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46 | TH E M R EP O RT O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T ORIGINATION THE LATEST Congress: Outdated Appraisal System Needs Overhaul A House subcommittee examined regulatory impacts on the appraisal industry, the decline in appraisal professionals, and the benefits of alternative valuation methods. T he appraisal system is complex and out- dated, resulting in more lengthy closings and increased costs to consumers, and therefore in need of an overhaul, according to a hearing in Novem - ber in the Housing and Insur- ance Subcommittee of the House Financial Services Committee. "Appraisals are one of the cornerstones of the homebuying process. Issues that impact ap - praisers also impact nearly every American buying or selling a home, in rural and urban areas; in high- and low-income neighborhoods," Subcommittee Chairman Blaine Luetkemeyer (R-Missouri) said. "Yet when it comes to the regulatory regime surrounding appraisals, it seems we're stuck in 1989." Luetkemeyer noted that the topic of appraisals is not often covered in the mainstream news media, yet it is an important issue that greatly affects the residential housing market. The year 1989 was the last time the appraisal system's structure received any meaningful update, he said. "Today's hearing gave this subcommittee an opportunity to examine the past and, more importantly, look to the future of appraisal standards in America," Luetkemeyer said. "We can and will find a better way that increases consumer choice and maintains market confidence." Six witnesses testified at the hearing, including leaders from the Appraisal Institute, Appraisal Foundation, Appraisal Subcommittee, Clearbox, and the National Association of Home Builders (NAHB). Among the topics the subcommittee tackled were the effect of Dodd-Frank on the appraisal system, the declin - ing number of appraisers which is largely due to burdensome qualifications, and the benefits of alternative valuation methods. "Dodd-Frank benefited con - sumers by requiring lenders to provide a copy of the appraisal that was utilized in underwrit- ing a loan," said David S. Bunton, President of the Appraisal Foundation. "The CFPB went a step further and required lend - ers to provide borrowers with copies of all valuation products that were considered in conjunc- tion with the loan application. Unfortunately, many borrow- ers were simply confused when receiving this information prior to closing. Some wondered why certain products reflected one opinion of value, while a differ - ent product showed another. And how was the appraisal fee the borrower paid actually applied to these various products?" Bill Garber, Director of Government and External Relations at the Appraisal Institute, took on the issue of the dwindling number of appraisers in the indus - try: "Today, the number of real property appraisers in the United States is in decline, and concerns are being expressed by banks and real estate professionals alike about a potential shortage of appraisers. What is clear is that all apprais - ers are being choked by rules and regulations in nearly every facet of their business." Joan N. Trice, CEO and Founder of Clearbox, stated that the current system is "outmoded" and that the current regulatory scheme reveals a system in which "no one is held accountable . . . It should be no surprise that the appraisal industry is being highly scrutinized. It is entirely dysfunctional. It is time for a 'big and bold' plan to overhaul the system." Ed Brady, Chairman of NAHB, said that the more restrictive appraisal policies implemented in response to criticisms that lax appraisal guidelines caused the financial crisis have resulted in a myriad of appraisal guidelines that are confusing and complex. "Appraisal standards are not clear, best practices have not been well communicated, and enforcement is not occurring in a consistent manner. For all sectors that interact with appraisers—con - sumers, homebuilders, Realtors, lenders, the enterprises, mortgage insurers—appraisal quality and appraiser competence remain tremendous challenges." James R. Park, Executive Director of the Appraisal Subcommittee, argued that the current federal regulatory system for appraisals should not be replaced with a state-based regulatory structure, as has been discussed in the industry. "While I fully appreciate and support states' rights to govern themselves and regulate oc - cupations that practice within their states, I also recognize the importance of having a national minimum baseline for appraisal standards and appraiser qualifi - cations to facilitate commerce," Park said. "Dismantling the system could lead to unintended consequences such as increased mortgage lending costs for lenders and consumers, as well as an increased potential for added risk and fraud in real estate lending transactions."