Regulatory Programs
Opportunities to Enhance Oversight of the Real Estate Appraisal Industry Gao ID: GAO-03-404 May 14, 2003Since the passage of Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, the appraisal and mortgage lending industry has changed dramatically. Some have concluded that the law is obsolete because the problems Title XI was intended to address--the risk to federal deposit insurance funds and the lack of uniform standards and qualifications--no longer exist. Others argue that the law's purpose and scope should be expanded. To help Congress better understand these issues, GAO looked at the roles of the private, state, and federal entities that oversee the appraisal industry, the challenges Title XI presented to these entities, and industry participants' concerns about the effectiveness of the Title XI regulatory structure.
Title XI created a complex oversight structure for real estate appraisals and appraisers that involves private, state, and federal entities. Two private entities establish uniform rules for real estate appraisals and set minimum criteria for certifying appraisers. State regulatory agencies certify appraisers based on these criteria. The federal financial regulators oversee financial institutions' use of appraisals, and a federal agency, the Appraisal Subcommittee, monitors and coordinates the functions of the parties involved in regulating appraisals and appraisers. All of these entities except the federal financial regulators identified potential impediments to carrying out their Title XI responsibilities. The two private entities stated that fund limitations could impede their ability to ensure that development of standards and qualifications evolve with changing conditions. State agencies said that funding shortfalls hindered their ability to enforce compliance. Appraisal Subcommittee staff reported that rule-making authority and additional enforcement sanctions could facilitate its oversight of state compliance with Title XI. Industry participants raised concerns about aspects of the Title XI regulatory system for appraisers. They cited differences in state regulation that affect both lenders and appraisers, gaps in Title XI's coverage--for example, transactions of less than $250,000 do not require an appraisal--high fees and burdensome processes for having appraiser education courses approved, and weak enforcement and complaints processing. Some industry participants felt that states, traditionally involved in regulating professions, alone should regulate the appraisal industry. Others felt that the current structure needed a significant overhaul to become effective.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-03-404, Regulatory Programs: Opportunities to Enhance Oversight of the Real Estate Appraisal Industry
This is the accessible text file for GAO report number GAO-03-404
entitled 'Regulatory Programs: Opportunities to Enhance Oversight of
the Real Estate Appraisal Industry' which was released on May 14, 2003.
This text file was formatted by the U.S. General Accounting Office
(GAO) to be accessible to users with visual impairments, as part of a
longer term project to improve GAO products' accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the printed
version. The portable document format (PDF) file is an exact electronic
replica of the printed version. We welcome your feedback. Please E-mail
your comments regarding the contents or accessibility features of this
document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
Report to Congressional Requesters:
May 2003:
Regulatory Programs:
Opportunities to Enhance Oversight of the Real Estate Appraisal
Industry:
GAO-03-404:
GAO Highlights:
Highlights of GAO-03-404, a report to Congressional Requesters
Why GAO Did This Study:
Since the passage of Title XI of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989, the appraisal and mortgage
lending industry has changed dramatically. Some have concluded that
the law is obsolete because the problems Title XI was intended to
address”the risk to federal deposit insurance funds and the lack of
uniform standards and qualifications”no longer exist. Others argue
that the law‘s purpose and scope should be expanded. To help Congress
better understand these issues, GAO looked at the roles of the
private, state, and federal entities that oversee the appraisal
industry, the challenges Title XI presented to these entities, and
industry participants‘ concerns about the effectiveness of the Title
XI regulatory structure.
What GAO Found:
Title XI created a complex oversight structure for real estate
appraisals and appraisers that involves private, state, and federal
entities. Two private entities establish uniform rules for real
estate appraisals and set minimum criteria for certifying appraisers.
State regulatory agencies certify appraisers based on these criteria.
The federal financial regulators oversee financial institutions‘
use of appraisals, and a federal agency, the Appraisal Subcommittee,
monitors and coordinates the functions of the parties involved in
regulating appraisals and appraisers.
All of these entities except the federal financial regulators
identified potential impediments to carrying out their Title XI
responsibilities. The two private entities stated that fund
limitations could impede their ability to ensure that development of
standards and qualifications evolve with changing conditions. State
agencies said that funding shortfalls hindered their ability to
enforce compliance. Appraisal Subcommittee staff reported that rule-
making authority and additional enforcement sanctions could facilitate
its oversight of state compliance with Title XI.
Industry participants raised concerns about aspects of the Title XI
regulatory system for appraisers. They cited differences in state
regulation that affect both lenders and appraisers, gaps in Title XI‘s
coverage”for example, transactions of less than $250,000 do not
require an appraisal”high fees and burdensome processes for having
appraiser education courses approved, and weak enforcement and
complaints processing. Some industry participants felt that states,
traditionally involved in regulating professions, alone should
regulate the appraisal industry. Others felt that the current
structure needed a significant overhaul to become effective.
What GAO Recommends:
Among other things, the Chairman of the Appraisal Subcommittee should:
* develop and apply consistent criteria for determining and reporting
states‘ compliance levels with Title XI;
* explore potential options for assisting states in carrying out their
Title XI activities, particularly for investigating appraiser
complaints; and
* explore alternatives for providing future Title XI grant funding to
the Appraisal Foundation and its two boards.
www.gao.gov/cgi-bin/getrpt?GAO-03-404.
To view the full report, including the scope
and methodology, click on the link above.
For more information, contact David G. Wood (202) 512-8678 or
woodd@gao.gov.
[End of section]
Letter:
Results in Brief:
Background:
Title XI Created a Complex Appraiser Regulatory Oversight Structure:
Private, State, and Federal Entities Cited Potential Impediments to
Fulfilling their Title XI Roles:
Industry Participants Raised Various Concerns about the Title XI
Oversight Structure:
Conclusions:
Recommendations:
Agency Comments:
Appendixes:
Appendix I: Survey of State Regulatory Agencies (results included):
Appendix II: Scope and Methodology:
Appendix III: List of Agencies and Groups Contacted:
Federal Agencies:
Government Sponsored Enterprises:
Private Organizations:
State Appraiser Regulatory Agencies:
Private Consultants:
Appendix IV: National Registry Database of the Appraisal
Subcommittee:
Appendix V: Evolution and Use of Automated Valuation Models:
Three Types of AVM Models Are Currently Used:
Data Sources for AVMs Vary in Completeness and Reliability:
AVMs Have Both Advantages and Disadvantages:
Guidance and Regulations on Using AVMs Are Relatively New:
Appendix VI: The Appraiser Qualifications Board‘s Process and Fees for
Approving Appraiser Education Courses and Certifying Instructors:
AQB‘s Course Approval Program:
AQB‘s USPAP Instructor Certification Program:
Options Provided by AQB for Approving Distance Education Courses:
Relative Costs of AQB Course Approval and Instructor Certification
Programs:
State Fees for Course and Instructor Approval:
Appendix VII: Federal Financial Institutions Examination Council‘s
Legal Advisory Group Opinion:
Appendix VIII: Comments from the Appraisal Subcommittee:
Appendix IX: Comments from the Appraisal Foundation:
Appendix X: Comments from Fannie Mae:
Appendix XI: Comments from Freddie Mac:
Appendix XII: Comments from Department of Housing and Urban
Development:
Appendix XIII: GAO Contacts and Acknowledgments:
GAO Contacts:
Acknowledgments
Tables:
Table 1: Title XI Roles and Responsibilities for Appraisal Standards
and Appraiser Qualifications:
Table 2: State Appraiser Licensing Requirements:
Table 3: Active Appraiser Licenses, by State and Type:
Table 4: Disciplinary Actions, by State (Active and Inactive
Licensees):
Table 5: Approval Service Fees, by Service Provider as of February
2003:
Abbreviations:
AQB: Appraiser Qualifications Board:
ASB: Appraisal Standards Board:
AVM: Automated Valuation Model:
ECAFS: Education Council for Appraisal Foundation Sponsors:
FDIC : Federal Deposit Insurance Corporation :
FHA : Federal Housing Administration :
FIRREA : Financial Institutions Reform, Recovery, and Enforcement Act
of 1989 :
FRS : Federal Reserve System :
GSE : Government Sponsored Enterprises :
HUD : Department of Housing and Urban Development :
IDECC: International Distance Education Certification Center:
NCUA: National Credit Union Administration :
OCC: Office of the Comptroller of the Currency :
OTS: Office of Thrift Supervision :
USPAP : Uniform Standards of Professional Appraisal Practice:
Letter May 14, 2003:
The Honorable Paul S. Sarbanes
Ranking Minority Member
Senate Committee on Banking,
Housing, and Urban Affairs
United States Senate:
The Honorable Zell Miller
United States Senate:
Recent predatory mortgage lending cases, involving fraudulent and
inflated appraisals, have highlighted the need for accurate real estate
appraisals in preventing losses to the federal government and
significant financial harm to individual consumers. When making
mortgage loans, lenders need an objective and accurate assessment of
the value of properties used as collateral to help avoid losses in the
event that borrowers do not repay the loans. Congress enacted Title XI
of the Financial Institutions Reform, Recovery, and Enforcement Act of
1989 (FIRREA) in response to concerns that faulty and fraudulent
appraisals played a major role in the savings and loans crisis of the
1980s. Title XI provisions address both the quality of appraisals and
the qualifications of appraisers. Specifically, Title XI requires that
real estate appraisals used in connection with federally related
transactions be performed (1) in writing, in accordance with uniform
professional standards, and (2) by individuals whose competency has
been demonstrated and whose professional conduct is subject to
effective supervision.[Footnote 1]
To ensure that the purpose of the legislation was carried out, Title XI
created a regulatory structure to monitor and oversee the real estate
appraisal industry. Among other things, it established a federal entity
called the Appraisal Subcommittee to monitor the Title's
implementation. Title XI provides for national uniformity in appraisal
standards and minimal national qualification requirements for some, but
not all, appraisers. The Title XI regulatory structure was set up
primarily to protect federally insured depository institutions from
losses and by extension the federal deposit insurance funds.
Because of your concerns about the effectiveness of the current
regulatory structure, you requested that we assess the appraisal
oversight structure established in response to Title XI. As agreed with
your offices, this report describes (1) the specific responsibilities
under Title XI of the private, state, and federal entities that oversee
the appraisal industry and the way these entities perform their roles;
(2) factors that these entities identified as potential impediments to
carrying out their Title XI responsibilities; and (3) concerns
expressed by regulatory entities and industry participants about the
effectiveness of the existing regulatory structure.
To answer these questions, we reviewed FIRREA and its legislative
history; interviewed representatives of the private, state, and federal
entities involved in the Title XI regulatory scheme; and, using a
mailed questionnaire, surveyed appraiser regulatory agencies in the 50
states, the District of Columbia, and 4 U.S. territories.[Footnote 2] A
copy of the questionnaire, including summary responses to each
question, can be found in appendix I. Additionally, we contacted
industry participants, including trade groups that represent appraisers
and lenders; Fannie Mae and Freddie Mac, two government-sponsored
enterprises (GSE) that establish standards for appraisals used in
connection with mortgages that they purchase; the Department of Housing
and Urban Development (HUD), which establishes requirements for
appraisals used in connection with mortgages it insures;
representatives of appraiser education providers; and academic experts
on issues related to real estate appraisals. We also obtained and
reviewed records of the Appraisal Subcommittee's state oversight
activities, as well as information on appraisers maintained in the
subcommittee's national registry database. We conducted our work
between March 2002 and March 2003 in accordance with generally accepted
government auditing standards. Appendix II provides a detailed
discussion of our scope and methodology, and appendix III contains a
list of the entities that we contacted.
Results in Brief:
Title XI created a complex regulatory system that relies upon the
actions of private, state, and federal entities to help assure the
quality of appraisals and the qualifications of appraisers used in
federally related transactions.
* The two private entities--the Appraisal Standards Board and Appraiser
Qualifications Board--respectively establish (1) uniform rules for
preparing and reporting real estate appraisals and (2) minimum
qualification criteria for certified real estate appraisers. Certified
real estate appraisers are one of the two categories of appraisers
listed in Title XI, the other being licensed real estate appraisers.
* Title XI defers to the states with respect to the minimum
qualification criteria for the licensed appraisers. In addition, Title
XI relies on the states to (1) implement the certification and
licensing of all real estate appraisers and (2) monitor and supervise
compliance with appraisal standards and requirements. To assure the
availability of certified and licensed appraisers, all of the states
and territories have adopted structures to regulate and supervise the
appraisal industry. These structures typically consist of a state
regulatory agency coupled with a board or commission to establish
education and experience requirements, license and certify appraisers,
and monitor and enforce appraiser compliance.
* The federal financial institution regulators--defined in Title XI as
the Federal Reserve System (FRS), Federal Deposit Insurance Corporation
(FDIC), Office of the Comptroller of the Currency (OCC), Office of
Thrift Supervision (OTS), and National Credit Union Administration
(NCUA)--are responsible for ensuring that federally insured depository
institutions comply with Title XI requirements. To meet these
responsibilities, the regulators have (1) adopted rules and policies
specifying transactions for which regulated financial institutions are
required to obtain an appraisal by a certified or licensed appraiser,
(2) developed examination procedures to ensure that regulated financial
institutions are in compliance with Title XI, and (3) appointed agency
representatives to the Appraisal Subcommittee.
* The Appraisal Subcommittee is responsible for monitoring the
implementation of Title XI by all parties--private, state, and federal.
The subcommittee monitors the efforts of the federal financial
institution regulators in developing and adopting appraisal-related
regulations and policies, conducts periodic reviews of each state's
licensing and certification program, and provides grants to the
Appraisal Foundation to support the Title XI-related activities of its
two boards--Appraisal Standards Board and Appraiser Qualifications
Board.
The private, state, and federal entities involved in the Title XI
regulatory structure described a number of factors that they believe
could constrain their ability to perform more effectively and
efficiently. For example, officials of the Appraisal Standards Board
and the Appraiser Qualifications Board told us that insufficient
federal grant funding may impede their ability in the future to ensure
that standards and qualifications evolve with changing conditions, such
as how to appraise contaminated or polluted properties. State appraiser
agencies--which are funded at the state level--reported resource
limitations as the primary impediment in carrying out their oversight
responsibilities. For example, of the 54 states and territories that
responded to our survey, 26 reported that the current number of
investigators was insufficient for meeting its regulatory
responsibilities, 37 cited a need for increasing the staff directed at
investigations, and 22 cited a need for more resources to support
litigation. Officials of the five federal financial institution
regulators reported no major impediments to accomplishing their Title
XI responsibilities. The Appraisal Subcommittee reported that rule-
making authority and additional enforcement sanctions could facilitate
its oversight of state compliance with Title XI. Subcommittee officials
stated that the only enforcement action they can take under Title XI is
to decertify a state, which would prohibit all licensed or certified
appraisers from that state from performing appraisals in conjunction
with federally related transactions. Subcommittee officials stated that
using this sanction would have a devastating effect on the real estate
markets and financial institutions within the state. However, the
Appraisal Subcommittee stated that it has always been able to achieve
states' compliance under the current enforcement and regulatory
structure.
In addition to the impediments described above, officials of the
regulatory agencies, appraiser trade groups, education providers,
mortgage industry, HUD, and the GSEs raised concerns about the Title XI
regulatory structure. However, there was no clear consensus regarding
the need for or impact of possible changes. Some industry participants
stated that a growing number of real estate transactions, such as those
placed through mortgage brokers and those involving dollar amounts
below the threshold level established by the federal financial
institution regulators, are not universally subject to Title XI
appraisal requirements. In addition, some industry participants cited
concerns with the lack of a national qualification standard for the
licensed real estate appraiser category. Education providers and
appraiser trade groups expressed concerns about the Appraiser
Qualifications Board's fees and requirements for instructor
certification and course approval. Federal and state regulatory
officials expressed concern about the apparent reluctance of lending
institutions to make referrals or complaints regarding questionable
appraisals they identify. HUD and GSE officials expressed concerns
about a lack of consistent and effective enforcement actions by the
states on referred cases and the adequacy of the Appraisal
Subcommittee's oversight of state programs. This report makes
recommendations to the Appraisal Subcommittee intended to enhance the
effectiveness of the existing regulatory structure.
We received written comments on a draft of this report from the
Appraisal Subcommittee, the Appraisal Foundation, HUD, Fannie Mae, and
Freddie Mac. In addition, we received technical comments from the
federal financial institutions regulators, who indicated that their
overall comments had been incorporated into those provided by the
Appraisal Subcommittee. The Appraisal Subcommittee agreed to take
action on our recommendation to develop and apply consistent criteria
for determining and reporting states' compliance with Title XI, and did
not comment on our recommendation for greater coordination with HUD,
Fannie Mae, and Freddie Mac on referrals of problem appraisers.
Concerning the remaining two recommendations, the Appraisal
Subcommittee:
* agreed that additional funding for the states would improve
compliance with Title XI, but stated that the Subcommittee is not the
answer to that issue. Because the recommendation is to explore
additional funding as well as other options for assisting the states,
we did not revise it.
* agreed that the Appraisal Foundation faces future grant funding
constraints, but stated that using the Subcommittee's surplus is not a
long-term solution. We modified the report to emphasize that we are
recommending that the subcommittee explore options, including drawing
on the subcommittee's surplus, if necessary, for addressing future
Appraisal Foundation grant shortfalls.
HUD agreed with our recommendation for greater coordination on
referrals of problem appraisers to state appraiser agencies. Both
Fannie Mae and Freddie Mac expressed concern about this recommendation,
commenting that they are not regulatory entities. We revised the
wording of our recommendation to emphasize the role that HUD, Fannie
Mae, and Freddie Mac can play in helping the subcommittee carry out its
oversight responsibilities.
Background:
An appraisal is a decision-making tool used to facilitate a real estate
transaction. The primary role of appraisals in the loan underwriting
process is to provide evidence that the collateral value of the
property is sufficient to avoid losses on loans if the borrower was
unable to repay the loan. Consumers often mistakenly assume that
appraisals are intended to validate the purchase price of the property
in question. Furthermore, appraisals are sometimes confused with home
inspections, which are intended to warn consumers about serious defects
in the home being purchased that should be repaired. In a loan
transaction, the lender rather than the borrower engages the appraiser
and this usually occurs after the borrower has agreed to purchase the
property. The primary intent of the appraisal reforms contained in
Title XI was to protect the federal deposit insurance funds--and, by
extension, mortgage lenders--from avoidable losses.
An appraisal is an opinion of the value of a property as of a specific
date. Appraisers generally consider the property's value from three
points of view--cost, income, and comparable sales--and determine an
estimated value based upon weighing the three valuation methods. The
cost approach is based on an estimate of the value of the land plus
what it would cost to replace or reproduce the improvements minus the
physical deterioration, functional obsolescence, and economic
obsolescence. The income approach is of primary importance in
ascertaining the value of income producing properties and is an
objective estimate of what a prudent investor would pay based upon the
net income the property produces. The comparable sales approach
compares and contrasts the property under appraisal with recent
offerings and sales of similar property. This approach is usually
considered the most appropriate valuation approach for estimating the
value of residential real estate property.
In 1986, the House Committee on Government Operations issued a report
concluding that faulty and fraudulent appraisals were an important
contributor to the losses that the federal government suffered during
the savings and loan crisis.[Footnote 3] In response, Congress
incorporated provisions in Title XI of FIRREA that were intended to
ensure that federally related transactions had appraisals that were (1)
performed by real estate appraisers that had met minimum qualifications
criteria and (2) conducted in compliance with uniform standards.
In addition to those identified in Title XI, there are other federal
and government sponsored entities that have roles with respect to
oversight of the real estate appraisal industry. Among these entities,
the most important with respect to appraisal oversight issues are the
HUD's Federal Housing Administration (HUD/FHA) and the two large GSEs
that purchase residential loans in the secondary market--Fannie Mae and
Freddie Mac. HUD/FHA uses appraisals to determine a property's
eligibility for mortgage insurance and to estimate the value of a
property for mortgage insurance purposes. Certified and licensed
appraisers wishing to perform appraisals for HUD/FHA loans must first
be placed on the FHA Roster of Appraisers, which requires the appraiser
to pass a HUD/FHA examination on appraisal methods and meet other
eligibility requirements. Both Fannie Mae and Freddie Mac consider
appraisals or evaluations of the property value as a vital part of
their risk analysis for loans that they purchase. For those loans for
which Fannie Mae and Freddie Mac require an appraisal, the lender is
required to use an appraiser that is state licensed or certified in
accordance with the provisions of Title XI.[Footnote 4] Fannie Mae and
Freddie Mac largely hold the lender responsible for the selection and
quality control of the appraiser. As such, Fannie Mae and Freddie Mac
do not maintain a list of approved appraisers.
Title XI Created a Complex Appraiser Regulatory Oversight Structure:
Various private, state, and federal entities play a role with respect
to the Title XI regulatory structure (table 1). Private entities--the
Appraisal Standards Board (ASB) and the Appraiser Qualifications Board
(AQB)--establish minimum standards over the development and reporting
of real estate appraisals and minimum qualification criteria for
certified appraisers. States conduct the certification and licensing of
appraisers, including setting education and experience requirements
that, at minimum, must meet AQB criteria for certified appraisers and
enforcing compliance with appraisal standards. FRS, FDIC, OCC, OTS, and
NCUA--hereinafter referred to as the federal financial institution
regulators--issue appraisal requirements for the financial
institutions under their jurisdiction and monitor compliance with their
regulations. Lastly, the Appraisal Subcommittee has primary
responsibility for monitoring and reviewing the actions of the private,
state, and federal entities as they relate to Title XI.
Table 1: Title XI Roles and Responsibilities for Appraisal Standards
and Appraiser Qualifications:
[See PDF for image]
Source: GAO.
[End of table]
Appraisal Foundation and Its Two Boards Establish Appraisal Standards
and Minimum Appraiser Certification Criteria:
The Appraisal Foundation, a nonprofit educational organization composed
of groups from the real estate industry, provides the organizational
framework for the ASB and AQB to carry out their Title XI-related
responsibilities.[Footnote 5] It was founded in 1987 by eight leading
professional appraisal organizations in the United States to foster
professionalism in appraising. The ASB and the AQB establish minimum
standards for developing and reporting an appraisal and the minimum
criteria for the certified appraiser category in connection with
federally related transactions.
The ASB, which is responsible for setting standards for appraisals, is
composed of six appraisers who are appointed for 3-year terms by the
Board of Trustees of the Appraisal Foundation. The ASB's minimum
standards for appraisals are contained in the Uniform Standards of
Professional Appraisal Practice (USPAP). Under Title XI, these minimum
standards apply to all federally related transactions. The standards
cover both the steps appraisers must take in developing appraisals and
the information the appraisal report must contain. The Foundation sells
copies of USPAP but provides a copy of each updated version, free of
charge, to the state regulatory agencies.
The AQB, which is composed of five appraisers who are appointed for 3-
year terms by the Board of Trustees of the Appraisal Foundation,
establishes the minimum education, experience and examination
requirements for state-certified real estate appraisers (set out in
Real Property Appraiser Qualification Criteria and Interpretations of
the Criteria). In addition, the AQB performs a number of ancillary
duties related to real property and personal property appraiser
qualifications. The AQB's criteria cover four categories of appraisers-
-certified general, certified residential, licensed, and trainee--each
with specific education, experience, examination, and continuing
education requirements. Title XI does not require states to adhere to
AQB criteria for licensed appraisers or for trainees.
Both the ASB and the AQB regularly evaluate USPAP and the appraiser
qualification criteria to determine whether revisions are needed.
According to the Appraisal Foundation, both boards solicit comments
from appraisers, users of appraisal services, and the public before
making final changes. Since the AQB set its original criteria in 1991,
for example, it has issued numerous interpretations and approved two
revisions of its criteria. As of January 2003, it was reviewing
comments on a third draft of Real Property Appraiser Qualification
Criteria.
State Agencies Oversee the Licensing and Certification of Real Estate
Appraisers:
Under Title XI, states may establish their own agencies to certify and
license appraisers. At the time of our review, all 50 states, the
District of Columbia, and 4 of the U.S. territories had established
such agencies, which typically oversee the activities of appraisers for
all types of transactions, including those that are federally related.
Of the 54 state and territorial agencies responding to our survey, 30
reported operating as independent bodies, while 23 reported to another
state agency or department.[Footnote 6],[Footnote 7] In addition,
survey respondents reported that they used boards or commissions as
well as state employees to carry out Title XI activities.[Footnote 8]
All the agencies had established programs for certifying appraisers.
Licensing requirements, however, differed. Some states did not require
licenses unless appraisers planned to work with federally related
transactions. Other states required appraisers to be either licensed or
certified to perform a real estate appraisal, even for transactions
that are not federally related. State agencies' licensing and
certification programs typically included temporary and reciprocal
licensing programs. An appraiser must, in general, obtain some type of
license--temporary or reciprocal if not a standard state license--in
all states where they want to perform appraisals for federally related
transactions.[Footnote 9]
In addition to conducting licensing and certification activities, all
survey respondents indicated that they approve courses for appraisers'
education or training, enforce state regulations concerning appraisals,
and investigate complaints. Over half of the states reported that they
had adopted appraisal standards in addition to those set by the ASB,
and nearly 70 percent reported that they had introduced additional
qualifications.
Although the states are responsible for the certification and licensing
of appraisers under Title XI, the Appraisal Subcommittee has a role in
ensuring that state qualifications satisfy Title XI objectives. Title
XI directs federal agencies not to accept state certifications and
licenses if the subcommittee issues a written finding that:
* the state certifying and licensing agency has failed to recognize and
enforce the standards, requirements, and procedures of Title XI;
* the state agency does not have enough authority to carry out its
functions under Title XI; or:
* the state agency does not make decisions on appraisal standards and
qualifications or supervise appraiser practices in a way that carries
out the purposes of Title XI. [Footnote 10]
In addition, Title XI requires states to provide the Appraisal
Subcommittee with the names of those appraisers who become certified or
licensed in accordance with Title XI and to collect from them an annual
registry fee that goes to the subcommittee.
Federal Regulators Determine Which Transactions Require Appraisals and
Establish Compliance Standards for Depository Institutions:
Title XI requires the federal financial institution regulators to
ensure that real estate appraisals used in connection with federally
related transactions are performed in accordance with standards
developed by the ASB.[Footnote 11] In addition, Title XI requires that
the federal regulators prescribe the categories of federally related
transactions that should be appraised by a state certified appraiser
and those that should be appraised by a licensed appraiser. Under the
statute, state certified appraisers generally must be used in
connection with federally related transactions for all commercial real
estate transactions greater than $250,000 and all residential
transactions in excess of $1,000,000.[Footnote 12] All other federally
related transactions, unless subject to an exemption as authorized
under Title XI, may utilize a state-licensed appraiser.[Footnote 13]
Under Title XI, the federal financial institution regulators may
establish a threshold level at or below which a certified or licensed
appraiser is not required. As of December 30, 2002, each of the five
regulatory agencies had set their appraisal threshold at
$250,000.[Footnote 14] Thus, financial institutions have the option of
obtaining either an appraisal or some other form of an evaluation of
the property's value for mortgage loans of $250,000 or less. The
regulators have issued guidelines to the institutions under their
jurisdiction that specify the requirements for evaluating real estate
collateral for those transactions that do not require an appraisal.
The federal financial institution regulators require that all
appraisals for federally related transactions conform, at a minimum, to
USPAP, that they be written, and that they contain sufficient
information and analysis to support the institution's decision to
engage in the transaction. Regulatory agencies may take informal and
formal enforcement actions, including memorandum of understanding,
removal, prohibition, and cease and desist orders, and imposing civil
money penalties against institutions that violate their appraisal
regulations. These actions can apply to contract (fee) appraisers as
well as appraisers who are employees of the institutions and
institution-affiliated parties. Moreover, pursuant to the FDIC
Improvement
Act of 1991, the federal financial institutions regulators can take
action against institution-affiliated parties such as an
appraiser.[Footnote 15]
According to representatives of the regulatory agencies, regulators
typically review an institution's compliance with appraisal regulations
during examinations of business risk management policies and practices,
during targeted examinations (for example, of real estate transactions
and practices), or during reviews of lending transactions. If
regulators detect violations or deficiencies, they may take enforcement
action or address it within discussions with the institution's
management for corrective action if they believe it affects the
institution's safety and soundness.
Appraisal Subcommittee Monitors Title XI Regulatory Activities:
Title XI established the Appraisal Subcommittee as the principal
federal agency responsible for monitoring the activities of the other
components of the real estate appraisal industry oversight structure.
Specifically, the subcommittee is responsible for:
* monitoring and reviewing the practices, procedures, activities, and
organizational structure of the Appraisal Foundation--including making
grants in amounts that it deems appropriate to the Appraisal Foundation
to help defray costs associated with its Title XI activities;
* monitoring the requirements established by the states, territories,
and the District of Columbia and their appraiser regulatory agencies
for the certification and licensing of appraisers;
* monitoring the requirements established by the federal financial
institution regulators regarding appraisal standards for federally
related transactions and determinations of which federally related
transactions will require the services of state-licensed or state-
certified appraisers;
* maintaining a national registry of state-licensed and state-certified
appraisers who may perform appraisals in connection with federally
related transactions; and:
* transmitting an annual report to Congress regarding the activities of
the subcommittee during the preceding year.[Footnote 16]
The Appraisal Subcommittee has six board members and seven staff
members. The board members are designated by the heads of the five
financial institution regulatory agencies that collectively make up the
Federal Financial Institutions Examination Council--OCC, FRS, FDIC,
OTS, and NCUA--and HUD. The subcommittee funds its activities through a
portion of the fees assessed by the states against individual
appraisers for licensing and certification.[Footnote 17]
According to subcommittee officials, the subcommittee monitors the
Appraisal Foundation by attending all significant meetings and events
associated with its Title XI activities and reviewing all proposed
changes or additions to its appraiser qualifications criteria or USPAP-
related documents. In addition, the subcommittee reviews the Appraisal
Foundation's grant requests to ensure that the requested funds will
only be used for activities related to Title XI. The subcommittee
evaluates the foundation's initiatives to determine whether they are
eligible for reimbursement; the initiatives must be reasonable and not
arbitrary or capricious.
The subcommittee monitors the federal financial institution regulators
primarily through informal channels. For example, all six Appraisal
Subcommittee board members are involved in the offices responsible for
appraisal regulation in their individual agencies and provide input
from the subcommittee informally to the agencies. The subcommittee also
provides technical assistance on proposed regulations on appraisal
issues. One official told us that the issues subject to subcommittee
monitoring in this regard are few and tend not to change often. He
stated that the only change he could recall in nearly 7 years was the
NCUA's recent decision to raise the minimal threshold for transactions
requiring appraisals from $100,000 to $250,000 to match the levels of
the other regulatory agencies.
Monitoring state appraiser regulatory agencies requires performing on-
site field reviews of state agency programs and maintaining close
communications with, among others, appraisers, state and federal
agencies, and users of appraisal services. The subcommittee has two
primary review cycles for states--3 years and 18 months. Most states
are scheduled on the 3-year cycle, and states are moved to an 18-month
cycle if more frequent on-site visits are warranted--generally because
of concerns identified during the prior field review. According to the
Appraisal Subcommittee, its field review manual is intended to insure
consistent review and policy applications from state to state. The
reviews cover open and closed complaints; approved and disapproved
education providers and courses; state statutes and regulations on
certifying and licensing appraisers; minutes of board meetings;
appraiser registries and fees; temporary practice and reciprocity; and
topical issues such as predatory lending, fraud, and illegal real
estate flipping.[Footnote 18] The letters that summarize the results of
the state field reviews identify concerns, discuss whether the previous
review's concerns have been resolved, and make general conclusions
about the state's compliance with Title XI and Appraisal Subcommittee
policy statements. The state field review letters are posted on the
subcommittee's Web site.
We reviewed the Appraisal Subcommittee's state field review letters
from 1992 to 2002. While the letters provide some information to the
state regulatory agencies, we found no evidence of transparent criteria
for how the subcommittee determined and reported states' compliance
levels. For example, state field review letters were sometimes
inconclusive about whether the state regulatory program was in
compliance. When the letter contained a determination of compliance,
the rationale for this decision was not always given. For example, some
states with identified concerns were deemed compliant, while others
with identified concerns were deemed noncompliant. Developing and
applying consistent criteria to assess states' compliance with Title XI
requirements could increase the usefulness of (1) the letters issued to
the states in identifying best practices and how one state measures
against other states and (2) the annual reports that the Appraisal
Subcommittee provides to Congress on the implementation of Title XI.
Under Title XI, the subcommittee is also required to maintain a
registry of state-certified and -licensed appraisers who are eligible
to perform appraisals for federally related transactions.[Footnote 19]
The registry database is designed to allow users to determine (1)
whether an appraiser is eligible to perform such appraisals and (2)
whether the appraiser has been subjected to disciplinary action. In
addition to eligibility information, the database includes information
about the number of active and inactive licenses, the types of
licenses, and any disciplinary actions taken by states against
appraisers. Appendix IV contains a detailed description of the database
and summary information regarding the number of appraisers by license
type and enforcement actions reported by the states.
Private, State, and Federal Entities Cited Potential Impediments to
Fulfilling their Title XI Roles:
The private, state, and federal entities involved in the oversight of
the real estate appraisal industry identified a number of factors that
they believe could constrain their ability to fulfill their Title XI
responsibilities. ASB and AQB officials stated that an impediment that
they may face in the future is inadequate federal funding, which would
hinder their ability to ensure that appraisal standards and
qualification criteria keep pace with changes in the mortgage industry
and marketplace. State appraiser agencies reported that they often lack
funding to revise their regulations with every USPAP update and to
cover the increasing cost of administering the licensing and
certification processes. The federal financial institution regulators
did not identify any major impediments to fulfilling their Title XI
responsibilities, but they did state that reaching consensus on
regulatory standards was difficult because of the number of entities
involved in the appraisal industry. Appraisal Subcommittee officials
reported that rule-making authority and additional enforcement
sanctions could facilitate its oversight of state compliance.
The Appraisal Standards and Appraiser Qualifications Board Cited
Concerns about Federal Funding:
The ASB and AQB reported that financial challenges arise when federal
grant funding falls short of their needs. Since 1991, the Appraisal
Subcommittee has allocated a total of over $9 million in grants to the
Appraisal Foundation to defray the costs of the ASB's and AQB's Title
XI-related activities. For most of this time the allocations have been
less than what the ASB and AQB have requested. For example, the ASB and
AQB requested a total of over $9 million in grant money between 1994
and 2003, but less than $7 million was approved. However, the Appraisal
Foundation also has other sources of revenue other than the grants it
receives from the Appraisal Subcommittee. For example, the $870,373
grant that the Appraisal Foundation received during calendar year 2001
represented approximately 36 percent of the Appraisal Foundation's
total revenue of $2.4 million for that year. (The largest source of
revenue for the Appraisal Foundation in 2001 was $1.1 million from
publication sales.) Further, in commenting on a draft of this report,
the Appraisal Subcommittee noted that the ASB and AQB had not used all
of the grant funds provided in past years.
The Appraisal Subcommittee told us that it did not have the current-
year funds to fully meet the ASB's and AQB's grant requests over the
past 3 years. However, the Appraisal Subcommittee had a $3.7 million
surplus as of December 2001. According to Appraisal Subcommittee
officials, the surplus was built up in its early years of operation
when its revenues exceeded its expenses and grants to the ASB and AQB.
Subcommittee officials stated that in recent years its expenses have
increased--primarily due to inflation and expenses associated with its
monitoring activities--and that this in turn has limited the amount of
funds available for grants to the ASB and AQB from current-year funds.
They explained that it has not been the Appraisal Subcommittee's policy
to use the surplus to provide grants to the ASB and AQB. When the ASB's
and AQB's initial grant requests have exceeded the difference between
the Appraisal Subcommittee's current-year revenues minus its
expenditures, the Appraisal Subcommittee has requested that the
Appraisal Foundation adjust its grant requests accordingly.
Appraisal Subcommittee officials also stated that inflation and other
factors will likely continue to raise the boards' expenses by up to 5
percent per year. Given that the number of appraisers has remained
static for the last several years, subcommittee officials did not
anticipate their revenues, which are based primarily on licensing and
certification fees, to increase. As a result, future grants to the ASB
and AQB are expected to fall unless the subcommittee uses its surplus,
raises the $25 fee that states collect from appraisers on the
subcommittee's behalf, or both.
According to ASB and AQB officials, future funding shortfalls may limit
the activities they believe enhance the quality, timeliness, and
usefulness of standards and qualifications. For example, the AQB chair
commented that additional funding is needed to update their "body of
knowledge," which outlines the concepts, theories, paradigms, and
applications of the real property appraisal profession and delineates
the skill necessary to practice. The AQB believes that updating its
body of knowledge is necessary to keep pace with changes in the
marketplace. Likewise, ASB and AQB officials stated that funding is
needed to ensure that its education and professional standards keep
pace with trends and issues such as the lack of terrorism insurance and
polluted properties and how they might impact a property's value.
According to ASB and AQB officials, the ultimate impact of funding
shortfalls could be a weakening in the protections intended by Title XI
because appraisal standards and appraiser qualifications may not keep
pace with changes in the marketplace.
States Cited Funding Limitations and Frequent USPAP Updates as
Impediments:
Most of the states identified funding and staffing deficiencies as the
most serious challenges they faced in carrying out their Title XI
duties. Of those states that reported challenges, about two-thirds of
the states said that they needed additional funding to conduct
investigations, and over three-quarters said that they needed
additional staff. The states also reported that the frequency of USPAP
updates was an administrative burden and created challenges in
investigating and enforcing complaints of USPAP violations.
Based on our survey of state and territorial regulators of the
appraisal industry, the average state agency had about 3 staff members,
who were responsible for overseeing almost 2,000 appraisers. Many of
these state agencies reported that they needed to share resources--
administrative staff, office space, investigators, or all three--with
other state agencies in order to perform their Title XI duties. The
survey results indicated that investigations of complaints about
problem appraisers suffered most from these shortages. The majority of
states sharing resources were sharing investigators, who often had no
real estate appraisal experience. In one agency newsletter, a state
official explained that without adequate funding states could not
effectively administer their appraiser certification programs and
investigate and dispose of disciplinary cases in a timely manner.
According to an official from another state, the agency knows that more
enforcement and faster turnaround times are needed in investigating
complaints but is hindered by its limited resources. According to
Appraisal Subcommittee officials, their general counsel analyzed
whether the subcommittee could provide grants to the states to help
provide funding for their Title XI activities and determined that it
lacked the necessary legal authority.
Seventy percent of state appraiser regulatory agencies responding to
our survey indicated that USPAP updates are too frequent. One state
reported that frequent changes to USPAP have made processing complaints
difficult because staff had to review so many versions of USPAP to
determine whether complaints were valid. Another state pointed out that
regulating appraisers was difficult when the appraisal standards
changed so frequently. According to ASB officials, USPAP has been in
place for only 15 years, and annual updates have been needed because so
many changes have occurred in the appraisal industry. Moreover, they
told us that many of the changes that have been incorporated into USPAP
are a result of requests from state regulators. The officials explained
that over the years the ASB has experimented with different formats for
updating USPAP but has found that issuing an annual publication has
been the best way to ensure that everyone is using the same standards.
The ASB and the Foundation are currently working on developing a future
publishing schedule of having USPAP issued biennially. In addition, ASB
officials stated that they have recently started providing state
regulators complimentary newsletters highlighting ASB and AQB
activities and noting any changes, modifications, or clarifications to
USPAP or appraiser qualifications criteria. Some states have found the
annual updates to be a legislative burden in terms of getting the new
regulations adopted, but the majority of states reported that they had
been able to update their real estate appraisal regulations or rules in
6 months or less.
Federal Financial Institution Regulators Did Not Identify Any Major
Impediments:
The federal financial institution regulators indicated that they have
not encountered any major impediments to fulfilling their Title XI
responsibilities. However, some of the federal financial institution
regulators stated that the number of different entities involved in the
Title XI oversight structure sometimes made resolving issues difficult
and hindered efforts to develop a common approach to examining
structural issues. They noted that faulty and fraudulent real estate
appraisals have been associated with losses incurred by federally
insured financial institutions--such as in the case of illegal real
estate flipping--and have resulted in financial harm to individual
consumers. However, all of the regulators stated that real estate
appraisals have not been a major factor in the failure of depository
institutions since the passage of Title XI.
Appraisal Subcommittee Stated That Rule-Making Authority and
Enforcement Options Could Facilitate Its Oversight of States:
As discussed earlier, the Appraisal Subcommittee is responsible for
monitoring states' compliance with Title XI. According to subcommittee
officials, the lack of rule-making authority and limited enforcement
powers make achieving the uniformity and standardization intended by
Title XI more difficult. In addition, the officials noted that because
the 55 state appraiser regulatory agencies took a variety of approaches
to implementing Title XI, expanding the subcommittee's function to
allow it to issue regulations would help ensure greater consistency
among the states in credentialing appraisers and enforcing the most
current version of USPAP. However, giving the Appraisal Subcommittee
rule-making authority would also change the subcommittee's role under
Title XI from a monitoring to a regulatory function.
The Appraisal Subcommittee has issued 10 policy statements to "assist
the states in the continuing development and maintenance of appropriate
organizational and regulatory structures for certifying, licensing, and
supervising real estate appraisers."[Footnote 20] For example,
Statement 5 indicates that states should not require temporary
practitioners--appraisers from other states with temporary licenses--
to affiliate with in-state appraisers and recommends that states
forward information about disciplinary actions against visiting
appraisers to the appraisers' home states. However, adherence to these
recommendations varies across states. Our survey indicated that 98
percent of respondents adhered to the nonafiiliation policy but that
less than 50 percent were notifying home states about disciplinary
actions.
Subcommittee officials stated that currently the only enforcement
action they can take under Title XI is to decertify a state.
Decertification prohibits all licensed or certified appraisers from
that state from performing appraisals in conjunction with federally
related transactions. Because this action is so severe and could
significantly affect a state's real estate market, the subcommittee has
never used it, and its impact has not been tested. In addition, the
decertification action can be taken only for the limited purposes
specified in Title XI and is subject to proof requirements and judicial
review.[Footnote 21]
During our review, the Appraisal Subcommittee noted that its oversight
of the states could be strengthened if it had more enforcement
authority--for example, the authority to assess monetary penalties or
to require that a state stop an activity or practice. However, in
commenting on a draft of this report, the subcommittee stressed that it
has always been able to ensure that states are complying with Title XI
within the current supervisory and enforcement structure.
Industry Participants Raised Various Concerns about the Title XI
Oversight Structure:
Representatives of federal and state regulatory agencies, appraiser
trade groups and education providers, and the mortgage industry
expressed various concerns and conflicting viewpoints about the Title
XI regulatory structure. Some of the industry participants cited the
concern that Title XI left the minimum qualification criteria for
licensed real estate appraisers to the states resulting in the lack of
a national standard and gaps in Title XI's regulatory coverage,
particularly the exclusion of certain types of financial institutions
and mortgage brokers who increasingly account for a large volume of
loan originations. Second, some cited concerns about a lack of
uniformity among the states in (1) licensing and certification
practices, (2) requirements for approving educational activities, and
(3) complaint referrals and enforcement activities, especially for
suspected problem appraisers. These perceived gaps in the Title XI
oversight structure are, in part, reflective of the primary intent of
Title XI, which was to protect the federal deposit insurance funds
rather than individual consumers. There was no clear consensus
regarding the need for or impact of possible changes to the existing
Title XI regulatory structure.
Industry Participants Cited Lack of National Licensing Criteria:
Participants in the real estate appraisal industry expressed concern
that licensed real estate appraisers, unlike certified appraisers, do
not have to meet national qualification criteria. According to many of
the groups we contacted, Title XI's most significant shortcoming is the
provision that leaves the criteria for licensed appraisers to each
state, including decisions such as how often appraisers should be
licensed and whether they should be licensed at all. Under Title XI, a
"state-licensed appraiser" is defined as "an individual who has
satisfied the requirements for state licensing in a state or
territory."[Footnote 22] In contrast, certified appraisers must meet
certification
criteria that adhere to the AQB's requirements.[Footnote 23] While
Title XI contains this mandate for certified appraisers, it contains no
reference to licensing requirements for licensed appraisers. Moreover,
Title XI specifies that the subcommittee will not set requirements for
licensing and that any subcommittee recommendations are
nonbinding.[Footnote 24] However, the federal financial institutions
regulators have the authority to issue additional qualification
requirements as needed to carry out their statutory
responsibilities.[Footnote 25]
Some groups believe that this provision has led to a lack of uniform
qualifications in licensing across the country (for example, in
education and experience) and may also have helped to create an
environment conducive to mortgage fraud. According to an official from
the Appraisal Subcommittee, Title XI's intent was to ensure that
appraisers for federally related transactions met minimum requirements
for experience and education and had been examined in order to ensure a
minimum level of competency. Under the current system, individuals in
some states can qualify for an appraiser license without having
satisfied any educational requirements or met any criteria for work
experience and without having passed any examinations.
Officials from the Appraisal Subcommittee reported that while most
states have adopted statutory or regulatory provisions requiring
licensed appraisers to meet AQB recommended criteria, six states do not
have a state-licensed appraiser category, and six have licensing
requirements that are less stringent than the AQB's. As a result,
subcommittee officials said, some licensed appraisers may not meet
recommended qualifications criteria. For example, in 2002, one state
passed legislation that eliminated the experience requirement for its
licensed appraisers; and, in 2001, another state revised its licensing
criteria to comply with AQB requirements but at the same time
"grandfathered" in several hundred licensed appraisers. As a result,
lenders and homebuyers who rely on proof of licensing when hiring
appraisers may not know what kind of criteria, if any, the appraisers
were required to meet. The Appraisal Subcommittee:
and other industry participants view the issue as a growing problem,
since licensed appraisers are likely to perform the majority of
residential appraisals.
According to two regulatory officials, problems related to the lack of
uniformity in licensing appraisers are compounded by the fact that
Title XI also makes licensing voluntary at the state level. Voluntary
licensing means that the state does not have a legislative requirement
that appraisers be licensed or certified. However, the volunteer states
do provide the opportunity for an appraiser to become licensed or
certified to perform federally related transactions. These regulators,
as well as one appraiser trade group, view voluntary licensing as a
serious flaw in the industry's regulatory structure and a probable
contributor to mortgage fraud. Moreover, voluntary licensing may
indirectly place the onus on financial institutions to ensure that
appraisers for federally related transactions have the appropriate
qualifications. According to officials from the Appraisal Subcommittee,
state licensing requirements for appraisers falls into one of three
categories--voluntary, mandatory for federally related transactions,
and mandatory (table 2). As of March 2003, 10 states were classified as
being in the voluntary licensing category, and one federal financial
institution regulator reported that most of the mortgage fraud problems
it has encountered have occurred in states where licensing is
voluntary. His views were echoed in an earlier Federal Bureau of
Investigation testimony at a special congressional hearing on predatory
lending in March 2000.[Footnote 26] According to this testimony, the
most egregious property flipping problems have occurred in states where
licensing is voluntary for transactions that are not federally related.
Table 2: State Appraiser Licensing Requirements:
State licensing requirement; Description of requirement; States.
Voluntary[A]; State law does not require appraisers to be state
licensed or certified. A person wanting to perform appraisals connected
with federally related transactions may choose to become state licensed
or certified.[B]; Alaska, Indiana, Iowa, Kentucky, Louisiana,
Massachusetts, North Dakota, Ohio, Oklahoma, and Wyoming (10).
Mandatory for federally related transactions only; State law requires
all appraisers connected with federally related transactions to be
state licensed or certified. Persons performing appraisals in
transactions that are not federally related need not be licensed or
certified.; Arkansas, California, Colorado, Florida, Georgia, Hawaii,
Illinois, Kansas, Maryland, Montana, New Hampshire, New York, Vermont,
Wisconsin, and Guam (15).
Mandatory; State law requires all persons performing any kind of
appraisal activity for any kind of real estate transaction to be state
licensed or certified.; Alabama, Arizona, Connecticut, Delaware,
District of Columbia, Idaho, Maine, Michigan, Minnesota, Mississippi,
Missouri, Nebraska, Nevada, New Jersey, New Mexico, North Carolina,
Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota,
Tennessee, Texas, Utah, Virginia, Washington, West Virginia, Northern
Mariana Islands, Puerto Rico, and Virgin Islands (30).
Source: Appraisal Subcommittee.
[A] According to a subcommittee official, under this requirement
appraisers who are not licensed or certified could perform appraisals
in connection with federally related transactions without violating
state law, but the federally regulated financial institution using that
appraiser's services could be subjected to federal regulatory action.
[B] Under state law, federally related transactions should include
transactions involving the Federal Housing Administration and the two
government-sponsored enterprises, Fannie Mae and Freddie Mac.
[End of table]
Industry Participants Were Concerned That Title XI Does Not Cover Many
Transactions:
Industry participants also voiced concerns about the fact that Title XI
does not cover financial institutions and mortgage brokers that are not
subject to federal regulation. When Title XI was enacted, federally
regulated lending institutions made most mortgage loans. Today, other
financial institutions, such as mortgage bankers and finance companies,
account for a substantial share of the mortgage marketplace. Many of
these financial institutions that are not federally regulated, as well
as an increasing portion of regulated financial institutions, use
mortgage brokers to originate loans, so that these brokers now
originate about 50 percent of all mortgage loans. These entities and
individuals may have state licenses, but they are not monitored by
federal or state entities through, for instance, examinations
or audits.[Footnote 27] Appraisers have anecdotally reported that these
originators pressure them the most to appraise properties at or near
the purchase price to assure that the mortgage transaction will occur.
As previously noted, the federal financial institution regulators have
set the minimum for transactions requiring appraisals at $250,000. Some
industry participants have said that this threshold and any increases
to it undercut efforts to protect consumers. These groups believe that
oversight of real estate appraisals should be geared toward the
interests of consumers, who should be able to expect an unbiased,
objective third-party opinion of the value of real property offered as
security for a loan. However, Title XI was enacted in response to the
impact of appraisal problems on federally insured depository
institutions, and federal financial institution regulators have
identified few problems or risks to depository institutions associated
with loans valued below the $250,000 threshold. For transactions of
less than $250,000, federal financial institution regulators allow
lenders to use either an evaluation--a simpler assessment of a
property's market value. For example, the results of a computerized
valuation known as an automated valuation model (AVM) could be used as
the basis for an evaluation.[Footnote 28] The two groups holding some
of the largest portfolios of residential real estate mortgages, Fannie
Mae and Freddie Mac, increasingly are using AVMs in place of
traditional appraisals. However, because an evaluation or AVM is not
considered an appraisal, it is not subject to the same standards and
does not require a licensed or certified appraiser. Appendix V
describes the basic types of AVMs and the benefits and concerns that
have been associated with them.
Industry Participants Cited Differences Among State Licensing Programs:
Representatives of various groups we contacted expressed some concerns
about differences in the standards that states have set for temporary,
reciprocal, and general licenses. The differences noted by these groups
focused on the lack of uniformity in the implementation of Title XI
requirements. According to these groups, the lack of uniformity between
states in the implementation of Title XI has created difficulties for
lenders and appraisers who operate in multiple states.
Industry participants cited a lack of uniformity in the way states
grant temporary and reciprocal licenses. Because credentials from one
state may not be recognized by another, appraisers often have to carry
multiple state licenses. Title XI requires states to recognize on a
temporary basis real estate appraisers who have been certified or
licensed by another state if certain conditions are met and encourages
states to develop reciprocity agreements that readily authorize
appraisers who are licensed by and in good standing with their home
state to perform appraisals in other states.[Footnote 29] The Appraisal
Subcommittee has issued policy statements on temporary practice and
encouraging reciprocity. However, our survey indicated that state
regulatory agencies continue to vary widely on these issues. For
example, of the 53 states and territories that responded to this
question, 40 issued temporary licenses for single assignments, 16
allowed an appraiser only one temporary license at a time, and 15
limited the number of temporary licenses an appraiser could receive
annually. Six of the 54 respondents to our survey indicated that
visiting appraisers are required to pass a state exam in order to
receive a reciprocal license. This practice is not only inconsistent
with the spirit of Title XI but also with the Appraisal Subcommittee's
guidance recommending that states accept licenses or certification from
other states meeting AQB requirements. In addition, a representative
from a banking trade group told us that lenders are dissatisfied with
state reciprocal licensing requirements, which make it difficult to use
the same appraisers in multiple jurisdictions or states. The trade
group representative added that some states are more restrictive than
others. According to our survey, 23 states and territories require a
reciprocity agreement with the state or territory issuing an
appraiser's original license before issuing a reciprocal license. The
inability to readily obtain a license in another state may be
especially problematic during periods of heavy refinancing, when some
states may need more appraisers.
Further, the states do not use uniform appraiser classifications or fee
requirements. The Appraisal Subcommittee recognizes four licensing
categories in its National Registry of Appraisers--licensed, certified
general, certified residential, and transitional license. We found that
the number of categories for licensed and certified appraisers used by
the states and territories ranged from two to seven and included such
non-AQB classifications as residential real property appraiser and
limited general appraiser. The states' license fees also varied by the
type of license or certification sought and the number of years it
covered. Individual states set fees for certifying and licensing
appraisers, with annual fees ranging from $22 to $450 and initial
licensing terms of from 1 to 4 years. For the 55 state agencies with a
certified general appraiser classification, we found that 22 states had
a 1-year term with fees ranging from $120 to $450, 28 states had 2-year
terms and fees from $44 to $680, and 3 states had 3-year terms with
fees from $150 to $470. One state had a 4-year term but did not provide
information on its fees.[Footnote 30]
The results of our analysis of license renewal fee requirements were
similar. Specifically, for the certified general appraiser
classification, we found that 19 states had a 1-year term with fees
ranging from $105 to $400, 29 states had 2-year terms with fees from
$100 to $610, and 6 states had 3-year terms with fees from $225 to
$470. We also found that these provisions varied depending on the
category of license or certification sought. For example, the renewal
term for a licensed real property appraiser (residential) ranged
between 1 to 4 years across states, while the renewal term for a
licensed real property appraiser (general) ranged from 1 to 2 years.
Industry Participants Expressed Concerns about the Costs and Lack of
Uniform Approval Processes for Appraiser Education Courses:
Several state regulators and education providers expressed concerns
about the expenses and lack of uniformity in the processes associated
with approving instructors and courses for appraisers' continuing
education. A representative of an appraisers' trade group noted that
gaining approval for a course and an instructor in one state does not
necessarily translate into approval in other states. As a result, the
trade group spent around $30,000 having courses for a July 2000
training conference approved in all jurisdictions. He added that one-
fourth of the states require certified checks, notarized documents, or
both to initiate the course approval process. These participants
believe that the added cost and procedures involved in acquiring
approval in each state is overly burdensome.
AQB officials told us that the board has set up a voluntary national
system for approving courses and that these concerns had influenced
their project. AQB and Appraisal Foundation officials said that their
efforts were not intended to usurp the states' authority. According to
the AQB, the course approval program was designed to be a convenience
for both course providers and state regulators while helping to ensure
quality appraisal courses. However, AQB's course and instructor
approval programs have met opposition in some quarters. For example,
some state officials and other industry participants stated that
requiring AQB approval for all USPAP refresher courses and instructors
and restricting course materials and examinations to AQB publications-
-for which AQB charges a royalty fee--represent a conflict of interest.
However, AQB officials stated that any educational provider may submit
a USPAP course for consideration to be deemed equivalent to the
national USPAP courses and added that, to date, four educational
providers have submitted courses which have been approved as equivalent
to the national USPAP courses. In addition, some education providers
have stated that the fees charged by the AQB for its course and
instructor approval are excessive. On the other hand, some state and
federal financial institution regulators believe that the Appraisal
Foundation and its boards possess expertise and resources the states do
not have and thus are needed to ensure that the quality of appraiser
education and training is not compromised. Appendix VI contains
information on the fees charged by the AQB for its course and
instructor approval programs.
Similarly, some states and educators have expressed concern that the
AQB and Appraisal Subcommittee have encroached upon state authority in
setting certain appraisal standards and appraiser qualifications. For
example, the regulatory agency and an education provider in one state
objected to certain AQB education requirements for certified
appraisers, in particular a requirement that education providers be
certified through the AQB's instructor certification program. As part
of its industry monitoring function, the Appraisal Subcommittee
reviewed those standards and determined that the AQB had acted
appropriately in adopting them. The Appraisal Subcommittee has also
instructed states to rescind approvals of distance education courses
for certified real property appraisers if the courses or their
providers did not conform to AQB criteria.[Footnote 31] The state
appraiser regulatory agency and education provider contended that the
education provider standards exceed the scope of the AQB's
responsibility as contemplated by Title XI and that the Appraisal
Subcommittee, by recognizing and affirmatively applying those
standards, acted beyond its monitoring authority.
In light of those assertions, the Appraisal Subcommittee requested a
legal opinion from the Legal Advisory Group of the Federal Financial
Institutions Examination Council on (1) the scope of AQB's authority to
adopt education-related standards for certified appraisers; (2) the
scope of the Appraisal Subcommittee's responsibility in monitoring the
AQB; and (3) the Appraisal Subcommittee's authority to oversee state
regulators' implementation of AQB standards.[Footnote 32] In a June
2002 opinion, the Legal Advisory Group concluded that the AQB's and
Appraisal Subcommittee's actions appeared to be consistent with and
authorized by Title XI. Referring to the legislative history of Title
XI, the Legal Advisory Group opinion stated that with Title XI Congress
intended to create consistent certification standards for appraisals
nationwide and that Congress relied on the AQB to set minimum appraiser
certification criteria. A copy of this decision can be found in
appendix VII.
Industry Participants Cited a Need for Improvement in the Referral
Process for Problem Appraisers:
Participants in the real estate appraisal industry described the
process of referring questionable appraisals or appraisers to state
regulatory authorities as needing improvement, saying that few
referrals were being made. Title XI instructs federal agencies or
federal instrumentalities to report any action of a state-certified or
-licensed appraiser that represents a violation of Title XI
requirements to the appropriate state agency.[Footnote 33] According to
an Appraisal Subcommittee official, a referral is basically a notice to
the state agency that a potential violation exists that warrants
investigation.
State regulatory officials also said that they had received few
referrals from lenders and bank regulators. The state officials
believed this problem was a serious one and felt that institutions
engaging appraisers should be responsible for referring appraisers to
agencies for investigation and disciplinary action. Our survey of state
regulators suggests that lenders and federal agencies are referring few
problem appraisers. Results of the survey showed that the greatest
percentage of complaints came from consumers and other appraisers.
Likewise, Appraisal Subcommittee staff reported that based on their
state reviews, lenders and bank regulators are not actively making
referrals and that when they do, the referrals are often incomplete or
unspecific.
Federal financial institution regulators have an official interagency
policy encouraging depository institutions to make referrals. But
officials from the regulatory agencies told us that the institutions
often follow the advice of their legal departments and simply stop
using offending appraisers rather than reporting them because of the
potential for lawsuits. In addition, one regulatory official stated
that regulations on confidentiality and disclosure prevented them from
providing information discovered during an examination unless a
criminal act had occurred.
However, both HUD and Fannie Mae have made referrals to state
regulatory agencies. HUD, for example, has made such referrals, even
though it has internal systems in place for disciplining problem
appraisers. HUD imposes administrative sanctions--usually removing the
problem appraisers from the FHA Register for a specified time--and then
notifies the state licensing or certification agency in writing of its
action. During calendar year 2002, HUD made 112 referrals to state
regulatory agencies. In the referrals, HUD provided the state agency
with the appraiser's license or certification number, the reason for
removal, and copies of the original appraisal(s) and HUD's review.
Officials from Fannie Mae, which made 860 referrals to 45 different
state regulatory agencies between August 2001 and August 2002,
commented that the agency had revised its referral program to better
meet state regulatory agencies' information needs for processing a
referral. Fannie Mae officials informed us that they provided a
complete copy of each questionable appraisal report and an appraisal
review performed by another state-licensed or -certified appraiser in
the same state to help identify the appraisal deficiencies for the
state's review and investigation. The officials also noted that it was
difficult to refer questionable appraisals to the different state
agencies due to the lack of consistent processes and procedures for
accepting, reviewing, and investigating questionable appraisal
reports.
In the case of both HUD and Fannie Mae, neither entity was routinely
providing the Appraisal Subcommittee with copies or listings of the
referrals made to the states. According to Appraisal Subcommittee
officials, information on referrals made to the states would aid them
in their field reviews of the states' responsiveness to complaints
about appraisers. According to Fannie Mae officials, they provided the
Appraisal Subcommittee with 27 cases (involving 13 different states) in
May 2002, along with the states' responses, to demonstrate lack of
effective enforcement actions by some of the states. Fannie Mae
discontinued sharing information on referrals with the Appraisal
Subcommittee due to its perception that the subcommittee did not take
action on the specific referrals.
Industry Participants Noted Variations in State Regulatory Agencies'
Enforcement of Title XI Requirements:
Some industry participants reported a lack of uniformity in processing
complaints and taking disciplinary actions against those problem
appraisers that were referred to state regulatory authorities and cited
this issue as an obstacle to an effective enforcement program.
Furthermore, the state agencies told us that while they have
enforcement structures in place, some agencies have questioned their
ability to mount effective enforcement programs because of funding
shortfalls; as noted earlier, many states responding to our survey
reported funding inadequacies. In general, the complaint process
entails filing a complaint alleging a violation, conducting an
investigation, determining whether a violation occurred, and rendering
an outcome, including any disciplinary actions. Industry participants'
concerns about the enforcement process included differences in state
requirements and practices for filing a complaint, the quality and
timeliness of investigations, and complaint outcomes.
Several entities reported that states' complaint filing requirements
ranged from simple to onerous. For example, some states require simply
that complainants submit information on an allegation, while other
states accept complaints only on a specific form. Further, some states
required that complaint documents be notarized or that complainants
provide witnesses and testify against appraisers. Some industry
participants also stated that the length of time needed to resolve a
complaint was too long--for example, one state required 1 to 2 years--
potentially allowing the appraiser to continue what might be fraudulent
or questionable practices. Some groups also cited statutes of
limitations as a major obstacle in penalizing appraisal violators. For
example, statutes in at least three states prohibit both investigations
into and punitive actions for unlawful appraisal activities that
allegedly took place more than 3 to 5 years earlier. Finally, at least
one complainant reported concerns about the expertise of investigators,
noting that investigators in the Attorney General's office handling a
case of mortgage fraud may not be knowledgeable about the appraisal
profession.
In addition to concerns about the complaint process, industry
participants reported misgivings about outcomes, including
disciplinary actions and feedback. For example, Fannie Mae officials
commented that they had been dissatisfied with some state decisions on
punitive actions and with the lack of feedback on actions that had
actually been taken. The officials added that some states do not
penalize appraisers for multiple violations if the appraisers have
already been disciplined or do not tell complainants what action was
taken. The Fannie Mae officials reported that they have observed a lack
of consistent and effective investigation and enforcement by some of
the states. As an example, they noted that some states appeared to
perform meaningful investigations and took appropriate actions while
other states appeared unwilling to investigate similar cases with
comparable support and documentation. According to the officials,
Fannie Mae is considering discontinuing the practice of sending
referrals to several states because, in their view, the state
regulatory agencies have failed to act on them. HUD officials echoed
this view, saying that states typically do not take action when they
are notified that an enforcement action has been taken against an
appraiser. In those rare instances when a state does take an action, it
often refuses to disclose this information to HUD, citing privacy
concerns. However, Appraisal Subcommittee officials told us that in
many states, state law might prohibit the disclosure of actions that
are not a matter of public record. Another industry participant
reported that there is little incentive to make referrals given the
fact that there is no assurance that the state will take action.
According to Appraisal Subcommittee officials, a number of states have
told them that the referral information that Fannie Mae and HUD have
provided to the states is frequently in a format or manner that they
cannot readily absorb or use. For example, some of the states indicated
that they received over a hundred referrals from Fannie Mae as one
group, which overwhelmed the states' ability to review and investigate
the referrals in a timely basis. Other states stated that the referrals
were for real estate transactions for which the state's statute of
limitations had already expired. Fannie Mae officials indicated that
their referrals consistently include a copy of the questionable
appraisal and an appraisal field review performed by a state-licensed
or -certified appraiser in the same state. Fannie Mae recommended that
the states adopt the one-unit residential appraisal field review report
as sufficient documentation for referred appraisals of one-unit
properties.[Footnote 34]
We analyzed data states submitted to the Appraisal Subcommittee and
found that the number of disciplinary actions taken differed widely.
For example, one state reported taking only a single disciplinary
action against an appraiser, while two other states accounted for over
25 percent of the 4,360 disciplinary actions reported as of October 31,
2002.[Footnote 35]
Industry Participants Indicated No Clear Consensus Regarding the Need
for Changes to the Title XI Regulatory Structure:
There was no clear consensus among the industry participants that we
contacted regarding the need for or impact of possible changes to the
existing Title XI regulatory structure. For example, our survey did not
indicate a clear consensus among state regulatory agencies on the
impact of eliminating various aspects of the current Title XI
regulatory oversight structure. However, one state appraiser agency
official said that Title XI had achieved its intended purpose of
protecting federal interests and that federal involvement in the
oversight of the real estate appraisal industry is no longer needed.
Another representative of a state appraiser agency stated that Title XI
needed to be dramatically amended to correct deficiencies in the
current appraisal oversight structure.[Footnote 36]
Among the various representatives of trade groups, education providers,
and other industry participants that we contacted, there were differing
opinions as to what, if any, changes were necessary to Title XI.
Likewise, the responses to the survey that we sent to the state
appraiser agencies did not indicate a clear consensus regarding states'
views of the impact of eliminating some of the central aspects of the
Title XI regulatory structure. For example, 22 states and territories
(41 percent) said that eliminating the Appraisal Subcommittee would
help in regulating appraisers, while 17 (31 percent) responded that
eliminating the subcommittee would be a hindrance. The remaining states
felt that not having the subcommittee would neither help nor hinder
regulation. The states responded more positively to the ASB and AQB,
with 31 and 23 states, respectively, indicating that eliminating them
would hinder efforts to regulate appraisers.
However, some officials from state appraiser agencies have expressed
strong viewpoints regarding the need for changes to Title XI. For
example, an official from one of the state appraiser regulatory
agencies noted that of over 30 regulated professions, only the
appraisal profession has federal oversight. According to this official,
Title XI has resulted in the establishment of state appraiser
regulatory agencies in each of the states and the adoption of minimum
appraisal standards and appraiser qualification criteria, thus
protecting federal interests in regulating the appraisal industry. This
official stated that the states are now in a position to oversee the
real estate appraisal industry without any federal involvement, much as
they do other professions. He suggested that Congress eliminate the
Appraisal Foundation and the AQB and make the ASB independent and self-
supporting.
An official from another state regulatory agency said that to correct
the present system's problems, Congress would need to completely
restructure the Title XI structure. He also recommended eliminating the
Appraisal Subcommittee and the Appraisal Foundation, replacing them
with a new board at the federal level. The new board would represent
the appraisal industry more broadly and have strong Congressional
accountability. In addition, he recommended that the minimum standards
for appraisals and appraiser qualifications be amended only every 5
years, if needed. He also suggested that Congress clearly designate the
states as having sole responsibility for administering and enforcing
Title XI.
Conclusions:
Title XI brought about significant changes in the real estate appraisal
industry. According to federal financial institution regulators, real
estate appraisals have not been a major factor in the failure of
federally insured financial institutions since the passage of Title XI.
However, opportunities exist to enhance the effectiveness of the
current regulatory system to help ensure that federally related
transactions are based on accurate assessments of the value of
properties used as collateral for loans.
Developing and applying consistent criteria to assess states'
compliance with Title XI requirements could increase the usefulness of
the letters that the Appraisal Subcommittee provides to the states
based on its field reviews as well as the annual report that the
Appraisal Subcommittee provides to Congress on the Title XI program.
Further, the Appraisal Subcommittee's field reviews of the states could
be enhanced if HUD and the government sponsored enterprises provided
the subcommittee with information on referrals made to the states on
questionable appraisals and problematic appraisers. Similarly, the
Appraisal Subcommittee could help HUD and Fannie Mae ensure that
referral information on problem appraisals is provided to the state
appraiser agencies in a format and manner that facilitates appropriate
follow-up action by the states.
Achieving Title XI's purpose depends in part on the ability of ASB and
AQB to ensure that appraisal standards and qualification criteria for
appraisers are reflective of changes in the real estate mortgage
industry and marketplace; these entities' ability, in turn, depends in
part on the amount of funding provided to them annually by the
Appraisal Subcommittee. Achieving Title XI's purpose also depends on
actions taken by the states. The lack of funding and resources cited by
state appraisal regulatory agencies suggests that some states may be
unable to adequately enforce appraiser compliance with the minimum
standards envisioned by Title XI. At the same time, the Appraisal
Subcommittee--the primary federal entity in the oversight structure
created by Title XI--has accumulated an operating surplus of almost $4
million, generated from the fees levied and collected by the states on
behalf of the federal government.
Recommendations:
To improve its monitoring of the implementation of Title XI, we
recommend that the Chairman of the Appraisal Subcommittee:
* develop and apply consistent criteria for determining and reporting
states' compliance levels with Title XI requirements;
* explore potential options for funding or otherwise assisting states
in carrying out their Title XI activities, particularly the
investigation of complaints against appraisers; and:
* explore alternatives for providing future grant funding, including
drawing on its surplus if necessary, to the Appraisal Foundation and
its two boards in support of their Title XI activities.
To improve the process for referring problem appraisals by entities
that oversee or use real estate appraisals to the state appraiser
agencies for possible enforcement actions, we recommend that the
Chairman of the Appraisal Subcommittee work with the Chairmen of Fannie
Mae and Freddie Mac and the Secretary of the Department of Housing and
Urban Development to help ensure that referrals of problem appraisals
(1) are provided to states in a format that is useful to the state
appraisal agencies and (2) facilitate the subcommittee's efforts to
monitor decisions made by states regarding the supervision of appraiser
practices.
Agency Comments:
We requested and received written comments on a draft of this report
from HUD, Fannie Mae, Freddie Mac, the Appraisal Foundation, and the
Appraisal Subcommittee that are presented in appendixes VIII through
XII. In addition, we requested comments from FDIC, FRS, OCC, OTS, and
NCUA who indicated that their comments had been incorporated into those
provided by the Appraisal Subcommittee. The entities provided a variety
of written comments. The principal comments and our response are
summarized below. Technical comments have been incorporated into the
report where appropriate.
HUD concurred with our recommendation that the Chairman of the
Appraisal Subcommittee work with HUD, Fannie Mae, and Freddie Mac on
referrals of problem appraisals to states for follow-up and appropriate
enforcement. However, HUD pointed out that it is already involved in
the work of the subcommittee, as a HUD representative serves as a
member of the subcommittee. Our draft report noted that the six
Appraisal Subcommittee Board members are designated by the heads of the
five financial institution regulators and by HUD. Both Fannie Mae and
Freddie Mac expressed concern about this recommendation, commenting
that they are not regulatory entities. We did not intend to imply that
these entities have a regulatory role under Title XI. Rather, we
directed the recommendation to the Appraisal Subcommittee, which is
responsible for monitoring state activities under Title XI. However,
both Fannie Mae and Freddie Mac review the quality of certain
appraisals for loans that they purchase and can refer problematic ones
to the states for action. Therefore, the two government-sponsored
enterprises are in a unique position to provide expertise, information,
and lessons of experience to the subcommittee. As Fannie Mae noted in
its comments, it has "extensive experience in referring unacceptable
appraisals to state agencies" and has observed both a lack of
uniformity in state processes and a lack of consistent and effective
enforcement actions by state licensing or regulatory boards. We have
revised the wording of our recommendation to emphasize the role that
HUD, Fannie Mae, and Freddie Mac can play in helping the subcommittee
carry out its oversight responsibilities.
Fannie Mae also commented that, based on its experience in referring
unacceptable appraisals, issues of format have not impeded the states
from taking effective enforcement action. However, as our draft report
noted, Appraisal Subcommittee staff involved in field reviews reported
that (1) referrals are often incomplete or unspecific and (2) according
to state officials, referrals that Fannie Mae and HUD provided to the
states frequently were in a format or manner that they could not
readily absorb or use. We recognize that, by itself, providing
referrals in a more useful format will not guarantee more, or more
consistent, state enforcement actions. Our draft report noted that
several factors affect the extent of state enforcement efforts,
including state-level funding and staffing shortages and a scarcity of
referrals from lenders and bank regulators. However, we continue to
believe that improving the referral process could help achieve the
objectives of Title XI. As our draft report also noted, Fannie Mae has
revised its referral program to better meet state regulatory agencies'
information needs. Consequently, we did not change our recommendation.
In our draft report, we noted that we found no transparent criteria in
the subcommittee's field review letters for the reporting of states'
compliance with Title XI. In its comment letter, the Appraisal
Subcommittee agreed that it did not have a formalized rating system
that would provide each state with an overall rating. However, the
Appraisal Subcommittee noted that it employs "an informal [rating]
system (i.e., Tier 1 and Tier 2) based on a state's overall compliance
with Title XI." The Appraisal Subcommittee stated that it had
previously considered developing a rating system that would allow for
comparisons across states and had concluded that such a rating system
would not assist its Title XI enforcement efforts. However, the
Appraisal Subcommittee stated in its comment letter that it would
review this issue again based on our recommendations.
Our draft report expressed a concern of the Appraisal Foundation's two
boards (the ASB and AQB): that shortfalls in federal grant funding
provided by the Appraisal Subcommittee have limited activities that the
two boards believe enhance the quality, timeliness, and usefulness of
standards and qualifications. In commenting on our draft report, the
Appraisal Foundation clarified that federal grant shortfalls could
impede the boards' future ability to ensure that standards and
qualifications continue to keep up with changing industry conditions.
Similarly, the Appraisal Subcommittee chair commented that in the past
the Appraisal Foundation has not used all of the funds provided in the
federal grants. Our draft report noted that the foundation has other
sources of revenue and that the subcommittee expected future grants to
the two boards to decline unless the subcommittee took certain actions.
We revised our report to clarify that the two boards view federal grant
funding shortfalls as a potential future impediment to their Title XI
activities.
Our draft report also characterized the Appraisal Subcommittee's lack
of rule-making authority and limited enforcement powers as impediments
to the subcommittee's ability to carry out its Title XI
responsibilities. The basis for this characterization was statements
made by subcommittee officials. For example, in its April 11, 2002,
written responses to GAO questions, the Appraisal Subcommittee stated,
"Federal oversight [over state appraisal authorities] could be more
effective — if the ASC were given rule-making authority, which could be
used to establish mandatory state reporting mechanisms. Finally,
oversight could be strengthened if the ASC had more administrative
options when addressing noncompliant states. ... The ASC should have
additional authorities, such as 'cease and desist' authority and
monetary penalties.":
In commenting on the draft report, the Appraisal Subcommittee agreed
that general rule-making authority might facilitate its Title XI
enforcement and that its enforcement options are "limited in number."
But the subcommittee also stated that the lack of this authority has
not been an impediment to achieving compliance. We modified our report
to clarify the Appraisal Subcommittee's views and noted that, according
to the subcommittee, it has always been able to achieve state
compliance within the current Title XI regulatory and enforcement
structure. The Appraisal Subcommittee further noted that its policy
statements are its formal interpretations of Title XI and stated that
these should be given deference, citing a February 2000 GAO decision.
In that decision, we determined that the Appraisal Subcommittee
reasonably interpreted one provision in Title XI relating to a state's
collection and submission of appraiser fees to the subcommittee.
In response to our recommendation that the subcommittee explore options
to assist the states in carrying out their Title XI responsibilities,
the Appraisal Subcommittee commented that while overall state
compliance with Title XI would be improved if states had more funding,
it did not see the subcommittee as the answer to that issue. The letter
noted that the Appraisal Subcommittee's only method of obtaining
additional funds to provide to the states is to increase the national
registry fee assessed against each appraiser. We agree that the states
are in a better position to identify needs and to address fee and
revenue issues to resolve those needs. However, our recommendation
addressed exploring options in addition to providing funding to help
states carry out their Title XI activities. For example, the Appraisal
Subcommittee could encourage several states to pool investigative
resources or use other options to help address temporary shortages of
trained investigators in one state. Alternatively, the Appraisal
Subcommittee could use its field review reports to identify funding
gaps as an issue negatively affecting states' ability to comply with
Title XI's provisions. Consequently, we did not change our
recommendation.
We are sending copies of this report to the Chairman and Ranking Member
of the Senate Committee on Banking, Housing, and Urban Affairs; the
Chairman and Ranking Minority Member of the House Committee on
Financial Services; the Secretary of the Department of Housing and
Urban Development; the Chairman of the Board of Governors of the
Federal Reserve System; the Chairman of the Federal Deposit Insurance
Corporation; the Comptroller of the Currency; the Director of the
Office of Thrift Supervision; the Chairman of the National Credit Union
Administration; the Chairman and Chief Executive Officer of Fannie Mae;
the Chairman and Chief Executive Officer of Freddie Mac; the Chairman
of the Appraisal Subcommittee; and the Executive Vice President of the
Appraisal Foundation. We will also provide copies to others on request.
This report will be available at no charge on our home page at http://
www.gao.gov.
If you or your staff have any questions about this report, please
contact me at (202) 512-8678 or Harry Medina at (415) 904-2000. Key
contributors are listed in appendix XIII.
[See PDF for image]
[End of figure]
David G. Wood
Director, Financial Markets and Community Investments:
Signed by David G. Wood:
[End of section]
Appendixes :
[End of section]
Appendix I: Survey of State Regulatory Agencies (results included):
[See PDF for image]
[End of figure]
[End of section]
Appendix II: Scope and Methodology:
To describe the specific responsibilities under Title XI of the
private, state, and federal entities that oversee the real estate
appraisal industry, we reviewed Title XI and its legislative history to
identify the specific responsibilities assigned to each entity. We
interviewed representatives of private entities and federal officials
and surveyed state regulatory agencies to obtain information on how
they interpreted their responsibilities under Title XI. In addition, we
attended a conference sponsored by an association of state regulatory
agencies on the agencies' role in Title XI's oversight structure.
Finally, we reviewed the literature, issue papers, and documents by
industry participants, experts, and observers on Title XI and the
regulatory structure for appraisers.
To describe how the entities carry out their duties under Title XI, we:
* obtained information from the Appraisal Foundation and its two
boards, the Appraisal Standards Board and the Appraiser Qualifications
Board on Title XI-related activities such as (1) submitting grant
proposals to the Appraisal Subcommittee for Title XI-related
activities, (2) providing information to the Appraisal Subcommittee on
Title XI-related activities, (3) establishing minimum standards for
conducting appraisals and qualifications for appraisers, and (4)
disseminating information on revisions to these standards and
qualifications.
* surveyed the 55 state regulatory agencies for appraisers to gather
information on the agencies' organizational structures, specific tasks,
staff size, licensing and certification practices and fees, revenues
and expenditures, and complaint and enforcement activity. We also
analyzed survey results to determine whether any trends existed or
significant issues were reported.
* obtained and reviewed federal financial regulators' policies,
procedures, regulations, and advisory opinions with respect to
oversight of the appraisal industry and information on enforcement
activities related to complaints and referrals arising from
noncompliance with the Uniform Standards of Professional Appraisal
Practice or Title XI.
* obtained and reviewed Appraisal Subcommittee annual reports, state
field review reports, and grants to the Appraisal Foundation. We also
performed selected analyses of information contained in the Appraisal
Subcommittee's National Registry of Appraisers database.
To describe factors that private, state, and federal entities
identified as impediments to carrying out their Title XI roles and
responsibilities, we interviewed officials representing the various
entities. In addition, we analyzed the results of our survey of state
regulatory agencies, contacted several state officials about the
written comments included in their survey responses, and reviewed
correspondence and an agency newsletter we received from state
regulatory officials.
To describe and identify other concerns about the effectiveness of the
current regulatory structure in achieving the purposes of Title XI, we
interviewed officials representing regulatory entities, industry
participants, and industry observers. Specifically, we interviewed (1)
private and federal entities cited in Title XI; (2) officials from the
Department of Housing and Urban Development, Fannie Mae, and Freddie
Mac; and (3) groups representing mortgage lenders, appraisers,
appraiser education providers, and academic experts on issues related
to appraisals. We also reviewed congressional hearings and prior GAO
reports on appraisal reform and federal and state regulatory
objectives. Finally, we downloaded information on appraisal issues from
the Internet, including correspondence, reports, and issue papers
prepared by industry participants and observers.
We performed our work from March 2002 through March 2003 in accordance
with generally accepted government auditing standards.
[End of section]
Appendix III: List of Agencies and Groups Contacted:
Federal Agencies:
* Appraisal Subcommittee of the Federal Financial Institutions
Examination Council (ASC)
http://www.asc.gov/:
* Board of Governors of the Federal Reserve System (FRB)
http://www.federalreserve.gov/:
* Federal Deposit Insurance Corporation (FDIC)
http://www.fdic.gov/:
* National Credit Union Administration (NCUA)
http://www.ncua.gov/:
* Office of the Comptroller of the Currency (OCC)
http://www.occ.treas.gov/:
* Office of Thrift Supervision (OTS)
http://www.ots.treas.gov/:
* United States Department of Housing and Urban Development (HUD)
http://www.hud.gov/:
Government Sponsored Enterprises:
* Federal National Mortgage Association (Fannie Mae)
http://www.fanniemae.com/:
* Federal Home Loan Mortgage Corporation (Freddie Mac)
http://www.freddiemac.com/:
Private Organizations:
* American Bankers Association (ABA)
http://www.aba.com/default.htm:
* American Society of Appraisers (ASA)
http://www.appraisers.org/:
* Appraisal Foundation (AF)
http://www.appraisalfoundation.org/:
* Appraisal Institute (AI)
http://www.appraisalinstitute.org/:
* Experian
http://www.experian.com/consumer/index.html:
* FNC Inc.
http://www.fncinc.com/:
* International Association of Assessing Officers (IAAO)
http://www.iaao.org/:
* Lee and Grant Company
http://www.leeandgrant.com/:
* Mortgage Bankers Association of America (MBA)
http://www.mbaa.org/:
* National Association of Realtors (NAR)
http://www.realtor.org/rodesign.nsf/pages/HomePage?OpenDocument:
* Peter S. Barash Associates:
* UC Berkeley Fisher Center for Real Estate and Urban Economics
http://groups.haas.berkeley.edu/realestate/Fisher/fisherinfo.asp:
State Appraiser Regulatory Agencies:
* Alabama Real Estate Appraisers Board
http://reab.state.al.us:
* Alaska Board of Certified Real Estate Appraisers
http://www.dced.state.ak.us/occ/papr.htm:
* Arizona Board of Appraisal
http://www.appraisal.state.az.us:
* Arkansas Appraiser Licensing & Certification Board
http://www.state.ar.us/alcb:
* California Office of Real Estate Appraisers
http://www.orea.ca.gov:
* Colorado Board of Real Estate Appraisers
http://www.dora.state.co.us/real-estate/appraisr/appraisr.htm:
* Commonwealth of the Northern Mariana Islands:
* Connecticut License Services Division
http://www.dcp.state.ct.us/licensing/realestate.htm:
* Delaware Council on Real Estate Appraisers
http://www.state.de.us/research/profreg/realesapp.htm:
* District of Columbia, Occupational & Professional Licensing
Administration
Offline: 12/19/02 http://www.dcra.org/bplaboards.shtm:
* Florida Division of Real Estate
http://www.state.fl.us/dbpr/re/freab_welcome.shtml:
* Georgia Real Estate Appraisers Board
http://www2.state.ga.us/grec/greab/greabmain.html:
* Guam Department of Revenue & Taxation:
* Hawaii Real Estate Appraisers Section
http://www.state.hi.us/dcca/pvl/areas_real_estate_appraiser.html:
* Idaho State Certified Real Estate Appraisers Board
http://www2.state.id.us/ibol/rea.htm:
* Illinois Office of Banks and Real Estate, Appraisal Division
http://www.obre.state.il.us/REALEST/APPRAISAL.HTM:
* Indiana Real Estate Appraiser Licensure & Certification Board
http://www.in.gov/pla/bandc/appraiser/:
* Iowa Real Estate Appraiser Examining Board
http://www.state.ia.us/government/com/prof/realappr.htm:
* Iowa Real Estate Appraiser Examining Board
http://www.state.ia.us/government/com/prof/realappr.htm:
* Kansas Real Estate Appraisal Board
http://www.ink.org/public/kreab/:
* Kentucky Real Estate Appraisers Board
http://www.kyappraisersboard.com:
* Louisiana Real Estate Commission
http://www.lreasbc.state.la.us/:
* Maine Board of Real Estate Appraisers
http://www.state.me.us/pfr/olr/categories/cat37.htm:
* Maryland Commission of Real Estate Appraisers & Home Inspectors
http://www.dllr.state.md.us/license/occprof/reappr.html:
* Massachusetts Board of Registration of Real Estate Brokers &
Salespeople
http://www.state.ma.us/reg/boards/ra/default.htm:
* Michigan Board of Real Estate Appraisers
http://www.michigan.gov/commerciallicensing:
* Minnesota Department of Commerce
http://www.state.mn.us/cgi-bin/portal/mn/jsp/home.do?agency=Commerce:
* Mississippi Real Estate Appraiser Licensing & Certification Board
http://www.mrec.state.ms.us/:
* Missouri Real Estate Appraisers Commission
http://www.ded.state.mo.us/regulatorylicensing/
professionalregistration/rea:
* Montana Department of Labor & Industry, Business Standards Division
http://discoveringmontana.com/dli/bsd/license/bsd_boards/rea_board/
board_page.htm:
* Nebraska Real Estate Appraiser Board
http://linux1.nrc.state.ne.us/appraiser:
* Nevada Real Estate Division
http://www.red.state.nv.us:
* New Hampshire Real Estate Appraiser Board
http://www.state.nh.us/nhreab/:
* New Jersey Board of Real Estate Appraisers
http://www.state.nj.us/lps/ca/nonmed#real11:
* New Mexico Real Estate Appraisers Board
http://www.rld.state.nm.us/b&c/real_estate_appraisers_board.htm:
* New York Division of Licensing Services
http://www.dos.state.ny.us/lcns/appraise.html:
* North Carolina Appraisal Board
http://www.ncappraisalboard.org:
* North Dakota Real Estate Appraiser Qualifications & Ethics Board
http://www.governor.state.nd.us/boards/boards-query.asp?Board_ID=92:
* Ohio Division of Real Estate
http://www.com.state.oh.us/odoc/real/appmain.htm:
* Oklahoma Real Estate Appraiser Board Division
http://www.oid.state.ok.us/agentbrokers/realestate.html:
* Oregon Appraiser Certification & Licensure Board
http://www.oregonaclb.org:
* Pennsylvania State Board of Certified Real Estate Appraisers
http://www.dos.state.pa.us/bpoa/cwp/view.asp?a=1104&q=432589:
* Puerto Rico Department of State Board of Examiners Division
no website:
* Rhode Island Division of Commercial Licensing & Regulation
http://www.dbr.state.ri.us/real_estate.html:
* South Carolina Professional & Occupational Licensing Real Estate
Appraisers Board
http://www.llr.state.sc.us/POL/RealEstateAppraisers/:
* South Dakota Appraiser Certification Program
http://www.state.sd.us/dcr/appraisers/appraiser.html:
* Tennessee Real Estate Appraiser Commission
http://www.state.tn.us/commerce/treac:
* Texas Appraiser Licensing & Certification Board
http://www.talcb.state.tx.us/:
* US Virgin Islands Department of Licensing & Consumer Affairs:
* Utah Division of Real Estate
http://www.commerce.utah.gov/dre:
* Vermont Board of Real Estate Appraisers
http://vtprofessionals.org/opr1/appraisers/:
* Virginia Real Estate Appraiser Board
http://www.state.va.us/dpor/apr_main.htm:
* Washington Department of Licensing, Real Estate Appraisers
http://www.wa.gov/dol/bpd/appfront.htm:
* West Virginia Real Estate Appraiser Licensing and Certification Board
http://www.state.wv.us/appraise:
* Wisconsin Department of Regulation & Licensing
http://www.drl.state.wi.us:
* Wyoming Certified Real Estate Appraiser Board
http://realestate.state.wy.us:
Private Consultants:
* Lewis Allen, Consultant, Automated Valuation Models:
* Walt Humphrey, IFAC, Humphrey and Associates, Inc.
[End of section]
Appendix IV: National Registry Database of the Appraisal Subcommittee:
Title XI requires the Appraisal Subcommittee to maintain a national
registry of state-licensed and -certified appraisers eligible to
perform appraisals in connection with federally related transactions.
The National Registry database, created in 1992 and revised and updated
in 1997,[Footnote 37] provides names and qualifications of appraisers
in each state and statistics on, among other things, active and
inactive licenses, types of licenses, and disciplinary actions. The
database contains both public and nonpublic information--for example,
some data on disciplinary actions are restricted to authorized
representatives of state regulatory agencies. Users can access the
database from the Internet and may download the entire public portion
at no charge.
According to the Appraisal Subcommittee's 2001 annual report, the
registry is designed to allow users to determine (1) whether an
appraiser is eligible to perform appraisals in connection with
federally related transactions and (2) whether the appraiser's
credentials have ever been suspended, revoked, or surrendered. The
registry helps in facilitating temporary reciprocity by allowing states
to determine an appraiser's licensing status and assists state agencies
in enforcing laws governing appraisers. In addition, financial
institutions can receive updates via the Internet on revocations,
suspensions, surrenders, and expirations of licenses.
Information contained in the database comes from the states, which
periodically submit files to the Appraisal Subcommittee for inclusion
in the registry, with most states submitting data monthly. The registry
reports on four classes of appraisers--licensed, certified general,
certified residential, and transitional. According to an Appraisal
Subcommittee official, the database also serves as an archive, as no
records are ever deleted. Our research showed that nearly one-half of
the appraisers included in the database were classified as inactive
because of retirements, death, departure from the profession, or other
reasons. Some appraisers were listed as both active and inactive, since
they had given up one type of license and obtained another kind.
As of October 31, 2002, the database reported nearly 89,000 appraisers
eligible to perform appraisals for federally related transactions. The
number of appraisers reported by state appraisal regulatory agencies
ranged from 10 in the Northern Mariana Islands to nearly 9,500 in
California (table 3). Certified general and certified residential
appraisers accounted for nearly 76 percent of the licensed appraisers.
Table 3: Active Appraiser Licenses, by State and Type:
Issuing states and U.S. territories.
Alabama; [Empty]; Type of license: Licensed: N: 113; Type of license:
Certified general: N: 420; Type of license: Certified residential: N:
510; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 1,043.
Alaska; [Empty]; Type of license: Licensed: N: [A]; Type of license:
Certified general: N: 70; Type of license: Certified residential: N:
82; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 152.
Arizona; [Empty]; Type of license: Licensed: N: 424; Type of license:
Certified general: N: 568; Type of license: Certified residential: N:
626; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 1,618.
Arkansas; [Empty]; Type of license: Licensed: N: 113; Type of license:
Certified general: N: 343; Type of license: Certified residential: N:
314; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 770.
California; [Empty]; Type of license: Licensed: N: 2,124; Type of
license: Certified general: N: 3,395; Type of license: Certified
residential: N: 3,936; Type of license: Transitional license: N: [A];
[Empty]; All: Number: 9,455.
Colorado; [Empty]; Type of license: Licensed: N: 737; Type of license:
Certified general: N: 1,092; Type of license: Certified residential: N:
971; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 2,800.
Connecticut; [Empty]; Type of license: Licensed: N: 31; Type of
license: Certified general: N: 505; Type of license: Certified
residential: N: 583; Type of license: Transitional license: N: [A];
[Empty]; All: Number: 1,119.
Delaware; [Empty]; Type of license: Licensed: N: 61; Type of license:
Certified general: N: 169; Type of license: Certified residential: N:
214; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 444.
District of Columbia; [Empty]; Type of license: Licensed: N: 327; Type
of license: Certified general: N: 212; Type of license: Certified
residential: N: [A]; Type of license: Transitional license: N: [A];
[Empty]; All: Number: 539.
Florida; [Empty]; Type of license: Licensed: N: 105; Type of license:
Certified general: N: 1,944; Type of license: Certified residential: N:
2,824; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 4,873.
Georgia; [Empty]; Type of license: Licensed: N: 1,034; Type of license:
Certified general: N: 1,430; Type of license: Certified residential: N:
894; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 3,358.
Guam; [Empty]; Type of license: Licensed: N: 9; Type of license:
Certified general: N: 10; Type of license: Certified residential: N: 3;
Type of license: Transitional license: N: [A]; [Empty]; All: Number:
22.
Hawaii; [Empty]; Type of license: Licensed: N: 22; Type of license:
Certified general: N: 131; Type of license: Certified residential: N:
150; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 303.
Idaho; [Empty]; Type of license: Licensed: N: 191; Type of license:
Certified general: N: 221; Type of license: Certified residential: N:
133; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 545.
Illinois; [Empty]; Type of license: Licensed: N: 2,342; Type of
license: Certified general: N: 1,037; Type of license: Certified
residential: N: 1,768; Type of license: Transitional license: N: [A];
[Empty]; All: Number: 5,147.
Indiana; [Empty]; Type of license: Licensed: N: 829; Type of license:
Certified general: N: 528; Type of license: Certified residential: N:
728; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 2,085.
Iowa; [Empty]; Type of license: Licensed: N: [A]; Type of license:
Certified general: N: 528; Type of license: Certified residential: N:
485; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 1,013.
Kansas; [Empty]; Type of license: Licensed: N: 261; Type of license:
Certified general: N: 419; Type of license: Certified residential: N:
328; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 1,008.
Kentucky; [Empty]; Type of license: Licensed: N: 90; Type of license:
Certified general: N: 448; Type of license: Certified residential: N:
698; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 1,236.
Louisiana; [Empty]; Type of license: Licensed: N: [A]; Type of license:
Certified general: N: 340; Type of license: Certified residential: N:
556; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 896.
Maine; [Empty]; Type of license: Licensed: N: 103; Type of license:
Certified general: N: 268; Type of license: Certified residential: N:
214; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 585.
Maryland; [Empty]; Type of license: Licensed: N: 820; Type of license:
Certified general: N: 724; Type of license: Certified residential: N:
780; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 2,324.
Massachusetts; [Empty]; Type of license: Licensed: N: 524; Type of
license: Certified general: N: 675; Type of license: Certified
residential: N: 726; Type of license: Transitional license: N: [A];
[Empty]; All: Number: 1,925.
Michigan; [Empty]; Type of license: Licensed: N: 2,074; Type of
license: Certified general: N: 987; Type of license: Certified
residential: N: 73; Type of license: Transitional license: N: [A];
[Empty]; All: Number: 3,134.
Minnesota; [Empty]; Type of license: Licensed: N: 148; Type of license:
Certified general: N: 790; Type of license: Certified residential: N:
835; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 1,773.
Mississippi; [Empty]; Type of license: Licensed: N: 344; Type of
license: Certified general: N: 451; Type of license: Certified
residential: N: 406; Type of license: Transitional license: N: [A];
[Empty]; All: Number: 1,201.
Missouri; [Empty]; Type of license: Licensed: N: 247; Type of license:
Certified general: N: 616; Type of license: Certified residential: N:
994; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 1,857.
Montana; [Empty]; Type of license: Licensed: N: 42; Type of license:
Certified general: N: 225; Type of license: Certified residential: N:
140; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 407.
Nebraska; [Empty]; Type of license: Licensed: N: 120; Type of license:
Certified general: N: 344; Type of license: Certified residential: N:
110; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 574.
New Hampshire; [Empty]; Type of license: Licensed: N: 115; Type of
license: Certified general: N: 288; Type of license: Certified
residential: N: 296; Type of license: Transitional license: N: [A];
[Empty]; All: Number: 699.
New Jersey; [Empty]; Type of license: Licensed: N: 674; Type of
license: Certified general: N: 987; Type of license: Certified
residential: N: 648; Type of license: Transitional license: N: [A];
[Empty]; All: Number: 2,309.
New Mexico; [Empty]; Type of license: Licensed: N: 62; Type of license:
Certified general: N: 249; Type of license: Certified residential: N:
221; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 532.
Nevada; [Empty]; Type of license: Licensed: N: 160; Type of license:
Certified general: N: 319; Type of license: Certified residential: N:
263; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 742.
New York; [Empty]; Type of license: Licensed: N: 388; Type of license:
Certified general: N: 1,440; Type of license: Certified residential: N:
1,811; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 3,639.
North Carolina; [Empty]; Type of license: Licensed: N: 169; Type of
license: Certified general: N: 678; Type of license: Certified
residential: N: 1,435; Type of license: Transitional license: N: [A];
[Empty]; All: Number: 2,282.
North Dakota; [Empty]; Type of license: Licensed: N: 59; Type of
license: Certified general: N: 117; Type of license: Certified
residential: N: [A]; Type of license: Transitional license: N: [A];
[Empty]; All: Number: 176.
Northern Mariana Islands; [Empty]; Type of license: Licensed: N: [A];
Type of license: Certified general: N: 9; Type of license: Certified
residential: N: 1; Type of license: Transitional license: N: [A];
[Empty]; All: Number: 10.
Ohio; [Empty]; Type of license: Licensed: N: 1,684; Type of license:
Certified general: N: 863; Type of license: Certified residential: N:
543; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 3,090.
Oklahoma; [Empty]; Type of license: Licensed: N: 564; Type of license:
Certified general: N: 389; Type of license: Certified residential: N:
361; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 1,314.
Oregon; [Empty]; Type of license: Licensed: N: 686; Type of license:
Certified general: N: 471; Type of license: Certified residential: N:
151; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 1,308.
Pennsylvania; [Empty]; Type of license: Licensed: N: [A]; Type of
license: Certified general: N: 1,150; Type of license: Certified
residential: N: 1,777; Type of license: Transitional license: N: [A];
[Empty]; All: Number: 2,927.
Puerto Rico; [Empty]; Type of license: Licensed: N: 9; Type of license:
Certified general: N: 148; Type of license: Certified residential: N:
40; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 197.
Rhode Island; [Empty]; Type of license: Licensed: N: 69; Type of
license: Certified general: N: 143; Type of license: Certified
residential: N: 183; Type of license: Transitional license: N: [A];
[Empty]; All: Number: 395.
South Carolina; [Empty]; Type of license: Licensed: N: 434; Type of
license: Certified general: N: 560; Type of license: Certified
residential: N: 626; Type of license: Transitional license: N: [A];
[Empty]; All: Number: 1,620.
South Dakota; [Empty]; Type of license: Licensed: N: 66; Type of
license: Certified general: N: 137; Type of license: Certified
residential: N: 16; Type of license: Transitional license: N: [A];
[Empty]; All: Number: 219.
Tennessee; [Empty]; Type of license: Licensed: N: 203; Type of license:
Certified general: N: 553; Type of license: Certified residential: N:
747; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 1,503.
Texas; [Empty]; Type of license: Licensed: N: 375; Type of license:
Certified general: N: 2,161; Type of license: Certified residential: N:
1,787; Type of license: Transitional license: N: 36; [Empty]; All:
Number: 4,359.
Utah; [Empty]; Type of license: Licensed: N: 99; Type of license:
Certified general: N: 325; Type of license: Certified residential: N:
563; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 987.
Vermont; [Empty]; Type of license: Licensed: N: 49; Type of license:
Certified general: N: 116; Type of license: Certified residential: N:
101; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 266.
Virgin Islands; [Empty]; Type of license: Licensed: N: [A]; Type of
license: Certified general: N: 11; Type of license: Certified
residential: N: 9; Type of license: Transitional license: N: [A];
[Empty]; All: Number: 20.
Virginia; [Empty]; Type of license: Licensed: N: 787; Type of license:
Certified general: N: 855; Type of license: Certified residential: N:
871; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 2,513.
Washington; [Empty]; Type of license: Licensed: N: 391; Type of
license: Certified general: N: 845; Type of license: Certified
residential: N: 1,201; Type of license: Transitional license: N: [A];
[Empty]; All: Number: 2,437.
West Virginia; [Empty]; Type of license: Licensed: N: 169; Type of
license: Certified general: N: 161; Type of license: Certified
residential: N: 190; Type of license: Transitional license: N: [A];
[Empty]; All: Number: 520.
Wisconsin; [Empty]; Type of license: Licensed: N: 556; Type of license:
Certified general: N: 606; Type of license: Certified residential: N:
872; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 2,034.
Wyoming; [Empty]; Type of license: Licensed: N: [A]; Type of license:
Certified general: N: 213; Type of license: Certified residential: N:
91; Type of license: Transitional license: N: [A]; [Empty]; All:
Number: 304.
All; [Empty]; Type of license: Licensed: N: 21,003; Type of license:
Certified general: N: 32,684; Type of license: Certified residential:
N: 34,885; Type of license: Transitional license: N: 36; [Empty]; All:
Number: 88,608.
Source: GAO Analysis of Appraisal Subcommittee National Registry of
Appraisers Database as of 10/31/02.
[A] Not applicable.
[End of table]
As previously noted, the database contains information on disciplinary
actions taken and reported by state regulators (table 4). Of the 4,360
disciplinary actions reported for active and inactive licensees in the
database as of October 31, 2002, the category "other" accounted for the
greatest number --1,088 (25 percent) followed by "fines" with 788
instances (18 percent).[Footnote 38] The number of disciplinary actions
taken by state appraiser regulatory agencies ranged from a single
action to as many as 668. Specifically, Vermont reported taking a
single action, while California, Oklahoma, and Virginia accounted for
nearly 34 percent (1,473 actions) of the actions reported. Table 4
identifies the number and type of disciplinary actions taken against
active licensees in each state.
Table 4: Disciplinary Actions, by State (Active and Inactive
Licensees):
Issuing states
and U.S. territories: Alabama; [Empty]; Type of disciplinary action:
Other: N: 15; Type of disciplinary action: Warnings: N: [A]; Type of
disciplinary action: Additional education: N: [A]; Type of disciplinary
action: Fine: N: 2; Type of disciplinary action: Probation: N: [A];
Type of disciplinary action: Down-grade: N: 3; Type of disciplinary
action: Suspen-sion: N: 12; Type of disciplinary action: Revoca-tion:
N: 3; Type of disciplinary action: Voluntary surrender: N: 3; Type of
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of
actions: 38.
Issuing states
and U.S. territories: Alaska; [Empty]; Type of disciplinary action:
Other: N: [A]; Type of disciplinary action: Warnings: N: [A]; Type of
disciplinary action: Additional education: N: [A]; Type of disciplinary
action: Fine: N: 1; Type of disciplinary action: Probation: N: 2; Type
of disciplinary action: Down-grade: N: [A]; Type of disciplinary
action: Suspen-sion: N: 1; Type of disciplinary action: Revoca-tion: N:
[A]; Type of disciplinary action: Voluntary surrender: N: 1; Type of
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of
actions: 5.
Issuing states
and U.S. territories: Arizona; [Empty]; Type of disciplinary action:
Other: N: 119; Type of disciplinary action: Warnings: N: [A]; Type of
disciplinary action: Additional education: N: [A]; Type of disciplinary
action: Fine: N: [A]; Type of disciplinary action: Probation: N: 35;
Type of disciplinary action: Down-grade: N: 1; Type of disciplinary
action: Suspen-sion: N: 19; Type of disciplinary action: Revoca-tion:
N: 15; Type of disciplinary action: Voluntary surrender: N: 12; Type of
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of
actions: 201.
Issuing states
and U.S. territories: Arkansas; [Empty]; Type of disciplinary action:
Other: N: [A]; Type of disciplinary action: Warnings: N: 7; Type of
disciplinary action: Additional education: N: 6; Type of disciplinary
action: Fine: N: 4; Type of disciplinary action: Probation: N: 12; Type
of disciplinary action: Down-grade: N: [A]; Type of disciplinary
action: Suspen-sion: N: 3; Type of disciplinary action: Revoca-tion: N:
5; Type of disciplinary action: Voluntary surrender: N: [A]; Type of
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of
actions: 37.
Issuing states
and U.S. territories: California; [Empty]; Type of disciplinary action:
Other: N: 5; Type of disciplinary action: Warnings: N: 108; Type of
disciplinary action: Additional education: N: 3; Type of disciplinary
action: Fine: N: 105; Type of disciplinary action: Probation: N: 6;
Type of disciplinary action: Down-grade: N: 2; Type of disciplinary
action: Suspen-sion: N: 87; Type of disciplinary action: Revoca-tion:
N: 83; Type of disciplinary action: Voluntary surrender: N: 45; Type of
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of
actions: 444.
Issuing states
and U.S. territories: Colorado; [Empty]; Type of disciplinary action:
Other: N: [A]; Type of disciplinary action: Warnings: N: 2; Type of
disciplinary action: Additional education: N: 3; Type of disciplinary
action: Fine: N: 29; Type of disciplinary action: Probation: N: 18;
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary
action: Suspen-sion: N: 7; Type of disciplinary action: Revoca-tion: N:
6; Type of disciplinary action: Voluntary surrender: N: 3; Type of
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of
actions: 68.
Issuing states
and U.S. territories: Connecticut; [Empty]; Type of disciplinary
action: Other: N: 4; Type of disciplinary action: Warnings: N: [A];
Type of disciplinary action: Additional education: N: 4; Type of
disciplinary action: Fine: N: 5; Type of disciplinary action:
Probation: N: [A]; Type of disciplinary action: Down-grade: N: [A];
Type of disciplinary action: Suspen-sion: N: 1; Type of disciplinary
action: Revoca-tion: N: 1; Type of disciplinary action: Voluntary
surrender: N: [A]; Type of disciplinary action: Official reprimand: N:
1; [Empty]; All: No. of actions: 16.
Issuing states
and U.S. territories: Delaware; [Empty]; Type of disciplinary action:
Other: N: [A]; Type of disciplinary action: Warnings: N: [A]; Type of
disciplinary action: Additional education: N: 2; Type of disciplinary
action: Fine: N: [A]; Type of disciplinary action: Probation: N: 2;
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary
action: Suspen-sion: N: [A]; Type of disciplinary action: Revoca-tion:
N: [A]; Type of disciplinary action: Voluntary surrender: N: [A]; Type
of disciplinary action: Official reprimand: N: [A]; [Empty]; All: No.
of actions: 4.
Issuing states
and U.S. territories: Florida; [Empty]; Type of disciplinary action:
Other: N: [A]; Type of disciplinary action: Warnings: N: 3; Type of
disciplinary action: Additional education: N: 9; Type of disciplinary
action: Fine: N: 80; Type of disciplinary action: Probation: N: 31;
Type of disciplinary action: Down-grade: N: 1; Type of disciplinary
action: Suspen-sion: N: 8; Type of disciplinary action: Revoca-tion: N:
26; Type of disciplinary action: Voluntary surrender: N: [A]; Type of
disciplinary action: Official reprimand: N: 1; [Empty]; All: No. of
actions: 159.
Issuing states
and U.S. territories: Georgia; [Empty]; Type of disciplinary action:
Other: N: 87; Type of disciplinary action: Warnings: N: 3; Type of
disciplinary action: Additional education: N: [A]; Type of disciplinary
action: Fine: N: 26; Type of disciplinary action: Probation: N: [A];
Type of disciplinary action: Down-grade: N: 1; Type of disciplinary
action: Suspen-sion: N: 34; Type of disciplinary action: Revoca-tion:
N: 56; Type of disciplinary action: Voluntary surrender: N: 23; Type of
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of
actions: 230.
Issuing states
and U.S. territories: Hawaii; [Empty]; Type of disciplinary action:
Other: N: [A]; Type of disciplinary action: Warnings: N: 1; Type of
disciplinary action: Additional education: N: [A]; Type of disciplinary
action: Fine: N: [A]; Type of disciplinary action: Probation: N: [A];
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary
action: Suspen-sion: N: [A]; Type of disciplinary action: Revoca-tion:
N: 1; Type of disciplinary action: Voluntary surrender: N: [A]; Type of
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of
actions: 2.
Issuing states
and U.S. territories: Idaho; [Empty]; Type of disciplinary action:
Other: N: [A]; Type of disciplinary action: Warnings: N: 4; Type of
disciplinary action: Additional education: N: 8; Type of disciplinary
action: Fine: N: 13; Type of disciplinary action: Probation: N: 9; Type
of disciplinary action: Down-grade: N: [A]; Type of disciplinary
action: Suspen-sion: N: 2; Type of disciplinary action: Revoca-tion: N:
[A]; Type of disciplinary action: Voluntary surrender: N: 2; Type of
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of
actions: 38.
Issuing states
and U.S. territories: Illinois; [Empty]; Type of disciplinary action:
Other: N: 4; Type of disciplinary action: Warnings: N: 116; Type of
disciplinary action: Additional education: N: [A]; Type of disciplinary
action: Fine: N: 21; Type of disciplinary action: Probation: N: 8; Type
of disciplinary action: Down-grade: N: 2; Type of disciplinary action:
Suspen-sion: N: 12; Type of disciplinary action: Revoca-tion: N: 36;
Type of disciplinary action: Voluntary surrender: N: 7; Type of
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of
actions: 206.
Issuing states
and U.S. territories: Indiana; [Empty]; Type of disciplinary action:
Other: N: [A]; Type of disciplinary action: Warnings: N: [A]; Type of
disciplinary action: Additional education: N: [A]; Type of disciplinary
action: Fine: N: [A]; Type of disciplinary action: Probation: N: 3;
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary
action: Suspen-sion: N: 4; Type of disciplinary action: Revoca-tion: N:
1; Type of disciplinary action: Voluntary surrender: N: [A]; Type of
disciplinary action: Official reprimand: N: 2; [Empty]; All: No. of
actions: 10.
Issuing states
and U.S. territories: Iowa; [Empty]; Type of disciplinary action:
Other: N: 2; Type of disciplinary action: Warnings: N: 1; Type of
disciplinary action: Additional education: N: 62; Type of disciplinary
action: Fine: N: 10; Type of disciplinary action: Probation: N: [A];
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary
action: Suspen-sion: N: 3; Type of disciplinary action: Revoca-tion: N:
7; Type of disciplinary action: Voluntary surrender: N: 3; Type of
disciplinary action: Official reprimand: N: 1; [Empty]; All: No. of
actions: 89.
Issuing states
and U.S. territories: Kansas; [Empty]; Type of disciplinary action:
Other: N: 1; Type of disciplinary action: Warnings: N: 9; Type of
disciplinary action: Additional education: N: 24; Type of disciplinary
action: Fine: N: 25; Type of disciplinary action: Probation: N: 12;
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary
action: Suspen-sion: N: 5; Type of disciplinary action: Revoca-tion: N:
9; Type of disciplinary action: Voluntary surrender: N: a; Type of
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of
actions: 85.
Issuing states
and U.S. territories: Kentucky; [Empty]; Type of disciplinary action:
Other: N: [A]; Type of disciplinary action: Warnings: N: 2; Type of
disciplinary action: Additional education: N: 11; Type of disciplinary
action: Fine: N: 59; Type of disciplinary action: Probation: N: 1; Type
of disciplinary action: Down-grade: N: [A]; Type of disciplinary
action: Suspen-sion: N: 14; Type of disciplinary action: Revoca-tion:
N: 3; Type of disciplinary action: Voluntary surrender: N: 2; Type of
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of
actions: 92.
Issuing states
and U.S. territories: Louisiana; [Empty]; Type of disciplinary action:
Other: N: [A]; Type of disciplinary action: Warnings: N: 14; Type of
disciplinary action: Additional education: N: [A]; Type of disciplinary
action: Fine: N: 2; Type of disciplinary action: Probation: N: [A];
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary
action: Suspen-sion: N: 4; Type of disciplinary action: Revoca-tion: N:
[A]; Type of disciplinary action: Voluntary surrender: N: [A]; Type of
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of
actions: 20.
Issuing states
and U.S. territories: Maine; [Empty]; Type of disciplinary action:
Other: N: 2; Type of disciplinary action: Warnings: N: [A]; Type of
disciplinary action: Additional education: N: 1; Type of disciplinary
action: Fine: N: 13; Type of disciplinary action: Probation: N: 2; Type
of disciplinary action: Down-grade: N: [A]; Type of disciplinary
action: Suspen-sion: N: [A]; Type of disciplinary action: Revoca-tion:
N: 1; Type of disciplinary action: Voluntary surrender: N: 1; Type of
disciplinary action: Official reprimand: N: 3; [Empty]; All: No. of
actions: 23.
Issuing states
and U.S. territories: Maryland; [Empty]; Type of disciplinary action:
Other: N: 1; Type of disciplinary action: Warnings: N: [A]; Type of
disciplinary action: Additional education: N: 2; Type of disciplinary
action: Fine: N: 4; Type of disciplinary action: Probation: N: [A];
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary
action: Suspen-sion: N: 8; Type of disciplinary action: Revoca-tion: N:
2; Type of disciplinary action: Voluntary surrender: N: [A]; Type of
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of
actions: 17.
Issuing states
and U.S. territories: Massachusetts; [Empty]; Type of disciplinary
action: Other: N: [A]; Type of disciplinary action: Warnings: N: [A];
Type of disciplinary action: Additional education: N: 1; Type of
disciplinary action: Fine: N: [A]; Type of disciplinary action:
Probation: N: 8; Type of disciplinary action: Down-grade: N: [A]; Type
of disciplinary action: Suspen-sion: N: [A]; Type of disciplinary
action: Revoca-tion: N: 2; Type of disciplinary action: Voluntary
surrender: N: 3; Type of disciplinary action: Official reprimand: N:
[A]; [Empty]; All: No. of actions: 14.
Issuing states
and U.S. territories: Michigan; [Empty]; Type of disciplinary action:
Other: N: [A]; Type of disciplinary action: Warnings: N: [A]; Type of
disciplinary action: Additional education: N: [A]; Type of disciplinary
action: Fine: N: 17; Type of disciplinary action: Probation: N: 16;
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary
action: Suspen-sion: N: 6; Type of disciplinary action: Revoca-tion: N:
5; Type of disciplinary action: Voluntary surrender: N: 1; Type of
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of
actions: 45.
Issuing states
and U.S. territories: Minnesota; [Empty]; Type of disciplinary action:
Other: N: 13; Type of disciplinary action: Warnings: N: [A]; Type of
disciplinary action: Additional education: N: [A]; Type of disciplinary
action: Fine: N: 14; Type of disciplinary action: Probation: N: [A];
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary
action: Suspen-sion: N: 28; Type of disciplinary action: Revoca-tion:
N: 4; Type of disciplinary action: Voluntary surrender: N: a; Type of
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of
actions: 59.
Issuing states
and U.S. territories: Mississippi; [Empty]; Type of disciplinary
action: Other: N: 132; Type of disciplinary action: Warnings: N: [A];
Type of disciplinary action: Additional education: N: 29; Type of
disciplinary action: Fine: N: [A]; Type of disciplinary action:
Probation: N: 4; Type of disciplinary action: Down-grade: N: [A]; Type
of disciplinary action: Suspen-sion: N: 5; Type of disciplinary action:
Revoca-tion: N: 1; Type of disciplinary action: Voluntary surrender: N:
48; Type of disciplinary action: Official reprimand: N: [A]; [Empty];
All: No. of actions: 219.
Issuing states
and U.S. territories: Missouri; [Empty]; Type of disciplinary action:
Other: N: 1; Type of disciplinary action: Warnings: N: 1; Type of
disciplinary action: Additional education: N: [A]; Type of disciplinary
action: Fine: N: [A]; Type of disciplinary action: Probation: N: 27;
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary
action: Suspen-sion: N: 3; Type of disciplinary action: Revoca-tion: N:
7; Type of disciplinary action: Voluntary surrender: N: 5; Type of
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of
actions: 44.
Issuing states
and U.S. territories: Montana; [Empty]; Type of disciplinary action:
Other: N: [A]; Type of disciplinary action: Warnings: N: [A]; Type of
disciplinary action: Additional education: N: [A]; Type of disciplinary
action: Fine: N: [A]; Type of disciplinary action: Probation: N: 5;
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary
action: Suspen-sion: N: [A]; Type of disciplinary action: Revoca-tion:
N: [A]; Type of disciplinary action: Voluntary surrender: N: 1; Type of
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of
actions: 6.
Issuing states
and U.S. territories: Nebraska; [Empty]; Type of disciplinary action:
Other: N: [A]; Type of disciplinary action: Warnings: N: [A]; Type of
disciplinary action: Additional education: N: 9; Type of disciplinary
action: Fine: N: [A]; Type of disciplinary action: Probation: N: 4;
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary
action: Suspen-sion: N: [A]; Type of disciplinary action: Revoca-tion:
N: [A]; Type of disciplinary action: Voluntary surrender: N: 7; Type of
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of
actions: 20.
Issuing states
and U.S. territories: Nevada; [Empty]; Type of disciplinary action:
Other: N: [A]; Type of disciplinary action: Warnings: N: [A]; Type of
disciplinary action: Additional education: N: 27; Type of disciplinary
action: Fine: N: 20; Type of disciplinary action: Probation: N: [A];
Type of disciplinary action: Down-grade: N: 8; Type of disciplinary
action: Suspen-sion: N: 6; Type of disciplinary action: Revoca-tion: N:
8; Type of disciplinary action: Voluntary surrender: N: [A]; Type of
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of
actions: 69.
Issuing states
and U.S. territories: New Hampshire; [Empty]; Type of disciplinary
action: Other: N: [A]; Type of disciplinary action: Warnings: N: [A];
Type of disciplinary action: Additional education: N: [A]; Type of
disciplinary action: Fine: N: [A]; Type of disciplinary action:
Probation: N: [A]; Type of disciplinary action: Down-grade: N: [A];
Type of disciplinary action: Suspen-sion: N: 2; Type of disciplinary
action: Revoca-tion: N: 1; Type of disciplinary action: Voluntary
surrender: N: 1; Type of disciplinary action: Official reprimand: N:
[A]; [Empty]; All: No. of actions: 4.
Issuing states
and U.S. territories: New Jersey; [Empty]; Type of disciplinary action:
Other: N: [A]; Type of disciplinary action: Warnings: N: [A]; Type of
disciplinary action: Additional education: N: [A]; Type of disciplinary
action: Fine: N: 6; Type of disciplinary action: Probation: N: 4; Type
of disciplinary action: Down-grade: N: 2; Type of disciplinary action:
Suspen-sion: N: 9; Type of disciplinary action: Revoca-tion: N: 1; Type
of disciplinary action: Voluntary surrender: N: 2; Type of disciplinary
action: Official reprimand: N: 4; [Empty]; All: No. of actions: 28.
Issuing states
and U.S. territories: New Mexico; [Empty]; Type of disciplinary action:
Other: N: [A]; Type of disciplinary action: Warnings: N: 4; Type of
disciplinary action: Additional education: N: 5; Type of disciplinary
action: Fine: N: 1; Type of disciplinary action: Probation: N: [A];
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary
action: Suspen-sion: N: [A]; Type of disciplinary action: Revoca-tion:
N: 1; Type of disciplinary action: Voluntary surrender: N: [A]; Type of
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of
actions: 11.
Issuing states
and U.S. territories: New York; [Empty]; Type of disciplinary action:
Other: N: [A]; Type of disciplinary action: Warnings: N: [A]; Type of
disciplinary action: Additional education: N: [A]; Type of disciplinary
action: Fine: N: [A]; Type of disciplinary action: Probation: N: [A];
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary
action: Suspen-sion: N: [A]; Type of disciplinary action: Revoca-tion:
N: 2; Type of disciplinary action: Voluntary surrender: N: 1; Type of
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of
actions: 3.
Issuing states
and U.S. territories: North Carolina; [Empty]; Type of disciplinary
action: Other: N: 1; Type of disciplinary action: Warnings: N: [A];
Type of disciplinary action: Additional education: N: 45; Type of
disciplinary action: Fine: N: [A]; Type of disciplinary action:
Probation: N: [A]; Type of disciplinary action: Down-grade: N: [A];
Type of disciplinary action: Suspen-sion: N: 38; Type of disciplinary
action: Revoca-tion: N: 3; Type of disciplinary action: Voluntary
surrender: N: 5; Type of disciplinary action: Official reprimand: N:
43; [Empty]; All: No. of actions: 135.
Issuing states
and U.S. territories: North Dakota; [Empty]; Type of disciplinary
action: Other: N: [A]; Type of disciplinary action: Warnings: N: [A];
Type of disciplinary action: Additional education: N: 7; Type of
disciplinary action: Fine: N: [A]; Type of disciplinary action:
Probation: N: [A]; Type of disciplinary action: Down-grade: N: 2; Type
of disciplinary action: Suspen-sion: N: 1; Type of disciplinary action:
Revoca-tion: N: 2; Type of disciplinary action: Voluntary surrender: N:
1; Type of disciplinary action: Official reprimand: N: [A]; [Empty];
All: No. of actions: 13.
Issuing states
and U.S. territories: Ohio; [Empty]; Type of disciplinary action:
Other: N: [A]; Type of disciplinary action: Warnings: N: 26; Type of
disciplinary action: Additional education: N: 11; Type of disciplinary
action: Fine: N: [A]; Type of disciplinary action: Probation: N: [A];
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary
action: Suspen-sion: N: 17; Type of disciplinary action: Revoca-tion:
N: 1; Type of disciplinary action: Voluntary surrender: N: [A]; Type of
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of
actions: 55.
Issuing states
and U.S. territories: Oklahoma; [Empty]; Type of disciplinary action:
Other: N: 371; Type of disciplinary action: Warnings: N: [A]; Type of
disciplinary action: Additional education: N: 2; Type of disciplinary
action: Fine: N: [A]; Type of disciplinary action: Probation: N: [A];
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary
action: Suspen-sion: N: 1; Type of disciplinary action: Revoca-tion: N:
293; Type of disciplinary action: Voluntary surrender: N: [A]; Type of
disciplinary action: Official reprimand: N: 1; [Empty]; All: No. of
actions: 668.
Issuing states
and U.S. territories: Oregon; [Empty]; Type of disciplinary action:
Other: N: 1; Type of disciplinary action: Warnings: N: 5; Type of
disciplinary action: Additional education: N: 3; Type of disciplinary
action: Fine: N: 158; Type of disciplinary action: Probation: N: [A];
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary
action: Suspen-sion: N: 15; Type of disciplinary action: Revoca-tion:
N: 5; Type of disciplinary action: Voluntary surrender: N: 7; Type of
disciplinary action: Official reprimand: N: 4; [Empty]; All: No. of
actions: 198.
Issuing states
and U.S. territories: Pennsylvania; [Empty]; Type of disciplinary
action: Other: N: [A]; Type of disciplinary action: Warnings: N: [A];
Type of disciplinary action: Additional education: N: 49; Type of
disciplinary action: Fine: N: 40; Type of disciplinary action:
Probation: N: 4; Type of disciplinary action: Down-grade: N: [A]; Type
of disciplinary action: Suspen-sion: N: 5; Type of disciplinary action:
Revoca-tion: N: 3; Type of disciplinary action: Voluntary surrender: N:
3; Type of disciplinary action: Official reprimand: N: 3; [Empty]; All:
No. of actions: 107.
Issuing states
and U.S. territories: Rhode Island; [Empty]; Type of disciplinary
action: Other: N: [A]; Type of disciplinary action: Warnings: N: [A];
Type of disciplinary action: Additional education: N: [A]; Type of
disciplinary action: Fine: N: [A]; Type of disciplinary action:
Probation: N: [A]; Type of disciplinary action: Down-grade: N: [A];
Type of disciplinary action: Suspen-sion: N: 4; Type of disciplinary
action: Revoca-tion: N: 4; Type of disciplinary action: Voluntary
surrender: N: [A]; Type of disciplinary action: Official reprimand: N:
[A]; [Empty]; All: No. of actions: 8.
Issuing states
and U.S. territories: South Carolina; [Empty]; Type of disciplinary
action: Other: N: [A]; Type of disciplinary action: Warnings: N: [A];
Type of disciplinary action: Additional education: N: [A]; Type of
disciplinary action: Fine: N: 33; Type of disciplinary action:
Probation: N: 16; Type of disciplinary action: Down-grade: N: 7; Type
of disciplinary action: Suspen-sion: N: 4; Type of disciplinary action:
Revoca-tion: N: 5; Type of disciplinary action: Voluntary surrender: N:
[A]; Type of disciplinary action: Official reprimand: N: [A]; [Empty];
All: No. of actions: 65.
Issuing states
and U.S. territories: South Dakota; [Empty]; Type of disciplinary
action: Other: N: 4; Type of disciplinary action: Warnings: N: [A];
Type of disciplinary action: Additional education: N: [A]; Type of
disciplinary action: Fine: N: [A]; Type of disciplinary action:
Probation: N: [A]; Type of disciplinary action: Down-grade: N: [A];
Type of disciplinary action: Suspen-sion: N: 3; Type of disciplinary
action: Revoca-tion: N: [A]; Type of disciplinary action: Voluntary
surrender: N: [A]; Type of disciplinary action: Official reprimand: N:
11; [Empty]; All: No. of actions: 18.
Issuing states
and U.S. territories: Tennessee; [Empty]; Type of disciplinary action:
Other: N: 24; Type of disciplinary action: Warnings: N: 46; Type of
disciplinary action: Additional education: N: 69; Type of disciplinary
action: Fine: N: 13; Type of disciplinary action: Probation: N: 3; Type
of disciplinary action: Down-grade: N: 3; Type of disciplinary action:
Suspen-sion: N: 1; Type of disciplinary action: Revoca-tion: N: 5; Type
of disciplinary action: Voluntary surrender: N: 5; Type of disciplinary
action: Official reprimand: N: [A]; [Empty]; All: No. of actions: 169.
Issuing states
and U.S. territories: Texas; [Empty]; Type of disciplinary action:
Other: N: 1; Type of disciplinary action: Warnings: N: 3; Type of
disciplinary action: Additional education: N: 42; Type of disciplinary
action: Fine: N: 12; Type of disciplinary action: Probation: N: 5; Type
of disciplinary action: Down-grade: N: [A]; Type of disciplinary
action: Suspen-sion: N: 4; Type of disciplinary action: Revoca-tion: N:
6; Type of disciplinary action: Voluntary surrender: N: 1; Type of
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of
actions: 74.
Issuing states
and U.S. territories: Utah; [Empty]; Type of disciplinary action:
Other: N: 4; Type of disciplinary action: Warnings: N: [A]; Type of
disciplinary action: Additional education: N: 7; Type of disciplinary
action: Fine: N: 28; Type of disciplinary action: Probation: N: 7; Type
of disciplinary action: Down-grade: N: 1; Type of disciplinary action:
Suspen-sion: N: [A]; Type of disciplinary action: Revoca-tion: N: 2;
Type of disciplinary action: Voluntary surrender: N: 13; Type of
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of
actions: 62.
Issuing states
and U.S. territories: Vermont; [Empty]; Type of disciplinary action:
Other: N: [A]; Type of disciplinary action: Warnings: N: [A]; Type of
disciplinary action: Additional education: N: 1; Type of disciplinary
action: Fine: N: [A]; Type of disciplinary action: Probation: N: [A];
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary
action: Suspen-sion: N: [A]; Type of disciplinary action: Revoca-tion:
N: [A]; Type of disciplinary action: Voluntary surrender: N: [A]; Type
of disciplinary action: Official reprimand: N: [A]; [Empty]; All: No.
of actions: 1.
Issuing states
and U.S. territories: Virginia; [Empty]; Type of disciplinary action:
Other: N: 295; Type of disciplinary action: Warnings: N: 6; Type of
disciplinary action: Additional education: N: [A]; Type of disciplinary
action: Fine: N: 43; Type of disciplinary action: Probation: N: [A];
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary
action: Suspen-sion: N: 6; Type of disciplinary action: Revoca-tion: N:
11; Type of disciplinary action: Voluntary surrender: N: [A]; Type of
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of
actions: 361.
Issuing states
and U.S. territories: Washington; [Empty]; Type of disciplinary action:
Other: N: [A]; Type of disciplinary action: Warnings: N: 34; Type of
disciplinary action: Additional education: N: a; Type of disciplinary
action: Fine: N: 3; Type of disciplinary action: Probation: N: 19; Type
of disciplinary action: Down-grade: N: [A]; Type of disciplinary
action: Suspen-sion: N: 9; Type of disciplinary action: Revoca-tion: N:
15; Type of disciplinary action: Voluntary surrender: N: 3; Type of
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of
actions: 83.
Issuing states
and U.S. territories: West Virginia; [Empty]; Type of disciplinary
action: Other: N: [A]; Type of disciplinary action: Warnings: N: [A];
Type of disciplinary action: Additional education: N: [A]; Type of
disciplinary action: Fine: N: [A]; Type of disciplinary action:
Probation: N: [A]; Type of disciplinary action: Down-grade: N: [A];
Type of disciplinary action: Suspen-sion: N: 5; Type of disciplinary
action: Revoca-tion: N: [A]; Type of disciplinary action: Voluntary
surrender: N: [A]; Type of disciplinary action: Official reprimand: N:
[A]; [Empty]; All: No. of actions: 5.
Issuing states
and U.S. territories: Wisconsin; [Empty]; Type of disciplinary action:
Other: N: 1; Type of disciplinary action: Warnings: N: [A]; Type of
disciplinary action: Additional education: N: 20; Type of disciplinary
action: Fine: N: 1; Type of disciplinary action: Probation: N: [A];
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary
action: Suspen-sion: N: [A]; Type of disciplinary action: Revoca-tion:
N: 2; Type of disciplinary action: Voluntary surrender: N: 1; Type of
disciplinary action: Official reprimand: N: 3; [Empty]; All: No. of
actions: 28.
Issuing states
and U.S. territories: Wyoming; [Empty]; Type of disciplinary action:
Other: N: [A]; Type of disciplinary action: Warnings: N: [A]; Type of
disciplinary action: Additional education: N: [A]; Type of disciplinary
action: Fine: N: [A]; Type of disciplinary action: Probation: N: [A];
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary
action: Suspen-sion: N: 2; Type of disciplinary action: Revoca-tion: N:
[A]; Type of disciplinary action: Voluntary surrender: N: 2; Type of
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of
actions: 4.
Issuing states
and U.S. territories: All; [Empty]; Type of disciplinary action: Other:
N: 1,088; Type of disciplinary action: Warnings: N: 395; Type of
disciplinary action: Additional education: N: 462; Type of disciplinary
action: Fine: N: 788; Type of disciplinary action: Probation: N: 263;
Type of disciplinary action: Down-grade: N: 33; Type of disciplinary
action: Suspen-sion: N: 398; Type of disciplinary action: Revoca-tion:
N: 644; Type of disciplinary action: Voluntary surrender: N: 212; Type
of disciplinary action: Official reprimand: N: 77; [Empty]; All: No. of
actions: 4,360.
Source: GAO Analysis of Appraisal Subcommittee National Registry of
Appraisers database as of 10/31/2002.
[A] Not applicable.
[End of table]
[End of section]
Appendix V: Evolution and Use of Automated Valuation Models:
Automated valuation model (AVM) is a broad term used to describe a
range of computerized econometric models that are designed to provide
estimates of residential real estate property values. AVMs may use
regression, adaptive estimation, neural networking, expert reasoning,
and artificial intelligence to estimate the market value of a
residence. The earliest users of computer-assisted property valuations
appear to have been government assessors who needed to value large
volumes of property for tax purposes. However, early efforts to develop
computer-assisted appraisal models were hampered by the lack of large
data sets and the costs of computing.
Since the early 1990s, AVMs have become commercially viable, for
several reasons. First, computerized real property data sets have
become available at the metropolitan and state levels. Second, the cost
of computers has declined. Third, the Internet has improved
distribution capabilities and further increased the availability of
needed data. Finally, the growth of the secondary mortgage market has
helped fuel the demand for AVMs as a faster and more economical
alternative to traditional appraisals. According to Standard & Poor's,
AVMs were expected to play a role in 10 percent of all new loan
originations in the residential mortgage market in 2002 and will be put
to a variety of uses, from acting as checking appraised values to being
the sole determinant of a property's value.
Three Types of AVM Models Are Currently Used:
There are many different types of AVMs available. However, three types
of AVM models are most commonly used: hedonic, repeat sales, and
hybrids.
* Hedonic models use a sales comparison (or market) approach, which is
the most commonly used approach for appraising single-family houses.
Estimates are based in part on recent sales of comparable homes in the
local market. These models require information about specific
characteristics, including the living area and lot sizes, age of the
property, and other physical attributes, to determine value. Recent
market sales of comparable homes in the local market are used to
estimate the price of the subject property. In effect, hedonic models
use a sales comparison (or market) approach, which is the most common
used approach for most appraisals of single-family houses for lending
purposes.
* Repeat sales models calculate and apply geographic-specific indexes
to update a property's last known sales price. Price trends are
constructed at the zip code and county levels using matched-pair
analysis. Indexes are generally developed with several price tiers
within each zip code and assume that the subject property behaves much
like other properties in the zip code and price tier. Unlike the
hedonic model, the repeat sales model does not require information on
property characteristic, only the prices and sale dates for properties
within a specific geographic area.
* Hybrid models are typically a combination of hedonic and repeat sales
models, although all hybrids do not give the same weight given to each.
Another form of hybrid models combines an AVM with involvement or input
from the appraiser. For example, an appraiser may use the results of an
AVM as a tool to develop a standard appraisal.
Data Sources for AVMs Vary in Completeness and Reliability:
Regardless of the model used, the quality of the underlying data
determines the AVM's accuracy and usefulness. The data that are the
core of any model's results must be accurate, current, and complete.
Data sources for AVMs include public records, multiple listing
services, and traditional real estate records. Sources of public data
include tax records and information kept by country recorders, but both
these sources have limitations. Tax assessment data are often part of
the database mix, but AVMs do not rely solely on the assessed value of
a home. For example, Freddie Mac uses tax assessments along with other
factors to determine property values in its models. It has found that
the tax assessment alone is not sufficient to provide accurate value
estimation. Information at the county level is not available for
properties that are located in "nondisclosure states."[Footnote 39]
Further, counties use different methods of collecting data, so that the
information available in some counties is more complete and consistent
than it is in others.
Multiple listing service data are considered by some to be the best
available for determining trends in specific geographic markets and
changes in the overall market. But this data can also be as fragmented
and nonstandardized as county data. According to one of the AVM
developer and vendor that we contacted, his company is increasingly
relying on data from appraisers because they are usually more accurate
and in-depth than publicly available data. In addition, he stated that
some AVM developers and vendors might be physically collecting their
own data, especially in areas where public data are sparse.
Because of the problems obtaining reliable data and the fact that
properties are not physically inspected, AVMs are generally not
considered a viable replacement for traditional appraisals. AVMs work
best in markets that have an abundance of recent sales data and
homogenous neighborhoods. In rural areas, they may be less useful,
either because of a shortage of comparable sales or because rural
properties are often unique. Without a physical appraisal, AVMs may not
take into account excess depreciation, wear and tear, and upgrades that
are not contained in the public records. In addition, the proprietary
nature of commercial AVMs has raised concerns about the "black box"
technology these models use. AVM vendors are not required to make their
AVM methodologies available to the public. As a result, some groups
have raised concerns that AVM models may be including factors that
could unintentionally introduce bias into their analysis.
AVMs Have Both Advantages and Disadvantages:
AVMs offer a number of advantages over traditional appraisals. First,
AVMs are generally much faster and cheaper to use in estimating the
value of a property. For example, traditional appraisals for single-
family residences typically cost several hundred dollars and can take
days or even weeks, depending on market conditions and the availability
of the appraiser. AVMs, however, cost less than $100 and take just a
few minutes. Second, proponents of AVMs argue that this technology
delivers more objective and consistent appraisal values than human
appraisers, who often value properties differently and may be subject
to pressure from lenders to assess a property at a specific value.
Third, AVMs can be used to validate traditional appraisals, especially
in valuing high-risk loans.
As has been pointed out, AVMs also have a number of disadvantages.
Because data may not be available or may not be complete and reliable,
the models are sometimes unworkable. The lack of a physical inspection
could mean that some important factors are not taken into account. And
AVM technology is proprietary, so that vendors do not have to disclose
their methodologies to the public. Despite these disadvantages, AVMs
provide a fast, inexpensive means of valuing properties in active
markets.
Guidance and Regulations on Using AVMs Are Relatively New:
As of January 2003, federal financial institutions regulators have not
issued specific regulations or policies governing a federally insured
depository institution's use of AVMs. According to representatives of
the federal financial institutions regulators, federally insured
depository institutions are free to use AVMs for transactions not
considered to be federally related transactions, such as mortgage loans
falling below the $250,000 threshold for appraisals. The regulators
stated that their examiners are being introduced to AVMs through
various training programs.
The Appraisal Standards Board has issued an advisory opinion, stating
that the output of an AVM by itself does not constitute an
appraisal.[Footnote 40] However, the advisory opinion states that
appraisers can use AVMs as a tool in developing an appraisal, appraisal
review, or appraisal consulting opinions and conclusions. The opinion
lists five critical questions that an appraiser must answer before
deciding to use an AVM:
* Does the appraiser have a basic understanding of how the AVM works?
* Can the appraiser use the AVM properly?
* Are the AVM and the date it is used appropriate?
* Is the AVM output credible?
* Is the AVM output sufficiently reliable for use in the assignment?
The advisory opinion also identifies the steps appraisers should take
to ensure that the output of an AVM is communicated in a way that is
not misleading.
Fannie Mae and Freddie Mac, the two government-sponsored enterprises
(GSE) that control a significant portion of the secondary market for
conventional single-family mortgage loans, include AVMs within their
automated loan underwriting systems. According to representatives of
the two GSEs, their automated loan underwriting systems use various
factors to determine the appraiser-related services that need to be
performed. In some cases, the two GSEs allow lenders to use an AVM
rather than requiring an appraisal because the automated loan
underwriting system has sufficient information. Both Fannie Mae and
Freddie Mac reportedly use their proprietary AVMs as part of their
quality control systems and their own risk and portfolio management.
Freddie Mac has also made its proprietary stand-alone AVM available to
other public and private entities.
[End of section]
Appendix VI: The Appraiser Qualifications Board's Process and Fees for
Approving Appraiser Education Courses and Certifying Instructors:
Some providers of education courses for appraisers have expressed
concerns about the fees the Appraiser Qualifications Board (AQB)
charges to approve courses and certify instructors. This appendix
contains information on (1) the AQB's course approval program, (2) the
AQB's instructor certification program, (3) options the AQB has offered
education providers for approving distance education courses, and (4)
fees charged by other entities offering similar course approval and
instructor certification programs.
AQB's Course Approval Program:
According to the AQB, it established its course approval program at the
request of state regulators and education providers associated with the
real estate appraisal industry. AQB officials told us that many state
regulators had notified the AQB that Uniform Standards of Professional
Appraisal Practice (USPAP) courses were deficient and that appraisers
were facing disciplinary action as a result of not fully understanding
the standards. Participation in the course approval program is entirely
voluntary for course providers, and the AQB encourages but does not
require states to accept approved courses for appraiser education
requirements. Moreover, a state may set its own requirements, which all
education providers operating in the state--even those offering AQB-
approved courses--must meet.
Education providers that choose to participate in the AQB's course
approval program must submit course materials and policies for review
by a member of the AQB Review Panel. Appraisal Foundation officials
told us that AQB review panelists are college professors from Virginia
Commonwealth University, the University of Hawaii, and Texas A&M
University with experience in real estate appraising. According to the
AQB, the chief reviewer also performs a summary review to assure
objectivity and quality control. The chief reviewer then recommends
whether the AQB should approve the course. According to Appraisal
Foundation officials, education providers may be asked to fix
identified deficiencies prior to receiving approval for the course.
Approval is valid for 3 years, except for courses involving the USPAP,
which must be approved annually.
The AQB offers education providers content review services for all
courses--qualifying courses for trainees as well as continuing
education courses for practicing appraisers--including distance
education courses. Courses that are approved for qualifying education
will automatically be approved for continuing education. Distance
education providers must have their delivery methods certified by the
International Distance Education Certification Center (IDECC). AQB
officials noted that IDECC certification is essential, since distance
education courses are held to a different standard than traditional
classroom setting courses because students do not have direct in-person
interaction with instructors.
The AQB's fees for approving courses vary based on the length and type
of course. For example, the initial fee for approving a 15 to 29 hour
qualifying education course is $1,200, while the fee for a course of 30
or more hours is $1,400. The renewal fee is $125. For continuing
education courses, AQB charges $800 to approve a 2 to 8 hour course,
$900 to approve a 9 to 16 hour course, and $1,000 to approve a course
of more than 16 hours. The renewal fee for these courses is $100. AQB
charges distance education providers the same fees, but distance
education providers must also pay service fees to IDECC. IDECC charges
$750 to review the first course and $400 to review each additional
course. Distance education courses with IDECC certification are
approved for 3 years, with a recertification fee of $270.
AQB's USPAP Instructor Certification Program:
AQB's USPAP instructor certification program was implemented in
February 2002 as part of the revisions to the Real Property Appraiser
Qualification Criteria. According to the AQB, the instructor
certification program, like the approval process for USPAP courses, was
adopted in an effort to improve the overall quality of USPAP training.
Although participation in the program is voluntary, as of January 1,
2003, only AQB-certified USPAP instructors were permitted to teach the
national USPAP courses.[Footnote 41] The AQB certifies instructors at
the national level, but some states have their own requirements that
instructors must also meet.
The prerequisites for AQB's USPAP instructor certification program
include at least 7 years of appraisal experience in any discipline and
at least 35 classroom hours of appraisal teaching experience within the
last 5 years. Individuals who complete the USPAP instructor
certification courses and pass the examination must take a USPAP update
course and examination every 2 years in order to remain certified.
Appraisal Foundation officials reported that past and present Appraisal
Standards Board members develop, maintain, and teach the USPAP
instructor certification program course with guidance from the AQB and
the Education Council of Appraisal Foundation Sponsors
(ECAFS).[Footnote 42] For example, an Appraisal Foundation official
told us that members of the ASB had developed the course content and
that the AQB had contracted with a psychometrician experienced in the
science of examinations to develop the examination structure. The AQB
also contracts with a firm specializing in psychometrics--Gainesville
Independent Testing Services, LLC--to review the examinations after
every course. Gainesville scores each student's exam and summarizes its
strengths and weaknesses. Students who fail the course receive both
their results and a summary of their strengths and weaknesses for each
component of the examination.
The AQB instructor certification program includes a 2 1/2 day course,
followed by a half-day 120 multiple-choice question examination. The
course and exam cost $425. Individuals who participate in the program
and fail the examination may exercise one of the following options
within 12 months:
* retake the 2 1/2 day instructor certification course and examination
for $225, or:
* retake the examination only for $95.
If an individual retaking the examination only fails to pass it the
second time and still desires to become certified, he or she must
retake both the course and the examination for $225.
Some education providers are concerned that AQB's mandatory USPAP
instructor certification program is intended simply to generate revenue
for the Appraisal Foundation. According to the Appraisal Foundation,
the program yielded approximately $165,000 in revenues for calendar
year 2002, while expenses for the program were almost $230,000,
resulting in a deficit of $63,000. The AQB Instructor Certification
Program is unique to the AQB, and the AQB has not approved any
alternative methods of certification for individuals who teach the
National USPAP courses at the national level.
Options Provided by AQB for Approving Distance Education Courses:
State regulatory agencies also offer course approval programs for
education providers offering training for appraisers. In some states,
this approval is mandatory even if the state participates in AQB's
approval program. For distance education, the AQB offers four options,
including:
* having an accredited college or university present the course, in
which case the AQB would approve both the content and delivery method;
* submitting the course to the American Council on Education (ACE)
College Credit Recommendation Service for content and delivery method
approval;
* submitting the course to IDECC to have the delivery method approved
and then submitting the course to the AQB to have the content approved;
and:
* submitting the course to IDECC to have the delivery method approved
and then submitting the course to the state regulatory agency for
appraisers (in the state where the course will be offered) for
additional approval.
Relative Costs of AQB Course Approval and Instructor Certification
Programs:
To compare the AQB's fees with those of other entities offering similar
services, we obtained information from the ACE College Credit Approval
Service, the Accrediting Council for Continuing Education and Training,
the National Association for Practical Nurse Education and Service
Inc., the Distance Education and Training Council, and the
International Distance Education Certification Center. The course
approval programs these entities offer vary in scope but in general
provide services similar to those of the AQB. For example, the National
Association for Practical Nurse Education and Service offers an
approval program for continuing and vocational education courses. The
Accrediting Council for Continuing Education provides both course
approval services for continuing education and accreditation services
for entire institutions.
Directly comparing the fees charged by these organizations is difficult
because they do not all offer exactly the same services; moreover, in
some cases the fees are not the only cost to the education provider.
Fees for services from the National Association for Practical Nurse
Education and Service can range from $60 for a one-time course offering
by an association member to $600 for more than 60 repeat course
offerings by a nonmember. Fees for accreditation services by the
Accrediting Council for Continuing Education and Training are a minimum
of $6,300, which includes a preapplication evaluation, an application
for initial accreditation, a mandatory accreditation workshop for
education provider representatives, and a site visit. Table 5 provides
an overview of the fees charged for course approval services.
Table 5: Approval Service Fees, by Service Provider as of February
2003:
Type of approval service: Qualifying education course; Service
provider: AQB: $1,200-$1,400; Service provider: ACE[A]: $700; Service
provider: ACCET[B]: n/a; Service provider: NAPES: n/a; Service
provider: DETC[C]: n/a; Service provider: IDECC: n/a.
Type of approval service: Continuing education course; Service
provider: AQB: $800-$1,000; Service provider: ACE[A]: n/a; Service
provider: ACCET[B]: $6,300; Service provider: NAPES: $60-$600; Service
provider: DETC[C]: n/a; Service provider: IDECC: n/a.
Type of approval service: Distance education course content;
Service provider: AQB: $800-$1,000; Service provider: ACE[A]: $700;
Service provider: ACCET[B]: $6,300; Service provider: NAPES: n/a;
Service provider: DETC[C]: $300; Service provider: IDECC: n/a.
Type of approval service: Distance education delivery method;
Service provider: AQB: n/a; Service provider: ACE[A]: $700; Service
provider: ACCET[B]: $6,300; Service provider: NAPES: n/a; Service
provider: DETC[C]: $300; Service provider: IDECC: $225-$750.
Source: GAO analysis of data obtained from the service providers.
n/a = not available or applicable.
Note: ACCET= Accrediting Council for Continuing Education and Training;
NAPES= National Association for Practical Nurse Education and Service
Inc.; DETC = Distance Education and Training Council; IDECC =
International Distance Education Certification Center.
[A] Fees do not include variable costs, which the education provider
pays (for example, on-site review, data entry, and staff travel, hotel,
and per diem).
[B] Fees for the accreditation of an institution and the current
courses it offers.
[C] Application fee for accreditation of a distance education
institution. Other fees may apply for services such as on-site visits,
subject specialist review, and annual fees.
[End of table]
No other entity offers a program similar to AQB's USPAP instructor
certification program, although the Appraisal Institute--an
international membership association of professional real estate
appraisers--has a program with similar examination requirements. Among
a number of other requirements, individuals seeking to be certified to
teach Appraisal Institute courses must successfully complete its
Instructor Leadership and Development Conference and subsequent
examination requirements. The fee for taking the Appraisal Institute's
last Instructor Leadership and Development Conference--held in February
to March 2002--was $350. In contrast, the AQB charges $425 for USPAP
instructor certification.
State Fees for Course and Instructor Approval:
In addition to the fees charged by the AQB for its course and
instructor approval programs, education providers in certain states may
also have to pay fees to state appraiser regulatory agencies for course
approval and instructor certification. Information obtained from the
Internet sites of 47 of the 55 state regulatory agencies and, in some
cases, directly from the state regulatory agency indicated that fees
ranged significantly between individual states. For example, fees
charged by individual states ranged from:
* zero to $500 for course approval of qualifying education courses,
* zero to $250 for course approval of continuing education courses,
* zero to $500 for approval of distance education courses, and:
* zero to $300 for instructor certification.[Footnote 43]
Eight of the states did not charge a fee for course approval and
instructor certification.
[End of section]
Appendix VII: Federal Financial Institutions Examination Council's Legal
Advisory Group Opinion:
Federal Financial Institutions Examination Council
Legal Advisory Group:
June 11, 2002:
Mr. Jesse G. Snyder, Chairman Appraisal Subcommittee:
Federal Financial Institutions Examination Council 2000 K Street, N. W.
- Suite 310:
Washington, D.C. 20006:
Dear Mr. Snyder:
The Legal Advisory Group ("LAG") of the Federal Financial Institutions
Examination Council ("FFIEC") has been requested to provide a legal
opinion regarding: (1) the scope of authority of the Appraisal
Foundation's Appraiser Qualification Board ("AQB") to adopt education-
related standards for certified real estate appraisers; (2) the scope
of the responsibility of the Appraisal Subcommittee of the FFIEC
("ASC") to monitor the AQB; and (3) the ASC's authority to oversee
state appraiser regulatory agency implementation of those AQB
standards, pursuant to Title XI of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 ("FIRREA"), as amended ("Title
XI").[Note 1] The LAG consists of the General Counsel of the Federal
Deposit Insurance Corporation, the General Counsel of the Board of
Governors of the Federal Reserve System, the Chief Counsel of the
Office of the Comptroller of the Currency, the Chief Counsel of the
Office of Thrift Supervision and the General Counsel of the National
Credit Union Administration, the constituent agencies of the FFIEC.
Because of challenges by an appraisal education provider, we were asked
for a legal opinion on these specific issues:
* Does Title XI authorize the AQB to adopt minimum education
requirements for certified real estate appraisers, including those
relating to continuing education and distance education?
* Is the ASC's interpretation of its duties to monitor and review AQB
activities appropriate and consistent with Title XI and other
applicable law?
* Was the ASC acting improperly or in any manner inconsistent with
Title XI or other law when it instructed States to rescind their
approvals of continuing education courses for certified real property
appraisers that did not conform to AQB criteria?
Regulatory Framework:
The certification of real estate appraisers is subject to a unique
regulatory framework created by Title XI. The appraisal regulatory
structure includes State or U.S. territory appraiser certifying and
licensing agencies ("state agencies"), a private corporation, and
federal agencies. Under Title
XI, the states, through the state agencies, are responsible for
certifying and licensing real estate appraisers to participate in
federally related transactions and for supervising their appraisal-
related activities.[NOTE 2] Under Title XI, the state agencies must
adopt criteria for real estate appraiser certification that currently
meet the minimum criteria established by the AQB of the Appraisal
Foundation, a private non-profit organization.[Note 3] Title XI
charges the
ASC with oversight of the real estate appraiser regulatory framework
through monitoring (i) the requirements of the states for certifying
and licensing appraisers and (ii) the activities and operations of the
Appraisal Foundation, including the AQB.[NOTE 4]
Issues and Discussion:
Issue 1: Does Title XI authorize the AQB to adopt minimum education
requirements for certified real estate appraisers, including those
relating to continuing education and distance education?
Section 1116(a) of Title XI defines a "State certified real estate
appraiser" as an "individual who has satisfied the requirements for
State certification in a State or territory whose criteria for
certification currently meets the minimum criteria for certification
issued by the [AQB]."[Note 5] The statute requires states to adopt
criteria for appraiser certification that are at least as stringent as
the AQB's minimum certification criteria. The states, of course, can
adopt appraiser certification requirements that are stricter than
those of the AQB.[Note 6] Accordingly, to qualify as a state certified
real estate appraiser under Title XI, an individual must at least
satisfy the minimum criteria for
certification issued by the AQB.[Note 7] Therefore, the terms of
Title XI clearly authorize the AQB to establish minimum criteria for
state certification of real estate appraisers.
Although Title XI does not specifically address "education" or
"continuing education" as criteria for appraiser certification, the
structure, purpose, and legislative history of the statute indicate
that education requirements for appraisers are within the scope of
minimum certification criteria that Congress authorized the AQB to
establish. By not limiting the scope of the criteria, the statute
appears to vest the AQB with broad discretion in determining what
minimum criteria are appropriate for appraiser certification. Including
education requirements among the minimum criteria is a reasonable
measure to help ensure that certified appraisers perform their duties
properly as Congress intended. Such requirements are consistent with
the statutory mandate that appraisers must pass an examination that is
consistent with and equivalent to the Uniform State Certification
Examination issued or endorsed by the AQB, as both measures are
calculated to result in a uniform body of knowledge possessed by
certified appraisers nationwide.[NOTE 8] In addition, the education
requirements complement the AQB's minimum experience criteria for
appraiser certification.[Note 9]
The legislative history indicates that Congress intended Title XI to
help solve the appraisal-related problems that had contributed to the
widespread insolvency of financial institutions and deposit fund losses
by, in part, creating appraisal certification standards that were
consistent nationwide.[Note 10] Rather than dictating particular
criteria in the statute, Congress looked to the Appraisal Foundation
and its AQB as the source of the minimum appraiser certification
criteria. The Conference Committee Report on FIRREA provides that
"State certified appraisers must meet the requirements for
certification issued by the Appraisal Foundation, including a passing
grade on a uniform examination." [Note 11]
At the time of the passage of Title XI, the AQB had established both
education and continuing education requirements. The AQB's appraiser
certification criteria in existence at the time of these Congressional
reports included a requirement that an appraiser successfully complete
a specified number of classroom hours of AQB-approved courses in
subjects related to real estate
appraisal from a nationally recognized appraisal organization, college,
or university. The AQB's criteria also included a limit on the term of
certification (i.e., two to four years) and continuing education
requirements as part of the criteria for certification renewals. The
AQB's continuing education requirements included a specified number of
hours of instruction in courses or seminars approved by the AQB.
The legislative history confirms that Congress was aware of the AQB's
education and continuing education requirements for appraisers at the
time of passage and intended the AQB to maintain and expand on its
minimum criteria after the statute's enactment, including its education
and continuing education requirements. In its report on FIRREA, the
House Committee on Banking, Finance and Urban Affairs ("House
Committee") stated, "[t]he Committee has knowledge of and approves the
qualification standards established by the Appraisal Foundation for
those individuals who seek to become certified appraisers."[Note 12]
The following statements from the Senate Committee's report on FIRREA
also confirm that Congress knew of the Appraisal Foundation's
certification qualifications, including its education-related
requirements, and approved them:
The Committee, in addressing the problem, decided to build upon work
already being done by responsible elements of the appraisal industry.
The non-profit Appraisal Foundation, established in 1987, represents
the major elements of the U.S. appraisal industry .... Under its
auspices ... an independent qualifications board has recommended
minimum requirements for education, experience, continuing education, a
code of ethics and tests for use in certifying appraisers.
[Appraisal] rules would, at a minimum, have to meet generally accepted
real estate appraisal and certification standards as evidenced by those
promulgated by the Appraisal Foundation.[Note 13]:
The recognition in section I 116(a) of Title XI that a state's
standards for appraiser certification must "currently" meet the AQB's
minimum criteria for certification indicates that Congress expected
that the AQB periodically would revise its criteria.[Note 14]
Section 1116(a)
represents a marked departure from the approach found in precursor
legislation to FIRREA, including the Real Estate Appraisal Reform Act
of 1988.[Note 15] This bill provided for the formation of an
Interagency Appraisal Committee, in part, to prescribe permanent
appraiser certification requirements that conformed to the Appraisal
Foundation's appraiser certification criteria. 16 Given the decision
by Congress to eschew
"permanent" certification requirements for state agencies in favor of
requirements that "currently" meet the AQB's minimum criteria, it
appears that Congress foresaw that the AQB's minimum criteria would
change over time and planned for such change accordingly. The decision
to define a "State certified real estate appraiser" as an individual
certified by a state with certification requirements that "currently"
meet the AQB's minimum criteria, therefore, indicates that Congress
intended to provide for the on-going development and refinement of the
AQB's criteria, which were less than one year old at the time of
FIRREA's enactment.
The AQB's authority to establish minimum education criteria for
appraiser certification reasonably encompasses the methods of appraiser
education, including "distance education." At the time FIRREA was
enacted, the AQB's minimum education criteria contemplated only
classroom education. Since the passage of FIRREA, the AQB has amended
its minimum criteria to address the needs of appraisers for alternative
methods to meet their education requirements. In 1991, the AQB
recognized that correspondence courses could be a valid method for
certified appraisers to meet their continuing education requirements,
but concluded that additional criteria were needed to ensure that the
quality of the courses would be consistent with the traditional
classroom education criteria and consistent nationwide. The AQB further
amended its criteria in 1997 to expand the concept of correspondent
education to include computer-based education courses. It included
"distance education" as a valid method for appraisers to meet their
education and continuing education requirements. The AQB defined
"distance education" to include "any educational process based on
geographical separation between instructor and learner (e.g., CD-ROM,
on-line learning, correspondence courses, video teleconferencing,
etc.)." As earlier with the authorization of correspondence courses,
the AQB promulgated additional criteria for distance education courses
to ensure that the quality of the distance courses would be on par with
the classroom courses and consistent nationwide.
Therefore, the terms, structure, and legislative history of Title XI
all support the conclusion that Title XI authorizes the AQB to adopt
minimum education requirements for certified real estate appraisers,
including those relating to continuing education and distance
education.
Issue 2: Is the ASC's interpretation of its duties to monitor and
review AQB activities appropriate and consistent with Title XI and
other applicable laws?
Section 1103 (b) of Title XI expressly requires the ASC to "monitor and
review the practices, procedures, activities, and organizational
structure of the Appraisal Foundation."[Note 17]
Title XI does not specify
how the ASC is to perform this oversight or prescribe limits on its
oversight function. Therefore, the statute appears to vest the ASC with
broad discretion in determining how to monitor and review the Appraisal
Foundation, including the AQB. Under the ASC's interpretation of its
oversight responsibilities, it monitors and reviews the AQB's
activities in the following manner: (1) ASC staff attends AQB and other
Appraisal Foundation meetings and work sessions; (2) the ASC
staff and sometimes the ASC, as a body, review and comment on AQB
proposals; (3) through the grant process, the ASC reviews prospective
and existing AQB projects and reimburses the Appraisal Foundation for
expenses relating to the AQB's Title XI-related activities;[Note 18]
(4) the ASC retains a certified public accounting firm to review the
Appraisal Foundation's financial operations annually; and (5) ASC
staff maintains regular, informal professional communications with
AQB members and Appraisal Foundation staff.
Consistent with this interpretation, the ASC generally reviews and
comments on the AQB's proposals related to minimum criteria for
appraiser certification and informally discusses the proposals with the
AQB. In light of the AQB's broad authority to establish minimum
appraiser certification criteria, discussed above, the ASC generally
monitors whether the AQB's proposals are reasonable, not arbitrary or
capricious, and otherwise consistent with law. The ASC reviewed the
AQB's proposals related to minimum education and continuing education
criteria, including distance education requirements, and determined
that the AQB was not acting in a manner that was unreasonable,
arbitrary, or capricious, or otherwise inconsistent with law.
The ASC's approach to overseeing the AQB appears to be consistent with
the Title XI provisions. Title XI does not authorize the ASC to
establish the minimum criteria for state certification of appraisers
and, therefore, it should not substitute its judgment for that of the
AQB in establishing the criteria. Although Title XI does mandate that
the ASC "monitor and review the practices, procedures, activities, and
organizational structure of the Appraisal Foundation" and the AQB,[Note
19] Congress did not provide the ASC with the authority or the power to
direct or overrule the operations or structure of these private
entities. The only enforcement power that Title XI provides to the ASC
relates to the state agencies rather than to the Appraisal Foundation
or the AQB-i.e., the extreme measure of refusing to recognize any
appraiser certifications and licenses issued by a state agency if one
of three refusal standards are met.[Note 20] Therefore, it appears
that, to the extent it considered this point, Congress intended that
the ASC informally influence the policies and practices of the
Appraisal Foundation and the AQB when necessary to uphold the purposes
and provisions of Title XI. As discussed above, the ASC already
has established and implemented steps to provide effective
informal oversight of the Appraisal Foundation and AQB.
Issue 3: Did the ASC act improperly or in any manner inconsistent with
Title XI or other law when it instructed states to rescind their
approvals of distance education courses for certified real property
appraisers that did not conform to AQB criteria?
Pursuant to section 1103 (a) of Title XI, one of the ASC's primary
functions is to "monitor the requirements established by States for the
certification ... of individuals who are qualified to perform
appraisals in connection with federally related transactions."[Note 21]
From
time to time the ASC; through effective monitoring of state agencies,
has identified state agencies that approved distance courses that did
not conform to AQB criteria. The ASC has represented that, in almost
all cases, these approvals occurred because the staffs of the state
agencies were unaware of the AQB's requirements. The ASC generally has
responded to this situation by writing the state agency to instruct it
to rescind its approval of the nonconforming distance courses and to
remind the state agency that it must comply with AQB course approval
criteria. The issue presented is whether the ASC has acted in
accordance with Title XI in doing so.[Note 22]:
As noted above, the AQB's distance education requirements were
established in 1997 and incorporated the correspondence course approval
criteria already in place. The AQB further conditioned approval of
distance education courses on their being: (1) offered by an accredited
college or university; (2) accepted for college credit through the
American Council on Education's College Credit Recommendation Service
(formerly the ACE/PONSI program); or (3) approved through the AQB
Course Approval Program ("CAP ,).[Note 23] The AQB amended its distance
education course criteria in 2001 to allow state agencies alternatively
to approve the content of distance courses and for the International
Distance Education Certification Center to approve course-delivery
methodology.
Section 1118 establishes a statutory framework that charges the ASC
with the responsibility for ensuring that the state agencies comply
with their responsibilities under Title XI, including by complying with
the AQB criteria. However, Title XI provides the ASC with only limited
enforcement powers. As noted above, the ASC's only enforcement power
under Title XI is to refuse to recognize any appraiser certifications
and licenses issued by a state agency that the ASC has deemed to have
met one of the three refusal standards established in
section I 118(b).[Note 24] Section
1118 requires that, before refusing to recognize a state's
certifications and licenses, the ASC must provide the state with
written notice of its intention not to recognize these certifications
and licenses, and an "ample" opportunity to provide rebuttal
information and to correct the conditions causing the refusal.[Note 25]
The legislative history of FIRREA suggests that Congress did not intend
to leave the ASC powerless in remedying violations of Title XI that did
not meet the standards in section 1118(b). The House Committee, in a
discussion of the ASC's role in monitoring state agencies in its report
on FIRREA, noted that a goal in providing the ASC with monitoring
responsibilities was a "nationwide system of state certified ...
appraisers. "[Note 26] To meet this Congressional expectation of
uniformity among the appraisal certification requirements employed by
the states, the ASC regularly reviews the policies, practices, and
procedures of the state agencies and provides them with written
assessments of their compliance with Title XI. In its correspondence
with the state agencies, the ASC highlights specific areas where the
practices of a state agency do not comply with the requirements of
Title XI, and notes the remedial actions the state agency must take to
restore its status as Title XI-compliant.
As noted above, when the ASC has found that state certification
programs do not conform to the AQB continuing education criteria, the
ASC has provided a written notice to the relevant state agency
instructing the agency of the need to conform its program to the
criteria. Such notice has included, when relevant, instruction to the
state agency to rescind its approval of certain distance education
courses that do not comply with the AQB's minimum criteria. These
instructions are not unlawful, provided they represent a finding that
the relevant state's certification or licensing policies, practices, or
procedures are not consistent with the requirements of Title XI.
[Note 27]
However, the ASC ultimately may enforce these instructions only by
following the procedures established in section 1118 for refusal of
state certifications and licenses, which require the ASC to provide the
non-compliant state agency with written notice that a refusal standard
has been met and an opportunity to provide rebuttal information or to
correct the condition.
For the foregoing reasons, the ASC's actions with respect to its
correspondence with state agencies concerning compliance with Title XI
and the AQB's minimum certification criteria appear to be consistent
with Title XI and its legislative history.
Sincerely,
Legal Advisory Group:
Federal Financial Institutions Examination Council:
Signed By: William F. Kroener, III, Chairman for Legal Advisory Group
Notes:
[1] Pub. L. No. 101-73, 103 Stat. 183 (1989) (codified as amended at
12 U.S.C. §§ 3331-3352).
[2] Title XI defines the term "federally related transaction" as "any
real estate-related financial transaction which--(A) a federal
financial institutions regulatory agency or the Resolution Trust
Corporation engages in, contracts for, or regulates; and (B) requires
the services of an appraiser." 12 U.S.C. § 3350(4). The federal
financial institutions regulatory agencies have issued regulations
identifying which transactions require the services of a certified or
licensed appraiser. See, e.g., 12 C.F.R. § 323.3.
[3] See 12 U.S.C. § 3345(a). FIRREA does not provide minimum
requirements for the licensing of real estate appraisers by state
agencies. See 12 U.S.C. § 3345(c).
[4] See 12 U.S.C. §§ 3332(a), 3347.
[5] 12 U.S.C. § 3345(a).
[6] The statute also requires the individual to pass a suitable
examination administered by the state that is consistent with
and equivalent to the Uniform State Certification Examination issued or
endorsed by the AQB. 12 U.S.C. § 3345(b).
[7] See id.
[8] Id.
[9] Section 1116(e) states that the ASC "shall not set qualifications
or experience requirements for the states
in licensing real estate appraisers, including a de minimus standard."
12 U.S.C. § 3345(e) (emphasis added). This provision clarifies that,
although Congress intended the AQB to establish the minimum
requirements for the certification of appraisers, Congress intended the
authority to establish the minimum requirements for the licensing of
appraisers to remain with the states, and did not intend to ASC to set
those standards. Title XI and the implementing regulations make
distinctions between appraisers that are certified and those that are
only licensed. This provision also indicates that Congress considered
requirements other than experience to be suitable criteria for
appraisers.
[10] H. Rep. No. 101-54, 101St Cong., 1St Sess., pt. l, at 481 (1989).
[11] H.R. Conf. Rep. No. 101-222, 101 st Cong., 1 StSess., at 455
(1989).
[12] H.R. Rep. No. 101-54, pt. 1, at 481.
[13] S. Rep. No. 19, 101st Cong., 15t Sess., at 35-36 (1989).
[14] 12 U.S.C. § 3345(a).
[15] H.R. 3675, 100th Cong. (1988).
[16] See id. at §§ 500-01; H. Rep. No. 100-1001, 1 00Th Cong., 2nd
Sess, pt. 1, at 33, 42 (1989).
[17] 12 U.S.C. § 3332(b).
[18] Section 1109(6)(4) of Title XI requires the ASC "to make grants
in such amounts as it deems appropriate to the Appraisal Foundation,
to help defray those costs of the foundation relating to the
activities of its Appraisal Standards and Appraiser Qualifications
Boards." 12 U.S.C. § 3338(6)(4).
[19] 12 U.S.C. § 3332(6).
[20] 12 U.S.C. § 3347(6).
[21] 12 U.S.C. § 3332(a).
[22] Lee & Grant Company ("L&G"), a provider of appraisal education
courses, has challenged the ASC's statutory authority to instruct state
agencies that they must rescind their approval of distance courses that
do not comply with AQB criteria. L&G argues that section 1118 of
FIRREA, while providing for ASC oversight of state agencies, does not
grant the ASC the authority to provide state agencies with orders or
ultimatums to comply with AQB criteria.
[23] The ASC has represented that the CAP was established at the request
of State agencies and providers of appraisal education. Under this
voluntary program, the AQB contracts with education experts to review
submitted courses. The first internet-based distance education courses
were approved by the AQB under the distance education course criteria
in 1998. As previously noted, the AQB's minimum criteria for continuing
education at the time of Title XI's passage, included the requirement
that the courses or seminars attended by appraisers be approved by the
AQB.
[24] Section 1118, in relevant part, reads as follows:
(b) Disapproval by Appraisal Subcommittee. The Federal financial
institutions, regulatory agencies, the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, and the
Resolution Trust Corporation shall accept certifications and licenses
awarded by a State appraiser certifying the licensing agency unless the
Appraisal Subcommittee issues a written finding that - (1) the State
agency fails to recognize and enforce the standards,
requirements, and procedures prescribed pursuant to this chapter; (2)
the State agency is not granted authority by the State which is
adequate to permit the agency to carry out its functions under this
chapter; or (3) decisions concerning appraisal standards, appraiser
qualifications and supervision of appraiser practices are not made in a
manner that carries out the purposes of this chapter. 12 USC § 3347(b).
[25] 12 USC § 3347(c); see 12 C.F.R. 1102.20-1102.35.
[26] H. Rep. No. 101-54, pt. l, at 482.
[27] Although the ASC, in some instances, has informed state agencies
that it "must" take certain actions without qualifying this instruction
with the phrase "in order to comply with Title XI," such a directive by
the ASC does not constitute an improper act. The ASC's instruction to
the state agencies may constitute threats by the ASC to utilize its
enforcement power, but not an attempt by the ASC to utilize powers that
were not granted by Congress.
[End of section]
Appendix VIII: Comments from the Appraisal Subcommittee:
Appraisal Subcommittee Federal Financial Institutions Examination
Council:
April 23, 2003:
David G. Wood, Director:
Financial Markets and Community Investments General Accounting Office:
Washington, DC 20548:
Dear Mr. Wood:
Thank you for the opportunity to review your draft report titled,
Regulatory Programs - Opportunities to Enhance Oversight of the Real
Estate Appraisal Industry (GAO-03-404). In general, we find that the
report presents an appropriate synopsis of the appraiser/appraisal
regulatory environment as envisioned by Title XI of the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989, as amended,
("Title XI") and implemented by various Federal, State, and private
entities. We were pleased to note that, based on information reported
to you, real estate appraisals have not been a major factor in the
failure of depository institutions since the passage of Title XI. As
you know, this was Congress' primary focus in passing Title XI.
Following are our comments regarding specific items of the report:
* Page 17 - You comment that in reviewing the Appraisal Subcommittee's
("ASC") field review reports, you found few or no formal and
transparent criteria for determining and reporting States' compliance
levels; that reports were sometimes inconclusive about whether the
State was in compliance; and that the rationale for determining
compliance was not given. You state that it would be beneficial for the
ASC to develop and apply consistent criteria to assess States'
compliance with Title XI.
ASC staff follow the ASC's Field Review Manual for State Appraiser
Licensing and Certification Regulatory Programs when conducting field
reviews. This manual helps insure consistent review and policy
application from State to State. While you are correct that we do not
have a formalized rating system under which we apply an overall rating
to each State ("how one state measures against other states"), we do
employ an informal rating system (i.e., Tier 1 and Tier 2) based on a
State's overall compliance with Title XI. We review each State's
compliance and consider each State on an individual basis, not in
comparison with other States. Generally speaking, compliance with Title
XI is not an all or nothing situation. We review a State's compliance
with Title XI provisions and consider a number of factors in evaluating
the State's overall level of compliance (e.g., whether a weakness was
part of a pattern and practice or an isolated incident; whether the
State was aware of the Title XI provision; whether the State exhibits
willingness to address the weakness; and, whether the weakness had been
noted in previous reviews of that State). We work with each State to
address any identified weaknesses and to bring the State into
compliance with Title XI.
In the past, the ASC considered developing a rating system that would
provide a measure of one State against another, and concluded that such
a rating system would not assist our Title XI enforcement efforts.
However, based on your recommendations, we will review this issue
again.
* Pages 18-20 - You report that the Appraisal Standards Board ("ASB")
and Appraiser Qualifications Board ("AQB") commented that the ASC's
failure to fund all Appraisal Foundation grant requests has limited
activities the two boards believe enhance the quality, timeliness, and
usefulness of standards and qualifications.
We do not believe this to be an accurate representation.
During several years, the Foundation did not use all of the funds
authorized in the ASC grant. For example, in 1998, the Foundation used
only $582,000 of $666,000 authorized; in 1999, the Foundation used only
$646,000 of $800,000; and in 2000, the Foundation used only $697,000 of
$750,000;
Title XI does not state that we must provide funding for "all" of the
Foundation's Title XI-related expenses. Title XI authorizes the ASC to
provide grants to "help defray" the Foundation's Title XI-related
expenses;
Over the years, several Foundation grant requests included funding for
non-Title XI-related activities. The ASC lacks legal authority under
Title XI to fund those activities; The Foundation has funding sources
other than the ASC grant; and:
We are unaware of any initiative that the ASB or AQB has failed to
pursue because of grant funding limitations. For example, the
Foundation has not requested funding for the "body of knowledge"
project mentioned in your report.
* Page 38 - Your third bullet contains a recommendation that the ASC
draw on its surplus to provide grants, if necessary, to the Foundation
and its boards.
The ASC has discussed projected ASC budgets for the next ten years,
including projected grant requests. This initial assessment of ASC
financial resources indicated that funding Foundation grant requests
might prove problematic in the future as funds from annual net income
decline. The ASC is evaluating methods of funding future Foundation
grant requests. Using part of existing reserves is one of several
available options. However, it is not a long-term solution.
Existing ASC reserves serve two purposes: providing working capital
necessary for the ASC to operate; and providing reserves against
unanticipated expenses or uncertain future income. The ASC is
evaluating the appropriate amount of reserves to ensure that we can
carry out our mission given these uncertainties; and:
Using ASC reserves to fund Foundation grant requests would be a short-
term solution to a long-term need. Depending on the amount of future
Foundation grant requests, ASC reserves in excess of those needed to
maintain financial viability and responsibility could be exhausted
within a short time. Any evaluation of Foundation grant funding needs
to consider the long-term financial resources of the ASC. In developing
our long-term funding plans and establishing an appropriate reserve
level, the ASC will continue its current policy to evaluate and approve
Foundation grant requests that fund activities that promote the purpose
and intent of Title XI.
* Pages 22-23 - You report that a lack of rulemaking authority and
limited enforcement powers hinder ASC efforts to ensure compliance with
Title XI.
We agree that general rulemaking authority might facilitate our Title
XI enforcement. However, the lack of additional authority has not been
an impediment to achieving compliance. We have adopted ten Policy
Statements that provide guidance regarding Title XI compliance. ASC
Policy Statements are grounded in Title XI provisions and legally are
the ASC's formal interpretations of Title XI. As such, the Policy
Statements should be given deference in a court of law.
In February 2000, GAO issued a decision (File B-279866.3) that is
pertinent to the legal effect of our Policy Statements. In that
situation, the ASC and a State disagreed over an interpretation of
Title XI and an ASC Policy Statement regarding National Registry fees.
GAO concluded that, "ASC's interpretation of section 1109 of FIRREA
reflects a reasonable exercise of its discretion in administering
section 1109 of FIRREA." GAO based its determination on a U.S. Supreme
Court decision stating, "If Congress has explicitly left a gap for the
agency administering the statute to fill, there is in effect a
delegation of authority to the agency to adopt a regulation or a policy
to elucidate the statute. So long as the interpretation comports with
the statutory objectives and is not arbitrary or capricious, the
administering agency's reasonable policy choices are entitled to
deference." [Citations omitted.] Having found such a gap, GAO decided
that, "As the entity responsible for administering this legislation,
ASC's interpretation of the statute is entitled to great weight and
should ordinarily be followed unless there are strong indications from
the legislative history or otherwise that its interpretation is
arbitrary or inconsistent with the statutory purpose.":
You report that the ASC noted that its Policy Statements are nonbinding
recommendations. As discussed above, the Policy Statements are grounded
in Title XI provisions and are the ASC's formal interpretations of that
statute. Moreover, some Title XI provisions require the ASC to make
binding statements. For example, § 1122(a)(2) of Title XI, 12 U.S.C.
3351(a)(2), provides that, "A State appraiser certifying or licensing
agency shall not impose excessive fees or burdensome requirements, as
determined by the Appraisal Subcommittee, for temporary practice under
this subsection." ASC Policy Statement 5, which was adopted after
public notice and comment pursuant to 5 U.S.C. 552, specifically
identifies situations that are "excessive fees or burdensome
requirements." Failure by a State to conform to Policy Statement 5
would constitute a direct violation of § 1122(a)(2) of Title XI.
Regarding enforcement powers, while we agree that the ASC's options are
limited in number, we have been unable to identify other powers that
would effectively improve our enforcement authority. In fact, during
your exit conference with the ASC, it was stated that we had always
been able to achieve State compliance within the supervisory and
enforcement structure that currently exists.
* Page 30-32 - In this section, among other issues, you report that one
State and one education provider asserted that both the AQB and the ASC
exceeded their authorities regarding education criteria.
As noted in your report, the ASC obtained a formal legal opinion from
the Federal Financial Institutions Examination Council's Legal Advisory
Group ("LAG") regarding this issue. The ASC requested such an opinion
to address the State's and education provider's persistent objections
to changes in the AQB's criteria for appraiser certification and the
ASC's actions to enforce those criteria. LAG concluded that the AQB and
ASC actions appeared to be consistent
with, and authorized by, Title XI. The opinion stated that Title XI
gives the AQB wide authority in setting education, experience, and
examination criteria for certified appraisers, and that it was not
within the ASC's authority to substitute its judgment for that of the
AQB in establishing its criteria. The ASC's responsibility was to
monitor the AQB decisions to ensure that they were reasonable, and not
arbitrary, capricious, or otherwise inconsistent with law.
We emphasize that both the LAG opinion, regarding certified appraisers,
and the GAO decision, regarding certified and licensed appraisers,
discussed the same considerations (i.e., reasonable, arbitrary,
capricious, and consistent with law) and determined that the ASC's
actions met those standards when interpreting and enforcing Title XI.
* Page 38 - In your second bullet, you recommend that the ASC explore
options for funding or otherwise assisting States in carrying out their
Title XI activities.
While we believe that overall State compliance with Title XI would be
improved if States had more funding, we do not see the ASC as the
answer to that issue. As noted in your report, the ASC's general
counsel does not find statutory authority for the ASC to provide
funding to the States. Legal issues aside, however, the ASC's only
method of obtaining funds to provide funding to States would be to
increase the National Registry fee assessed each appraiser. That seems
to be an unnecessary and inappropriate action given that each State
already has authority to increase the fees that it charges appraisers.
Each State is much better positioned to identify its needs and to
address fee/income issues to resolve those needs. As you learned during
the study, if State appraiser regulatory agencies were allowed to use
the fees they collect from appraisers, most States would have adequate
funding. Instead, many States send those fees to the general revenue
fund and provide only a portion for the State's Title XI-related
activities.
Once again, we appreciate the opportunity to review your draft report
and provide comments.
Sincerely:
Steven D. Fritts
Chairman:
Signed by Steven D. Fritts:
[End of section]
Appendix IX: Comments from the Appraisal Foundation:
THE APPRAISAL FOUNDATION
Authorized by Congress as the Source
ofAppraisal Standards and Appraiser Qualifications:
April 17, 2003:
Board of Trustees 2003 Officers:
Mr. David G. Wood Director:
Financial Markets and Community Investment U.S. General Accounting
Office:
441 G Street, NW Washington, DC 20548:
Thank you for allowing The Appraisal Foundation to provide comments on
your report entitlEd "Opportunities to Enhance Oversight of the Real
Estate Appraisal Industry.":
While some concerns are expressed in your report by industry
participants and state regulators, it is important to reiterate the
point that the focus of the Foundation's role in the real estate
appraiser regulatory system is to set minimum thresholds. This ensures
a baseline of competence for appraisers and greater public trust in the
profession. At the same time, by establishing minimum thresholds that
can be exceeded, the appropriate latitude can be exercised by the 56
states and territories regulating real estate appraisers.
Examples of this concept include:
Appraisal Standards:
The Foundation, through its Appraisal Standards Board, establishes the
generally recognized performance standards of the profession, the
Uniform Standards of Professional Appraisal Practice (USPAP). Federal
agencies and state appraiser regulators have the latitude to issue
supplemental standards.
Appraiser Qualifications:
The Foundation, through its Appraiser Qualifications Board, establishes
the minimum education, experience and examination criteria used for the
state licensing and certification of real estate appraisers. Federal
agencies and state appraiser regulators may establish requirements that
exceed any or all of these criteria.
USPAP Instructor Certification:
The AQB Certified USPAP Instructor Program was implemented because the
vast majority of states do not review and approve the credentials of
instructors of USPAP. Our two-day course and comprehensive examination
ensure that USPAP instructors have demonstrated their knowledge level
of the subject matter. If they so choose, states can establish
additional criteria for USPAP instructors to operate in their state.
AQB Course Approval Program:
The AQB Course Approval Program was developed to assist states and
appraisal educational providers with the course approval process. The
program is voluntary for both the states and educational providers. We
view this program not as an administrative burden, but rather as a tool
that may be used by regulators and educators if they so choose.
National USPAP Courses:
The National USPAP Courses were developed to establish a minimum
threshold in USPAP course content. Other course providers may develop
USPAP courses that can be taken for state credit, as long as the
courses meet this minimum threshold. Since January 1, 2003, four USPAP
courses have been determined to be equivalent to the National USPAP
Courses through the AQB Course Approval Program.
The above examples demonstrate our ongoing efforts to develop a
baseline of minimum competency in all aspects of appraising. We are not
encroaching into the arenas of others, but are rather simply taking
action to fill an existing void. Promoting professionalism in
appraising has been a goal of The Appraisal Foundation since before the
enactment of Title XI of FIRREA.
We appreciate the opportunity to provide you with these comments and
look forward to reviewing your final report.
Sincerely,
David S. Bunton
Executive Vice President:
Signed by David S. Bunton:
[End of section]
Appendix X: Comments from Fannie Mae:
Fannie Mae:
Arne Christenson:
Senior Vice President Regulatory Policy:
3900 Wisconsin Avenue, NW Washington, DC 200162892 202 752 3160:
202 752 4011 (fax):
arne christenson@fanniemae.com:
April 22, 2003:
Mr. David G. Wood:
Director, Financial Markets and Community Investments United States
General Accounting Office:
Washington, DC 20548:
Dear Mr. Wood:
Fannie Mae submits these comments to the draft you provided us of the
General Accounting Office's report titled "Opportunities to Enhance
Oversight of the Real Estate Appraisal Industry.":
Background:
Fannie Mae strongly supported the enactment of Title XI of FIRREA and
the steps taken to implement the intent of the Appraisal Reform
Amendments specifically, the acknowledgement of the Uniform Standards
of Professional Appraisal Practice (USPAP) as the minimum uniform
appraisal standards as well as the establishment of minimum
qualification criteria for appraisers. We believed that the
implementation of the regulatory scheme through federal and state
regulations could increase appraisal quality. Fannie Mae also viewed
the implementation of Title XI as an important step in the evolution of
professionalism within the appraisal community.
Fannie Mae considers an accurate property valuation to be one of the
key elements that assure prudent underwriting of a mortgage loan. The
appraised value is part of the lender's calculation of the loan-to-
value ratio, and thereby assists the lender in determining its exposure
to loss in the unfortunate event of default and foreclosure. Therefore,
we believe that accurate valuations are an essential element in
originating a mortgage for subsequent delivery to any investor in the
secondary mortgage market.
When an appraisal is required for a mortgage that a lender delivers to
Fannie Mae, we require our lenders (and any third-party originators
they rely on) to use appraisers that are state-licensed or -certified
in accordance with Title XI. In addition, we require our lenders (and
any third-party originators they rely on) to be aware of, and in full
compliance with, state laws for licensing and certification of real
estate appraisers.
Fannie Mae holds its lenders solely and fully responsible for the
selection of appraisers and for the quality of the appraisal. Fannie
Mae requires its lenders to take appropriate steps to ensure that an
appraiser is qualified to perform appraisals for the particular types
of property that the lender intends to refer to that appraiser. The
appraiser must be experienced in appraising the types of properties for
which the lender intends to use his or her services, and have access to
the necessary data sources. The requirement to use appraisers that are
state-licensed or -certified is viewed as a minimum standard.
Our appraisal report forms recognize the USPAP as the minimum appraisal
standards of the industry. Fannie Mae has supplemental appraisal
requirements, which exceed the minimum requirements of the USPAP. Our
appraisal report forms are designed in a way to allow an appraiser to
be able to be in full compliance with Fannie Mae's requirements if he
or she addresses all the specific information on the form, presenting
the applicable data accurately and completely. Fannie Mae guides the
extent or scope of the appraisal process and implements its appraisal
policy through its appraisal report forms.
Observations:
Our experience with the implementation of the appraisal regulatory
scheme has identified several deficiencies:
* First, we have observed a significant lack of uniformity among the
states in the quality of their processes and procedures for accepting,
reviewing and investigating unacceptable appraisal reports. Although
Fannie Mae assumes no supervisory responsibility or oversight authority
over appraisers, from time to time we refer unacceptable appraisal
reports to the appropriate state appraiser licensing or regulatory
boards for investigation and action based on the appraisal field review
reports that we obtain as part of our standard quality assurance
process.
Our objectives in referring appraisal reports are to (a) emphasize our
continuing efforts to maintain the quality of appraisals, (b) protect
our interests and improve the quality of mortgages delivered to Fannie
Mae by identifying appraisers who have performed appraisals of a
sufficiently poor quality to impair our security interests, and (c)
help the industry enhance the quality of appraisals by identifying and
referring individual appraisers who appear to be unethical and/or
incompetent to the state appraiser licensing or regulatory boards for
review and, if appropriate, enforcement under their professional
standards.
* Second, we have observed a lack of consistent and effective
enforcement actions by the state appraiser licensing or regulatory
boards.
* Third, we have also observed a lack of consistent and effective
oversight of the state's activities by the Appraisal Subcommittee.
Recommendations:
The report makes two types of recommendations.
First, it recommends that the Chairman of the Appraisal Subcommittee
take various actions, as follows:
* develop and apply consistent criteria for determining and reporting
states' compliance levels with Title XI requirements;
* explore potential options for funding or otherwise assisting states
in carrying out their Title XI activities, particularly the
investigation of complaints against appraisers. We suggest that you
add to this a reference to identifying best practices and approaches
by the states;
and:
* draw on its surplus to provide grants, if necessary, to the Appraisal
Foundation and its two boards in support of their Title XI activities.
We suggest that you add to this list a recommendation by the Appraisal
Subcommittee to the states that they accept the One-Unit Residential
Appraisal Field Review Report (Fannie Mae Form 2000 and Freddie Mac
Form 1032, dated 12/2002) as sufficient documentation for referred
appraisals. This form provides all the information a state agency is
likely to need to conduct an effective investigation. This is because
in development of this form, we considered comments we had received
from many state appraiser licensing or regulatory boards about the type
of information that would help them in their investigations, and the
finalized form reflects those comments. (See Announcement 02-09 dated
7/31/02, especially second paragraph, and Announcement 02-13 dated 12/
17/02.):
Second, the report recommends that the Chairman of the Appraisal
Subcommittee work with the Chairmen of Fannie Mae and Freddie Mac, plus
the Secretary of HUD, to "ensure that referrals of problem appraisers
are provided in a format that is useful to the state appraisal agencies
and that suitable follow-up is taken to ensure that the states have
taken appropriate enforcement actions." We have two concerns about this
recommendation:
* First and most importantly, in the scheme of Title XI, it is not the
responsibility of Fannie Mae to ensure that the states take appropriate
enforcement action in response to referrals of problem appraisals. This
recommendation assumes a regulatory role that we do not have.
* Second, based on our extensive experience in referring unacceptable
appraisals to state agencies, we believe that issues of format have not
impeded the states from taking effective action. Therefore, it would
not be productive to focus on matters of format as a strategy for
improving the quality of state enforcement action. Further, insofar as
the process might be improved by improvement of format, acceptance of
the One-Unit Residential Appraisal Field Review Report, as we suggested
above, would serve that objective.
Sincerely,
Arne L. Christenson:
Senior Vice President for Regulatory Policy:
Signed by Arne L. Christenson:
[End of section]
Appendix XI: Comments from Freddie Mac:
April 23, 2003:
Clarke Dryden Camper Vice President, Congressional Relations (202) 434-
8620 * Fax (202) 434-8626 401 9th Street NW, Suite 600 * Washington, DC
* 20004:
David G. Wood:
Director, Financial Markets and Community Investments U.S. General
Accounting Office:
Washington, DC 20548:
Dear Mr. Wood:
The Federal Home Loan Mortgage Corporation ("Freddie Mac") appreciates
this opportunity to review and comment on GAO's draft report,
Regulatory Programs: Opportunities to Enhance Oversight of the Real
Estate Appraisal Industry (GAO-03-404) ("the draft report").
Freddie Mac is a shareholder-owned and publicly traded business
corporation created by Congress to support homeownership and rental
housing. We operate as a secondary market purchaser of and investor in
mortgages originated by lenders throughout the country. Freddie Mac
relies upon real estate appraisers to provide sound valuations of
properties, and, as the draft report notes, we set appraisal standards
for mortgages we purchase.
However, on pages 6-7 of the draft report Freddie Mac and Fannie Mae
are described as "quasi-federal entities that have roles with respect
to oversight of the real estate appraisal industry," and on page 55
both companies are described as "quasi-federal agencies." These
characterizations are incorrect. Neither company is an agency of the
United States government, nor do we have any regulatory oversight role
with respect to the appraisal industry. Our standards for the use and
content of appraisals in mortgages we purchase are those of mortgage
investors, not governmental entities with regulatory powers.
Accordingly, the recommendation that the Appraisal Subcommittee work
with Freddie Mac and Fannie Mae "to ensure that referrals of problem
appraisals are provided in a format that is useful to the state
appraisal agencies and that suitable follow-up is taken to ensure that
the states have taken appropriate enforcement actions" (page 38) would
place both companies in an inappropriate role. Freddie Mac and Fannie
Mae lack the legal authority and the ability to "ensure" either
outcome.
In addition, it also is unclear how the Appraisal Subcommittee can
effectively achieve these outcomes. Because the states have the
authority to set their own formatting requirements for referrals, they,
not the Appraisal Subcommittee, are in the best position to ensure
compliance with them. The only action the Appraisal Subcommittee can
take against a state that fails to take enforcement actions is
decertification. However, as the
draft report itself observes, the Appraisal Subcommittee has not used
this tool because it would inflict significant harm on the state's real
estate market.
An alternative approach that may be worthwhile to consider is for the
Appraisal Subcommittee to work collaboratively with all stakeholders on
this issue - state and federal regulators, mortgage lenders,
appraisers, and consumer groups - to increase the effectiveness of the
referral and enforcement processes.
Thank you again for the opportunity to comment on the draft report.
Please contact us if we can be of further assistance.
Sincerely,
Clarke Camper
Signed by Clarke Camper:
[End of section]
Appendix XII: Comments from Department of Housing and Urban Development:
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, D.C.
20410-8000:
April 15, 2003:
OFFICE OF THE ASSISTANT SECRETARY:
FOR HOUSING-FEDERAL HOUSING COMMISSIONER:
Mr. David G. Wood Director:
Financial Markets and Community Investments General Accounting Office:
Washington, DC 20548:
Dear Mr. Wood:
The Department has reviewed the draft report entitled, Regulatory
Programs-Opportunities to Enhance Oversight of the Real Estate
Appraisal Industry (GAO-03-404) and is submitting the comments below.
At the outset, we wish to express our agreement with the overall
conclusion of the report. Specifically, we concur with your
recommendation that better coordination between the state appraisal
oversight agencies, the Appraisal Subcommittee, and HUD is needed.
Staff request one change to a recommendation and other minor changes to
the report. The changes are listed below:
Page 38 - Recommendations:
To improve the process for referring problem appraisals by entities
that oversee or use real estate appraisals to the state appraiser
agencies for possible enforcement actions, you recommend that the
Chairman of the Appraisal Subcommittee work with the Chairman of Fannie
Mae, the Chairman of Freddie Mac and the Secretary of the Department of
Housing and Urban Development to ensure that referrals or problem
appraisals are provided in a format that is useful to the state
appraisal agencies and that suitable follow-up is taken to ensure that
the states have taken appropriate enforcement actions.
Proposed Recommendation:
FHA Requested Change: FHA requests that the recommendation be written
to exclude the Secretary of Housing and Urban Development or to
acknowledge that HUD is already involved in the work of the Appraisal
Subcommittee. As you are aware, a HUD representative serves as one of 6
members of the Appraisal Subcommittee. Consequently, HUD is well
positioned to work to enact any recommendation proposed by the
Appraisal Subcommittee.
Miscellaneous Edits and Corrections:
Page 4 --In the first line, "praisal" should be "Appraisal.":
Page 15- - In the last paragraph, the ASC has seven staff members, not
six.
Page 70 - First line of second full paragraph "AQB" should be "ASB.":
Once again, we appreciate the opportunity to review your draft report
and provide comments. We look forward to working with GAO in the future
and welcome the feedback and guidance we receive from your agency and
staff.
Sincerely,
John C. Weicher:
Assistant Secretary for Housing-Federal Housing Commissioner:
Signed by John C. Weicher:
[End of section]
Appendix XIII GAO Contacts and Acknowledgments:
GAO Contacts:
David Wood (202) 512-8678
Harry Medina (415) 904-2000:
Acknowledgments:
In addition to those named above, Susan Baker, Emily Chalmers, Erika
Cruz, Edda Emmanuelli-Perez, Joel Grossman, Tracy Guerrero, Jennifer
Lai, Alexandra Martin-Arseneau, Marc Molino, David Noguera, Jerome
Sandau, and Paul Thompson made key contributions to this report.
(250079):
:
FOOTNOTES
[1] As defined in Title XI, federally related transactions are real
estate transactions involving financial institutions regulated by the
federal government. These include banks, thrifts, and credit unions.
Real estate transactions of mortgage bankers, brokers, pension funds,
and insurance companies are not included.
[2] The territories included in our survey are Guam, Northern Mariana
Islands, Puerto Rico, and the Virgin Islands. The only other U.S.
territory--American Samoa--does not have a regulatory oversight
structure for appraisers because real estate there can only be
inherited. In this report, the term "states and territories" refers to
the 50 states, the District of Columbia, and the 4 territories.
[3] Impact of Appraisal Problems on Real Estate Lending, Mortgage
Insurance, and Investment in the Secondary Market, H.Rep. 99-891 at 4-
6 (Sept. 25, 1986), House Committee on Government Operations, 99th
Congress, 2ND session.
[4] Both Fannie Mae and Freddie Mac allow lenders the options to use an
inspection or evaluation instead of a traditional appraisal, on loans
that they determine to be low-risk based on their automated loan
underwriting systems. In the case of Freddie Mac, certain low risk
loans may be eligible for delivery to Freddie Mac with no appraisal or
inspection.
[5] The 2002 sponsors of the Appraisal Foundation consisted of eight
appraisal organizations, four affiliate organizations (representing
primarily the users of appraisal services), and one international
appraisal organization. In addition, over 80 organizations,
corporations, and government agencies are affiliated with the Appraisal
Foundation.
[6] We did not receive a response to our survey from the Virgin
Islands.
[7] The state of Wisconsin had a hybrid organizational structure
composed of an independent board that handled the complaint process
(including taking disciplinary action) and a state agency reporting to
the Department of Regulation and Licensing that issued appraiser
licenses.
[8] California and Guam reported that they did not use boards or
commissions for appraiser oversight.
[9] Reciprocity allows appraisers to use a license from their home
state to obtain a license in another state without taking examinations
or meeting additional requirements.
[10] 12 U.S.C. § 3347(a), (b) (2000).
[11] 12 U.S.C. § 3339 (2000).
[12] The $1,000,000 threshold does not apply to 1-4 unit, single family
residential appraisals unless the size and complexity of the
transaction requires a State certified appraiser. Also, under Title Xl
the federal financial institution regulators are responsible for
determining whether other types of transactions warrant the use of a
certified appraiser. See 12 U.S.C. § 3342 (2000).
[13] Although the States are responsible for establishing and
administering licensing qualifications, Title XI authorizes the federal
financial institution regulators to establish additional qualification
criteria.
[14] The threshold amount is contained in regulations of the respective
agencies that set forth the circumstances under which an appraisal by a
state certified or licensed appraiser is required or not required. See
12 C.F.R. § 34.43 (2002)(OCC), 12 C.F.R. § 225.63 (2002)(FRS), 12
C.F.R. § 323.3 (2002)(FDIC), 12 C.F.R. § 564.3 (2002)(OTS), and 12
C.F.R. § 722.3 (2002)(NCUA).
[15] 12 U.S.C. § 1813(q) (2000).
[16] See 12 U.S.C. § 3332(a) (2000).
[17] Title XI authorizes the Appraisal Subcommittee to charge an annual
registry fee of not more than $25. However, the Federal Financial
Institutions Examination Council may approve fees up to $50 per year.
As of March 31, 2003, the annual registry fee was $25.
[18] Illegal real estate flipping is a scheme where a real estate
speculator buys a house, usually in a poor neighborhood, and obtains an
inflated appraisal and other fraudulent financial documents to trick a
lender into making a loan that exceeds the fair market value. The house
is sold again at an inflated price to a second buyer. The seller has
then made a large profit on the inflated value of the property. If the
second buyer defaults on the loan, the mortgage lender may not be able
to recoup the amount of the loan and will therefore absorb a loss.
[19] 12 U.S.C. §3332(a)(3).
[20] Appraisal Subcommittee, Policy Statements Regarding State
Certification and Licensing of Real Estate Appraisers (Washington, D.C:
Sept. 22, 1997, as amended).
[21] See 12 U.S.C. § 3347(b),(c) (2000).
[22] 12 U.S.C. § 3345(c) (2000).
[23] 12 U.S.C. § 3345(a) (2000).
[24] 12 U.S.C. § 3345(e) (2000).
[25] 12 U.S.C. § 3345(d) (2000).
[26] Form of Real Estate Fraud Known As Flipping: Hearing before a
Subcommittee of the Senate Committee on Appropriations, March 27, 2000,
Baltimore, Maryland.
[27] Fannie Mae officials noted that when an appraisal is required for
a mortgage that will be delivered for sale to the GSE, mortgage brokers
must use appraisers that are state-licensed or certified in accordance
with Title XI.
[28] An evaluation is generally performed by an individual who does not
need a license or certification. For more information on real estate
evaluations, see U.S. General Accounting Office, Bank and Thrift
Regulation: Better Guidance Is Needed for Real Estate Evaluations, GAO/
GGD-94-144 (Washington, D.C.: May 23, 1994). In addition, the federal
financial institutions regulators issued Interagency Appraisal and
Evaluation Guidelines on October 27, 1994.
[29] 12 U.S.C. § 3351(a),(b) (2000).
[30] The remaining state's program charged a certified general
appraiser $45 in even-numbered years and $90 in odd-numbered years.
[31] Distance education does not require that the student be physically
present in the same location as the instructor. Common delivery systems
used in distance education involve technology such as video, computer-
based training, and the Internet to bridge the instructional gap.
[32] The Legal Advisory Group consists of the general or chief counsels
of the FDIC, FRS, OCC, OTS, and NCUA.
[33] 12 U.S.C. § 3348(c).
[34] Fannie Mae Form 2000 and Freddie Mac Form 1032, dated December
2002.
[35] See appendix IV.
[36] See appendix I, question 21.
[37] According to an Appraisal Subcommittee official, results from
their on-site state review conducted in the mid-1990s found that the
number of appraisers many states reported to the Appraisal Subcommittee
did not correspond to the number of appraisers in the state's records.
In response, the Appraisal Subcommittee made two changes to the
National Registry database to ensure that states were submitting the
names of and collecting fees on behalf of all eligible appraisers.
First, the Appraisal Subcommittee required states to submit records for
all real property appraisers and determined whether any fees were
outstanding. Second, the Appraisal Subcommittee redesigned the database
to calculate the fees owed by each state, including for creating and
mailing invoices. According to the official, revenues for the registry
increased significantly as a result of the changes.
[38] According to an Appraisal Subcommittee official, "other"
disciplinary actions can include warning letters, monetary penalties,
probations, and educational requirements. In general, only the
Appraisal Subcommittee and state regulatory agency have access to the
details of disciplinary actions classified as other.
[39] Nondisclosure states are those states in which the price and terms
of real estate transactions, such as the amount paid for the property,
are not subject to public disclosure.
[40] Appraisal Standards Board, Use of Automated Valuation Model
(Advisory Opinion 18)(July 9, 1997).
[41] The AQB's minimum qualification criteria for those seeking to
become appraisers require the course or its equivalent. AQB has also
established a continuing education requirement for appraisers of 7
hours of similar training every 2 years.
[42] ECAFS is an advisory committee to the Appraisal Foundation made up
of representatives from the Appraisal Foundation sponsoring
organizations.
[43] One state charged a single certification fee of $1,000 to
education providers for all instructors.
GAO's Mission:
The General Accounting Office, the investigative arm of Congress,
exists to support Congress in meeting its constitutional
responsibilities and to help improve the performance and accountability
of the federal government for the American people. GAO examines the use
of public funds; evaluates federal programs and policies; and provides
analyses, recommendations, and other assistance to help Congress make
informed oversight, policy, and funding decisions. GAO's commitment to
good government is reflected in its core values of accountability,
integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through the Internet. GAO's Web site ( www.gao.gov ) contains
abstracts and full-text files of current reports and testimony and an
expanding archive of older products. The Web site features a search
engine to help you locate documents using key words and phrases. You
can print these documents in their entirety, including charts and other
graphics.
Each day, GAO issues a list of newly released reports, testimony, and
correspondence. GAO posts this list, known as "Today's Reports," on its
Web site daily. The list contains links to the full-text document
files. To have GAO e-mail this list to you every afternoon, go to
www.gao.gov and select "Subscribe to daily E-mail alert for newly
released products" under the GAO Reports heading.
Order by Mail or Phone:
The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or
more copies mailed to a single address are discounted 25 percent.
Orders should be sent to:
U.S. General Accounting Office
441 G Street NW,
Room LM Washington,
D.C. 20548:
To order by Phone:
Voice: (202) 512-6000:
TDD: (202) 512-2537:
Fax: (202) 512-6061:
To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail: fraudnet@gao.gov
Automated answering system: (800) 424-5454 or (202) 512-7470:
Public Affairs:
Jeff Nelligan, managing director, NelliganJ@gao.gov (202) 512-4800 U.S.
General Accounting Office, 441 G Street NW, Room 7149 Washington, D.C.
20548:
