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concluded that the law is obsolete because the problems Title XI 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 				 

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Product.                                                 **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
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)

GAO*s Mission The General Accounting Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting its
constitutional responsibilities

and to help improve the performance and accountability of the federal
government for the American people. GAO examines the use of public funds;
evaluates federal programs and policies; and provides analyses,
recommendations, and other assistance to help Congress make informed
oversight, policy, and funding decisions. GAO*s commitment to good
government is reflected in its core values of accountability, integrity,
and reliability.

Obtaining Copies of The fastest and easiest way to obtain copies of GAO
documents at no cost is

through the Internet. GAO*s Web site (www. gao. gov) contains abstracts
and fulltext GAO Reports and

files of current reports and testimony and an expanding archive of older
Testimony

products. The Web site features a search engine to help you locate
documents using key words and phrases. You can print these documents in
their entirety, including charts and other graphics.

Each day, GAO issues a list of newly released reports, testimony, and
correspondence. GAO posts this list, known as *Today*s Reports,* on its
Web site daily. The list contains links to the full- text document files.
To have GAO e- mail this

list to you every afternoon, go to www. gao. gov and select *Subscribe to
GAO Mailing Lists* under *Order GAO Products* heading.

Order by Mail or Phone The first copy of each printed report is free.
Additional copies are $2 each. A check or money order should be made out
to the Superintendent of Documents. GAO

also accepts VISA and Mastercard. Orders for 100 or more copies mailed to
a single address are discounted 25 percent. Orders should be sent to:

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

To order by Phone: Voice: (202) 512- 6000 TDD: (202) 512- 2537 Fax: (202)
512- 6061

To Report Fraud, Contact:

Waste, and Abuse in Web site: www. gao. gov/ fraudnet/ fraudnet. htm

E- mail: fraudnet@ gao. gov Federal Programs

Automated answering system: (800) 424- 5454 or (202) 512- 7470 Public
Affairs Jeff Nelligan, Managing Director, NelliganJ@ gao. gov (202) 512-
4800

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

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

Page 1 GAO- 03- 404 Real Estate Appraisal Industry Oversight United States
General Accounting Office

Washington, D. C. 20548 Page 1 GAO- 03- 404 Real Estate Appraisal Industry
Oversight

A

Page 2 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 3 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 4 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 5 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 6 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 7 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 8 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 9 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 10 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 11 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 12 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 13 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 14 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 15 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 16 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 17 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 18 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 19 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 20 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 21 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 22 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 23 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 24 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 25 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 26 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 27 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 28 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 29 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 30 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 31 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 32 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 33 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 34 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 35 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 36 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 37 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 38 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 39 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 40 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 41 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 42 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Appendix I

Appendix I Survey of State Regulatory Agencies (results included)

Page 43 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Appendix I Survey of State Regulatory Agencies (results included)

Page 44 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Appendix I Survey of State Regulatory Agencies (results included)

Page 45 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Appendix I Survey of State Regulatory Agencies (results included)

Page 46 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Appendix I Survey of State Regulatory Agencies (results included)

Page 47 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Appendix I Survey of State Regulatory Agencies (results included)

Page 48 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Appendix I Survey of State Regulatory Agencies (results included)

Page 49 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Appendix I Survey of State Regulatory Agencies (results included)

Page 50 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Appendix I Survey of State Regulatory Agencies (results included)

Page 51 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Appendix I Survey of State Regulatory Agencies (results included)

Page 52 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 53 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Appendix II

Appendix II Scope and Methodology

Page 54 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 55 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Appendix III

Appendix III List of Agencies and Groups Contacted

Page 56 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Appendix III List of Agencies and Groups Contacted

Page 57 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Appendix III List of Agencies and Groups Contacted

Page 58 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Appendix III List of Agencies and Groups Contacted

Page 59 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Appendix III List of Agencies and Groups Contacted

Page 60 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 61 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Appendix IV

Appendix IV National Registry Database of the Appraisal Subcommittee

Page 62 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Appendix IV National Registry Database of the Appraisal Subcommittee

Page 63 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Appendix IV National Registry Database of the Appraisal Subcommittee

Page 64 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Appendix IV National Registry Database of the Appraisal Subcommittee

Page 65 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Appendix IV National Registry Database of the Appraisal Subcommittee

Page 66 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 67 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Appendix V

Appendix V Evolution and Use of Automated Valuation Models

Page 68 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Appendix V Evolution and Use of Automated Valuation Models

Page 69 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Appendix V Evolution and Use of Automated Valuation Models

Page 70 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Appendix V Evolution and Use of Automated Valuation Models

Page 71 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 72 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Appendix VI

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

Page 73 GAO- 03- 404 Real Estate Appraisal Industry Oversight

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

Page 74 GAO- 03- 404 Real Estate Appraisal Industry Oversight

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

Page 75 GAO- 03- 404 Real Estate Appraisal Industry Oversight

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

Page 76 GAO- 03- 404 Real Estate Appraisal Industry Oversight

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

Page 77 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 78 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Appendix VII

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

Page 79 GAO- 03- 404 Real Estate Appraisal Industry Oversight

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

Page 80 GAO- 03- 404 Real Estate Appraisal Industry Oversight

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

Page 81 GAO- 03- 404 Real Estate Appraisal Industry Oversight

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

Page 82 GAO- 03- 404 Real Estate Appraisal Industry Oversight

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

Page 83 GAO- 03- 404 Real Estate Appraisal Industry Oversight

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

Page 84 GAO- 03- 404 Real Estate Appraisal Industry Oversight

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

Page 85 GAO- 03- 404 Real Estate Appraisal Industry Oversight

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

Page 86 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 87 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Appendix VIII

Appendix VIII Comments from the Appraisal Subcommittee

Page 88 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Appendix VIII Comments from the Appraisal Subcommittee

Page 89 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Appendix VIII Comments from the Appraisal Subcommittee

Page 90 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 91 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Appendix IX

Appendix IX Comments from the Appraisal Foundation

Page 92 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Page 93 GAO- 03- 404 Real Estate Appraisal Industry Oversight

Appendix X

Appendix X Comments from Fannie Mae

Page 94 GAO- 03- 404 Real Estate Appraisal Industry Oversight

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
*** End of document. ***