This recent editorial Tough action needed to stop the deceit [KC Star] illustrates how far gone the appraisal industry is. Betrayal of public trust is something that you can’t undo very easily. The sad thing is that its not an easy fix.
Although we are responsible for the lion’s share of the problems, don’t heap it all on the appraisers because thats incredibly simplistic. Its like telling someone who is overweight “Well, just eat right.”
Here’s a recap of the problems with the appraisal industry today:
The lobbying efforts of the lending industry and the GSE’s to reduce costs and reduce the appraisal report to a commodity. Faster turn times and lower fees all that seems to matter since thats all that can be readily measured.
The government solution to this problem was to create licensing and pile on the requirements yet appraisal fraud is seemingly as rampant as during pre-licensing (pre-1991). Enforcement non-existent because of lack of resources and is largely a clerical function. In fact, a portion of licensing fees in many states are re-directed to other departments in the government.
The appraisal organizations have been largely out of touch with the needs of residential appraisers for decades and have had a limited lobbying role in Washington. This is evidenced by the large drop in membership since licensing. If their services were essential to the appraisal industry prior to licensing, then this would not have occured. Self-policing has not been effective and was largely the impetus for licensing in the first place.
Appraisers do share in the blame however, and in a very big way. As an industry, we have been unprofessional in the sense that our loyalty can be sold in exchange for volume. Many of the remaining appraisers that are competent and ethical are leaving the business, which is an incredible loss of a significant intellectual resource to the lending community.
We’re the only profession where you are begged to be dishonest.
AVM’s have already replaced appraisers in home equity lending and there is talk about testing it for first mortgages. However, AVM’s are well-known to be inaccurate and are not the panacea for responsible lending.
It doesn’t have to be this way. In some ways, a correction of the housing market will remove much of the fly-by-night elements of the lending industry.
The solution? Its not as the editorial suggests: Curbing the problem will require a change of culture within the industry itself, as well as a tougher regulatory climate and stricter licensing laws. Also needed: more rapid response by professional boards to complaints. These suggestions are simply window dressing and demonstrates the lack of understanding as to the real issues (which is one of the problems of righting this ship):
Protect the appraiser from the sales function of the lending process. This needs to be done with banks, mortgage bankers and especially mortgage brokers. In other words, build a clear and succinct wall between the sales and underwriting functions and the appraiser sits on the underwriting side.
Create some sort of mediation board of review within each state that is legally binding. Make the appraiser professionally liable for fraud and negligience but at the same time, allow them to protect themselves against unfair accusations. Provide a practical process for lenders and appraisers to submit suspect appraisers for review but protect the appraiser from frivolous actions.
Until these two issues are dealt with directly, there will be no change in the status quo and eventually, the profession, as it relates to lending, will be obsolete. This will not be because of competition from technology, but because of the lack of trust by the lending community.
Lets rebuild ourselves into an industry of appraisers and lose the “form-filler” moniker.
Tags: Soapbox Blog, Appraisal Pressure, Appraisal Process, Mortgage Fraud, Redlining and Predatory Lending