can to eliminate the risks associated with this vital network. >> well, i want to thank all of you. i think your testimony has been extraordinarily significant, very, very thought out and thorough, and i think important to this process, so we're very, very grateful to all of you for taking time here today. we will as i said leave the record open for a week and look forward to continuing the discussion with you over the course of the next months. appreciate it. we stand adjourned. thank you. >> today, the national education association holds its annual meeting. nea president discusses the

future of public education and the teaching profession. our live coverage begins at 12:30 p.m. eastern on c-span. >> today, the cato institute hosts a discussion on the supreme court decision on the health care law. panels will discuss the scope of constitutional law and the future of health care. live coverage begins at 1:30 p.m. eastern on c-span. >> during a recent hearing before the house financial services subcommittee, home appraisers told regulators that increased regulations have contributed to a drop in home prices. in this two-hour hearing, members of the committee examined how the dodd-frank law has affected the housing appraisals process. >> this hearing of the subcommittee on insurance

housing and community opportunity will come to order. opening statements will be made part of the record and without objection, all members' opening statements will be made part of the record. i will yield myself as much time as i may consume for an opening statement. good morning. i want to welcome our witnesses. today's hearing is entitled appraisal oversight, the regulatory impact on consumer and businesses. i would like to say that timing is everything and i think that hopefully, some of our members will be here shortly after they find out what's going on at other places. we are examining how appraisal related provisions in the dodd-frank act and other regulatory initiatives have affected consumers in the real estate industry. this hearing is a continuation of the subcommittee's oversight work related to the mortgage

origination process. a key element of a vibrant and sound housing market is effective appraisal regulation. regulation should facilitate robust competition among industry participants, it should ensure transparency and integrity throughout the mortgage origination process, while giving law enforcement officials the necessary tools to weed out bad actors. appraisal regulations should avoid placing unnecessary burdens on businesses and most importantly, benefits consumers. during today's hearing we'll examine the federal and state roles in appraisal regulation. we will also explore suggestions to improve the appraisal regulation structure and regulations. for example, can we make more efficient, consistent and effective appraisal oversight by streamlining regulations and redundant efforts to monitor the appraisal industry. finally, some mortgage industry participants have raised concerns about concentration in

the appraisal industry as well as the quality and accuracy of appraisals. how can regulations enhance integrity among appraisers and ensure accuracy and appraisal valuations. given the broad interest in the issue of appraisal regulations, i would like to hold at least a second hearing during the 112th congress on this subject to hear from other stake holders. so with that i look forward to hearing from today's witnesses. i hope that today's hearing will provide members of the subcommittee with a variety of ideas as to how appraisal regulation can be improved for both consumers and businesses. i would like to recognize our ranking member, the gentleman from illinois, mr. gutierrez, for his opening statement. >> thank you very much for yielding, madam chair. thank you for holding the hearing. as we proceed with profound systemic and comprehensive financial system and housing finance reform, it is becoming increasingly clear that we will benefit greatly from a clearly defined fair sound and well regulated system of property appraisals. in other words, all of the

industries involved in the real estate market from builders to consumers will benefit from a clear and level playing field in the appraisal system. i look forward to hearing about the gao, what the gao found in its two studies on this issue, specifically the several witnesses that identified that have limited the appraisal subcommittee's effectiveness in discharging its duties, specifically weak enforcement tools and reporting procedures. in addition, whether the ase is fully addressing the requirement to create and operate a national hot line to receive complaints of compliance with standards and uniform standards of professional appraiser practices. i look forward to learning more about the concerns of appraisers and their representative organizations on the impact appraisal management companies are having not only on the ability of experienced appraiser to make a living but on the quality of the appraisals as they impact the housing and financial specifically consumers. madam chair, it's important to understand the concerns of other stake holders such as realtors

and mortgage brokers regarding this. and other aspects of appraisal issues. but most important to me and i think many of our colleagues on this side of the aisle, i want to learn how these appraisal issues are affecting consumers, including whether or not consumers are receiving their money's worth in terms of quality of appraisal they pay for. are they being fully informed of what they're paying for and are they protected from fraud and do they have the proper means to address their grievances. i understand there is much to cover in this hearing and this is only another step in the examination of this critical issue. therefore, i thank you and yield back the balance of my time. >> thank you, mr. gutierrez. the gentle lady from west virginia is recognized for two minutes. >> thank you. thank you, madam chair and the ranking member. i thank everybody for being here today. there's just nothing going on in congress today so i'm glad we're here to talk about appraisals. i would like to thank the chairman for looking into this, as it is important. i will keep this brief. i want to take a few moments to address an issue that i've heard

really complaints about in my state of west virginia. i believe that the appraisal process is absolutely essential and so important to the mortgage process because as we know, a sound regulatory structure in which the industry can operate and serve the consumer is of prime importance. i hope to get a better clarification today as to whether the appraisal subcommittee can handle this role or whether it would be better left to the states to ask -- to act as the primary regulator. my main focus, though, has been to have a marketplace for the consumer, that the consumer can access. i represent a state where home values are relatively low. we don't have a lot of foreclosures. we didn't get out over our skis like a lot of other places. so purchasing a home may appear to be very affordable. it still strains a lot of the home budgets and i'm concerned because i hear of folks, of rising costs of appraisals and that appraisals in some cases are unfamiliar with the area in which they are making the appraisals, local markets, even

in a small state like west virginia, it might not sound like much but if you're coming from elkins to appraise a home in charleston, it is a totally different market. it's also 130 miles away. so you know, if this is the case, i know that the amcs have had an increased market share since 2008 and i'm curious to know what has contributed to this, putting a middle layer or more increased middle layer, has that increased the cost of the appraisal to the consumer. i'm really concerned about the cost of the appraisal to the consumer and the accuracy of the appraisal is essential. so i'm interested to know if dodd-frank provisions have absolutely created a more consumer-friendly process or not. so i appreciate the chairman for holding this hearing and i welcome our panelists to the committee room. thank you.

>> the gentleman from california, mr. miller, is recognized for two minutes. >> i want to thank you for having this hearing this morning. it's extremely important. the appraisal process was broken but to some degree, is still broken. after hvcc passed in dodd-frank i remember arguing vehemently about the process going in the direction we're heading and it proved to be right, it was a disaster and we repealed most of that but there's a lot lingering after that process that still they're having to deal with. out of area appraisals are significant process, problem we're dealing with. using distress sales as comparables, it oftentimes creates more problems than it does benefit, because an appraiser who is not a local appraiser doesn't understand the difference between the distressed property and the rehab that's necessary to take place to make this a comparable property, and a property that's not a rehab, what they're dealing with in those areas so there's a lot of confusion and

ambiguitiy in the process has t be dealt with. new home construction is another good example. you're trying to compare a new home to a piece of property that sold for less than sticks and bricks that they're not comparable, they don't have the new standards, new compliances required by local agencies and states that pass these mandates on energy efficiency, green home in california is another one having to deal with it. builders are putting costs into homes, many areas are mandated to do that, and they can't even use the cost of those improvements as part of the appraisal. i would like to enter into the record a letter from national association of home builders and the second from leading builders of america. >> without objection, so ordered. >> thank you. when you talk to different groups and individuals, you don't -- you don't hire an electrical contractor to bid electric work. you're getting them in areas sometimes they don't have

expertise and you can't just necessarily not knowing an area go to a computer and pull up an equivalent square footage home and say it equates to what we're trying to sell here. it doesn't. we found out the situation with hvcc when it first passed when proposed, my argument was perhaps new york is the most corrupt state in the nation but 49 others don't have those problems and we need to allow more local control. being able to take an appraisal and use it again as not available during the old process we had where you required a lender to basically do the appraisal, that appraisal could not be taken to another lender to do the work. so there's areas that we need to deal with that i don't think we have. we're in a recovering market and we need to do what we can to make sure the market has an opportunity to recover. and i think til we fix the appraisal process, that's not going to happen. we're not doing a service to

people who sell their home, nor are we doing a service to people who buy the home and we're doing a complete disservice to the people who are trying to finance homes and sell homes. so i thank you for your generous time and i'm looking forward to the testimony. >> thank you. the gentleman from texas is recognized for one minute. >> thank you, madam chair. i sincerely thank you, madam chair, for hosting this hearing. this is an important hearing and i would like to associate myself, if i may say so, with mr. miller's comments. i did not hear them in their entirety so i won't associate myself with all of them, but what i did hear, i associate myself with. i would also like to enter into the record a letter from the houston association of realtors. this letter is signed by their president. actually, he is the federal coordinator and also the state chair elect as well as mr. wayne

strohman, who is the chair of the board for 2012. >> without objection. >> thank you. madam chair, i think mr. miller has made some salient points. we find ourselves with people making decisions that are not entirely familiar with the empirical evidence. i do believe that we have to revisit some of these issues so as to tweak a system that we have in place. my belief is that this is something that is salvageable, something that's doable. i think that we just have to find a way to work on this project and focus on the question before us. i've had an opportunity to talk to realtors so i have some first-hand information about what's going on in my city. first-hand information. i've talked to many realtors about this concern. i have even gone so far as to talk to people who do the actual appraisals and they, too, have some concerns. so i thank you for hosting this hearing. i'm looking forward to hearing much of the evidence and i have

to say, much of it because as you know, there are many things happening today without getting into all of what's going on, and i'm being pulled in many different directions, but i had to be here for this because of the importance associated with it. thank you again and i yield back the balance of my three seconds. >> thank you, mr. green. we're delighted to have our panelists here today. we are -- we are going to have two panels and so we will start with panel number one. we have mr. william b. shear, director of financial markets and community investment, government accountability office. thank you for being here. mr. don rogers, president, association of appraiser regulatory officials and then mr. james r. park, executive director, appraisal subcommittee federal financial institutions examination council. thank you so much for being here. without objection, your written statements will be made part of the record.

you each will be recognized for five minutes summary of your testimony. we will start with mr. shear. you're recognized for five minutes. >> thank you. chairman biggart, ranking member gutierrez and members of the subcommittee -- >> i'm not sure if your mike is on. if it is, pull it a little bit closer. >> just pull closer. okay. can you hear me now? >> pull it a little closer. >> okay. >> it moves. >> okay. i'll get it. can you hear me now? okay. i'll raise my voice, too. thank you. chairman biggart, ranking member gutierrez and members of the subcommittee, i'm pleased to be here today to discuss our work on real estate appraisal issues. my statement today is based on information from two reports we issued in response to mandates in the dodd-frank act. the first which we issued in july 2011 included an examination of real estate valuation methods, including appraisals as well as conflict

of interest in appraiser selection policies. the second which we issued in january 2012 included an assessment of the appraisal -- >> mr. shear, it still is hard to hear you. looks like the wires are tight there. can you move it a little bit closer? >> i'll move this way. let's try this. the second which was issued in 2012 included an assessment of the subcommittee's monitoring functions and certain challenges faced by ase. in summary, we found that first, appraisals which provide an estimate of market value at a point in time are the most commonly used valuation method for first lien residential mortgage originations, while data on different approaches for conducting appraisals are limited, we found that the sales comparison approach is required by fannie mae, freddie mac and

fha and is reportedly used in nearly all appraisals. we also found that the cost approach in which an estimate of value uses data on land value and what it would cost to replace or reproduce a residence is often used in conjunction with the sales comparison approach. second, conflict of interest policies have changed appraiser selection processes and the appraisal industry more broadly. specifically, the policies have led to increased use of appraisal management companies. in our july 2011 report, we concluded that setting minimum standards that address key functions amcs perform on behalf of lenders would enhance oversight of appraisal services and provide greater assurance of the credibility and quality of the appraisals provided by amcs. therefore, we recommended that these regulators consider addressing several key areas, including criteria for selecting appraisers, as part of their joint rule making under the

dodd-frank act to set minimum standards for states to apply and register amcs. now i will briefly discuss our evaluation of the appraisal subcommittee. it has been performing its monitoring rule under title 11. we found that several weaknesses which are generally associated with a lack of established policies and procedures and clear definitions have potentially limited ase's effectiveness. we recommended that ase clarify the criteria it uses to assess states' compliance with title 11 and develop specific policies and procedures for monitoring the federal banking regulators and the appraisal foundation. ase is taking steps to implement these recommendations. chairman, ranking member gutierrez, this concludes my prepared statement. i would be happy to answer any questions. >> thank you so much. mr. rogers, you are recognized for two minutes -- i mean five minutes.

>> madam chair, ranking member gutierrez, members of the subcommittee, thank you for the opportunity to testify today. i am the executive director of the north carolina appraisal board and i am currently the president of the association of regulatory officials which is comprised of the real estate appraisal licensing agencies. my testimony today will focus on issues that are particularly relevant to state regulators. lack of resources. state appraiser licensing programs were established as a result of fiera to issue credentials and oversee compliance with state laws. some programs are part of an umbrella agency that handles all occupational licensing of the state. they often use pool investigators and assign legal counsel on a per case basis. others are stand-alone agencies that handle appraising and/or real estate. they may have staff investigators and full-time or part-time legal assistants. finally there are states such as north carolina that have an autonomous board set up by state

statute. they do not receive state funding and typically hire their own staff. programs that share staff may lack sufficient resources and may not be able to comply with federal requirements. state officials do not understand why this program must be given priority when the backlog for other agencies is just as great. on the issue of appraisal fraud, an appraisal is an opinion of value which makes it difficult to show that the appraiser intended to deceive someone. for this reason, law enforcement officials often shy away from bringing fraud charges against appraisers, although state and federal law enforcement have joined task forces with state regulators, they are often not able to share information due to concerns that their investigations could be compromised. appraisers are not usually the originator of fraud schemes, but are brought into it with the promise of future assignments. instead of large payments which would provide the smoking gun tying them to the fraud. appraisal management companies. amcs have existed for many years. as a result of the home valuation code of conduct, many

more amcs were established. there were, however, no regulations in place defining amcs or controlling who could own or operate an amc. often appraisers are prohibited from speaking with brokers, builders or borrowers. this creates consumer frustration directed toward appraisers as consumers are not aware of the role of the amc in the appraisal process. appraisers have their own issues with amcs, including numerous assignment conditions, requests to go outside of their market and delays in receiving payment. a frequent problem for regulators is that they must license two entities whose interests are often at odds. each group may attempt to change laws and rules that impact the other's ability to function. as complaints increase against amcs, states may lack the resources to investigate out of state companies who have substantial legal resources. alternate valuation services. broker price opinions and other evaluation products are

generally not regulated by appraiser licensing boards. consumers do not realize the difference and may think they are receiving an appraisal when an appraiser was not involved in the process. there is limited authority to discipline brokers for errors in the development of these valuations and they are not sufficiently regulated. evaluation of the appraiser regulatory system. some of the cooperative efforts between state boards, the asc and the appraisal foundation are an investigator training program provided at no cost to the states, task forces on trainee supervision and consistent enforcement, the foundation issues exposure drafts and request comments when there are proposed changes or the appraisal qualification criteria and schedules meetings to coincide with their own conferences. the staff provides foundation meetings and assists the states in drafting rules and legislation. there continue to be areas that show the need for improvement. state regulators should be represented on the appraisal subcommittee as well as the

foundation's boards. there should be a national repository for appraiser and amc records, either through expansion of the national registry or a system similar to the national mortgage licensing system. current asc meeting procedures discourage the public from attending. universal application and complaint forms have been discussed but are difficult to achieve absent a federal requirement. the asc has been in the process of changing its policy statements for several months but states have not had the opportunity to see a draft or to comment. the lack of enforcement sanctions was a serious omission and created a situation where derecognition was the only penalty available to the asc for violations. the dodd-frank act has given the asc broader enforcement options, the ability to make grants to the states and oversight of the amc registration process. it remains to be seen what effects these new tools will have on the oversight of the state appraiser programs. thank you for the opportunity to testify before dau. i will be glad to answer any questions.

>> thank you. mr. park, you are recognized for five minutes. >> good morning, chairman biggart, ranking member gutierrez and members of the subcommittee. thank you for the opportunity to update you on the work of the appraisal subcommittee, also known at the asc. title 11 created the asc as an independent agency within the federal financial institutions examination council. title 11 was passed following the savings and loan crisis of the 1980s to address weaknesses regarding real property appraisals used in connection with federally related transactions. title 11 called for the establishment of state programs to credential and supervise appraisers and created a unique regulatory framework that involves federal, state and private entities. at the federal level, we have the asc. at the state level, the state appraiser regulatory agencies and on the private side, the appraisal foundation.

the asc is made up of seven members designated by the heads of the federal financial institutions regulatory agencies as well as hud, fhfa and the cfpb. this last january, the cfpb appointed its first representative to the asc. effective april 1st, the ffic appointed the hud representative as the new chairman who is also a certified appraiser and the first appraiser to chair the asc. the member agencies remain committed to fulfilling the asc's statutory responsibilities. as part of its core responsibilities, the asc monitors the state appraiser regulatory programs for compliance with title 11. the asc completed 27 reviews in 2011 and 31 are planned for 2012. the asc also maintains the national registry, comprised of appraisers eligible to perform appraisals for federally related transactions. the registry contains just fewer than 105,000 credentials, down

almost 14% from its peak in 2007. with the registry fee being the asc's sole source of revenue, the reduction in the number of credentials comes at a particularly challenging time as the scope of responsibility is increasing due to the dodd-frank act. in monitoring the foundation, asc staff attends all public and private meetings of the foundation boards. for fiscal year 2012, the asc approved a grant of approximately $900,000 to the foundation. the grant includes funds for the state investigator training program, which has been beneficial to the states. through our monitoring, the asc is aware that the foundation is currently working on a new strategic plan. the asc played no role in the development of this strategic plan, however, when made public, the asc will review and possibly comment on matters related to asc responsibilities. the asc continues to make progress in addressing the dodd-frank act requirements. last fall, the asc approved a

plan to establish the appraisal complaint national hot line and a great deal of work has been completed towards its implementation. asc member agencies are currently working to finalize the details for internal complaint intake and disposition. launch of the hotline is anticipated before the end of 2012. the dodd-frank act also required the gao to conduct a study of the asc. in its report issued last january, the gao made three recommendations. first, gao recommended that the asc clarify definitions used to categorize states' compliance with title 11. in response, the asc has clarified the definitions which are now incorporated into all appropriate documents. the asc also drafted revised policy statements that have been approved for publication in the federal register to solicit public comment. the revisions including new findings and definitions to further address this gao

recommendation. second, gao recommended the asc develop specific policy for monitoring appraisal requirements developed by the federal financial institutions regulators. finally, gao recommended that the asc develop specific policies for determining whether the foundation's grant activities are related to title 11. staff is drafting policies for asc approval to address these last two recommendations. other asc priorities include fulfilling the authority and responsibilities conferred by the dodd-frank act in such areas as state grants and rule making. regarding state grants, many state appraisal programs do not control their funds. therefore, the asc will focus on ensuring grant funds are used to support the program. while the asc has not yet formally addressed rule making, the proposed policy statements would implement the interim sanctioning authority given to the asc by the dodd-frank act to remove appraisers from the national registry for up to 90 days. use of any additional interim sanctioning authority would

require rule making. in conclusion, i again appreciate the opportunity to appear before the subcommittee and look forward to addressi >> thank you, mr. park. this is the time where the members of the committee will ask questions and since i'm here, i will start. i yield myself five minutes to start. mr. shear, do you think that the asc has made efforts to reform its policies and procedures for determining whether the activities of the appraisal foundation are title 11 related? >> as mr. park said, we followed up and we are -- we know that they've made progress in this area. as far as coming up with a definition that would be how do you define title 11, you knw,