The Morning Report
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Thursday, January 26, 2006 | Your recent article, “Fighting Appraisal Fraud,” draws attention to a growing problem with nationwide implications for consumers and the economy with regard to the housing industry. For years, community groups have urged federal regulators to take action to protect consumers and appraisers against pressure from lenders to “hit the number” when valuing a home. Those calls have gone unanswered.
This is why the National Community Reinvestment Coalition is leading an effort among national community groups with the creation of the Center for Responsible Appraisals and Valuations. We are inviting the largest lenders in the United States, as well as thousands of appraisers and Realtors to agree to a Code of Conduct to ensure fair and accurate appraisals.
As a complaint center for appraisers and the mortgage industry, the Center staff will mediate disputes following a model developed with the American Arbitration Association. The process provides an inexpensive, quick, independent and fair method of resolving complaints against those who have allegedly violated the code of conduct. In addition, a public list of the signatories will serve as a resource to consumers so they can make informed decisions on which companies they choose to do business with.
As your article highlighted, appraisal inflation is the product of pressure from lenders and others to pump up the value of homes. Essentially, more money exchanges hands among sellers, lenders, real estate agents, title companies and others. It is a trend that is hard to track; the inflation is often only noted when the homeowner has to default on a loan. A growing number of appraisers are going public with their professional experiences dealing with this pressure.
One important fact for consumers to know is that independent appraisers receive a flat fee and do not take a percentage of the selling price. So when honest appraisers refuse to “hit the price,” they sacrifice future business, and suffer financially. Some appraisers, however, work as staff for lenders or for a company owned by the lender. This is not illegal, but the lender must ensure complete independence between the loan production staff and its appraisers. This is difficult to do and is often not accomplished in a meaningful way.
Many states, including California, as well as the federal government are considering legislation that would require more oversight of the appraisal industry. It is important, however, for all of those involved in the housing industry to not wait for the future implementation of regulations, but to come together on this issue with a proactive approach.
We expect that we’re going to reach the third of the population out there who want to be associated with a model program like this and thus influence the market in a very positive way. Our goal is to give honest appraisers the ability to do their jobs; to ensure lenders are providing accurate loans; and make certain homebuyers can fulfill their dreams of becoming homeowners without overpaying.
John Taylor is president and CEO of the National Community Reinvestment Coalition, founders of the Center for Responsible Appraisals and Valuations. Visit the Center’s Web site at