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Comment on Financial Reform Implementation


August 24, 2010

Dear Panel:
The most important rule(s) this committee can implement will be the one(s) that limit bank participation in the appraisal process to quality control and review, and to sever all ties between banks and their Appraisal Management Companies (AMCs), which is not needed beyond quality control and review. If you are not willing to take this action, than I fear your work in this area is for not.

I am a residential real estate fee appraiser; that means I am a small business; simultaneously, I am also a home owner and consumer. This combination gives me and my peers a unique view into to what might be corrected to protect consumers in this area as well as the industry concerned.

Appraiser independence is very important to me and those of my profession. Appraiser independence is equally important to the society in general though they may not realize it. Without appraisers, the banking industry would have total control of the process and that is a situation unfavorable to all. In fact, it is estimated that within five years, banks will make that argument as attrition befalls the appraisal industry due to actions there are taking today. 40,000 appraisers commented on this subject in early 2009 and it seems we were totally ignored. What was predicted at the time was theory; over a year later theory has become fact.

The Problem
The banks have too much power over the appraisal process. When it comes to pressure and intimidation, none stands above the banks. In 2007, Attorney General of New York Andrew Cuomo sued First American and E-AppraiseIt to break up that relationship due to accusations of collusion, but stopped shortly after an agreement with Fannie Mae and Freddie Mac. This resulted in the implementation of the Home Valuation Code of Conduct (HVCC), which was legislated during the Savings and loan crisis in 1989. This administrative directive for lenders/brokers prohibited loan production staff and commissioned staff from ordering appraisals or having direct contact with appraisers.

In May, 2009 HVCC was enforced in a way it was never intended. Inferring that banks and mortgage brokers could no longer speak directly with appraisers and had to order through an AMCs. This resulted in reduced competition as Chase, Citi Bank, Bank of America and Wells Fargo receiving an estimated 80% of all residential appraisal fees and thousands of small businesses going out of business. The appraisers who have survived so far, have lost an average 54% of their income, while the AMCs are over charging for appraisals. Example, in Florida a man was charge $700 for an appraisal, but the appraisers only earned $300. Before May, 2009 this appraisal would have cost the owner $400 to $450 as it is a duplex; plus the owner would have had portability. This is just one of many examples.

Fannie Mae, in a recent announcement, SEL-2010-09 06/30/10, clarified that HVCC nor Fannie Mae required the use of a third party vendor for appraisals. Why did it take so long? There were lawsuits filed regarding this matter. How could Fannie Mae not know about this and not respond sooner as thousand of appraisers went out of business? I am not a lawyer, but if criminal negligence could be applied to a situation, this is it; plus, the appearance of collusion, but with whom and for what purpose?

The Solution – (for a better system and consumer protection)

  • Take a long and exhaustive look at Fannie Mae.
  • Make sure all rules are clear and bring no harmful effects to the industry or the consumers it serves.
  • Limit bank participation in the appraisal process to quality control and review.
  • Sever the relationship between lending institutions and associated appraisal management companies.
  • Require institutions to accept an appraisal report as long as the appraiser is licensed and in good standing with their state board. This will insure competition.
  • Restore portability to buyers to enable them to shop competing lenders and avoid fees for a second appraisal.
  • Consider allowing buyers to select their appraiser. This is done in every area except lending.
  • Ensure that HVCC ends as schedule. It appears to have no benefit.

I end the way I started, “The most important rule(s) this committee can implement will be the one(s) that limit bank participation in the appraisal process to quality control and review, and to sever all ties between banks and their Appraisal Management Companies (AMCs), which is not needed beyond quality control and review. If you are not willing to take this action, than I fear your work in this area is for not.”

Respectfully submitted,
Larry Murry




Last Updated 9/14/2010 FinReformComments@fdic.gov