secondary Market, H. Rep. 99* 891 at 4* 6 (Sept. 25,
    1986), House Committee on Government Operations, 99th Congress, 2 nd
    session.

    appraisers that had met minimum qualifications criteria and (2) conducted
    in compliance with uniform standards.

    In addition to those identified in Title XI, there are other federal and
    government sponsored entities that have roles with respect to oversight of
    the real estate appraisal industry. Among these entities, the most
    important with respect to appraisal oversight issues are the HUD*s Federal
    Housing Administration (HUD/ FHA) and the two large GSEs that purchase
    residential loans in the secondary market* Fannie Mae and Freddie Mac.
    HUD/ FHA uses appraisals to determine a property*s eligibility for
    mortgage

    insurance and to estimate the value of a property for mortgage insurance
    purposes. Certified and licensed appraisers wishing to perform appraisals
    for HUD/ FHA loans must first be placed on the FHA Roster of Appraisers,
    which requires the appraiser to pass a HUD/ FHA examination on appraisal
    methods and meet other eligibility requirements. Both Fannie Mae and
    Freddie Mac consider appraisals or evaluations of the property value as a
    vital part of their risk analysis for loans that they purchase. For those
    loans

    for which Fannie Mae and Freddie Mac require an appraisal, the lender is
    required to use an appraiser that is state licensed or certified in
    accordance with the provisions of Title XI. 4 Fannie Mae and Freddie Mac
    largely hold

    the lender responsible for the selection and quality control of the
    appraiser. As such, Fannie Mae and Freddie Mac do not maintain a list of
    approved appraisers.

    Title XI Created a Various private, state, and federal entities play a
    role with respect to the

    Complex Appraiser Title XI regulatory structure (table 1). Private
    entities* the Appraisal

    Standards Board (ASB) and the Appraiser Qualifications Board (AQB)*
    Regulatory Oversight

    establish minimum standards over the development and reporting of real
    Structure

    estate appraisals and minimum qualification criteria for certified
    appraisers. States conduct the certification and licensing of appraisers,
    including setting education and experience requirements that, at minimum,
    must meet AQB criteria for certified appraisers and enforcing compliance
    with appraisal standards. FRS, FDIC, OCC, OTS, and NCUA* hereinafter
    referred to as the federal financial institution regulators* issue
    appraisal requirements for the financial institutions under their
    jurisdiction and

    4 Both Fannie Mae and Freddie Mac allow lenders the options to use an
    inspection or evaluation instead of a traditional appraisal, on loans that
    they determine to be low- risk based on their automated loan underwriting
    systems. In the case of Freddie Mac, certain low risk loans may be
    eligible for delivery to Freddie Mac with no appraisal or inspection.

    monitor compliance with their regulations. Lastly, the Appraisal
    Subcommittee has primary responsibility for monitoring and reviewing the
    actions of the private, state, and federal entities as they relate to
    Title XI.

    Table 1: Title XI Roles and Responsibilities for Appraisal Standards and
    Appraiser Qualifications Private State Federal Appraisal

    Appraiser Appraiser Financial Standards Board

    Qualifications Board regulatory institution Appraisal

    (ASB) (AQB)

    agencies regulatory agencies Subcommittee

    Appraisal standards

    Standard setting Develop standards for the

    Promulgate performance of real estate regulations that appraisals.

    establish appraisal standards, which meet or exceed ASB*s standards, for
    federally insured depository institutions.

    Implementation/ Monitoring Enforce compliance

    Monitor and enforce Monitor and review the

    with appraisal compliance by Appraisal Foundation*s standards and
    federally insured

    practices, procedures, requirements.

    depository institutions activities, and

    with appraisal organizational structure. regulations.

    Monitor policies, practices, and procedures of states to determine
    consistency with Title XI requirements.

    Monitor appraisal requirements established by federal financial
    institution regulatory agencies.

    Make grants to the Appraisal Foundation to defray the costs of the
    Appraisal Standards Board*s Title XI activities.

    (Continued From Previous Page)

    Private State Federal Appraisal

    Appraiser Appraiser Financial Standards Board

    Qualifications Board regulatory institution Appraisal

    (ASB) (AQB)

    agencies regulatory agencies Subcommittee

    Appraiser qualifications

    Standard setting Develop minimum

    Set qualifications Establish additional

    qualification criteria for criteria for

    qualification criteria certified real estate certification, which

    as may be necessary appraisers. meet or exceed

    or appropriate to carry AQB*s criteria, and out their statutory licensing
    of

    responsibilities. appraisers.

    Implementation/ Monitoring Transmit to the

    Prescribe categories Monitor qualification Appraisal

    of federally related criteria set by states for

    Subcommittee a transactions that the certification and roster of
    appraisers

    should be appraised licensing of individuals

    who have been by a state certified qualified to perform

    licensed or certified. appraiser and those

    appraisals in connection that can be performed with federally related
    Collect from by either a state transactions.

    appraisers and certified or licensed transmit to the

    appraiser. Maintain a national

    Appraisal registry of state certified Subcommittee a $25

    Monitor and enforce and licensed appraisers

    annual registry fee. compliance by eligible to perform federally insured

    appraisals in federally Enforce compliance

    depository institutions related transactions.

    with standards, with appraisal requirements, and

    regulations. Monitor and review the

    procedures Appraisal Foundation*s

    prescribed by Title XI. practices, procedures,

    activities, and organizational structure.

    Make grants to the Appraisal Foundation to defray the costs of the
    Appraiser Qualifications Board*s Title XI activities.

    Source: GAO.

    Appraisal Foundation and The Appraisal Foundation, a nonprofit educational
    organization composed Its Two Boards Establish

    of groups from the real estate industry, provides the organizational
    Appraisal Standards and

    framework for the ASB and AQB to carry out their Title XI- related
    responsibilities. 5 It was founded in 1987 by eight leading professional
    Minimum Appraiser

    appraisal organizations in the United States to foster professionalism in
    Certification Criteria

    appraising. The ASB and the AQB establish minimum standards for developing
    and reporting an appraisal and the minimum criteria for the certified
    appraiser category in connection with federally related transactions.

    The ASB, which is responsible for setting standards for appraisals, is
    composed of six appraisers who are appointed for 3- year terms by the
    Board of Trustees of the Appraisal Foundation. The ASB*s minimum standards
    for appraisals are contained in the Uniform Standards of Professional
    Appraisal Practice (USPAP). Under Title XI, these minimum standards apply
    to all federally related transactions. The standards cover

    both the steps appraisers must take in developing appraisals and the
    information the appraisal report must contain. The Foundation sells copies
    of USPAP but provides a copy of each updated version, free of charge, to
    the state regulatory agencies.

    The AQB, which is composed of five appraisers who are appointed for 3-
    year terms by the Board of Trustees of the Appraisal Foundation,
    establishes the minimum education, experience and examination requirements
    for state- certified real estate appraisers (set out in Real Property
    Appraiser Qualification Criteria and Interpretations of the Criteria). In
    addition, the AQB performs a number of ancillary duties related to real
    property and personal property appraiser qualifications. The AQB*s
    criteria cover four categories of appraisers* certified general, certified
    residential, licensed, and trainee* each with specific education,
    experience, examination, and continuing education requirements. Title XI
    does not require states to adhere to AQB criteria for licensed appraisers
    or for trainees.

    Both the ASB and the AQB regularly evaluate USPAP and the appraiser
    qualification criteria to determine whether revisions are needed.
    According

    5 The 2002 sponsors of the Appraisal Foundation consisted of eight
    appraisal organizations, four affiliate organizations (representing
    primarily the users of appraisal services), and one international
    appraisal organization. In addition, over 80 organizations, corporations,
    and government agencies are affiliated with the Appraisal Foundation.

    to the Appraisal Foundation, both boards solicit comments from appraisers,
    users of appraisal services, and the public before making final changes.
    Since the AQB set its original criteria in 1991, for example, it has
    issued numerous interpretations and approved two revisions of its
    criteria. As of January 2003, it was reviewing comments on a third draft
    of Real Property Appraiser Qualification Criteria.

    State Agencies Oversee the Under Title XI, states may establish their own
    agencies to certify and

    Licensing and Certification license appraisers. At the time of our review,
    all 50 states, the District of of Real Estate Appraisers

    Columbia, and 4 of the U. S. territories had established such agencies,
    which typically oversee the activities of appraisers for all types of
    transactions, including those that are federally related. Of the 54 state
    and

    territorial agencies responding to our survey, 30 reported operating as
    independent bodies, while 23 reported to another state agency or
    department. 6,7 In addition, survey respondents reported that they used

    boards or commissions as well as state employees to carry out Title XI
    activities. 8 All the agencies had established programs for certifying
    appraisers.

    Licensing requirements, however, differed. Some states did not require
    licenses unless appraisers planned to work with federally related
    transactions. Other states required appraisers to be either licensed or
    certified to perform a real estate appraisal, even for transactions that
    are not federally related. State agencies* licensing and certification
    programs typically included temporary and reciprocal licensing programs.
    An appraiser must, in general, obtain some type of license* temporary or
    reciprocal if not a standard state license* in all states where they want
    to perform appraisals for federally related transactions. 9 6 We did not
    receive a response to our survey from the Virgin Islands.

    7 The state of Wisconsin had a hybrid organizational structure composed of
    an independent board that handled the complaint process (including taking
    disciplinary action) and a state agency reporting to the Department of
    Regulation and Licensing that issued appraiser licenses.

    8 California and Guam reported that they did not use boards or commissions
    for appraiser oversight. 9 Reciprocity allows appraisers to use a license
    from their home state to obtain a license in another state without taking
    examinations or meeting additional requirements.

    In addition to conducting licensing and certification activities, all
    survey respondents indicated that they approve courses for appraisers*
    education or training, enforce state regulations concerning appraisals,
    and investigate complaints. Over half of the states reported that they had
    adopted appraisal standards in addition to those set by the ASB, and
    nearly 70 percent reported that they had introduced additional
    qualifications.

    Although the states are responsible for the certification and licensing of
    appraisers under Title XI, the Appraisal Subcommittee has a role in
    ensuring that state qualifications satisfy Title XI objectives. Title XI
    directs federal agencies not to accept state certifications and licenses
    if the subcommittee issues a written finding that:

     the state certifying and licensing agency has failed to recognize and
    enforce the standards, requirements, and procedures of Title XI;

     the state agency does not have enough authority to carry out its
    functions under Title XI; or

     the state agency does not make decisions on appraisal standards and
    qualifications or supervise appraiser practices in a way that carries out
    the purposes of Title XI. 10

    In addition, Title XI requires states to provide the Appraisal
    Subcommittee with the names of those appraisers who become certified or
    licensed in accordance with Title XI and to collect from them an annual
    registry fee that goes to the subcommittee.

    Federal Regulators Title XI requires the federal financial institution
    regulators to ensure that

    Determine Which real estate appraisals used in connection with federally
    related transactions

    are performed in accordance with standards developed by the ASB. 11 In
    Transactions Require

    addition, Title XI requires that the federal regulators prescribe the
    Appraisals and Establish categories of federally related transactions that
    should be appraised by a Compliance Standards for

    state certified appraiser and those that should be appraised by a licensed
    Depository Institutions

    appraiser. Under the statute, state certified appraisers generally must be
    used in connection with federally related transactions for all commercial

    10 12 U. S. C. S: 3347( a), (b) (2000). 11 12 U. S. C. S: 3339 (2000).

    real estate transactions greater than $250,000 and all residential
    transactions in excess of $1,000,000. 12 All other federally related
    transactions, unless subject to an exemption as authorized under Title XI,
    may utilize a state- licensed appraiser. 13 Under Title XI, the federal
    financial institution regulators may establish a

    threshold level at or below which a certified or licensed appraiser is not
    required. As of December 30, 2002, each of the five regulatory agencies
    had set their appraisal threshold at $250,000. 14 Thus, financial
    institutions have the option of obtaining either an appraisal or some
    other form of an evaluation of the property*s value for mortgage loans of
    $250,000 or less. The regulators have issued guidelines to the
    institutions under their jurisdiction that specify the requirements for
    evaluating real estate collateral for those transactions that do not
    require an appraisal. The federal financial institution regulators require
    that all appraisals for

    federally related transactions conform, at a minimum, to USPAP, that they
    be written, and that they contain sufficient information and analysis to
    support the institution*s decision to engage in the transaction.
    Regulatory agencies may take informal and formal enforcement actions,
    including memorandum of understanding, removal, prohibition, and cease and
    desist

    orders, and imposing civil money penalties against institutions that
    violate their appraisal regulations. These actions can apply to contract
    (fee) appraisers as well as appraisers who are employees of the
    institutions and institution- affiliated parties. Moreover, pursuant to
    the FDIC Improvement

    12 The $1,000,000 threshold does not apply to 1- 4 unit, single family
    residential appraisals unless the size and complexity of the transaction
    requires a State certified appraiser. Also, under Title Xl the federal
    financial institution regulators are responsible for determining whether
    other types of transactions warrant the use of a certified appraiser. See
    12 U. S. C. S: 3342 (2000).

    13 Although the States are responsible for establishing and administering
    licensing qualifications, Title XI authorizes the federal financial
    institution regulators to establish additional qualification criteria.

    14 The threshold amount is contained in regulations of the respective
    agencies that set forth the circumstances under which an appraisal by a
    state certified or licensed appraiser is required or not required. See 12
    C. F. R. S: 34.43 (2002)( OCC), 12 C. F. R. S: 225.63 (2002)( FRS),

    12 C. F. R. S: 323.3 (2002)( FDIC), 12 C. F. R. S: 564.3 (2002)( OTS), and
    12 C. F. R. S: 722. 3 (2002)( NCUA).

    Act of 1991, the federal financial institutions regulators can take action
    against institution- affiliated parties such as an appraiser. 15

    According to representatives of the regulatory agencies, regulators
    typically review an institution*s compliance with appraisal regulations
    during examinations of business risk management policies and practices,
    during targeted examinations (for example, of real estate transactions and
    practices), or during reviews of lending transactions. If regulators
    detect

    violations or deficiencies, they may take enforcement action or address it
    within discussions with the institution*s management for corrective action
    if they believe it affects the institution*s safety and soundness.

    Appraisal Subcommittee Title XI established the Appraisal Subcommittee as
    the principal federal

    Monitors Title XI Regulatory agency responsible for monitoring the
    activities of the other components of

    Activities the real estate appraisal industry oversight structure.
    Specifically, the

    subcommittee is responsible for:  monitoring and reviewing the practices,
    procedures, activities, and

    organizational structure of the Appraisal Foundation* including making
    grants in amounts that it deems appropriate to the Appraisal Foundation to
    help defray costs associated with its Title XI activities;

     monitoring the requirements established by the states, territories, and
    the District of Columbia and their appraiser regulatory agencies for the
    certification and licensing of appraisers;

     monitoring the requirements established by the federal financial
    institution regulators regarding appraisal standards for federally related
    transactions and determinations of which federally related transactions
    will require the services of state- licensed or state- certified
    appraisers;

     maintaining a national registry of state- licensed and state- certified
    appraisers who may perform appraisals in connection with federally related
    transactions; and

    15 12 U. S. C. S: 1813( q) (2000).

     transmitting an annual report to Congress regarding the activities of
    the subcommittee during the preceding year. 16

    The Appraisal Subcommittee has six board members and seven staff members.
    The board members are designated by the heads of the five financial
    institution regulatory agencies that collectively make up the Federal
    Financial Institutions Examination Council* OCC, FRS, FDIC, OTS, and NCUA*
    and HUD. The subcommittee funds its activities through a portion of the
    fees assessed by the states against individual appraisers for licensing
    and certification. 17 According to subcommittee officials, the
    subcommittee monitors the

    Appraisal Foundation by attending all significant meetings and events
    associated with its Title XI activities and reviewing all proposed changes
    or additions to its appraiser qualifications criteria or USPAP- related
    documents. In addition, the subcommittee reviews the Appraisal
    Foundation*s grant requests to ensure that the requested funds will only
    be used for activities related to Title XI. The subcommittee evaluates the
    foundation*s initiatives to determine whether they are eligible for
    reimbursement; the initiatives must be reasonable and not arbitrary or
    capricious.

    The subcommittee monitors the federal financial institution regulators
    primarily through informal channels. For example, all six Appraisal
    Subcommittee board members are involved in the offices responsible for
    appraisal regulation in their individual agencies and provide input from
    the subcommittee informally to the agencies. The subcommittee also
    provides technical assistance on proposed regulations on appraisal issues.
    One official told us that the issues subject to subcommittee monitoring in
    this regard are few and tend not to change often. He stated that the only
    change he could recall in nearly 7 years was the NCUA's recent decision to
    raise the minimal threshold for transactions requiring appraisals from
    $100, 000 to $250,000 to match the levels of the other regulatory
    agencies.

    Monitoring state appraiser regulatory agencies requires performing on-
    site field reviews of state agency programs and maintaining close

    16 See 12 U. S. C. S: 3332( a) (2000). 17 Title XI authorizes the
    Appraisal Subcommittee to charge an annual registry fee of not more than
    $25. However, the Federal Financial Institutions Examination Council may
    approve fees up to $50 per year. As of March 31, 2003, the annual registry
    fee was $25.

    communications with, among others, appraisers, state and federal agencies,
    and users of appraisal services. The subcommittee has two primary review
    cycles for states* 3 years and 18 months. Most states are scheduled on the
    3- year cycle, and states are moved to an 18- month cycle if more frequent
    on- site visits are warranted* generally because of concerns identified
    during the prior field review. According to the Appraisal

    Subcommittee, its field review manual is intended to insure consistent
    review and policy applications from state to state. The reviews cover open
    and closed complaints; approved and disapproved education providers and
    courses; state statutes and regulations on certifying and licensing
    appraisers; minutes of board meetings; appraiser registries and fees;

    temporary practice and reciprocity; and topical issues such as predatory
    lending, fraud, and illegal real estate flipping. 18 The letters that
    summarize the results of the state field reviews identify concerns,
    discuss whether the previous review*s concerns have been resolved, and
    make general conclusions about the state*s compliance with Title XI and
    Appraisal

    Subcommittee policy statements. The state field review letters are posted
    on the subcommittee*s Web site.

    We reviewed the Appraisal Subcommittee*s state field review letters from
    1992 to 2002. While the letters provide some information to the state
    regulatory agencies, we found no evidence of transparent criteria for how
    the subcommittee determined and reported states* compliance levels. For
    example, state field review letters were sometimes inconclusive about
    whether the state regulatory program was in compliance. When the letter
    contained a determination of compliance, the rationale for this decision
    was not always given. For example, some states with identified concerns
    were deemed compliant, while others with identified concerns were deemed
    noncompliant. Developing and applying consistent criteria to assess
    states* compliance with Title XI requirements could increase the
    usefulness of (1) the letters issued to the states in identifying best
    practices

    and how one state measures against other states and (2) the annual reports
    that the Appraisal Subcommittee provides to Congress on the implementation
    of Title XI.

    18 Illegal real estate flipping is a scheme where a real estate speculator
    buys a house, usually in a poor neighborhood, and obtains an inflated
    appraisal and other fraudulent financial documents to trick a lender into
    making a loan that exceeds the fair market value. The house is sold again
    at an inflated price to a second buyer. The seller has then made a large
    profit on the inflated value of the property. If the second buyer defaults
    on the loan, the mortgage lender may not be able to recoup the amount of
    the loan and will therefore absorb a loss.

    Under Title XI, the subcommittee is also required to maintain a registry
    of state- certified and -licensed appraisers who are eligible to perform
    appraisals for federally related transactions. 19 The registry database is
    designed to allow users to determine (1) whether an appraiser is eligible
    to perform such appraisals and (2) whether the appraiser has been
    subjected to disciplinary action. In addition to eligibility information,
    the database includes information about the number of active and inactive
    licenses, the types of licenses, and any disciplinary actions taken by
    states against appraisers. Appendix IV contains a detailed description of
    the database and summary information regarding the number of appraisers by
    license type and enforcement actions reported by the states.

    Private, State, and The private, state, and federal entities involved in
    the oversight of the real

    Federal Entities Cited estate appraisal industry identified a number of
    factors that they believe

    could constrain their ability to fulfill their Title XI responsibilities.
    ASB and Potential Impediments

    AQB officials stated that an impediment that they may face in the future
    is to Fulfilling their Title inadequate federal funding, which would
    hinder their ability to ensure that

    XI Roles appraisal standards and qualification criteria keep pace with
    changes in the

    mortgage industry and marketplace. State appraiser agencies reported that
    they often lack funding to revise their regulations with every USPAP
    update and to cover the increasing cost of administering the licensing and

    certification processes. The federal financial institution regulators did
    not identify any major impediments to fulfilling their Title XI
    responsibilities, but they did state that reaching consensus on regulatory
    standards was difficult because of the number of entities involved in the
    appraisal industry. Appraisal Subcommittee officials reported that rule-
    making authority and additional enforcement sanctions could facilitate its
    oversight of state compliance.

    The Appraisal Standards The ASB and AQB reported that financial challenges
    arise when federal

    and Appraiser grant funding falls short of their needs. Since 1991, the
    Appraisal

    Qualifications Board Cited Subcommittee has allocated a total of over $9
    million in grants to the

    Concerns about Federal Appraisal Foundation to defray the costs of the
    ASB*s and AQB*s Title XIrelated

    Funding activities. For most of this time the allocations have been less
    than

    what the ASB and AQB have requested. For example, the ASB and AQB
    requested a total of over $9 million in grant money between 1994 and 2003,

    19 12 U. S. C. S:3332( a)( 3).

    but less than $7 million was approved. However, the Appraisal Foundation
    also has other sources of revenue other than the grants it receives from
    the Appraisal Subcommittee. For example, the $870,373 grant that the
    Appraisal Foundation received during calendar year 2001 represented
    approximately 36 percent of the Appraisal Foundation*s total revenue of
    $2.4 million for that year. (The largest source of revenue for the
    Appraisal Foundation in 2001 was $1.1 million from publication sales.)
    Further, in commenting on a draft of this report, the Appraisal
    Subcommittee noted that the ASB and AQB had not used all of the grant
    funds provided in past years.

    The Appraisal Subcommittee told us that it did not have the current- year
    funds to fully meet the ASB*s and AQB*s grant requests over the past 3
    years. However, the Appraisal Subcommittee had a $3.7 million surplus as

    of December 2001. According to Appraisal Subcommittee officials, the
    surplus was built up in its early years of operation when its revenues
    exceeded its expenses and grants to the ASB and AQB. Subcommittee
    officials stated that in recent years its expenses have increased*
    primarily due to inflation and expenses associated with its monitoring
    activities* and that this in turn has limited the amount of funds
    available for grants to the ASB and AQB from current- year funds. They
    explained that it has not been the Appraisal Subcommittee*s policy to use
    the surplus to provide grants to the ASB and AQB. When the ASB*s and AQB*s
    initial grant requests have exceeded the difference between the Appraisal
    Subcommittee*s current- year revenues minus its expenditures, the
    Appraisal Subcommittee has requested that the Appraisal Foundation adjust
    its grant requests accordingly. Appraisal Subcommittee officials also
    stated that inflation and other

    factors will likely continue to raise the boards* expenses by up to 5
    percent per year. Given that the number of appraisers has remained static
    for the last several years, subcommittee officials did not anticipate
    their revenues, which are based primarily on licensing and certification
    fees, to increase. As a result, future grants to the ASB and AQB are
    expected to fall unless

    the subcommittee uses its surplus, raises the $25 fee that states collect
    from appraisers on the subcommittee*s behalf, or both.

    According to ASB and AQB officials, future funding shortfalls may limit
    the activities they believe enhance the quality, timeliness, and
    usefulness of standards and qualifications. For example, the AQB chair
    commented that additional funding is needed to update their *body of
    knowledge,* which outlines the concepts, theories, paradigms, and
    applications of the real

    property appraisal profession and delineates the skill necessary to
    practice. The AQB believes that updating its body of knowledge is
    necessary to keep pace with changes in the marketplace. Likewise, ASB and
    AQB officials stated that funding is needed to ensure that its education
    and professional standards keep pace with trends and issues such as the
    lack of terrorism insurance and polluted properties and how they might
    impact a property*s

    value. According to ASB and AQB officials, the ultimate impact of funding
    shortfalls could be a weakening in the protections intended by Title XI
    because appraisal standards and appraiser qualifications may not keep pace
    with changes in the marketplace. States Cited Funding

    Most of the states identified funding and staffing deficiencies as the
    most Limitations and Frequent

    serious challenges they faced in carrying out their Title XI duties. Of
    those USPAP Updates as

    states that reported challenges, about two- thirds of the states said that
    they Impediments

    needed additional funding to conduct investigations, and over
    threequarters said that they needed additional staff. The states also
    reported that the frequency of USPAP updates was an administrative burden
    and created challenges in investigating and enforcing complaints of USPAP
    violations.

    Based on our survey of state and territorial regulators of the appraisal
    industry, the average state agency had about 3 staff members, who were
    responsible for overseeing almost 2,000 appraisers. Many of these state
    agencies reported that they needed to share resources* administrative
    staff, office space, investigators, or all three* with other state
    agencies in

    order to perform their Title XI duties. The survey results indicated that
    investigations of complaints about problem appraisers suffered most from
    these shortages. The majority of states sharing resources were sharing
    investigators, who often had no real estate appraisal experience. In one
    agency newsletter, a state official explained that without adequate
    funding states could not effectively administer their appraiser
    certification programs and investigate and dispose of disciplinary cases
    in a timely

    manner. According to an official from another state, the agency knows that
    more enforcement and faster turnaround times are needed in investigating
    complaints but is hindered by its limited resources. According to
    Appraisal Subcommittee officials, their general counsel analyzed whether
    the subcommittee could provide grants to the states to help provide
    funding for

    their Title XI activities and determined that it lacked the necessary
    legal authority. Seventy percent of state appraiser regulatory agencies
    responding to our

    survey indicated that USPAP updates are too frequent. One state reported

    that frequent changes to USPAP have made processing complaints difficult
    because staff had to review so many versions of USPAP to determine whether
    complaints were valid. Another state pointed out that regulating
    appraisers was difficult when the appraisal standards changed so

    frequently. According to ASB officials, USPAP has been in place for only
    15 years, and annual updates have been needed because so many changes have
    occurred in the appraisal industry. Moreover, they told us that many of
    the changes that have been incorporated into USPAP are a result of
    requests from state regulators. The officials explained that over the
    years the ASB has experimented with different formats for updating USPAP
    but has found that issuing an annual publication has been the best way to
    ensure that everyone is using the same standards. The ASB and the

    Foundation are currently working on developing a future publishing
    schedule of having USPAP issued biennially. In addition, ASB officials
    stated that they have recently started providing state regulators
    complimentary newsletters highlighting ASB and AQB activities and noting
    any changes, modifications, or clarifications to USPAP or appraiser
    qualifications criteria. Some states have found the annual updates to be a
    legislative burden in terms of getting the new regulations adopted, but
    the majority of states reported that they had been able to update their
    real estate appraisal regulations or rules in 6 months or less.

    Federal Financial Institution The federal financial institution regulators
    indicated that they have not

    Regulators Did Not Identify encountered any major impediments to
    fulfilling their Title XI

    Any Major Impediments responsibilities. However, some of the federal
    financial institution

    regulators stated that the number of different entities involved in the
    Title XI oversight structure sometimes made resolving issues difficult and
    hindered efforts to develop a common approach to examining structural
    issues. They noted that faulty and fraudulent real estate appraisals have

    been associated with losses incurred by federally insured financial
    institutions* such as in the case of illegal real estate flipping* and
    have resulted in financial harm to individual consumers. However, all of
    the regulators stated that real estate appraisals have not been a major
    factor in the failure of depository institutions since the passage of
    Title XI.

    Appraisal Subcommittee As discussed earlier, the Appraisal Subcommittee is
    responsible for

    Stated That Rule- Making monitoring states* compliance with Title XI.
    According to subcommittee

    Authority and Enforcement officials, the lack of rule- making authority
    and limited enforcement powers

    Options Could Facilitate Its make achieving the uniformity and
    standardization intended by Title XI

    more difficult. In addition, the officials noted that because the 55 state
    Oversight of States

    appraiser regulatory agencies took a variety of approaches to implementing
    Title XI, expanding the subcommittee*s function to allow it to issue
    regulations would help ensure greater consistency among the states in
    credentialing appraisers and enforcing the most current version of USPAP.
    However, giving the Appraisal Subcommittee rule- making authority would

    also change the subcommittee*s role under Title XI from a monitoring to a
    regulatory function.

    The Appraisal Subcommittee has issued 10 policy statements to *assist the
    states in the continuing development and maintenance of appropriate
    organizational and regulatory structures for certifying, licensing, and
    supervising real estate appraisers.* 20 For example, Statement 5 indicates
    that states should not require temporary practitioners* appraisers from
    other states with temporary licenses* to affiliate with in- state
    appraisers and recommends that states forward information about
    disciplinary actions against visiting appraisers to the appraisers* home
    states. However, adherence to these recommendations varies across states.
    Our survey indicated that 98 percent of respondents adhered to the
    nonafiiliation

    policy but that less than 50 percent were notifying home states about
    disciplinary actions.

    Subcommittee officials stated that currently the only enforcement action
    they can take under Title XI is to decertify a state. Decertification
    prohibits all licensed or certified appraisers from that state from
    performing appraisals in conjunction with federally related transactions.
    Because this action is so severe and could significantly affect a state*s
    real estate market, the subcommittee has never used it, and its impact has
    not been tested. In addition, the decertification action can be taken only
    for the limited purposes specified in Title XI and is subject to proof
    requirements and judicial review. 21 20 Appraisal Subcommittee, Policy
    Statements Regarding State Certification and Licensing

    of Real Estate Appraisers (Washington, D. C: Sept. 22, 1997, as amended).
    21 See 12 U. S. C. S: 3347( b),( c) (2000).

    During our review, the Appraisal Subcommittee noted that its oversight of
    the states could be strengthened if it had more enforcement authority* for
    example, the authority to assess monetary penalties or to require that a
    state stop an activity or practice. However, in commenting on a draft of
    this report, the subcommittee stressed that it has always been able to
    ensure that states are complying with Title XI within the current
    supervisory and enforcement structure. Industry Participants

    Representatives of federal and state regulatory agencies, appraiser trade
    Raised Various

    groups and education providers, and the mortgage industry expressed
    various concerns and conflicting viewpoints about the Title XI regulatory
    Concerns about the

    structure. Some of the industry participants cited the concern that Title
    XI Title XI Oversight

    left the minimum qualification criteria for licensed real estate
    appraisers to Structure

    the states resulting in the lack of a national standard and gaps in Title
    XI*s regulatory coverage, particularly the exclusion of certain types of
    financial institutions and mortgage brokers who increasingly account for a
    large volume of loan originations. Second, some cited concerns about a
    lack of uniformity among the states in (1) licensing and certification
    practices, (2) requirements for approving educational activities, and (3)
    complaint referrals and enforcement activities, especially for suspected
    problem appraisers. These perceived gaps in the Title XI oversight
    structure are, in

    part, reflective of the primary intent of Title XI, which was to protect
    the federal deposit insurance funds rather than individual consumers.
    There was no clear consensus regarding the need for or impact of possible
    changes to the existing Title XI regulatory structure.

    Industry Participants Cited Participants in the real estate appraisal
    industry expressed concern that

    Lack of National Licensing licensed real estate appraisers, unlike
    certified appraisers, do not have to

    Criteria meet national qualification criteria. According to many of the
    groups we

    contacted, Title XI*s most significant shortcoming is the provision that
    leaves the criteria for licensed appraisers to each state, including
    decisions such as how often appraisers should be licensed and whether they
    should be licensed at all. Under Title XI, a *state- licensed appraiser*
    is defined as

    *an individual who has satisfied the requirements for state licensing in a
    state or territory.* 22 In contrast, certified appraisers must meet
    certification

    22 12 U. S. C. S: 3345( c) (2000).

    criteria that adhere to the AQB*s requirements. 23 While Title XI contains
    this mandate for certified appraisers, it contains no reference to
    licensing requirements for licensed appraisers. Moreover, Title XI
    specifies that the subcommittee will not set requirements for licensing
    and that any

    subcommittee recommendations are nonbinding. 24 However, the federal
    financial institutions regulators have the authority to issue additional
    qualification requirements as needed to carry out their statutory
    responsibilities. 25

    Some groups believe that this provision has led to a lack of uniform
    qualifications in licensing across the country (for example, in education
    and experience) and may also have helped to create an environment
    conducive to mortgage fraud. According to an official from the Appraisal
    Subcommittee, Title XI*s intent was to ensure that appraisers for
    federally related transactions met minimum requirements for experience and
    education and had been examined in order to ensure a minimum level of

    competency. Under the current system, individuals in some states can
    qualify for an appraiser license without having satisfied any educational
    requirements or met any criteria for work experience and without having
    passed any examinations.

    Officials from the Appraisal Subcommittee reported that while most states
    have adopted statutory or regulatory provisions requiring licensed
    appraisers to meet AQB recommended criteria, six states do not have a
    state- licensed appraiser category, and six have licensing requirements
    that are less stringent than the AQB*s. As a result, subcommittee
    officials said, some licensed appraisers may not meet recommended
    qualifications criteria. For example, in 2002, one state passed
    legislation that eliminated the experience requirement for its licensed
    appraisers; and, in 2001,

    another state revised its licensing criteria to comply with AQB
    requirements but at the same time *grandfathered* in several hundred
    licensed appraisers. As a result, lenders and homebuyers who rely on proof

    of licensing when hiring appraisers may not know what kind of criteria, if
    any, the appraisers were required to meet. The Appraisal Subcommittee

    23 12 U. S. C. S: 3345( a) (2000). 24 12 U. S. C. S: 3345( e) (2000). 25
    12 U. S. C. S: 3345( d) (2000).

    and other industry participants view the issue as a growing problem, since
    licensed appraisers are likely to perform the majority of residential
    appraisals.

    According to two regulatory officials, problems related to the lack of
    uniformity in licensing appraisers are compounded by the fact that Title
    XI also makes licensing voluntary at the state level. Voluntary licensing
    means that the state does not have a legislative requirement that
    appraisers be licensed or certified. However, the volunteer states do
    provide the

    opportunity for an appraiser to become licensed or certified to perform
    federally related transactions. These regulators, as well as one appraiser
    trade group, view voluntary licensing as a serious flaw in the industry*s
    regulatory structure and a probable contributor to mortgage fraud.

    Moreover, voluntary licensing may indirectly place the onus on financial
    institutions to ensure that appraisers for federally related transactions
    have the appropriate qualifications. According to officials from the
    Appraisal Subcommittee, state licensing requirements for appraisers falls
    into one of three categories* voluntary, mandatory for federally related
    transactions, and mandatory (table 2). As of March 2003, 10 states were
    classified as being in the voluntary licensing category, and one federal
    financial institution regulator reported that most of the mortgage fraud
    problems it has encountered have occurred in states where licensing is
    voluntary. His views were echoed in an earlier Federal Bureau of
    Investigation testimony at a special congressional hearing on predatory
    lending in March 2000. 26 According to this testimony, the most egregious
    property flipping problems

    have occurred in states where licensing is voluntary for transactions that
    are not federally related. 26 Form of Real Estate Fraud Known As Flipping:
    Hearing before a Subcommittee of the Senate Committee on Appropriations,
    March 27, 2000, Baltimore, Maryland.

    Table 2: State Appraiser Licensing Requirements State licensing
    requirement Description of requirement States

    Vol unt ar y a State law does not require appraisers to be Alaska,
    Indiana, Iowa, Kentucky, Louisiana,

    state licensed or certified. A person wanting to Massachusetts, North
    Dakota, Ohio, Oklahoma,

    perform appraisals connected with federally and Wyoming (10)

    related transactions may choose to become state licensed or certified. b
    Mandatory for federally related

    State law requires all appraisers connected Arkansas, California,
    Colorado, Florida, Georgia, transactions only with federally related
    transactions to be state

    Hawaii, Illinois, Kansas, Maryland, Montana, New licensed or certified.
    Persons performing

    Hampshire, New York, Vermont, Wisconsin, and appraisals in transactions
    that are not federally Guam (15) related need not be licensed or
    certified.

    Mandatory State law requires all persons performing any Alabama, Arizona,
    Connecticut, Delaware,

    kind of appraisal activity for any kind of real District of Columbia,
    Idaho, Maine, Michigan, estate transaction to be state licensed or

    Minnesota, Mississippi, Missouri, Nebraska, certified.

    Nevada, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania,
    Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah,
    Virginia, Washington, West Virginia, Northern Mariana Islands, Puerto
    Rico, and Virgin Islands (30)

    Source: Appraisal Subcommittee. a According to a subcommittee official,
    under this requirement appraisers who are not licensed or

    certified could perform appraisals in connection with federally related
    transactions without violating state law, but the federally regulated
    financial institution using that appraiser's services could be subjected
    to federal regulatory action.

    b Under state law, federally related transactions should include
    transactions involving the Federal Housing Administration and the two
    government- sponsored enterprises, Fannie Mae and Freddie Mac.

    Industry Participants Were Industry participants also voiced concerns
    about the fact that Title XI does

    Concerned That Title XI not cover financial institutions and mortgage
    brokers that are not subject

    Does Not Cover Many to federal regulation. When Title XI was enacted,
    federally regulated

    Transactions lending institutions made most mortgage loans. Today, other
    financial

    institutions, such as mortgage bankers and finance companies, account for
    a substantial share of the mortgage marketplace. Many of these financial
    institutions that are not federally regulated, as well as an increasing
    portion of regulated financial institutions, use mortgage brokers to
    originate loans, so that these brokers now originate about 50 percent of
    all mortgage loans. These entities and individuals may have state
    licenses, but they are not monitored by federal or state entities through,
    for instance, examinations

    or audits. 27 Appraisers have anecdotally reported that these originators
    pressure them the most to appraise properties at or near the purchase
    price to assure that the mortgage transaction will occur.

    As previously noted, the federal financial institution regulators have set
    the minimum for transactions requiring appraisals at $250,000. Some
    industry participants have said that this threshold and any increases to
    it undercut efforts to protect consumers. These groups believe that
    oversight of real estate appraisals should be geared toward the interests
    of consumers, who

    should be able to expect an unbiased, objective third- party opinion of
    the value of real property offered as security for a loan. However, Title
    XI was enacted in response to the impact of appraisal problems on
    federally insured depository institutions, and federal financial
    institution regulators have identified few problems or risks to depository
    institutions associated with loans valued below the $250,000 threshold.
    For transactions of less than $250,000, federal financial institution
    regulators allow lenders to use either an evaluation* a simpler assessment
    of a property*s market value. For example, the results of a computerized
    valuation known as an automated valuation model (AVM) could be used as the
    basis for an evaluation. 28 The two groups holding some of the largest
    portfolios of residential real estate mortgages, Fannie Mae and Freddie
    Mac, increasingly are using AVMs in place of traditional appraisals.
    However, because an evaluation or AVM is not considered an appraisal, it
    is not

    subject to the same standards and does not require a licensed or certified
    appraiser. Appendix V describes the basic types of AVMs and the benefits
    and concerns that have been associated with them.

    Industry Participants Cited Representatives of various groups we contacted
    expressed some concerns Differences Among State

    about differences in the standards that states have set for temporary,
    Licensing Programs reciprocal, and general licenses. The differences noted
    by these groups focused on the lack of uniformity in the implementation of
    Title XI

    27 Fannie Mae officials noted that when an appraisal is required for a
    mortgage that will be delivered for sale to the GSE, mortgage brokers must
    use appraisers that are state- licensed or certified in accordance with
    Title XI.

    28 An evaluation is generally performed by an individual who does not need
    a license or certification. For more information on real estate
    evaluations, see U. S. General Accounting Office, Bank and Thrift
    Regulation: Better Guidance Is Needed for Real Estate Evaluations, GAO/
    GGD- 94- 144 (Washington, D. C.: May 23, 1994). In addition, the federal
    financial institutions regulators issued Interagency Appraisal and
    Evaluation Guidelines on October 27, 1994.

    requirements. According to these groups, the lack of uniformity between
    states in the implementation of Title XI has created difficulties for
    lenders and appraisers who operate in multiple states.

    Industry participants cited a lack of uniformity in the way states grant
    temporary and reciprocal licenses. Because credentials from one state may
    not be recognized by another, appraisers often have to carry multiple
    state licenses. Title XI requires states to recognize on a temporary basis
    real estate appraisers who have been certified or licensed by another
    state if

    certain conditions are met and encourages states to develop reciprocity
    agreements that readily authorize appraisers who are licensed by and in
    good standing with their home state to perform appraisals in other states.
    29 The Appraisal Subcommittee has issued policy statements on temporary

    practice and encouraging reciprocity. However, our survey indicated that
    state regulatory agencies continue to vary widely on these issues. For
    example, of the 53 states and territories that responded to this question,
    40 issued temporary licenses for single assignments, 16 allowed an
    appraiser only one temporary license at a time, and 15 limited the number
    of temporary licenses an appraiser could receive annually. Six of the 54
    respondents to our survey indicated that visiting appraisers are required
    to pass a state exam in order to receive a reciprocal license. This
    practice is not only inconsistent with the spirit of Title XI but also
    with the Appraisal

    Subcommittee*s guidance recommending that states accept licenses or
    certification from other states meeting AQB requirements. In addition, a
    representative from a banking trade group told us that lenders are
    dissatisfied with state reciprocal licensing requirements, which make it
    difficult to use the same appraisers in multiple jurisdictions or states.
    The trade group representative added that some states are more restrictive
    than others. According to our survey, 23 states and territories require a

    reciprocity agreement with the state or territory issuing an appraiser*s
    original license before issuing a reciprocal license. The inability to
    readily obtain a license in another state may be especially problematic
    during periods of heavy refinancing, when some states may need more
    appraisers.

    Further, the states do not use uniform appraiser classifications or fee
    requirements. The Appraisal Subcommittee recognizes four licensing
    categories in its National Registry of Appraisers* licensed, certified
    general, certified residential, and transitional license. We found that
    the number of categories for licensed and certified appraisers used by the

    29 12 U. S. C. S: 3351( a),( b) (2000).

    states and territories ranged from two to seven and included such non- AQB
    classifications as residential real property appraiser and limited general
    appraiser. The states* license fees also varied by the type of license or
    certification sought and the number of years it covered. Individual states

    set fees for certifying and licensing appraisers, with annual fees ranging
    from $22 to $450 and initial licensing terms of from 1 to 4 years. For the
    55 state agencies with a certified general appraiser classification, we
    found that 22 states had a 1- year term with fees ranging from $120 to
    $450, 28 states had 2- year terms and fees from $44 to $680, and 3 states
    had 3- year

    terms with fees from $150 to $470. One state had a 4- year term but did
    not provide information on its fees. 30 The results of our analysis of
    license renewal fee requirements were

    similar. Specifically, for the certified general appraiser classification,
    we found that 19 states had a 1- year term with fees ranging from $105 to
    $400, 29 states had 2- year terms with fees from $100 to $610, and 6
    states had 3- year terms with fees from $225 to $470. We also found that
    these provisions varied depending on the category of license or
    certification sought. For example, the renewal term for a licensed real
    property appraiser (residential) ranged between 1 to 4 years across
    states, while the renewal term for a licensed real property appraiser
    (general) ranged from 1 to 2 years.

    Industry Participants Several state regulators and education providers
    expressed concerns about

    Expressed Concerns about the expenses and lack of uniformity in the
    processes associated with

    the Costs and Lack of approving instructors and courses for appraisers*
    continuing education. A

    Uniform Approval representative of an appraisers* trade group noted that
    gaining approval for

    Processes for Appraiser a course and an instructor in one state does not
    necessarily translate into

    approval in other states. As a result, the trade group spent around $30,
    000 Education Courses

    having courses for a July 2000 training conference approved in all
    jurisdictions. He added that one- fourth of the states require certified
    checks, notarized documents, or both to initiate the course approval

    process. These participants believe that the added cost and procedures
    involved in acquiring approval in each state is overly burdensome.

    AQB officials told us that the board has set up a voluntary national
    system for approving courses and that these concerns had influenced their
    project.

    30 The remaining state*s program charged a certified general appraiser $45
    in even- numbered years and $90 in odd- numbered years.

    AQB and Appraisal Foundation officials said that their efforts were not
    intended to usurp the states* authority. According to the AQB, the course
    approval program was designed to be a convenience for both course

    providers and state regulators while helping to ensure quality appraisal
    courses. However, AQB*s course and instructor approval programs have met
    opposition in some quarters. For example, some state officials and other
    industry participants stated that requiring AQB approval for all USPAP
    refresher courses and instructors and restricting course materials and
    examinations to AQB publications* for which AQB charges a royalty fee*
    represent a conflict of interest. However, AQB officials stated that any
    educational provider may submit a USPAP course for consideration to be
    deemed equivalent to the national USPAP courses and added that, to date,
    four educational providers have submitted courses which have been approved
    as equivalent to the national USPAP courses. In addition, some education
    providers have stated that the fees charged by the AQB for its course and
    instructor approval are excessive. On the other hand, some state and
    federal financial institution regulators believe that the Appraisal
    Foundation and its boards possess expertise and resources the states do
    not have and thus are needed to ensure that the quality of appraiser
    education and training is not compromised. Appendix VI contains
    information on the fees charged by the AQB for its course and instructor
    approval programs.

    Similarly, some states and educators have expressed concern that the AQB
    and Appraisal Subcommittee have encroached upon state authority in setting
    certain appraisal standards and appraiser qualifications. For example, the
    regulatory agency and an education provider in one state objected to
    certain AQB education requirements for certified appraisers, in particular
    a requirement that education providers be certified through the AQB*s
    instructor certification program. As part of its industry monitoring
    function, the Appraisal Subcommittee reviewed those standards and
    determined that the AQB had acted appropriately in adopting them. The
    Appraisal Subcommittee has also instructed states to rescind approvals of
    distance education courses for certified real property appraisers if the
    courses or their providers did not conform to AQB criteria. 31 The state
    appraiser regulatory agency and education provider contended that the

    31 Distance education does not require that the student be physically
    present in the same location as the instructor. Common delivery systems
    used in distance education involve technology such as video, computer-
    based training, and the Internet to bridge the

    instructional gap.

    education provider standards exceed the scope of the AQB*s responsibility
    as contemplated by Title XI and that the Appraisal Subcommittee, by
    recognizing and affirmatively applying those standards, acted beyond its
    monitoring authority.

    In light of those assertions, the Appraisal Subcommittee requested a legal
    opinion from the Legal Advisory Group of the Federal Financial
    Institutions Examination Council on (1) the scope of AQB*s authority to
    adopt education- related standards for certified appraisers; (2) the scope
    of the Appraisal Subcommittee*s responsibility in monitoring the AQB; and
    (3) the Appraisal Subcommittee*s authority to oversee state regulators*
    implementation of AQB standards. 32 In a June 2002 opinion, the Legal

    Advisory Group concluded that the AQB*s and Appraisal Subcommittee*s
    actions appeared to be consistent with and authorized by Title XI.
    Referring to the legislative history of Title XI, the Legal Advisory Group
    opinion stated that with Title XI Congress intended to create consistent
    certification standards for appraisals nationwide and that Congress relied

    on the AQB to set minimum appraiser certification criteria. A copy of this
    decision can be found in appendix VII.

    Industry Participants Cited Participants in the real estate appraisal
    industry described the process of

    a Need for Improvement in referring questionable appraisals or appraisers
    to state regulatory

    the Referral Process for authorities as needing improvement, saying that
    few referrals were being

    Problem Appraisers made. Title XI instructs federal agencies or federal
    instrumentalities to

    report any action of a state- certified or -licensed appraiser that
    represents a violation of Title XI requirements to the appropriate state
    agency. 33 According to an Appraisal Subcommittee official, a referral is
    basically a notice to the state agency that a potential violation exists
    that warrants investigation.

    State regulatory officials also said that they had received few referrals
    from lenders and bank regulators. The state officials believed this
    problem was a serious one and felt that institutions engaging appraisers
    should be responsible for referring appraisers to agencies for
    investigation and disciplinary action. Our survey of state regulators
    suggests that lenders and

    32 The Legal Advisory Group consists of the general or chief counsels of
    the FDIC, FRS, OCC, OTS, and NCUA. 33 12 U. S. C. S: 3348( c).

    federal agencies are referring few problem appraisers. Results of the
    survey showed that the greatest percentage of complaints came from
    consumers and other appraisers. Likewise, Appraisal Subcommittee staff

    reported that based on their state reviews, lenders and bank regulators
    are not actively making referrals and that when they do, the referrals are
    often incomplete or unspecific. Federal financial institution regulators
    have an official interagency policy encouraging depository institutions to
    make referrals. But officials from the regulatory agencies told us that
    the institutions often follow the advice of their legal departments and
    simply stop using offending appraisers rather than reporting them because
    of the potential for lawsuits. In addition, one regulatory official stated
    that regulations on confidentiality

    and disclosure prevented them from providing information discovered during
    an examination unless a criminal act had occurred.

    However, both HUD and Fannie Mae have made referrals to state regulatory
    agencies. HUD, for example, has made such referrals, even though it has
    internal systems in place for disciplining problem appraisers.

    HUD imposes administrative sanctions* usually removing the problem
    appraisers from the FHA Register for a specified time* and then notifies
    the state licensing or certification agency in writing of its action.
    During calendar year 2002, HUD made 112 referrals to state regulatory
    agencies. In the referrals, HUD provided the state agency with the
    appraiser*s license or certification number, the reason for removal, and
    copies of the original appraisal( s) and HUD*s review. Officials from
    Fannie Mae, which made 860 referrals to 45 different state regulatory
    agencies between August 2001 and August 2002, commented that the agency
    had revised its referral program to better meet state regulatory agencies*
    information needs for processing a referral. Fannie Mae officials informed
    us that they provided a complete copy of each questionable appraisal
    report and an appraisal review

    performed by another state- licensed or *certified appraiser in the same
    state to help identify the appraisal deficiencies for the state*s review
    and investigation. The officials also noted that it was difficult to refer
    questionable appraisals to the different state agencies due to the lack of
    consistent processes and procedures for accepting, reviewing, and
    investigating questionable appraisal reports.

    In the case of both HUD and Fannie Mae, neither entity was routinely
    providing the Appraisal Subcommittee with copies or listings of the
    referrals made to the states. According to Appraisal Subcommittee
    officials, information on referrals made to the states would aid them in

    their field reviews of the states* responsiveness to complaints about
    appraisers. According to Fannie Mae officials, they provided the Appraisal
    Subcommittee with 27 cases (involving 13 different states) in May 2002,
    along with the states* responses, to demonstrate lack of effective

    enforcement actions by some of the states. Fannie Mae discontinued sharing
    information on referrals with the Appraisal Subcommittee due to its
    perception that the subcommittee did not take action on the specific
    referrals. Industry Participants Noted

    Some industry participants reported a lack of uniformity in processing
    Variations in State

    complaints and taking disciplinary actions against those problem
    Regulatory Agencies* appraisers that were referred to state regulatory
    authorities and cited this Enforcement of Title XI

    issue as an obstacle to an effective enforcement program. Furthermore, the
    state agencies told us that while they have enforcement structures in
    place, Requirements some agencies have questioned their ability to mount
    effective enforcement programs because of funding shortfalls; as noted
    earlier, many states responding to our survey reported funding
    inadequacies. In general, the complaint process entails filing a complaint
    alleging a violation, conducting an investigation, determining whether a
    violation occurred, and rendering an outcome, including any disciplinary
    actions. Industry participants* concerns about the enforcement process
    included differences in state requirements and practices for filing a
    complaint, the quality and timeliness of investigations, and complaint
    outcomes.

    Several entities reported that states* complaint filing requirements
    ranged from simple to onerous. For example, some states require simply
    that complainants submit information on an allegation, while other states
    accept complaints only on a specific form. Further, some states required
    that complaint documents be notarized or that complainants provide
    witnesses and testify against appraisers. Some industry participants also
    stated that the length of time needed to resolve a complaint was too long*
    for example, one state required 1 to 2 years* potentially allowing the
    appraiser to continue what might be fraudulent or questionable practices.

    Some groups also cited statutes of limitations as a major obstacle in
    penalizing appraisal violators. For example, statutes in at least three
    states prohibit both investigations into and punitive actions for unlawful
    appraisal activities that allegedly took place more than 3 to 5 years
    earlier. Finally, at least one complainant reported concerns about the
    expertise of investigators, noting that investigators in the Attorney
    General*s office handling a case of mortgage fraud may not be
    knowledgeable about the appraisal profession.

    In addition to concerns about the complaint process, industry participants
    reported misgivings about outcomes, including disciplinary actions and
    feedback. For example, Fannie Mae officials commented that they had been
    dissatisfied with some state decisions on punitive actions and with

    the lack of feedback on actions that had actually been taken. The
    officials added that some states do not penalize appraisers for multiple
    violations if the appraisers have already been disciplined or do not tell
    complainants what action was taken. The Fannie Mae officials reported that
    they have observed a lack of consistent and effective investigation and
    enforcement by some of the states. As an example, they noted that some
    states appeared to perform meaningful investigations and took appropriate
    actions while

    other states appeared unwilling to investigate similar cases with
    comparable support and documentation. According to the officials, Fannie
    Mae is considering discontinuing the practice of sending referrals to
    several states because, in their view, the state regulatory agencies have
    failed to act on them. HUD officials echoed this view, saying that states

    typically do not take action when they are notified that an enforcement
    action has been taken against an appraiser. In those rare instances when a
    state does take an action, it often refuses to disclose this information
    to HUD, citing privacy concerns. However, Appraisal Subcommittee officials
    told us that in many states, state law might prohibit the disclosure of
    actions that are not a matter of public record. Another industry
    participant

    reported that there is little incentive to make referrals given the fact
    that there is no assurance that the state will take action.

    According to Appraisal Subcommittee officials, a number of states have
    told them that the referral information that Fannie Mae and HUD have
    provided to the states is frequently in a format or manner that they
    cannot readily absorb or use. For example, some of the states indicated
    that they received over a hundred referrals from Fannie Mae as one group,
    which

    overwhelmed the states* ability to review and investigate the referrals in
    a timely basis. Other states stated that the referrals were for real
    estate transactions for which the state*s statute of limitations had
    already expired.

    Fannie Mae officials indicated that their referrals consistently include a
    copy of the questionable appraisal and an appraisal field review performed
    by a state- licensed or *certified appraiser in the same state. Fannie Mae
    recommended that the states adopt the one- unit residential appraisal
    field review report as sufficient documentation for referred appraisals of
    oneunit properties. 34 34 Fannie Mae Form 2000 and Freddie Mac Form 1032,
    dated December 2002.

    We analyzed data states submitted to the Appraisal Subcommittee and found
    that the number of disciplinary actions taken differed widely. For
    example, one state reported taking only a single disciplinary action
    against an appraiser, while two other states accounted for over 25 percent
    of the 4, 360 disciplinary actions reported as of October 31, 2002. 35

    Industry Participants There was no clear consensus among the industry
    participants that we

    Indicated No Clear contacted regarding the need for or impact of possible
    changes to the

    Consensus Regarding the existing Title XI regulatory structure. For
    example, our survey did not

    Need for Changes to the indicate a clear consensus among state regulatory
    agencies on the impact

    of eliminating various aspects of the current Title XI regulatory
    oversight Title XI Regulatory

    structure. However, one state appraiser agency official said that Title XI
    Structure

    had achieved its intended purpose of protecting federal interests and that
    federal involvement in the oversight of the real estate appraisal industry
    is no longer needed. Another representative of a state appraiser agency
    stated that Title XI needed to be dramatically amended to correct
    deficiencies in

    the current appraisal oversight structure. 36 Among the various
    representatives of trade groups, education providers, and other industry
    participants that we contacted, there were differing opinions as to what,
    if any, changes were necessary to Title XI. Likewise, the responses to the
    survey that we sent to the state appraiser agencies did not indicate a
    clear consensus regarding states* views of the impact of eliminating some
    of the central aspects of the Title XI regulatory structure.

    For example, 22 states and territories (41 percent) said that eliminating
    the Appraisal Subcommittee would help in regulating appraisers, while 17
    (31 percent) responded that eliminating the subcommittee would be a
    hindrance. The remaining states felt that not having the subcommittee
    would neither help nor hinder regulation. The states responded more
    positively to the ASB and AQB, with 31 and 23 states, respectively,
    indicating that eliminating them would hinder efforts to regulate
    appraisers.

    However, some officials from state appraiser agencies have expressed
    strong viewpoints regarding the need for changes to Title XI. For example,
    an official from one of the state appraiser regulatory agencies noted that
    of 35 See appendix IV.

    36 See appendix I, question 21.

    over 30 regulated professions, only the appraisal profession has federal
    oversight. According to this official, Title XI has resulted in the
    establishment of state appraiser regulatory agencies in each of the states
    and the adoption of minimum appraisal standards and appraiser

    qualification criteria, thus protecting federal interests in regulating
    the appraisal industry. This official stated that the states are now in a
    position to oversee the real estate appraisal industry without any federal
    involvement, much as they do other professions. He suggested that Congress
    eliminate the Appraisal Foundation and the AQB and make the ASB
    independent and self- supporting. An official from another state
    regulatory agency said that to correct the present system*s problems,
    Congress would need to completely restructure

    the Title XI structure. He also recommended eliminating the Appraisal
    Subcommittee and the Appraisal Foundation, replacing them with a new board
    at the federal level. The new board would represent the appraisal industry
    more broadly and have strong Congressional accountability. In addition, he
    recommended that the minimum standards for appraisals and appraiser
    qualifications be amended only every 5 years, if needed. He also suggested
    that Congress clearly designate the states as having sole responsibility
    for administering and enforcing Title XI.

    Conclusions Title XI brought about significant changes in the real estate
    appraisal industry. According to federal financial institution regulators,
    real estate appraisals have not been a major factor in the failure of
    federally insured financial institutions since the passage of Title XI.
    However, opportunities exist to enhance the effectiveness of the current
    regulatory system to help ensure that federally related transactions are
    based on accurate assessments of the value of properties used as
    collateral for loans.

    Developing and applying consistent criteria to assess states* compliance
    with Title XI requirements could increase the usefulness of the letters
    that the Appraisal Subcommittee provides to the states based on its field
    reviews as well as the annual report that the Appraisal Subcommittee
    provides to Congress on the Title XI program. Further, the Appraisal
    Subcommittee*s field reviews of the states could be enhanced if HUD and
    the government sponsored enterprises provided the subcommittee with
    information on referrals made to the states on questionable appraisals and
    problematic appraisers. Similarly, the Appraisal Subcommittee could help
    HUD and Fannie Mae ensure that referral information on problem

    appraisals is provided to the state appraiser agencies in a format and
    manner that facilitates appropriate follow- up action by the states.

    Achieving Title XI*s purpose depends in part on the ability of ASB and AQB
    to ensure that appraisal standards and qualification criteria for
    appraisers are reflective of changes in the real estate mortgage industry
    and marketplace; these entities* ability, in turn, depends in part on the
    amount of funding provided to them annually by the Appraisal Subcommittee.
    Achieving Title XI*s purpose also depends on actions taken by the states.
    The lack of funding and resources cited by state appraisal regulatory
    agencies suggests that some states may be unable to adequately enforce
    appraiser compliance with the minimum standards envisioned by Title XI. At
    the same time, the Appraisal Subcommittee* the primary federal entity

    in the oversight structure created by Title XI* has accumulated an
    operating surplus of almost $4 million, generated from the fees levied and
    collected by the states on behalf of the federal government.

    Recommendations To improve its monitoring of the implementation of Title
    XI, we recommend that the Chairman of the Appraisal Subcommittee

     develop and apply consistent criteria for determining and reporting
    states* compliance levels with Title XI requirements;

     explore potential options for funding or otherwise assisting states in
    carrying out their Title XI activities, particularly the investigation of
    complaints against appraisers; and

     explore alternatives for providing future grant funding, including
    drawing on its surplus if necessary, to the Appraisal Foundation and its
    two boards in support of their Title XI activities.

    To improve the process for referring problem appraisals by entities that
    oversee or use real estate appraisals to the state appraiser agencies for
    possible enforcement actions, we recommend that the Chairman of the
    Appraisal Subcommittee work with the Chairmen of Fannie Mae and Freddie
    Mac and the Secretary of the Department of Housing and Urban

    Development to help ensure that referrals of problem appraisals (1) are
    provided to states in a format that is useful to the state appraisal
    agencies and (2) facilitate the subcommittee*s efforts to monitor
    decisions made by states regarding the supervision of appraiser practices.

    Agency Comments We requested and received written comments on a draft of
    this report from HUD, Fannie Mae, Freddie Mac, the Appraisal Foundation,
    and the

    Appraisal Subcommittee that are presented in appendixes VIII through XII.
    In addition, we requested comments from FDIC, FRS, OCC, OTS, and NCUA who
    indicated that their comments had been incorporated into those provided by
    the Appraisal Subcommittee. The entities provided a variety of written
    comments. The principal comments and our response are summarized below.
    Technical comments have been incorporated into the report where
    appropriate.

    HUD concurred with our recommendation that the Chairman of the Appraisal
    Subcommittee work with HUD, Fannie Mae, and Freddie Mac on referrals of
    problem appraisals to states for follow- up and appropriate enforcement.
    However, HUD pointed out that it is already involved in the work of the
    subcommittee, as a HUD representative serves as a member of the
    subcommittee. Our draft report noted that the six Appraisal Subcommittee
    Board members are designated by the heads of the five financial
    institution regulators and by HUD. Both Fannie Mae and Freddie Mac
    expressed concern about this recommendation, commenting that they are not
    regulatory entities. We did not intend to imply that these entities have a
    regulatory role under Title XI. Rather, we directed the recommendation to
    the Appraisal Subcommittee, which is responsible for monitoring state
    activities under Title XI. However, both Fannie Mae and Freddie Mac review
    the quality of certain appraisals for loans that they purchase and can
    refer problematic ones to the states for action. Therefore,

    the two government- sponsored enterprises are in a unique position to
    provide expertise, information, and lessons of experience to the
    subcommittee. As Fannie Mae noted in its comments, it has *extensive
    experience in referring unacceptable appraisals to state agencies* and has
    observed both a lack of uniformity in state processes and a lack of
    consistent and effective enforcement actions by state licensing or
    regulatory boards. We have revised the wording of our recommendation to
    emphasize the role that HUD, Fannie Mae, and Freddie Mac can play in
    helping the subcommittee carry out its oversight responsibilities.

    Fannie Mae also commented that, based on its experience in referring
    unacceptable appraisals, issues of format have not impeded the states from
    taking effective enforcement action. However, as our draft report noted,
    Appraisal Subcommittee staff involved in field reviews reported that (1)
    referrals are often incomplete or unspecific and (2) according to state
    officials, referrals that Fannie Mae and HUD provided to the states

    frequently were in a format or manner that they could not readily absorb
    or use. We recognize that, by itself, providing referrals in a more useful
    format will not guarantee more, or more consistent, state enforcement
    actions.

    Our draft report noted that several factors affect the extent of state
    enforcement efforts, including state- level funding and staffing shortages
    and a scarcity of referrals from lenders and bank regulators. However, we
    continue to believe that improving the referral process could help achieve
    the objectives of Title XI. As our draft report also noted, Fannie Mae has
    revised its referral program to better meet state regulatory agencies*
    information needs. Consequently, we did not change our recommendation.

    In our draft report, we noted that we found no transparent criteria in the
    subcommittee*s field review letters for the reporting of states*
    compliance with Title XI. In its comment letter, the Appraisal
    Subcommittee agreed that it did not have a formalized rating system that
    would provide each

    state with an overall rating. However, the Appraisal Subcommittee noted
    that it employs *an informal [rating] system (i. e., Tier 1 and Tier 2)
    based on a state*s overall compliance with Title XI.* The Appraisal
    Subcommittee

    stated that it had previously considered developing a rating system that
    would allow for comparisons across states and had concluded that such a
    rating system would not assist its Title XI enforcement efforts. However,
    the Appraisal Subcommittee stated in its comment letter that it would
    review this issue again based on our recommendations.

    Our draft report expressed a concern of the Appraisal Foundation*s two
    boards (the ASB and AQB): that shortfalls in federal grant funding
    provided by the Appraisal Subcommittee have limited activities that the
    two boards believe enhance the quality, timeliness, and usefulness of
    standards and qualifications. In commenting on our draft report, the
    Appraisal Foundation clarified that federal grant shortfalls could impede
    the boards* future ability to ensure that standards and qualifications
    continue to keep up with changing industry conditions. Similarly, the
    Appraisal Subcommittee chair commented that in the past the Appraisal
    Foundation has not used all of the funds provided in the federal grants.
    Our draft report noted that the foundation has other sources of revenue
    and that the subcommittee expected future grants to the two boards to
    decline unless the subcommittee took certain actions. We revised our
    report to clarify that the two boards view federal grant funding
    shortfalls as a potential future impediment to their Title XI activities.

    Our draft report also characterized the Appraisal Subcommittee*s lack of
    rule- making authority and limited enforcement powers as impediments to

    the subcommittee*s ability to carry out its Title XI responsibilities. The
    basis for this characterization was statements made by subcommittee
    officials. For example, in its April 11, 2002, written responses to GAO
    questions, the Appraisal Subcommittee stated,

    *Federal oversight [over state appraisal authorities] could be more
    effective * if the ASC were given rule- making authority, which could be
    used to establish mandatory state reporting mechanisms. Finally, oversight
    could be strengthened if the ASC had more administrative options when
    addressing noncompliant states. ... The ASC should have additional
    authorities, such as *cease and desist* authority and monetary penalties.*
    In commenting on the draft report, the Appraisal Subcommittee agreed that

    general rule- making authority might facilitate its Title XI enforcement
    and that its enforcement options are *limited in number.* But the
    subcommittee also stated that the lack of this authority has not been an
    impediment to achieving compliance. We modified our report to clarify the
    Appraisal Subcommittee*s views and noted that, according to the
    subcommittee, it has always been able to achieve state compliance within
    the current Title XI regulatory and enforcement structure. The Appraisal
    Subcommittee further noted that its policy statements are its formal
    interpretations of Title XI and stated that these should be given
    deference,

    citing a February 2000 GAO decision. In that decision, we determined that
    the Appraisal Subcommittee reasonably interpreted one provision in Title
    XI relating to a state*s collection and submission of appraiser fees to
    the subcommittee.

    In response to our recommendation that the subcommittee explore options to
    assist the states in carrying out their Title XI responsibilities, the
    Appraisal Subcommittee commented that while overall state compliance with
    Title XI would be improved if states had more funding, it did not see the
    subcommittee as the answer to that issue. The letter noted that the
    Appraisal Subcommittee*s only method of obtaining additional funds to
    provide to the states is to increase the national registry fee assessed
    against each appraiser. We agree that the states are in a better position
    to identify needs and to address fee and revenue issues to resolve those
    needs.

    However, our recommendation addressed exploring options in addition to
    providing funding to help states carry out their Title XI activities. For
    example, the Appraisal Subcommittee could encourage several states to pool
    investigative resources or use other options to help address temporary
    shortages of trained investigators in one state. Alternatively, the
    Appraisal Subcommittee could use its field review reports to identify
    funding gaps as an issue negatively affecting states* ability to comply
    with Title XI*s provisions. Consequently, we did not change our
    recommendation.

    We are sending copies of this report to the Chairman and Ranking Member of
    the Senate Committee on Banking, Housing, and Urban Affairs; the Chairman
    and Ranking Minority Member of the House Committee on Financial Services;
    the Secretary of the Department of Housing and Urban Development; the
    Chairman of the Board of Governors of the Federal Reserve System; the
    Chairman of the Federal Deposit Insurance Corporation; the Comptroller of
    the Currency; the Director of the Office of Thrift Supervision; the
    Chairman of the National Credit Union Administration; the Chairman and
    Chief Executive Officer of Fannie Mae; the Chairman and Chief Executive
    Officer of Freddie Mac; the Chairman of the Appraisal Subcommittee; and
    the Executive Vice President of the Appraisal Foundation. We will also
    provide copies to others on request. This report will be available at no
    charge on our home page at

    http:// www. gao. gov. If you or your staff have any questions about this
    report, please contact me at (202) 512- 8678 or Harry Medina at (415) 904-
    2000. Key contributors are listed in appendix XIII.

    David G. Wood Director, Financial Markets

    and Community Investments

    Appendi xes Survey of State Regulatory Agencies (results

    Appendi x I

    included) The U. S. General Accounting Office, an agency of the

    SURVEY RESULTS

    Congress, is studying the regulation of real estate appraisers by the
    states. As part of this study, we are surveying officials of agencies that
    regulate real estate appraisers in each of the

    - based on responses from 54 of 55 state

    states, territories, and the District of Columbia.

    agencies, unless otherwise stated 1

    To assist us, we ask that you complete and return this 1. Please enter the
    name, title, telephone number and e- mail

    questionnaire to us within the next two weeks. When address of the person
    completing this questionnaire.

    responding, you may consult with others, if you think it will help you
    give a more accurate answer. The questionnaire _ _ _ _ _ _ _ _ _ _ _ _ _ _
    _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ should take an hour or less to
    complete . The questionnaire

    Name asks you to provide information about

    _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

    the agencies that are involved in the regulation of real Title

    estate appraisers in your state, _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
    _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

    the relationship between the Appraisal Foundation and ( Area Code)
    Telephone Number your agency,

    _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

    the education and training of real estate appraisers in e- mail address
    your state, and

    the disciplinary actions your state takes when appraisers Oversight of
    Real Estate Appraisers

    are found to have committed violations.

    Note: Agency includes Board or Commission. Please return the questionnaire
    to us in the enclosed preaddressed business reply envelope. Alternatively,
    you may fax your completed questionnaire to us to the attention of

    2. Is your agency ? ( Check one. )

    David Noguera on ( 415) 904- 2111. 1. [ 23 ] An independent state agency
    If you have any questions or comments about this questionnaire, please
    call David Noguera on ( 415) 904- 2172 2. [ 30 ] A state agency that
    reports to another agency or Harry Medina on ( 415) 904- 2220. In the
    event that the business reply envelope is misplaced, or your fax fails to
    get

    3. [ 1 ] Other ( Please specify. )

    through, please return the questionnaire to: U. S. General Accounting
    Office Attn: David Noguera 301 Howard Street, Suite 1200 San Francisco, CA
    94105 - 2252

    1 The one state not included in these results is the US Virgin Islands,
    which did not complete a survey.

    3. Which, if any, of the entities listed below are part of your 9. How
    many years is a board or commission member s organization? ( Check all
    that apply)

    term? ( Enter number or check box. )

    1 [ 52 ] State appointed Board or Commission _ _ _ _ Md. 3_ _ _ _ _ _ _ _
    years Or [ ] It varies

    2. [ 53 ] Agency with state employees 10. Are board or commission members
    appointed at different 3. [ ] Other ( Please specify. )

    times, that is, are their terms staggered? ( Check one. )

    1. [ 1 ] No

    ( you did not check choice 1, go to Question 12. )

    2. [ 51 ] Yes

    Board of Directors or Commission

    4. Currently, how many seats are filled on your board or 11. How often
    does the board or commission meet? ( Check

    commission? ( Enter number. ) BASED ON 52

    one. ) RESULTS BASED ON 52 RESPONDENTS RESPONDENTS

    1 [ ] Once a week or more _ _ _ _ Md. 7_ _ _ _ _ _ seats filled

    2. [ 24 ] Once a month 5. Currently, how many seats are not filled on your
    board

    3. [ 10 ] Once every other month or commission? ( Enter number. If none,
    enter 0. )

    4. [ 10 ] Once every three months _ _ _ _ Av. 0.24_ _ _ _ _ _ seats not
    filled 5. [ 8 ] Other ( Please specify. )

    6. How many current members of your board have some _ _ _ _ _ _ _ _ _ _ _
    _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ experience in the real
    estate profession? ( Enter number. If none, enter 0. )

    More Information about your Agency

    _ _ _ _ Md. 5_ _ _ members with real estate experience 12. About how many
    full- time equivalent ( FTE) staff does

    your agency devote to regulating real estate appraisers, 7. How many
    members left the board or commission during

    including contractors staff? ? ( Enter number. )

    your most recently completed fiscal year? ( Enter

    RESULTS BASED ON 52 RESPONDENTS

    number. If none, enter 0. )

    _ Md. 2 Range: 28. 25_ _ _ _ FTEs _ _ _ Md. 1_ _ _ _ _ members who left
    the board or

    commission 13. Does your agency share resources with other state agencies?
    ( Check one. )

    8. Currently, how many board or commission members receive a stipend or
    per diem payment for their services? 1. [ 19 ] No ( If no, go to question
    15 on ( Enter number. If none, enter 0. )

    the next page. )

    _ _ _ Av. 5.52_ _ _ _ _ members who receive a stipend or per 2. [ 35 ] Yes

    diem payment

    14. Which, if any, of the resources listed below does your 17. Listed
    below are some tasks that might be performed by agency share with other
    state agencies? ( C heck all that

    a state agency that regulates real estate appraisers. apply. ) PERCENTAGES
    BASED ON Q13 Which, if any, of those tasks does your agency perform?
    RESPONSES

    ( Check all that apply. )

    1. [ 26 ] Support staff 48% 1. [ 29 ] Introducing standards for the way
    appraisals

    should be conducted in addition to those set by 2. [ 27 ] Office space 50%

    the Appraisal Standards Board ( ASB) 3. [ 21 ] Investigators 39%

    2. [ 37 ] Introducing qualifications for appraisers in addition to those
    established by the Appraisal 4. [ 26 ] Office equipment, such as
    telephones or

    Qualifications Board ( AQB) copy machines 48%

    3. [ 30 ] Monitoring or supervising licensed and 5. [ 33 ] Attorneys 61%
    certified appraisers, for example, conducting unannounced investigations
    6. [ 2 ] Other ( Please specify. ) . 4% 4. [ 54 ] Approving courses for
    appraisers education or _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
    _ _ _ _ _ _ training 5. [ 54 ] Enforcing state regulations concerning

    15. Currently, how many appraisers are listed with your appraisals agency,
    excluding trainees? ( Enter number. )

    6. [ 54 ] Investigating complaints _ _ _ Md. 1,291. 5 Range: 9,345 _ _ _ _
    _ _ _ appraisers listed 7. [ 12 ] Other ( Please specify. )

    Definition

    _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
    _

    Federally related transaction refers to any real estate- related financial
    transaction that ( 1) a federal financial institutions regulatory agency
    engages in, contracts for, or regulates; and ( 2) requires the services of
    an appraiser.

    16. Of those appraisers, about what percentage are eligible to perform
    federally related transactions ( FRTs) ? ( Enter the percentage. )

    _ Md. 100% Range: 97_ _ _ _ _ % eligible to perform FRTs

    The Appraisal Foundation

    18. Listed below are some activities conducted by the Appraisal Foundation
    ( AF) , the Appraisal Standards Board ( ASB) and the Appraiser
    Qualifications Board ( AQB) . How effective or ineffective have each of
    those activities been at improving the quality of appraisers in your
    state? ( Check one box in each row. )

    Very Effective

    As effective Ineffective

    Very effective

    as Ineffective

    ineffective ( 1)

    ( 2) ( 3)

    ( 4) ( 5)

    1. Setting standards for the way appraisals should 6 29 15 4 be conducted

    2. Establishing the qualifications needed to become 4 29 16 4 1

    an appraiser 3. Setting requirements for appraisers continuing

    5 22 16 9 2 education 4. Approving courses for appraisers education or

    3 17 17 13 4 training 5. Determining the qualifications needed by

    3 14 22 9 6 instructors who teach courses to appraisers 6. Other ( Please
    specify. )

    1 1 2

    ________________________________

    Regulating Appraisers

    19. Typically, about how many months does it take your state to adopt the
    Uniform Standards of Professional Appraisal Practice ( USPAP) after the
    ASB updates it? ( Check one. )

    1. [ 25 ] Less than a month 2. [ 13 ] 1 to 3 months 3. [ 7 ] 4 to 6 months
    4. [ 1 ] 7 to 9 months 5. [ 3 ] 10 to 12 months 6. [ 5 ] More than 12
    months

    20. Is your agency or the state legislature responsible for adopting
    USPAP? ( Check one. )

    RESULTS BASED ON 50 RESPONDENTS 1. [ 35 ] Our agency 2. [ 15 ] The state
    legislature

    21. Listed below are some suggestions for possible changes in the ways
    real estate appraisers are regulated. Considering each suggested change
    separately, please indicate whether that change would help or hinder your
    state s ability to regulate appraisers. ( Check one box in each row. )

    Would this change help or hinder your state s ability to regulate
    appraisers? Help greatly Help

    Help as much Hinder

    Hinder somewhat

    as hinder somewhat

    greatly ( 1)

    ( 2) ( 3)

    ( 4) ( 5)

    1. Eliminating the oversight role 13 11 15 9 6

    presently carried out by the Federal Financial Institutions Examination
    Council ( FFIEC) 2. Eliminating the oversight role

    13 9 15 12 5 presently carried out by the Appraisal Subcommittee ( ASC)

    3. Updating the USPAP less 24 14 13 1 2

    frequently 4. Eliminating the ASB s role in 4 6 13 18 13

    establishing minimum standards for appraisals 5. Eliminating the AQB s
    role in

    10 11 10 13 10 setting minimum qualifications for appraisers 6. Placing
    representatives of state

    20 14 12 3 5 government on the ASC s board 7. Placing representatives of
    state

    20 13 12 4 5 government on the AQB 8. Placing representatives of state

    18 12 15 4 5 government on the ASB 9. Opening the meetings of the ASC,

    23 13 15 1 2 AQB and ASB to the public 10. Other ( Please specify. )

    7 a. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 2 b. _ _ _ _ _ _ _ _ _
    _ _ _ _ _ _ _ _ _ _ _ _ _ _ 22. Which, if any, of the actions listed below
    are needed by your agency to improve its ability to regulate appraisers? (
    Check all that apply. ) RESULTS BASED ON 49 RESPONDENTS 1. [ 33 ]
    Increasing the funding needed to conduct investigations 2. [ 37 ]
    Increasing the staff needed to conduct investigations 3. [ 16 ] Notifying
    lenders of appraisers who have violated regulations 4. [ 26 ] Hiring more
    investigators with experience conducting real estate appraisals 5. [ 22 ]
    Increasing the amount of resources needed to support the litigation
    process 6. [ 24 ] Processing complaints in a more timely fashion 7. [ 9 ]
    Other ( Please specify. )

    _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
    _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
    _ _ _

    Temporary Licenses and Reciprocity

    25. Listed below are some limitations that might be attached to a
    temporary license for an appraiser. Which, if any, of 23. How much is the
    fee for a temporary license to conduct

    those limitations are attached to a temporary license in appraisals in
    your state? ( Check one. )

    your state? ( Check all that apply. )

    1. [ 3 ] No fee 1. [ 41 ] The temporary license can be used for only

    one assignment 2. [ 13 ] $ 50 or less

    2. [ 16 ] An appraiser can be issued only one 3. [ 14 ] $ 51 to $ 100
    temporary license at a time 4. [ 23 ] $ 101 to $ 150

    3. [ 15 ] Only a limited number of temporary licenses can be issued to an
    appraiser within a given 5. [ 1 ] More than $ 150 year

    4. [ 1 ] Appraisers holding such licenses must have an 24. Which, if any,
    of the actions listed below are required of

    appraiser permanently licensed in our state sign applicants for temporary
    licenses to conduct appraisals in

    off on the appraisal( s) your state? ( Check all that apply. )

    RESULTS BASED ON 53 RESPONDENTS 5. [ 5 ] Other ( Please specify. )

    1. [ 37 ] Disclose all criminal convictions _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
    _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

    2. [ 46 ] Reveal all disciplinary actions taken 6. [ 4 ] None of the above
    against them by government entities

    3. [ 52 ] Agree to abide by all of the rules set by our 26. Consider the
    temporary license issued to an appraiser in

    state for appraisals your state. What is the maximum period of time such a

    license would be valid? ( Check one. )

    4. [ 43 ] Agree to cooperate with any investigation RESULTS BASED ON 53
    RESPONDENTS

    initiated by our state 1. [ ] 30 days or less

    2. [ 1 ] 31 to 60 days 3. [ 3 ] 61 to 90 days 4. [ ] 91 to 120 days 5. [ ]
    121 to 150 days

    6. [ 20 ] 151 180 days 7. [ 9 ] More than 180 days 8. [ 20 ] Good for the
    duration of the assignment

    27. Consider an individual who resides in another state and 30. Listed
    below are some conditions that might have to be is issued a temporary
    license to conduct appraisals in

    met for a state to use an appraiser s license from another your state.
    Suppose that individual commits a violation

    state as the sole basis for granting a license. Which, if in your state
    that warrants disciplinary actions. any, of those conditions have to be
    met in your state? ( Check all that apply. ) 47 STATES ELIGIBLE TO Which,
    if any, of the actions listed below would your

    ANSWER THIS QUESTION, ONLY 46 DID state take? ( Check all that apply. )

    1. [ 32 ] The appraiser from another state must agree 1. [ 52 ] Our state
    would take disciplinary action in writing to follow all the regulations
    established by our state

    2. [ 26 ] Our state would refer the matter to the state in which the
    individual resides for disciplinary

    2. [ ] The appraiser s license must be issued by a action state that
    shares geographic borders with our state

    28. In your state, about how many business days does it take 3. [ 23 ] Our
    state must have a reciprocity agreement

    to issue a temporary license after the application is with the state that
    issued the original license,

    completed? ( Check one. )

    that is, the state from which the license originates must be willing to
    accept an 1. [ 10 ] Less than one business day

    appraiser s license from our state as the sole basis for granting a
    license 2. [ 22 ] 1 to 2 business days

    4. [ ] The appraiser must state that he or she will be 3 [ 6 ] 3 to 4
    business days

    performing continuous appraisals in our state 4. [ 12 ] 5 to 6 business
    days

    5. [ 38 ] The requirements for the appraiser s current license must meet
    or exceed those of the AQB 5. [ 4 ] More than 6 business days

    6. [ 42 ] The appraiser from another state must pay licensing or
    certification fees that are 29. Is an appraiser s license from another
    state ever used as comparable to in- state appraisers

    the sole basis for granting a license in your state? ( Check one. )

    7. [ 8 ] The appraiser from another state must consent to a background
    check 1. [ 7 ] No ( If no, go to question 31 on the

    next page. )

    8. [ 19 ] Other ( Please specify. )

    2. [ 47 ] Yes _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
    _ _ _ _ _ _

    Education and Training of Appraisers

    34. Listed below are some difficulties officials might have with using
    distance education as a part of the training of 31. To which, if any, of
    the institutions listed below are

    real estate appraisers. Which, if any, of those difficulties educational
    providers required to pay a fee in order to

    do you have with using distance education as a part of have their courses
    approved in your state? ( Check all

    the training of real estate appraisers? ( Check all that that apply. )

    apply. )

    RESULTS BASED ON 51 RESPONDENTS 1. [ 9 ] Appraiser Qualifications Board (
    AQB)

    1. [ 16 ] Have no difficulties using distance education 2. [ 10 ] College
    or University 2. [ 23 ] Does not offer enough personal contact with 3. [ 7
    ] American Council on Education

    instructors 4. [ 9 ] International Distance Education Certification

    3. [ 8 ] Accreditation standards are not as high as for Center classroom-
    based education 5. [ 24 ] Our agency

    4. [ 17 ] Other ( Please specify. )

    6 [ 5 ] Other ( Please specify. )

    Agency Revenues, Expenses and Resources _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
    _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Definition

    7. [ 17 ] None of the above

    Revenues are funds collected through fees, fines and penalties.

    32. Consider the qualifications required by the AQB for 35. Is your agency
    funded entirely by revenues, entirely by

    appraisers who conduct FRTs involving single- family appropriations from
    your state, or through a combination

    residential properties. How adequate or inadequate are of both? ( Check
    one. )

    those qualifications to ensure that appraisers perform RESULTS BASED ON 53
    RESPONDENTS those kinds of FRTs competently? ( Check one. )

    1. [ 35 ] Entirely by revenues 1. [ 31 ] Adequate

    2. [ 12 ] Entirely by state appropriations 2. [ 14 ] Undecided

    3. [ 5 ] By both revenues and state appropriations 3. [ 9 ] Inadequate

    4. [ 1 ] Other ( Please specify. )

    Definition Distance education refers to education in which there is a

    RESULTS FOR Q36 & Q37 ARE BASED ON 46 separation in time or place between
    instructor and student.

    RESPONDENTS 36. What was the total amount of funds available to your 33.
    In your opinion, to what extent is distance education

    agency in your most recently completed fiscal year? currently being used
    as a part of the training of real

    ( Enter amount. )

    estate appraisers? ( Check one. )

    RESULTS BASED ON 53 RESPONDENTS $ Md. 281,000 Range: 17.2 million funds
    available in

    your most recently completed fiscal year 1. [ 1 ] To a very great extent

    2. [ 1 ] To a great extent 37. What were your agency s total expenses in
    your most

    recently completed fiscal year? ( Enter amount. )

    3. [ 15 ] To a moderate extent $ Md. 302,000 Range: 13.2 million expenses
    in your 4. [ 26 ] To some extent

    most recently completed fiscal year 5. [ 10 ] To little or no extent

    38. In your opinion, how sufficient or insufficient is each of 42.
    Consider the number of complaints your agency received

    the dimensions listed below in enabling your agency to against appraisers
    in the last calendar year. About what meet its regulatory
    responsibilities? ( Check one box in percentage of those complaints were
    received from each

    each row. )

    of the types of institutions or individuals listed below? ( Enter the
    percentages. ) RESULTS BASED ON 49 Sufficient

    Undecided Insufficient

    RESPONDENTS ( 1)

    ( 2) ( 3)

    1. Its current 18 9 27

    _ Md. 0% Range: 40% from banking regulators staff size 2. Its current

    25 15 14 _ Md. 5% Range: 85% from banks and thrifts

    resources, other than _ Md. 10% Range: 55% from Fannie Mae, Freddie Mac
    staff or similar institutions

    3. Its current 41 6 7

    regulatory _ Md. 30% Range: 95% from consumers

    authority _ Md. 20% Range: 88% from other appraisers

    Automated Valuation Models ( AVMs)

    _ Md. 1% Range: 10% from real estate agents 39. Of all of your state s
    real estate transactions in the last

    _ Md. 6% Range: 50% from mortgage brokers

    calendar year, about what percentage were conducted ( Enter the
    percentages or check the box. )

    _ Md. 10. 5% Range: 40% from others RESULTS BASED ON 53 RESPONDENTS

    100% % using AVMs? 43. Again consider the number of complaints your agency
    using appraisals? received against appraisers in the last calendar year.
    Of using evaluations? those complaints, what percentage resulted in Don t
    know 93

    RESULTS BASED ON 46 RESPONDENTS 100%

    % referrals to other state agencies for action? Md. 0

    Complaints Against Appraisers

    Range: 15 investigations that are still open? Md. 30

    40. In the last calendar year, about how many complaints Range: 97

    against appraisers did your agency receive? ( Enter

    investigations that have been resolved? Md. 63.5

    number. )

    Range: 99 100% _ _ _ Md. 47. 5 Range: 430_ _ complaints

    44. In the last calendar year, was the number of complaints against
    appraisers in your state greater than, about the same as, or fewer than
    the number of complaints in

    41. Of those complaints, about what percentage were against calendar year
    1999? ( Check one. )

    appraisers who were not listed with your agency? ( Enter

    RESULTS BASED ON 51 RESPONSES

    the percentage. ) RESULTS BASED ON 52 RESPONDENTS

    1. [ 12 ] Far greater than in calendar year 1999 _ _ _ _ _ Md. 0.5% Range:
    100_ _ _ _ % complaints against

    2. [ 16 ] Greater than in calendar year 1999 unlisted appraisers

    3. [ 11 ] About the same as in calendar year 1999 4. [ 11 ] Fewer than in
    calendar year 1999 5. [ ] Far fewer than in calendar year 1999 6. [ 1 ]
    Don t know

    Disciplinary Actions

    49. Consider the number of disciplinary actions taken by 45. In the last
    calendar year, was the number of violations of

    your state against appraisers in the last calendar year. Of regulations by
    appraisers in your state greater than, about

    those actions, about what percentage were not reported the same as, or
    fewer than the number of violations in

    to the ASC? ( Enter the percentage. ) 13 ELIGIBLE TO calendar year 1999? (
    Check one. ) RESULTS BASED RESPOND, BUT ONLY 11 DID ON 50 RESPONDENTS

    _ _ Md. 33 Range: 100_ _ _ % of actions not reported to ASC 1. [ 7 ] Far
    greater than in calendar year 1999 2. [ 18 ] Greater than in calendar year
    1999

    50. Now consider those actions taken by your state against appraisers in
    the last calendar year that were not reported 3. [ 15 ] About the same as
    in calendar year 1999

    to the ASC. About what percentage were ( ( Enter the percentages. ) 13
    ELIGIBLE TO RESPOND, BUT 4. [ 8 ] Fewer than in calendar year 1999

    ONLY 11 DID % 5. [ 1 ] Far fewer than in calendar year 1999

    required periods of education? Md. 70 Range: 80 letters of warning or
    admonition? Md. 85 Range: 90 6. [ 1 ] Don t know

    probationary periods? Md. 70 Range: 60 suspensions? Md. 0 Range: 39
    monetary fines? Md. 33 Range: 90 46. Which, if any, of the types of
    actions listed below does

    revocations of licenses or Md. 0 Range: 28

    your state take when appraisers commit violations? certifications? ( Check
    all that apply. ) RESULTS BASED ON 53 other? ( Please specify. )

    Md. 75 Range: 50 RESPONDENTS

    ________________________

    1. [ 50 ] Require more education 93% 100% 2. [ 46 ] Issue letters of
    warning or admonition 85% 51. Does your state have a statute that prevents
    your agency

    from reporting to the ASC certain types of disciplinary 3. [ 36 ] Place
    appraisers on probation 67%

    actions taken against appraisers? ( Check one. )

    4. [ 50 ] Place appraisers on suspension 93% 1. [ 12 ] No ( If no, go to
    question 54 on

    the next page. )

    5. [ 40 ] Impose monetary fines 74% 2. [ 1 ] Yes

    6. [ 52 ] Revoke appraisers licenses or certifications 96%

    52. In the space below, please cite the number and name of that statute. (
    Enter code, number or name. ) 1 STATE

    7. [ 13 ] Other ( Please specify. ) 24% ANSWERED THIS QUESTION

    47. In the last calendar year, about how many disciplinary Statute # _ _ _
    _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ actions did your state take
    against appraisers found to have committed violations? ( Enter number. )
    RESULTS

    Name of Statute _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BASED
    ON 52 RESPONDENTS _ _ Md. 11. 5 Range: 245_ _ _ _ _ _ _ _ _ _ disciplinary
    actions

    53. Again consider those actions taken by your state against appraisers in
    the last calendar year that were not reported

    48. Does your state report all the disciplinary actions it takes to the
    ASC. Of those actions, about what percentage

    against appraisers to the ASC? ( Check one. ) RESULTS were not reported
    because of that law? ( Enter the

    BASED ON 52 RESPONDENTS

    percentage. ) 1 STATE ANSWERED THIS QUESTION 1. [ 39 ] Yes ( If yes, go to
    question 54 on

    Md. 5 Range: 0% of actions not reported to ASC

    the next page. )

    because of that law 2. [ 13 ] No

    ASC and the National Registry

    56. If you have any comments about the current appraiser regulatory
    system, or any other topics mentioned in this 54. Is the ASC s current fee
    for enrolling in the National questionnaire, please write or type them
    below or on a Registry too high, about right, or too low? ( Check one. )

    separate piece of paper. 22 STATES PROVIDED RESULTS BASED ON 53
    RESPONDENTS

    COMMENTS 1. [ 20 ] Too high 2. [ 22 ] About right 3. [ ] Too low 4. [ 11 ]
    Don t know

    55. Listed below are some ways in which state real estate regulatory
    agencies might make use of the National Registry. In which, if any, of
    those ways does your agency make use of the National Registry? ( Check all
    that apply. ) RESULTS BASED ON 53 RESPONDENTS

    1. [ 44 ] To find out if disciplinary actions were taken against an
    appraiser in other states

    2. [ 44 ] To verify that applicants from other states are licensed or
    certified in those states

    3. [ 40 ] To notify other states and the ASC of appraisers against whom
    disciplinary actions have been taken in our state 4. [ 2 ] Other ( Please
    specify. )

    _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
    _ 5. [ 3 ] We do not use the registry Thank you for your cooperation

    Appendi x II

    Scope and Methodology To describe the specific responsibilities under
    Title XI of the private, state, and federal entities that oversee the real
    estate appraisal industry, we reviewed Title XI and its legislative
    history to identify the specific responsibilities assigned to each entity.
    We interviewed representatives of private entities and federal officials
    and surveyed state regulatory agencies to obtain information on how they
    interpreted their responsibilities under

    Title XI. In addition, we attended a conference sponsored by an
    association of state regulatory agencies on the agencies* role in Title
    XI*s oversight structure. Finally, we reviewed the literature, issue
    papers, and documents by industry participants, experts, and observers on
    Title XI and the regulatory structure for appraisers. To describe how the
    entities carry out their duties under Title XI, we:  obtained information
    from the Appraisal Foundation and its two boards,

    the Appraisal Standards Board and the Appraiser Qualifications Board on
    Title XI- related activities such as (1) submitting grant proposals to the
    Appraisal Subcommittee for Title XI- related activities, (2) providing
    information to the Appraisal Subcommittee on Title XI- related activities,
    (3) establishing minimum standards for conducting appraisals and

    qualifications for appraisers, and (4) disseminating information on
    revisions to these standards and qualifications.

     surveyed the 55 state regulatory agencies for appraisers to gather
    information on the agencies* organizational structures, specific tasks,
    staff size, licensing and certification practices and fees, revenues and
    expenditures, and complaint and enforcement activity. We also analyzed
    survey results to determine whether any trends existed or significant

    issues were reported.  obtained and reviewed federal financial
    regulators* policies, procedures, regulations, and advisory opinions with
    respect to oversight of the appraisal industry and information on
    enforcement activities related to complaints and referrals arising from
    noncompliance with the Uniform Standards of Professional Appraisal
    Practice or Title XI.

     obtained and reviewed Appraisal Subcommittee annual reports, state field
    review reports, and grants to the Appraisal Foundation. We also performed
    selected analyses of information contained in the Appraisal Subcommittee*s
    National Registry of Appraisers database.

    To describe factors that private, state, and federal entities identified
    as impediments to carrying out their Title XI roles and responsibilities,
    we interviewed officials representing the various entities. In addition,
    we analyzed the results of our survey of state regulatory agencies,
    contacted several state officials about the written comments included in
    their survey responses, and reviewed correspondence and an agency
    newsletter we

    received from state regulatory officials. To describe and identify other
    concerns about the effectiveness of the current regulatory structure in
    achieving the purposes of Title XI, we interviewed officials representing
    regulatory entities, industry participants, and industry observers.
    Specifically, we interviewed (1) private and federal entities cited in
    Title XI; (2) officials from the Department of Housing and Urban
    Development, Fannie Mae, and Freddie Mac; and (3) groups

    representing mortgage lenders, appraisers, appraiser education providers,
    and academic experts on issues related to appraisals. We also reviewed
    congressional hearings and prior GAO reports on appraisal reform and
    federal and state regulatory objectives. Finally, we downloaded
    information on appraisal issues from the Internet, including
    correspondence, reports, and issue papers prepared by industry
    participants and observers.

    We performed our work from March 2002 through March 2003 in accordance
    with generally accepted government auditing standards.

    Appendi x III

    List of Agencies and Groups Contacted Federal Agencies  Appraisal
    Subcommittee of the Federal Financial Institutions Examination Council
    (ASC) http:// www. asc. gov/

     Board of Governors of the Federal Reserve System (FRB) http:// www.
    federalreserve. gov/

     Federal Deposit Insurance Corporation (FDIC) http:// www. fdic. gov/

     National Credit Union Administration (NCUA) http:// www. ncua. gov/

     Office of the Comptroller of the Currency (OCC) http:// www. occ. treas.
    gov/

     Office of Thrift Supervision (OTS) http:// www. ots. treas. gov/

     United States Department of Housing and Urban Development (HUD) http://
    www. hud. gov/

    Government  Federal National Mortgage Association (Fannie Mae)

    Sponsored Enterprises http:// www. fanniemae. com/

     Federal Home Loan Mortgage Corporation (Freddie Mac) http:// www.
    freddiemac. com/

    Private Organizations  American Bankers Association (ABA) http:// www.
    aba. com/ default. htm

     American Society of Appraisers (ASA) http:// www. appraisers. org/

     Appraisal Foundation (AF) http:// www. appraisalfoundation. org/

     Appraisal Institute (AI) http:// www. appraisalinstitute. org/

     Experian http:// www. experian. com/ consumer/ index. html

    FNC I nc. http:// www. fncinc. com/

     International Association of Assessing Officers (IAAO) http:// www.
    iaao. org/

     Lee and Grant Company http:// www. leeandgrant. com/

     Mortgage Bankers Association of America (MBA) http:// www. mbaa. org/

     National Association of Realtors (NAR) http:// www. realtor. org/
    rodesign. nsf/ pages/ HomePage? OpenDocument

     Peter S. Barash Associates  UC Berkeley Fisher Center for Real Estate
    and Urban Economics

    http:// groups. haas. berkeley. edu/ realestate/ Fisher/ fisherinfo. asp
    State Appraiser

     Alabama Real Estate Appraisers Board Regulatory Agencies

    http:// reab. state. al. us  Alaska Board of Certified Real Estate
    Appraisers

    http:// www. dced. state. ak. us/ occ/ papr. htm  Arizona Board of
    Appraisal

    http:// www. appraisal. state. az. us  Arkansas Appraiser Licensing &
    Certification Board

    http:// www. state. ar. us/ alcb  California Office of Real Estate
    Appraisers

    http:// www. orea. ca. gov  Colorado Board of Real Estate Appraisers

    http:// www. dora. state. co. us/ real- estate/ appraisr/ appraisr. htm

     Commonwealth of the Northern Mariana Islands  Connecticut License
    Services Division

    http:// www. dcp. state. ct. us/ licensing/ realestate. htm  Delaware
    Council on Real Estate Appraisers

    http:// www. state. de. us/ research/ profreg/ realesapp. htm  District
    of Columbia, Occupational & Professional Licensing

    Administration Offline: 12/ 19/ 02 http:// www. dcra. org/ bplaboards.
    shtm

     Florida Division of Real Estate http:// www. state. fl. us/ dbpr/ re/
    freab_ welcome. shtml

     Georgia Real Estate Appraisers Board http:// www2. state. ga. us/ grec/
    greab/ greabmain. html

     Guam Department of Revenue & Taxation  Hawaii Real Estate Appraisers
    Section

    http:// www. state. hi. us/ dcca/ pvl/ areas_ real_ estate_ appraiser.
    html  Idaho State Certified Real Estate Appraisers Board

    http:// www2. state. id. us/ ibol/ rea. htm  Illinois Office of Banks and
    Real Estate, Appraisal Division

    http:// www. obre. state. il. us/ REALEST/ APPRAISAL. HTM  Indiana Real
    Estate Appraiser Licensure & Certification Board

    http:// www. in. gov/ pla/ bandc/ appraiser/  Iowa Real Estate Appraiser
    Examining Board

    http:// www. state. ia. us/ government/ com/ prof/ realappr. htm  Iowa
    Real Estate Appraiser Examining Board

    http:// www. state. ia. us/ government/ com/ prof/ realappr. htm  Kansas
    Real Estate Appraisal Board

    http:// www. ink. org/ public/ kreab/

     Kentucky Real Estate Appraisers Board http:// www. kyappraisersboard.
    com

     Louisiana Real Estate Commission http:// www. lreasbc. state. la. us/

     Maine Board of Real Estate Appraisers http:// www. state. me. us/ pfr/
    olr/ categories/ cat37.htm

     Maryland Commission of Real Estate Appraisers & Home Inspectors http://
    www. dllr. state. md. us/ license/ occprof/ reappr. html

     Massachusetts Board of Registration of Real Estate Brokers & Salespeople
    http:// www. state. ma. us/ reg/ boards/ ra/ default. htm

     Michigan Board of Real Estate Appraisers http:// www. michigan. gov/
    commerciallicensing

     Minnesota Department of Commerce http:// www. state. mn. us/ cgibin/
    portal/ mn/ jsp/ home. do? agency= Commerce

     Mississippi Real Estate Appraiser Licensing & Certification Board
    http:// www. mrec. state. ms. us/

     Missouri Real Estate Appraisers Commission http:// www. ded. state. mo.
    us/ regulatorylicensing/ professionalregistration /rea

     Montana Department of Labor & Industry, Business Standards Division
    http:// discoveringmontana. com/ dli/ bsd/ license/ bsd_ boards/ rea_
    board/ b oard_ page. htm

     Nebraska Real Estate Appraiser Board http:// linux1. nrc. state. ne. us/
    appraiser

     Nevada Real Estate Division http:// www. red. state. nv. us

     New Hampshire Real Estate Appraiser Board http:// www. state. nh. us/
    nhreab/

     New Jersey Board of Real Estate Appraisers http:// www. state. nj. us/
    lps/ ca/ nonmed# real11

     New Mexico Real Estate Appraisers Board http:// www. rld. state. nm. us/
    b& c/ real_ estate_ appraisers_ board. htm

     New York Division of Licensing Services http:// www. dos. state. ny. us/
    lcns/ appraise. html

     North Carolina Appraisal Board http:// www. ncappraisalboard. org

     North Dakota Real Estate Appraiser Qualifications & Ethics Board http://
    www. governor. state. nd. us/ boards/ boards- query. asp? Board_ ID= 92

     Ohio Division of Real Estate http:// www. com. state. oh. us/ odoc/
    real/ appmain. htm

     Oklahoma Real Estate Appraiser Board Division http:// www. oid. state.
    ok. us/ agentbrokers/ realestate. html

     Oregon Appraiser Certification & Licensure Board http:// www.
    oregonaclb. org

     Pennsylvania State Board of Certified Real Estate Appraisers http://
    www. dos. state. pa. us/ bpoa/ cwp/ view. asp? a= 1104& q= 432589

     Puerto Rico Department of State Board of Examiners Division no website

     Rhode Island Division of Commercial Licensing & Regulation http:// www.
    dbr. state. ri. us/ real_ estate. html

     South Carolina Professional & Occupational Licensing Real Estate
    Appraisers Board http:// www. llr. state. sc. us/ POL/
    RealEstateAppraisers/  South Dakota Appraiser Certification Program

    http:// www. state. sd. us/ dcr/ appraisers/ appraiser. html  Tennessee
    Real Estate Appraiser Commission

    http:// www. state. tn. us/ commerce/ treac

     Texas Appraiser Licensing & Certification Board http:// www. talcb.
    state. tx. us/

     US Virgin Islands Department of Licensing & Consumer Affairs  Utah
    Division of Real Estate

    http:// www. commerce. utah. gov/ dre  Vermont Board of Real Estate
    Appraisers

    http:// vtprofessionals. org/ opr1/ appraisers/  Virginia Real Estate
    Appraiser Board

    http:// www. state. va. us/ dpor/ apr_ main. htm  Washington Department
    of Licensing, Real Estate Appraisers

    http:// www. wa. gov/ dol/ bpd/ appfront. htm  West Virginia Real Estate
    Appraiser Licensing and Certification Board

    http:// www. state. wv. us/ appraise  Wisconsin Department of Regulation
    & Licensing

    http:// www. drl. state. wi. us  Wyoming Certified Real Estate Appraiser
    Board

    http:// realestate. state. wy. us Private Consultants  Lewis Allen,
    Consultant, Automated Valuation Models

     Walt Humphrey, IFAC, Humphrey and Associates, Inc.

    National Registry Database of the Appraisal

    Appendi x IV

    Subcommittee Title XI requires the Appraisal Subcommittee to maintain a
    national registry of state- licensed and -certified appraisers eligible to
    perform appraisals in connection with federally related transactions. The
    National Registry database, created in 1992 and revised and updated in
    1997, 1 provides names and qualifications of appraisers in each state and
    statistics

    on, among other things, active and inactive licenses, types of licenses,
    and disciplinary actions. The database contains both public and nonpublic
    information* for example, some data on disciplinary actions are restricted
    to authorized representatives of state regulatory agencies. Users can

    access the database from the Internet and may download the entire public
    portion at no charge.

    According to the Appraisal Subcommittee*s 2001 annual report, the registry
    is designed to allow users to determine (1) whether an appraiser is
    eligible to perform appraisals in connection with federally related
    transactions and (2) whether the appraiser*s credentials have ever been
    suspended, revoked, or surrendered. The registry helps in facilitating
    temporary reciprocity by allowing states to determine an appraiser*s
    licensing status and assists state agencies in enforcing laws governing
    appraisers. In addition, financial institutions can receive updates via
    the Internet on revocations, suspensions, surrenders, and expirations of
    licenses.

    Information contained in the database comes from the states, which
    periodically submit files to the Appraisal Subcommittee for inclusion in
    the registry, with most states submitting data monthly. The registry
    reports on four classes of appraisers* licensed, certified general,
    certified residential, and transitional. According to an Appraisal
    Subcommittee official, the database also serves as an archive, as no
    records are ever deleted. Our

    research showed that nearly one- half of the appraisers included in the
    database were classified as inactive because of retirements, death,
    departure from the profession, or other reasons. Some appraisers were

    1 According to an Appraisal Subcommittee official, results from their on-
    site state review conducted in the mid- 1990s found that the number of
    appraisers many states reported to the Appraisal Subcommittee did not
    correspond to the number of appraisers in the state's records. In
    response, the Appraisal Subcommittee made two changes to the National
    Registry database to ensure that states were submitting the names of and
    collecting fees on behalf of all eligible appraisers. First, the Appraisal
    Subcommittee required states to submit records for all real property
    appraisers and determined whether any fees were outstanding. Second, the
    Appraisal Subcommittee redesigned the database to calculate the fees owed
    by each state, including for creating and mailing invoices. According to
    the official, revenues

    for the registry increased significantly as a result of the changes.

    listed as both active and inactive, since they had given up one type of
    license and obtained another kind.

    As of October 31, 2002, the database reported nearly 89, 000 appraisers
    eligible to perform appraisals for federally related transactions. The
    number of appraisers reported by state appraisal regulatory agencies
    ranged from 10 in the Northern Mariana Islands to nearly 9,500 in
    California (table 3). Certified general and certified residential
    appraisers accounted for nearly 76 percent of the licensed appraisers.

    Table 3: Active Appraiser Licenses, by State and Type Type of license
    Certified

    Certified Transitional

    Licensed general residential license All Issuing states and U. S.
    territories N NNNNumber

    Alabama 113 420 510 a 1,043 Alaska a 70 82 a 152 Arizona 424 568 626 a
    1,618 Arkansas 113 343 314 a 770 California 2,124 3,395 3, 936 a 9,455
    Colorado 737 1,092 971 a 2,800 Connecticut 31 505 583 a 1,119 Delaware 61
    169 214 a 444 District of Columbia 327 212 a a 539 Florida 105 1,944 2,
    824 a 4,873 Georgia 1,034 1,430 894 a 3,358 Guam 9 10 3 a 22 Hawaii 22 131
    150 a 303 Idaho 191 221 133 a 545 Illinois 2,342 1,037 1, 768 a 5,147
    Indiana 829 528 728 a 2,085 Iowa a 528 485 a 1,013 Kansas 261 419 328 a
    1,008 Kentucky 90 448 698 a 1,236 Louisiana a 340 556 a 896 Maine 103 268
    214 a 585

    (Continued From Previous Page)

    Type of license Certified

    Certified Transitional

    Licensed general residential license All Issuing states and U. S.
    territories N NNNNumber

    Maryland 820 724 780 a 2,324 Massachusetts 524 675 726 a 1,925 Michigan
    2,074 987 73 a 3,134 Minnesota 148 790 835 a 1,773 Mississippi 344 451 406
    a 1,201 Missouri 247 616 994 a 1,857 Montana 42 225 140 a 407 Nebraska 120
    344 110 a 574 New Hampshire 115 288 296 a 699 New Jersey 674 987 648 a
    2,309 New Mexico 62 249 221 a 532 Nevada 160 319 263 a 742 New York 388
    1,440 1, 811 a 3,639 North Carolina 169 678 1, 435 a 2,282 North Dakota 59
    117 a a 176 Northern Mariana Islands a 9 1 a 10 Ohio 1,684 863 543 a 3,090
    Oklahoma 564 389 361 a 1,314 Oregon 686 471 151 a 1,308 Pennsylvania a
    1,150 1, 777 a 2,927 Puerto Rico 9 148 40 a 197 Rhode Island 69 143 183 a
    395 South Carolina 434 560 626 a 1,620 South Dakota 66 137 16 a 219
    Tennessee 203 553 747 a 1,503 Texas 375 2,161 1, 787 36 4, 359 Utah 99 325
    563 a 987 Vermont 49 116 101 a 266 Virgin Islands a 11 9 a 20 Virginia 787
    855 871 a 2,513 Washington 391 845 1, 201 a 2,437 West Virginia 169 161
    190 a 520 Wisconsin 556 606 872 a 2,034

    (Continued From Previous Page)

    Type of license Certified

    Certified Transitional

    Licensed general residential license All Issuing states and U. S.
    territories N NNNNumber

    Wyoming a 213 91 a 304 All 21,003 32,684 34, 885 36 88, 608 Source: GAO
    Analysis of Appraisal Subcommittee National Registry of Appraisers
    Database as of 10/ 31/ 02.

    a Not applicable.

    As previously noted, the database contains information on disciplinary
    actions taken and reported by state regulators (table 4). Of the 4,360
    disciplinary actions reported for active and inactive licensees in the

    database as of October 31, 2002, the category "other" accounted for the
    greatest number -- 1,088 (25 percent) followed by "fines" with 788
    instances (18 percent). 2 The number of disciplinary actions taken by
    state appraiser regulatory agencies ranged from a single action to as many
    as 668. Specifically, Vermont reported taking a single action, while
    California, Oklahoma, and Virginia accounted for nearly 34 percent (1, 473
    actions) of the actions reported. Table 4 identifies the number and type
    of disciplinary actions taken against active licensees in each state.

    2 According to an Appraisal Subcommittee official, *other* disciplinary
    actions can include warning letters, monetary penalties, probations, and
    educational requirements. In general, only the Appraisal Subcommittee and
    state regulatory agency have access to the details of disciplinary actions
    classified as other.

    Table 4: Disciplinary Actions, by State (Active and Inactive Licensees)
    Type of disciplinary action Issuing states

    and U. S. Additional

    Downgrade Suspension Revocation Vol unt ar y

    Official territories Other Warnings education Fine Probation surrender
    reprimand All

    No. of N NNNNNNNNN actions

    Alabama 15 a a 2 a 3 123 3 a 38 Alaska a aa 1 2 a 1 a 1 a 5 Arizona 119 a
    aa 35 1 19 15 12 a 201 Arkansas a 7 6412 a 3 5 a a 37 California 5 108 3
    105 6 2 87 83 45 a 444 Colorado a 2 32918 a 7 63 a 68 Connecticut 4 a 4 5
    a a 1 1 a 1 16 Delaware a a 2 a 2 a aaaa 4 Florida a 3 9 80 31 1 8 26 a 1
    159 Georgia 87 3 a 26 a 1 345623 a 230 Hawaii a 1 a a aa a 1 a a 2 Idaho a
    4 8139 a 2 a 2 a 38 Illinois 4 116 a 21 8 2 12 36 7 a 206 Indiana a aaa 3
    a 4 1 a 2 10 Iowa 2 1 62 10 a a 3 73189 Kansas 1 9 24 25 12 a 5 9a a 85
    Kentucky a 2 11591 a 14 3 2 a 92 Louisiana a 14 a 2 a a 4 a aa 20 Maine 2
    a 1 13 2 a a 1 1323 Maryland 1 a 2 4 a a 8 2 a a 17 Massachusetts a a 1 a
    8 a a 2 3 a 14 Michigan a aa 17 16 a 6 51 a 45 Minnesota 13 a a 14 a a 28
    4 a a 59 Mississippi 132 a 29 a 4 a 5 148 a 219 Missouri 1 1 a a 27 a 3 75
    a 44 Montana a aaa 5 a aa 1 a 6 Nebraska a a 9 a 4 a aa 7 a 20 Nevada a a
    27 20 a 8 68 a a 69 New Hampshire a aaaaa 2 11 a 4

    (Continued From Previous Page)

    Type of disciplinary action Issuing states

    and U. S. Additional

    Downgrade Suspension Revocation Vol unt ar y

    Official territories Other Warnings education Fine Probation surrender
    reprimand All

    No. of N NNNNNNNNN actions

    New Jersey a aa 6 42912428 New Mexico a 4 51 a aa 1 a a 11 New York a
    aaaaaa 2 1 a 3 North Carolina 1 a 45 a aa 38 3 5 43 135 North Dakota a a 7
    a a 2 121 a 13 Ohio a 26 11 a aa 17 1 a a 55 Oklahoma 371 a 2 a aa 1 293 a
    1 668 Oregon 1 5 3 158 a a 15 5 7 4 198 Pennsylvania a a 49 40 4 a 5
    333107 Rhode Island a aaaaa 4 4 a a 8 South Carolina a aa 33 16 7 4 5 a a
    65 South Dakota 4 a aaaa 3 a a 11 18 Tennessee 24 46 69 13 3 3 1 5 5 a 169
    Texas 1 3 42 12 5 a 4 61 a 74 Utah 4 a 7 28 7 1 a 2 13 a 62 Ver mont a a 1
    a aaaaaa 1 Virginia 295 6 a 43 a a 6 11 a a 361 Washington a 34 a 3 19 a 9
    15 3 a 83 West Virginia a aaaaa 5 a aa 5 Wisconsin 1 a 20 1 a aa 2 1328
    Wyoming a aaaaa 2 a 2 a 4

    All 1, 088 395 462 788 263 33 398 644 212 77 4, 360

    Source: GAO Analysis of Appraisal Subcommittee National Registry of
    Appraisers database as of 10/ 31/ 2002. a Not applicable.

    Evolution and Use of Automated Valuation

    Appendi x V

    Models Automated valuation model (AVM) is a broad term used to describe a
    range of computerized econometric models that are designed to provide
    estimates of residential real estate property values. AVMs may use
    regression, adaptive estimation, neural networking, expert reasoning, and
    artificial intelligence to estimate the market value of a residence. The
    earliest users of computer- assisted property valuations appear to have
    been government assessors who needed to value large volumes of property
    for

    tax purposes. However, early efforts to develop computer- assisted
    appraisal models were hampered by the lack of large data sets and the
    costs of computing. Since the early 1990s, AVMs have become commercially
    viable, for several reasons. First, computerized real property data sets
    have become available at the metropolitan and state levels. Second, the
    cost of computers has declined. Third, the Internet has improved
    distribution capabilities and further increased the availability of needed
    data. Finally, the growth of the secondary mortgage market has helped fuel
    the demand for AVMs as a faster and more economical alternative to
    traditional appraisals. According

    to Standard & Poor*s, AVMs were expected to play a role in 10 percent of
    all new loan originations in the residential mortgage market in 2002 and
    will be put to a variety of uses, from acting as checking appraised values
    to being the sole determinant of a property*s value.

    Three Types of AVM There are many different types of AVMs available.
    However, three types of

    Models Are Currently AVM models are most commonly used: hedonic, repeat
    sales, and hybrids.

    Used  Hedonic models use a sales comparison (or market) approach, which
    is the most commonly used approach for appraising single- family

    houses. Estimates are based in part on recent sales of comparable homes in
    the local market. These models require information about specific
    characteristics, including the living area and lot sizes, age of the
    property, and other physical attributes, to determine value. Recent market
    sales of comparable homes in the local market are used to estimate the
    price of the subject property. In effect, hedonic models use a sales
    comparison (or market) approach, which is the most common used approach
    for most appraisals of single- family houses for lending purposes.
    Repeat sales models calculate and apply geographic- specific indexes

    to update a property*s last known sales price. Price trends are
    constructed at the zip code and county levels using matched- pair

    analysis. Indexes are generally developed with several price tiers within
    each zip code and assume that the subject property behaves much like other
    properties in the zip code and price tier. Unlike the hedonic model, the
    repeat sales model does not require information on property
    characteristic, only the prices and sale dates for properties within a
    specific geographic area.

     Hybrid models are typically a combination of hedonic and repeat sales
    models, although all hybrids do not give the same weight given to each.
    Another form of hybrid models combines an AVM with involvement or input
    from the appraiser. For example, an appraiser may use the results of an
    AVM as a tool to develop a standard appraisal.

    Data Sources for AVMs Regardless of the model used, the quality of the
    underlying data determines

    Vary in Completeness the AVM*s accuracy and usefulness. The data that are
    the core of any

    model*s results must be accurate, current, and complete. Data sources for
    and Reliability

    AVMs include public records, multiple listing services, and traditional
    real estate records. Sources of public data include tax records and
    information kept by country recorders, but both these sources have
    limitations. Tax assessment data are often part of the database mix, but
    AVMs do not rely solely on the assessed value of a home. For example,
    Freddie Mac uses tax assessments along with other factors to determine
    property values in its models. It has found that the tax assessment alone
    is not sufficient to provide accurate value estimation. Information at the
    county level is not available for properties that are located in
    *nondisclosure states.* 1 Further, counties use different methods of
    collecting data, so that the information

    available in some counties is more complete and consistent than it is in
    others. Multiple listing service data are considered by some to be the
    best available for determining trends in specific geographic markets and
    changes in the overall market. But this data can also be as fragmented and
    nonstandardized as county data. According to one of the AVM developer and
    vendor that we contacted, his company is increasingly relying on data from
    appraisers because they are usually more accurate and in- depth than
    publicly available data. In addition, he stated that some AVM developers

    1 Nondisclosure states are those states in which the price and terms of
    real estate transactions, such as the amount paid for the property, are
    not subject to public disclosure.

    and vendors might be physically collecting their own data, especially in
    areas where public data are sparse.

    Because of the problems obtaining reliable data and the fact that
    properties are not physically inspected, AVMs are generally not considered
    a viable replacement for traditional appraisals. AVMs work best in markets
    that have an abundance of recent sales data and homogenous neighborhoods.
    In rural areas, they may be less useful, either because of a shortage of
    comparable sales or because rural properties are often unique. Without a
    physical appraisal, AVMs may not take into account excess depreciation,
    wear and tear, and upgrades that are not contained in the public records.
    In addition, the proprietary nature of commercial AVMs has raised concerns
    about the *black box* technology these models use. AVM vendors are not
    required to make their AVM methodologies available to the public. As a
    result, some groups have raised concerns that AVM models may be including
    factors that could unintentionally introduce bias into their analysis.

    AVMs Have Both AVMs offer a number of advantages over traditional
    appraisals. First, AVMs

    Advantages and are generally much faster and cheaper to use in estimating
    the value of a property. For example, traditional appraisals for single-
    family residences

    Disadvantages typically cost several hundred dollars and can take days or
    even weeks,

    depending on market conditions and the availability of the appraiser.
    AVMs, however, cost less than $100 and take just a few minutes. Second,
    proponents of AVMs argue that this technology delivers more objective and
    consistent appraisal values than human appraisers, who often value

    properties differently and may be subject to pressure from lenders to
    assess a property at a specific value. Third, AVMs can be used to validate
    traditional appraisals, especially in valuing high- risk loans. As has
    been pointed out, AVMs also have a number of disadvantages. Because data
    may not be available or may not be complete and reliable, the models are
    sometimes unworkable. The lack of a physical inspection could mean that
    some important factors are not taken into account. And AVM

    technology is proprietary, so that vendors do not have to disclose their
    methodologies to the public. Despite these disadvantages, AVMs provide a
    fast, inexpensive means of valuing properties in active markets.

    Guidance and As of January 2003, federal financial institutions regulators
    have not issued Regulations on Using

    specific regulations or policies governing a federally insured depository
    institution*s use of AVMs. According to representatives of the federal
    AVMs Are Relatively

    financial institutions regulators, federally insured depository
    institutions New

    are free to use AVMs for transactions not considered to be federally
    related transactions, such as mortgage loans falling below the $250,000
    threshold for appraisals. The regulators stated that their examiners are
    being introduced to AVMs through various training programs.

    The Appraisal Standards Board has issued an advisory opinion, stating that
    the output of an AVM by itself does not constitute an appraisal. 2
    However, the advisory opinion states that appraisers can use AVMs as a
    tool in

    developing an appraisal, appraisal review, or appraisal consulting
    opinions and conclusions. The opinion lists five critical questions that
    an appraiser must answer before deciding to use an AVM:  Does the
    appraiser have a basic understanding of how the AVM works?

     Can the appraiser use the AVM properly?  Are the AVM and the date it is
    used appropriate?  Is the AVM output credible?  Is the AVM output
    sufficiently reliable for use in the assignment? The advisory opinion also
    identifies the steps appraisers should take to ensure that the output of
    an AVM is communicated in a way that is not misleading. Fannie Mae and
    Freddie Mac, the two government- sponsored enterprises (GSE) that control
    a significant portion of the secondary market for conventional single-
    family mortgage loans, include AVMs within their automated loan
    underwriting systems. According to representatives of the two GSEs, their
    automated loan underwriting systems use various factors to determine the
    appraiser- related services that need to be performed. In some cases, the
    two GSEs allow lenders to use an AVM rather than

    2 Appraisal Standards Board, Use of Automated Valuation Model (Advisory
    Opinion 18)( July 9, 1997).

    requiring an appraisal because the automated loan underwriting system has
    sufficient information. Both Fannie Mae and Freddie Mac reportedly use
    their proprietary AVMs as part of their quality control systems and their
    own risk and portfolio management. Freddie Mac has also made its
    proprietary stand- alone AVM available to other public and private
    entities.

    The Appraiser Qualifications Board*s Process and Fees for Approving
    Appraiser Education

    Appendi x VI

    Courses and Certifying Instructors Some providers of education courses for
    appraisers have expressed concerns about the fees the Appraiser
    Qualifications Board (AQB) charges to approve courses and certify
    instructors. This appendix contains information on (1) the AQB*s course
    approval program, (2) the AQB*s instructor certification program, (3)
    options the AQB has offered education providers for approving distance
    education courses, and (4) fees charged by other entities offering similar
    course approval and instructor

    certification programs. AQB*s Course Approval

    According to the AQB, it established its course approval program at the
    Program

    request of state regulators and education providers associated with the
    real estate appraisal industry. AQB officials told us that many state
    regulators had notified the AQB that Uniform Standards of Professional
    Appraisal Practice (USPAP) courses were deficient and that appraisers were
    facing disciplinary action as a result of not fully understanding the
    standards. Participation in the course approval program is entirely
    voluntary for course providers, and the AQB encourages but does not
    require states to accept approved courses for appraiser education
    requirements. Moreover,

    a state may set its own requirements, which all education providers
    operating in the state* even those offering AQB- approved courses* must
    meet. Education providers that choose to participate in the AQB*s course

    approval program must submit course materials and policies for review by a
    member of the AQB Review Panel. Appraisal Foundation officials told us
    that AQB review panelists are college professors from Virginia

    Commonwealth University, the University of Hawaii, and Texas A& M
    University with experience in real estate appraising. According to the
    AQB, the chief reviewer also performs a summary review to assure
    objectivity and quality control. The chief reviewer then recommends
    whether the AQB should approve the course. According to Appraisal
    Foundation officials, education providers may be asked to fix identified
    deficiencies prior to receiving approval for the course. Approval is valid
    for 3 years, except for courses involving the USPAP, which must be
    approved annually.

    The AQB offers education providers content review services for all
    courses* qualifying courses for trainees as well as continuing education
    courses for practicing appraisers* including distance education courses.
    Courses that are approved for qualifying education will automatically be
    approved for continuing education. Distance education providers must have
    their delivery methods certified by the International Distance

    Education Certification Center (IDECC). AQB officials noted that IDECC
    certification is essential, since distance education courses are held to a
    different standard than traditional classroom setting courses because
    students do not have direct in- person interaction with instructors.

    The AQB*s fees for approving courses vary based on the length and type of
    course. For example, the initial fee for approving a 15 to 29 hour
    qualifying education course is $1,200, while the fee for a course of 30 or
    more hours is $1,400. The renewal fee is $125. For continuing education
    courses, AQB charges $800 to approve a 2 to 8 hour course, $900 to approve
    a 9 to 16 hour course, and $1,000 to approve a course of more than 16
    hours. The renewal fee for these courses is $100. AQB charges distance
    education providers the same fees, but distance education providers must
    also pay service fees to IDECC. IDECC charges $750 to review the first
    course and $400 to review each additional course. Distance education
    courses with IDECC certification are approved for 3 years, with a
    recertification fee of $270. AQB*s USPAP

    AQB*s USPAP instructor certification program was implemented in Instructor
    Certification February 2002 as part of the revisions to the Real Property
    Appraiser Qualification Criteria. According to the AQB, the instructor
    certification Program

    program, like the approval process for USPAP courses, was adopted in an
    effort to improve the overall quality of USPAP training. Although
    participation in the program is voluntary, as of January 1, 2003, only
    AQBcertified USPAP instructors were permitted to teach the national USPAP
    courses. 1 The AQB certifies instructors at the national level, but some
    states have their own requirements that instructors must also meet. The
    prerequisites for AQB*s USPAP instructor certification program

    include at least 7 years of appraisal experience in any discipline and at
    least 35 classroom hours of appraisal teaching experience within the last
    5 years. Individuals who complete the USPAP instructor certification
    courses and pass the examination must take a USPAP update course and
    examination every 2 years in order to remain certified.

    Appraisal Foundation officials reported that past and present Appraisal
    Standards Board members develop, maintain, and teach the USPAP

    1 The AQB*s minimum qualification criteria for those seeking to become
    appraisers require the course or its equivalent. AQB has also established
    a continuing education requirement for appraisers of 7 hours of similar
    training every 2 years.

    instructor certification program course with guidance from the AQB and the
    Education Council of Appraisal Foundation Sponsors (ECAFS). 2 For example,
    an Appraisal Foundation official told us that members of the ASB had
    developed the course content and that the AQB had contracted with a
    psychometrician experienced in the science of examinations to develop the
    examination structure. The AQB also contracts with a firm specializing in
    psychometrics* Gainesville Independent Testing Services, LLC* to review

    the examinations after every course. Gainesville scores each student*s
    exam and summarizes its strengths and weaknesses. Students who fail the
    course receive both their results and a summary of their strengths and
    weaknesses for each component of the examination. The AQB instructor
    certification program includes a 2 1/ 2 day course,

    followed by a half- day 120 multiple- choice question examination. The
    course and exam cost $425. Individuals who participate in the program and
    fail the examination may exercise one of the following options within 12
    months:

     retake the 2 1/ 2 day instructor certification course and examination
    for $225, or

     retake the examination only for $95. If an individual retaking the
    examination only fails to pass it the second time and still desires to
    become certified, he or she must retake both the course and the
    examination for $225.

    Some education providers are concerned that AQB*s mandatory USPAP
    instructor certification program is intended simply to generate revenue
    for the Appraisal Foundation. According to the Appraisal Foundation, the
    program yielded approximately $165,000 in revenues for calendar year 2002,
    while expenses for the program were almost $230,000, resulting in a

    deficit of $63,000. The AQB Instructor Certification Program is unique to
    the AQB, and the AQB has not approved any alternative methods of
    certification for individuals who teach the National USPAP courses at the
    national level.

    2 ECAFS is an advisory committee to the Appraisal Foundation made up of
    representatives from the Appraisal Foundation sponsoring organizations.

    Options Provided by State regulatory agencies also offer course approval
    programs for

    AQB for Approving education providers offering training for appraisers. In
    some states, this

    approval is mandatory even if the state participates in AQB*s approval
    Distance Education

    program. For distance education, the AQB offers four options, including:
    Courses

     having an accredited college or university present the course, in which
    case the AQB would approve both the content and delivery method;

     submitting the course to the American Council on Education (ACE) College
    Credit Recommendation Service for content and delivery method approval;

     submitting the course to IDECC to have the delivery method approved and
    then submitting the course to the AQB to have the content approved; and

     submitting the course to IDECC to have the delivery method approved and
    then submitting the course to the state regulatory agency for appraisers
    (in the state where the course will be offered) for additional approval.

    Relative Costs of AQB To compare the AQB*s fees with those of other
    entities offering similar

    Course Approval and services, we obtained information from the ACE College
    Credit Approval

    Service, the Accrediting Council for Continuing Education and Training,
    Instructor Certification

    the National Association for Practical Nurse Education and Service Inc.,
    Programs

    the Distance Education and Training Council, and the International
    Distance Education Certification Center. The course approval programs
    these entities offer vary in scope but in general provide services similar
    to those of the AQB. For example, the National Association for Practical
    Nurse Education and Service offers an approval program for continuing and
    vocational education courses. The Accrediting Council for Continuing

    Education provides both course approval services for continuing education
    and accreditation services for entire institutions.

    Directly comparing the fees charged by these organizations is difficult
    because they do not all offer exactly the same services; moreover, in some
    cases the fees are not the only cost to the education provider. Fees for
    services from the National Association for Practical Nurse Education and
    Service can range from $60 for a one- time course offering by an
    association member to $600 for more than 60 repeat course offerings by a
    nonmember.

    Fees for accreditation services by the Accrediting Council for Continuing
    Education and Training are a minimum of $6,300, which includes a
    preapplication evaluation, an application for initial accreditation, a
    mandatory accreditation workshop for education provider representatives,
    and a site visit. Table 5 provides an overview of the fees charged for
    course approval services.

    Table 5: Approval Service Fees, by Service Provider as of February 2003
    Service provider Type of approval service AQB ACE a ACCET b NAPES DETC c
    IDECC

    Qualifying education course $1,200-$ 1,400 $700 n/ a n/ a n/ a n/ a
    Continuing education course $800-$ 1,000 n/ a $6,300 $60-$ 600 n/ a n/ a
    Distance education course content $800-$ 1,000 $700 $6,300 n/ a $300 n/ a
    Distance education delivery method n/ a $700 $6,300 n/ a $300 $225-$ 750
    Source: GAO analysis of data obtained from the service providers .

    n/ a = not available or applicable. Note: ACCET= Accrediting Council for
    Continuing Education and Training; NAPES= National Association for
    Practical Nurse Education and Service Inc.; DETC = Distance Education and
    Training

    Council; IDECC = International Distance Education Certification Center. a
    Fees do not include variable costs, which the education provider pays (for
    example, on- site review,

    data entry, and staff travel, hotel, and per diem). b Fees for the
    accreditation of an institution and the current courses it offers.

    c Application fee for accreditation of a distance education institution.
    Other fees may apply for services such as on- site visits, subject
    specialist review, and annual fees.

    No other entity offers a program similar to AQB*s USPAP instructor
    certification program, although the Appraisal Institute* an international
    membership association of professional real estate appraisers* has a
    program with similar examination requirements. Among a number of other

    requirements, individuals seeking to be certified to teach Appraisal
    Institute courses must successfully complete its Instructor Leadership and
    Development Conference and subsequent examination requirements. The fee
    for taking the Appraisal Institute*s last Instructor Leadership and
    Development Conference* held in February to March 2002* was $350. In
    contrast, the AQB charges $425 for USPAP instructor certification.

    State Fees for Course In addition to the fees charged by the AQB for its
    course and instructor

    and Instructor approval programs, education providers in certain states
    may also have to

    pay fees to state appraiser regulatory agencies for course approval and
    Approval

    instructor certification. Information obtained from the Internet sites of
    47 of the 55 state regulatory agencies and, in some cases, directly from
    the state regulatory agency indicated that fees ranged significantly
    between individual states. For example, fees charged by individual states
    ranged from:

     zero to $500 for course approval of qualifying education courses,  zero
    to $250 for course approval of continuing education courses,  zero to
    $500 for approval of distance education courses, and  zero to $300 for
    instructor certification. 3 Eight of the states did not charge a fee for
    course approval and instructor certification.

    3 One state charged a single certification fee of $1,000 to education
    providers for all instructors.

    Federal Financial Institutions Examination

    Appendi x VII Council*s Legal Advisory Group Opinion

    Appendi x VIII Comments from the Appraisal Subcommittee

    Appendi x IX Comments from the Appraisal Foundation

    Appendi x X Comments from Fannie Mae

    Appendi x XI Comments from Freddie Mac

    Comments from Department of Housing and

    Appendi x XII Urban Development

    Appendi x XIII

    GAO Contacts and Acknowledgments GAO Contacts David Wood (202) 512- 8678
    Harry Medina (415) 904- 2000 Acknowledgments In addition to those named
    above, Susan Baker, Emily Chalmers, Erika

    Cruz, Edda Emmanuelli- Perez, Joel Grossman, Tracy Guerrero, Jennifer Lai,
    Alexandra Martin- Arseneau, Marc Molino, David Noguera, Jerome Sandau, and
    Paul Thompson made key contributions to this report. (250079)

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    U. S. General Accounting Office, 441 G Street NW, Room 7149 Washington, D.
    C. 20548

    Report to Congressional Requesters

    May 2003 REGULATORY PROGRAMS Opportunities to Enhance Oversight of the
    Real Estate Appraisal Industry

    GAO- 03- 404

    Letter 1 Results in Brief 3 Background 6 Title XI Created a Complex
    Appraiser Regulatory Oversight

    Structure 7 Private, State, and Federal Entities Cited Potential
    Impediments to

    Fulfilling their Title XI Roles 18 Industry Participants Raised Various
    Concerns about the Title XI

    Oversight Structure 23 Conclusions 36 Recommendations 37 Agency Comments
    38

    Appendixes

    Appendix I: Survey of State Regulatory Agencies (results included) 42

    Appendix II: Scope and Methodology 53

    Appendix III: List of Agencies and Groups Contacted 55 Federal Agencies 55
    Government Sponsored Enterprises 55 Private Organizations 55 State
    Appraiser Regulatory Agencies 56 Private Consultants 60

    Appendix IV: National Registry Database of the Appraisal Subcommittee 61

    Appendix V: Evolution and Use of Automated Valuation Models 67 Three Types
    of AVM Models Are Currently Used 67 Data Sources for AVMs Vary in
    Completeness and Reliability 68 AVMs Have Both Advantages and
    Disadvantages 69 Guidance and Regulations on Using AVMs Are Relatively New
    70

    Appendix VI: The Appraiser Qualifications Board*s Process and Fees for
    Approving Appraiser Education Courses and Certifying Instructors 72 AQB*s
    Course Approval Program 72 AQB*s USPAP Instructor Certification Program 73
    Options Provided by AQB for Approving Distance Education Courses 75

    Relative Costs of AQB Course Approval and Instructor Certification
    Programs 75

    State Fees for Course and Instructor Approval 77

    Appendix VII: Federal Financial Institutions Examination Council*s Legal
    Advisory Group Opinion 78

    Appendix VIII: Comments from the Appraisal Subcommittee 87

    Appendix IX: Comments from the Appraisal Foundation 91

    Appendix X: Comments from Fannie Mae 93

    Appendix XI: Comments from Freddie Mac 97

    Appendix XII: Comments from Department of Housing and Urban Development 99

    Appendix XIII: GAO Contacts and Acknowledgments 101 GAO Contacts 101
    Acknowledgments 101

    Tables Table 1: Title XI Roles and Responsibilities for Appraisal
    Standards and Appraiser Qualifications 9

    Table 2: State Appraiser Licensing Requirements 26 Table 3: Active
    Appraiser Licenses, by State and Type 62 Table 4: Disciplinary Actions, by
    State (Active and Inactive

    Licensees) 65 Table 5: Approval Service Fees, by Service Provider as of
    February

    2003 76

    Abbreviations

    AQB Appraiser Qualifications Board ASB Appraisal Standards Board AVM
    Automated Valuation Model ECAFS Education Council for Appraisal Foundation
    Sponsors FDIC Federal Deposit Insurance Corporation FHA Federal Housing
    Administration FIRREA Financial Institutions Reform, Recovery, and
    Enforcement Act

    of 1989 FRS Federal Reserve System GSE Government Sponsored Enterprises
    HUD Department of Housing and Urban Development IDECC International
    Distance Education Certification Center NCUA National Credit Union
    Administration OCC Office of the Comptroller of the Currency

    OTS Office of Thrift Supervision USPAP Uniform Standards of Professional
    Appraisal Practice

    This is a work of the U. S. Government and is not subject to copyright
    protection in the United States. It may be reproduced and distributed in
    its entirety without further permission from GAO. It may contain
    copyrighted graphics, images or other materials. Permission from the
    copyright holder may be necessary should you wish to reproduce copyrighted
    materials separately from GAO*s product.

    a

    GAO United States General Accounting Office

    Title XI created a complex oversight structure for real estate appraisals
    and appraisers that involves private, state, and federal entities. Two
    private entities establish uniform rules for real estate appraisals and
    set minimum criteria for certifying appraisers. State regulatory agencies
    certify appraisers based on these criteria. The federal financial
    regulators oversee financial

    institutions* use of appraisals, and a federal agency, the Appraisal
    Subcommittee, monitors and coordinates the functions of the parties
    involved in regulating appraisals and appraisers.

    All of these entities except the federal financial regulators identified
    potential impediments to carrying out their Title XI responsibilities. The
    two private entities stated that fund limitations could impede their
    ability to ensure that development of standards and qualifications evolve
    with changing conditions. State agencies said that funding shortfalls
    hindered their ability to enforce compliance. Appraisal Subcommittee staff
    reported that rule- making authority and additional enforcement sanctions
    could facilitate its oversight of state compliance with Title XI. Industry
    participants raised concerns about aspects of the Title XI regulatory

    system for appraisers. They cited differences in state regulation that
    affect both lenders and appraisers, gaps in Title XI*s coverage* for
    example, transactions of less than $250,000 do not require an appraisal*
    high fees and

    burdensome processes for having appraiser education courses approved, and
    weak enforcement and complaints processing. Some industry participants
    felt that states, traditionally involved in regulating professions, alone
    should regulate the appraisal industry. Others felt that the current
    structure needed a significant overhaul to become effective.

    Title XI Regulatory Oversight Structure and Entities

    REGULATORY PROGRAMS

    Opportunities to Enhance Oversight of the Real Estate Appraisal Industry

    www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 404. To view the full report,
    including the scope and methodology, click on the link above. For more
    information, contact David G. Wood (202) 512- 8678 or woodd@ gao. gov.
    Highlights of GAO- 03- 404, a report to

    Congressional Requesters

    May 2003

    Since the passage of Title XI of the Financial Institutions Reform,
    Recovery, and Enforcement Act of 1989, the appraisal and mortgage lending
    industry has changed dramatically. Some have

    concluded that the law is obsolete because the problems Title XI was
    intended to address* the risk to federal deposit insurance funds and the
    lack of uniform standards and qualifications* no longer exist. Others
    argue that the law*s purpose

    and scope should be expanded. To help Congress better understand these
    issues, GAO looked at the roles of the private, state, and

    federal entities that oversee the appraisal industry, the challenges Title
    XI presented to these entities, and industry participants* concerns about
    the effectiveness of the Title

    XI regulatory structure. Among other things, the Chairman of the Appraisal
    Subcommittee should:

    develop and apply consistent criteria for determining and reporting
    states* compliance levels with Title XI;

    explore potential options for assisting states in carrying out their Title
    XI activities, particularly for investigating appraiser complaints; and
    explore alternatives for

    providing future Title XI grant funding to the Appraisal Foundation and
    its two boards.

    Page i GAO- 03- 404 Real Estate Appraisal Industry Oversight

    Contents

    Contents

    Page ii GAO- 03- 404 Real Estate Appraisal Industry Oversight

    Contents

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    Appendix I

    Appendix I Survey of State Regulatory Agencies (results included)

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    Appendix I Survey of State Regulatory Agencies (results included)

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    Appendix I Survey of State Regulatory Agencies (results included)

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    Appendix I Survey of State Regulatory Agencies (results included)

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    Appendix I Survey of State Regulatory Agencies (results included)

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    Appendix I Survey of State Regulatory Agencies (results included)

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    Appendix I Survey of State Regulatory Agencies (results included)

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    Appendix I Survey of State Regulatory Agencies (results included)

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    Appendix I Survey of State Regulatory Agencies (results included)

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    Appendix I Survey of State Regulatory Agencies (results included)

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    Appendix II

    Appendix II Scope and Methodology

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    Appendix III

    Appendix III List of Agencies and Groups Contacted

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    Appendix III List of Agencies and Groups Contacted

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    Appendix III List of Agencies and Groups Contacted

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    Appendix III List of Agencies and Groups Contacted

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    Appendix III List of Agencies and Groups Contacted

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    Appendix IV

    Appendix IV National Registry Database of the Appraisal Subcommittee

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    Appendix IV National Registry Database of the Appraisal Subcommittee

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    Appendix IV National Registry Database of the Appraisal Subcommittee

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    Appendix IV National Registry Database of the Appraisal Subcommittee

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    Appendix IV National Registry Database of the Appraisal Subcommittee

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    Appendix V

    Appendix V Evolution and Use of Automated Valuation Models

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    Appendix V Evolution and Use of Automated Valuation Models

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    Appendix V Evolution and Use of Automated Valuation Models

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    Appendix V Evolution and Use of Automated Valuation Models

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    Appendix VI

    Appendix VI The Appraiser Qualifications Board*s Process and Fees for
    Approving Appraiser Education Courses and Certifying Instructors

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    Appendix VI The Appraiser Qualifications Board*s Process and Fees for
    Approving Appraiser Education Courses and Certifying Instructors

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    Appendix VI The Appraiser Qualifications Board*s Process and Fees for
    Approving Appraiser Education Courses and Certifying Instructors

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    Appendix VI The Appraiser Qualifications Board*s Process and Fees for
    Approving Appraiser Education Courses and Certifying Instructors

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    Appendix VI The Appraiser Qualifications Board*s Process and Fees for
    Approving Appraiser Education Courses and Certifying Instructors

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    Appendix VII

    Appendix VII Federal Financial Institutions Examination Council*s Legal
    Advisory Group Opinion

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    Appendix VII Federal Financial Institutions Examination Council*s Legal
    Advisory Group Opinion

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    Appendix VII Federal Financial Institutions Examination Council*s Legal
    Advisory Group Opinion

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    Appendix VII Federal Financial Institutions Examination Council*s Legal
    Advisory Group Opinion

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    Appendix VII Federal Financial Institutions Examination Council*s Legal
    Advisory Group Opinion

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    Appendix VII Federal Financial Institutions Examination Council*s Legal
    Advisory Group Opinion

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    Appendix VII Federal Financial Institutions Examination Council*s Legal
    Advisory Group Opinion

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    Appendix VII Federal Financial Institutions Examination Council*s Legal
    Advisory Group Opinion

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    Appendix VIII

    Appendix VIII Comments from the Appraisal Subcommittee

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    Appendix VIII Comments from the Appraisal Subcommittee

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    Appendix VIII Comments from the Appraisal Subcommittee

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    Appendix IX

    Appendix IX Comments from the Appraisal Foundation

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    Appendix X

    Appendix X Comments from Fannie Mae

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    Appendix X Comments from Fannie Mae

    Page 95 GAO- 03- 404 Real Estate Appraisal Industry Oversight

    Appendix X Comments from Fannie Mae

    Page 96 GAO- 03- 404 Real Estate Appraisal Industry Oversight

    Page 97 GAO- 03- 404 Real Estate Appraisal Industry Oversight

    Appendix XI

    Appendix XI Comments from Freddie Mac

    Page 98 GAO- 03- 404 Real Estate Appraisal Industry Oversight

    Page 99 GAO- 03- 404 Real Estate Appraisal Industry Oversight

    Appendix XII

    Appendix XII Comments from Department of Housing and Urban Development

    Page 100 GAO- 03- 404 Real Estate Appraisal Industry Oversight

    Page 101 GAO- 03- 404 Real Estate Appraisal Industry Oversight

    Appendix XIII

    United States General Accounting Office Washington, D. C. 20548- 0001
    Official Business Penalty for Private Use $300 Address Service Requested

    Presorted Standard Postage & Fees Paid

    GAO Permit No. GI00
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