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AppraiserLoft Blog I Appraisal Industry News |
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Recent PostsBlogroll« Nevada Enacts Law to Clarify the Use of Broker Price Opinions | Home | How Appraisers are Using the 1004MC » FHA Appraisers in the Spotlight on Capitol HillBy AppraiserLoft Team | June 24, 2009 Professional industry groups recently testified on Capitol Hill about the need for increased oversight in the Federal Housing Administration. The testimonies called for FHA appraisers to be given more independence, and even for the FHA appraiser fee panel to be brought back. Among the weaknesses identified in the FHA appraisal process is the fact that the FHA appraiser roster contains almost 3,500 appraisers whose licenses have expired. In recent years, the Federal Housing Administration’s (FHA) mortgage insurance program’s role has grown in the housing industry as more and more families use it to finance a home. The FHA’s market share has grown from less than 3 percent to more than 25 percent in a short period of time. A number of professional groups recently testified on Capitol Hill before the Oversight and Investigations Subcommittee of the House Financial Services Committee. The purpose of the hearing was “Strengthening Oversight and Preventing Fraud in FHA and other HUD Programs.” The first speaker was the Inspector General of the Department of Housing and Urban Development (HUD), Kenneth Donohue. He discussed his department’s concerns with the FHA, particularly about it coping with the extra workload. “We continue to remain concerned regarding FHA’s ability and capacity to oversee the newly generated business,” Donohue said in his testimony. Donohue said fraud schemes continued to affect the FHA, including appraisal fraud. He described appraisal fraud as being “typically central to every loan origination fraud” and included fraudulent appraisals, inflated appraisals, appraiser coercion and “appraiser kickbacks.” Donohue then listed several examples of the fraud cases that HUD investigated in the FHA, including an appraiser who was involved in a $12 million loan fraud scheme. He also said the FHA appraiser roster contained “critical front-end weaknesses” including listing 3,480 appraisers with expired licenses and 199 appraisers that had been sanctioned by their states. Donohue described HUD’s appraiser review process as inadequate for consistently identifying appraisers’ deficiencies. He called for a return to an FHA Appraiser Fee Panel, which had been dismantled in 1994. “It is essential if the mortgage industry wants to overcome perceptions regarding its integrity and its role in the current economic crisis that it ensures true market values are correctly estimated,” he said. Keeping appraisers independent from outside pressure was key to ensuring the quality of appraisals, Donohue said. He cited the October Research survey which showed that 90 percent of appraisers had felt pressure to hit the numbers. Donohue said the HVCC, which was created to help ease this pressure, still had vulnerabilities. Under the code, lenders “may have the potential to manipulate appraisal management companies who do not necessarily appraise in a way that some unscrupulous lenders may desire,” Donohue said. “Although still early in the new process, we are not sure that if such paid appraisers are not “hitting the mark,” what is to stop those lenders from threatening to go elsewhere to do business?” he continued. Overall, Donohue urged the industry to remain vigilant about the impact that overinflated appraisals can have. “The downstream negative effect of overinflated appraisals is long-term and can be fundamentally corrosive to the housing market, and to even, as we know today, the world economy.” Another speaker was the Chairman of IRR-Residential, a national residential appraisal organization based in Kansas City. Kevin Nunnink urged the committee to strengthen the independence of appraisals as a safeguard for the loan transaction. “Any effort to circumvent the independence of the appraised value heightens mortgage risk,” he testified. Nunnink explained that of all the professionals involved with the mortgage origination process, the appraiser is frequently the only professional that visits the property, implicitly for purpose of providing due diligence for their lender client by inspecting the property and making sure that it has sufficient value to support the intended loan. He told the committee that appraiser separation is particularly important in today’s mortgage industry where virtually all mortgage originators sell their mortgage paper into the secondary market and thereby hold minimal long-term loan risk. “An independent appraiser makes it much more difficult to initiate mortgage fraud,” he said. “That is why we support legislation and regulations that increase the separation between contingent fee real estate mortgage professionals and the appraisal process.” While Nunnink believed that a similar version of the Home Valuation Code of Conduct should be adopted by HUD, he argued against the use of broker price opinions, saying they carry potential conflicts of interest. “More importantly,” he said, “they have not proven to be as reliable when compared to valuation products prepared by independent appraisers. We believe HUD, like Freddie Mac, should continue to disallow BPOs for mortgage origination purposes.” These thoughts were echoed by David Berenbaum, executive vice president of the National Community Reinvestment Coalition. He called for BPOs to be outlawed for REO properties in his testimony. “The real estate brokers, acting as agents of the REO owners, develop hasty and inaccurate BPOs that underestimate the values of the REOs,” he said. “Undervaluation is often destructive to local markets and depresses the value and equity of neighbors of REO properties.” Berenbaum also called for Congress to consider codifying the HVCC in statute and encouraged HUD to develop new regulations that addressed fraudulent appraisal practices. Berenbaum welcomed the separation of brokers from appraisers in the HVCC and urged HUD to take “aggressive action” in adopting this practice, “since broker participation in FHA lending has increased dramatically.” The President of the National Association of Mortgage Brokers (NAMB), Marc Savitt, also testified before the committee. In his testimony, Savitt repeated many of the concerns that his association outlined in its recent call to action, specifically with the problems the broker industry has had with the introduction of the HVCC. Savitt applauded the efforts to revitalize the FHA loan program and eliminate fraud, but warned that the HVCC would have a detrimental effect on consumers and the market. Instead, he called for greater reform of appraisal independence laws including HR 1728 and the Federal Reserve Board’s 2008 Regulation Z Amendments. NAMB’s dissatisfaction with the HVCC was echoed in the testimony of David G. Kittle, chairman of the Mortgage Bankers Association. Kittle called for changes to be made to the code in order to overcome “operational difficulties” for lenders and borrowers. In its current form, he argued, the code was too vague in certain parts to provide clear instructions. To demonstrate this problem, Kittle described the problem of appraisal portability, noting that is what acceptable in the code if a lender provides written confirmation of compliance. However, there are no industry standards for this written confirmation, making lenders reluctant to accept another lender’s appraisal. This in turn makes the borrower more likely to have to order a second appraisal, which significantly increases their costs. Kittle also cited concerns with lenders turning to AMCs for appraisals. He said that some AMCs employ appraisers unfamiliar with the neighborhood trends of a subject property, and give work to preferred appraisers, to the exclusion of independent appraisers. Overall, Kittle, like the other representatives testifying before the committee, noted the urgency of the situation as FHA takes on a growing role in the housing industry. “Currently, FHA is experiencing a rebirth,” Kittle said, “If we don’t take this opportunity to be proactive and get FHA the resources it needs, the recent reemergence of FHA won’t last long. We have a chance to prevent future problems at FHA, but that effort must start today.” Refer link: http://tinyurl.com/lg5fpk Topics: Appraiser's Voice | 1 Comment » One Response to “FHA Appraisers in the Spotlight on Capitol Hill”CommentsYou must be logged in to post a comment. |
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August 26th, 2009 at 9:34 am
[...] 25% – Kansas City, MO 18% – Mission, KS FHA Appraisers in the Spotlight on Capitol Hill – AppraiserLoft … Jun 24, 2009 Kevin Nunnink urged the committee to strengthen the independence of appraisals as a [...]