tv [untitled] July 2, 2012 10:30am-11:00am EDT
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activities. so we know they are making progress in this area. >> so you think they're moving ahead enough for -- >> yeah, we're very glad that they agree with our recommendation and that they're putting things down, you know, in a formal way to address these issues. >> okay. according to your testimony, based on your july 2011 report, the appraisal subcommittee has not clearly defined the criteria it uses to assess states' overall compliance with title 11. could you expand on this assertion? >> i would be glad to. one thing that we have observed over the years is that the compliance, the oversight of state compliance with requirements has been enhanced over the years, so we see that and we see the establishment of
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many policies and procedures that are clearly stated, but from an internal control standpoint, we just felt with the three different categories that it would bring greater clarity and it would provide for more kind of robust oversight if these three categories or whatever categories they had were more clearly stated and defined and we understand that they're making progress in this area. >> okay. thank you. then mr. rodgers, you provide some suggestions on how the appraisal regulatory structure can be improved at the state and national level. can you describe and explain some of those suggestions for this committee? in a little more depth? >> yes, ma'am. i would be glad to. in looking at the areas of improvement, as mr. park said in his testimony, the policy
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statements which are given to the states to follow to show compliance with title 11 are in the process of being revised. we have not at this point understand that process has been going on for several months and have yet to have any exposure to the states or have the states comment. when the appraisal foundation makes changes to their -- the standards or the criteria, there's a very robust exposure and vetting process and it allows a lot of unintended consequences to get out there. so i would encourage the subcommittee to get those to the states for comment as soon as possible. also, we believe that the states should be -- have representation both on the subcommittee as either a member or through some sort of liaison and they also should have the same representation on the standards
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and qualifications boards. these boards directly affect policies, rules for each of the states and for them to understand what impact or what unintended consequences might come by the result of changes to rules or regulations is essential. so we think that is a very essential point. with regard to the public meetings of the appraisal subcommittee, the process is very rigorous to try to attend. you have to register in advance, have a photo i.d. you go through a security process that's more extensive than getting in this building, and you have to be escorted to and from the meeting site. this is largely because they are held in the offices of the financial federal institutions so it is understandable the level of security needed in those buildings. we would suggest they should be held somewhere that the public could come without preregistration or
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identification. in our state, you come to a public meeting, you have to -- you can walk right in. so we would suggest that as well. that's just some of my suggestions. >> thank you. i would yield myself such time as i may consume for additional questions. then mr. rodgers, there seem to be a great number of the appraisal industry participants who claim that real estate appraisal fraud is significantly increasing as the state regulator does your appraisal fraud data reflect or dispute this claim? >> just speaking for my individual state, we have not seen a large increase in appraisal fraud. i think a lot of the flipping schemes that were taking place in the early part of this last decade, they are just difficult
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to perpetrate given the financial climate we are in now, the rapidly inflated markets made it easier to perpetrate, where now that certainly doesn't take place. we have heard of issues of what is now called flopping schemes where it is misrepresented to the lending institution what the property is worth, they short-sell for a low amount and then some of the real estate professionals in turn sell the property at a large profit. so kind of a reverse of the flipping scheme. we have seen some cases in our state which were right in the middle of the transition to the economy falling where there were subdivisions where a lot of promises were made, no money down type investments, a lot of people bought lots for investment type properties and then the market crashed in the
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middle of it. so some of these were fraud in the fact that they were trying to entice people into making poor investment choices, the actual market fell out from under them which was not part of a fraud scheme. >> thank you. then mr. park, it's my understanding that the appraisal subcommittee was created in response to the savings and loan crisis in the late 1980s and early 1990s. in light of significant changes over the past 20 years, what is the relevance of the asc in today's market? >> the relevance of the asc is the federal oversight -- >> could you pull -- thank you. >> the relevance of the asc is the federal oversight that we
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provide for the states as well as the monitoring of the appraisal foundation and the grants that are provided to the appraisal foundation for the work of the appraisal standards board and the appraiser qualifications board. >> the question is, is the model outdated or do you think you're in the 21st century as far as the federal oversight? >> title 11 is originally enacted, had some flaws in it. the dodd-frank act attempted to correct some of those flaws providing more authority and responsibility to the appraisal subcommittee and while those -- many of those provisions of the dodd-frank act are still being put into place, they should assist the subcommittee in providing greater regulatory oversight for the appraisal
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system, for the appraisal regulatory system. >> mr. shear, do you think that there should be a complete overhaul of that to make sure there it is in the 21st century? >> while we didn't look at various options for restructuring so i can't answer your question directly, we did look at how dodd-frank changes the role of the appraisal subcommittee and the new authorities and responsibilities, and we think the appraisal subcommittee has some huge challenges ahead as they move forward in implementing or recommendations and taking other actions. i would expect that this committee and others will be taking a very close look to see whether the appraisal subcommittee has the resources and the right type of structure to carry out these additional responsibilities, especially pertaining to monitoring the federal financial regulators.
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>> mr. park, you know, obviously the asc failed to detect a significant amount of appraisal fraud during the financial crisis. a lot of other people made a lot of mistakes, too. do you think because of that, that the states could assume some of the role of the asc? >> the role of the asc is not to detect appraisal fraud. that's really the realm of the states. they're the enforcement mechanism of the system. the asc's role is to create an environment where fraud can be easily detected and then the states have the ability to enforce disciplinary actions for fraud or lesser offenses, misleading appraisals, incompetent appraisals and so forth. >> was there a problem with the
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environment, then, that the asc created at the time of the financial crisis? >> well, the asc has to work within the confines of title 11, within the authority that it's given. one of the problems, one of the inherent problems with title 11 that dodd-frank tried to correct is the fact that the only authority, the only disciplinary authority that the appraisal subcommittee had to use against states that were out of compliance was nonrecognition of the state program. nonrecognition of the state appraisal program would in effect shut down mortgage lending in the state. so while it's been addressed with many states or several states and states know that that is a potential outcome of compliance reviews, they also know that it's a very draconian
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measure. >> well, the asc oversees the states and you said that you don't detect the fraud but has asc put out any information about fraud trends and worked with the states to better address fraud? >> during the compliance review process our policy managers who actually conduct the compliance review talked to the states, gather information about whether -- what they're doing related to fraud, more and more states we found are getting involved in various mortgage fraud committees and working with the fbi, federal government and state government officials to address the problem of mortgage fraud and appraisal fraud. >> okay. mr. rodgers, do you think that this -- has this happened in your state? has this been a help? >> well, i do agree that there's been efforts both on the level
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of sub committee review that issues that occur in other states are certainly made available and aware of other states. again, the joint investigator training that has been alluded to allowed three regulators from each state to attend at no cost and to focus on some of these issues that you may see. as i pointed out in my testimony in dealing with law enforcement officials, one thing is they have to have a fairly substantial threshold of financial harm before they can become interested in a fraud perpetration and when they have participated in task force which i think has been useful in helping identify players in some of these mortgage frauds, it is sometimes difficult for the information to be shared both ways, because they are in a criminal investigation and sometimes they fear that the advancement of a licensing
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investigation may compromise their criminal investigation. >> thank you. i have exceeded my time. and so there be some leeway for mr. gutierrez, you are recognized. >> thank you so much. you are so kind. well, i'm very generous mood. my prescriptions are ready at the drugstore. i want to let the panelists know, if you have an appointment, you can keep it. pre-existing conditions will not be counted against you. you got your kids on health care, it's okay. i guess it's the law of the land now. so i feel pretty good about that. sorry for that little aside but i thought you might want to know what the supreme court has just decided, especially since you were all i know not on your blackberrys. note i am not talking to the rest of you who i know are very well informed of what happened but not the three, our three very distinguished and welcomed witnesses here this morning.
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so mr. shear, as we continue to look at comprehensive housing finance reform, a key element missing from the debate is comprehensive appraisal reform. i think our goal should be to establish an appraisal system that produces accurate values through all phases of the housing cycle, all phases of the housing cycle, and the interagency guidelines that became effective december 2010 were a vast improvement over 2004 guidance but the scope was limited. as we confront the major systemic hurdles to appraisal reform, specifically the fragmented and what we consider some of us consider dysfunctional nature of the appraisal system and regulatory oversight, the question is who has the authority and more importantly, the ability to coordinate and implement the changes we need to accomplish? >> the work -- you raise really good questions and our work can address some of those questions. there is room for improvement with the appraisal subcommittee
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and in particular, the new authorities and responsibilities provided by dodd-frank allow the appraisal subcommittee to do a better job of trying to oversee the state regulators. we also think it's very important and also, a huge challenge for the appraisal subcommittee to try to come up with a way of monitoring the federal financial regulators, given their structure and their small size. so there's an awful lot that seems to be riding on what the appraisal subcommittee is capable of doing, but i think the types of questions you ask are very good questions, because even if the appraisal subcommittee does successfully implement new procedures, implements new authorities and takes on new responsibilities, there still is the question as far as how comprehensive a system we have and you know, based on our work, i can say
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those are very good questions that become very much part of the whole fabric of mortgage reform under dodd-frank. >> mr. rodgers? could you help us a little more? >> yes. i think there are two questions with regard to what happens on the state level. the question has been raised about dealing with appraisal fraud and joint work with law enforcement. largely, the complaints and the comments i've heard from the members here today have to do more, though, with the accuracy of valuation helping to recover from the housing crisis and situations like that. unfortunately, on the state level, you're dealing with a complaint system that -- where the board receives a complaint, then it falls under a due process system. for example, in our state, immediately the respondent has
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30 days to respond to the complaint before we even initiate the investigation. what you're hearing a lot from participants in the marketplace is they need somebody that once an appraisal does not meet their needs, they need some sort of ability to appeal or to get it revisited or reviewed. i think that will have to be handled largely in the lending community. >> mr. park? >> could i ask you to restate your question? >> well, we have the effectiveness of the system to change and to improve and to have new effective standards across the country, we've changed them. how do you see those standards changing? are they changing quickly enough, are they being adopted quickly enough? >> the changes to the appraisal regulatory system have occurred very slowly. the dodd-frank act were the
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first significant changes since it was enacted back in 1989. so there has been -- but the dodd-frank act did install quite a few significant changes that we've talked about earlier in terms of the subcommittee's hearing -- >> you think they are actually being carried out effectively? >> yes. we are in the process of na enacting the different provisions that the changes, the amendments to title 11 that were part of the dodd-frank act and we have already made changes in terms of, for example, the subcommittee did not have the authority other than to comment on, but we had no authority during the compliance review process to look at the funding and staffing of a state program. dodd-frank gave the subcommittee the authority to do that as part of our compliance review process. >> my time has ended. the gentle lady -- thank you so much. we'll have more questions for
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you and i thank you for the testimony today, because maybe it's just my imagination, but i have only met two appraisers. i've had appraisers, more than two homes appraised. i remember meeting one like 25 years ago and you know, it's like if your car, you know, you tell the mechanic what you think might be wrong with it, right, contractor comes over to fix something, you might tell him, and it was like the last time i had the appraiser come over, it almost felt like i was doing some criminal act by telling her about the beautiful tile, how expensive it was, before i installed it, and trying to tell her what it was about my home that made my home unique so that she could do a better appraisal, i thought. i mean, when i talked to the mechanic, he kind of listens to me, then does whatever he has to do to fix my car. but he doesn't treat me like a criminal in trying to tell him what i think's wrong or good or bad about my car. i hope we don't get to the point where you get into an adverse
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aerial relationship between homeowners and their most prized possession, right, and what it is we think it's worth. in the end they're going to make an objective determination, but you know, you can still get good information i think from the american public as you make a american public when you make a decision about what it is that something is worth. i thank all of you and we look forward to the next panel. >> thank you. i would like to thank the panel for their expert testimony and for being here. it's been very helpful to us. with that, we'll excuse the panel but first of all let me just say that the chair notes that some members may have additional questions for this panel which they may wish to submit in writing. without objection the hearing record will remain open for 30 days for members to submit written questions to these witnesses and to place their response in the record. thank you very much.
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with that we'll have the second panel come forward. >> i would like to recognize the second panel and thank you all for being here. we have the chief program officer and we have the president of the appraisal foundation, thank you and also the 2011 chair national association of realtors appraisal committee. thank you for being here.
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mr. don kelly, executive director of real estate valuation advocacy association on behalf of the coalition to facilitate appraisal integrity reform. thank you. ms. karen jane mann on behalf of the american society of appra e appraisers and the president of the appraisal institute. thank you all. we will then begin with the testimony and without objection your written statements will be made part of the record. you will each be roecognized wih a five-minute summary of your testimony. >> good morning. i'm the chief program officer for the national reinvestment coalition.
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i'm honored to testify before you today from both a consumer protection and a safety and soundness perspective in order to discuss options for improving the regulatory oversight of stake holders in the housing finance industry. we are an association of more than 600 community based organizations that promote access to basic banking services including credit and savings to create and sustain affordable housing, job development and vibrant communities for america's working families. today the u.s. economy is mired in the worst economic crisis in more than half a century and valuation issues remain front and center in the financial reform debate. our current economy earned its monarch of the great recession and this is not an equal opportunity recession. we call upon policy makers, the appraisal subcommittee and regulators to act swiftly to embrace the reforms included in the dodd-frank act and implement the following ten
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recommendations that will help all americans but particularly assist low to moderate income communities, communities of color, and communities impacted by the foreclosure crisis who are working to realize or sustain the american dream of home ownership. to accomplish this end, we propose the following. first, to develop a more modern appraisal reporting process and utilize more robust and uniform reporting tailored to today's needs. the recent changes regarding uniform appraisal data set have only added further confusion to the already inadequate mandated form. second, require full aprays -- appraisals for mortgages above $50,000. the current limitations associated with the so-called value are out of touch with today's realities. third, the role and impact of
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appraisal management companies bu must be reviewed to make sure they are not negatively impacting appraisal quality. fourth, appraisal professionals enhance safety and soundness and protect interest of all parties to a mortgage transaction including and especially consumers. they must be appropriately compensated under any usual and customary fee standard that is developed. fifth, the banking regulators fannie mae, freddie mac and fha should not escape appraisal subcommittee valuation safety and soundness review and enforcement. sixth, while automated valuation models serve as a useful and
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cost competitive compliance tool and check against fraud they should never replace use of an appraisal by a licensed appraiser for all mortgages that exceed $50,000. seventh, there is a need for more effective consumer protection, transparency and education including a dedicated consumer complaint hotline in collaboration with not for profit organizations. eighth, responsible appraisal practices ensure and expand housing opportunities in open society. it is unfortunate that that we still see issues of the age of housing, predominant value and use of comparables with the quality of housing and america's low income or housing communities. ninth, we are seeing widespread undervaluation through the use of broker price opinions and the short sale process or general
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reluctance to recognize that in some communities the market is beginning to return. and tenth, states must suspend the inappropriate action of redirecting funds intended for appraisal compliance, professional development, licensing and oversight to their general funds. in conclusion,erative for members of congress and the subcommittee to work in conjunction with one another to ensure that consumers and industry stake holders benefit from a system of regulation that helps ensure the independence and integrity of the appraisal process. to accomplish this we urge you to consider the recommendations that we have made today. thank you. >> thank you so much. mr. bunton, you're recognized for five minutes. >> thank you very much, madame chair. the appraisal foundation greatly appreciates the opportunity to appear before you today to offer our perspective on real estate
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appraisers. i've been a senior member for the last 22 years and prior to that served as chief of staff of one of your former colleagues. i'm not an appraiser. there are many misperceptions about the appraisal foundation and let me start off by saying what it is not. it's not a government agency. it's not a regulatory body. it wasn't created by congress. it's not an appraisal trade association. and we have no individual members. what are with he? we're a 501 c 3 not for profit educational organization. we were founded by eight national appraisal organizations 25 years ago before the enactment. we are an umbrella organization composed of over 100 organizations and government agencies with an interest in valuation. we've attached a list of those organizations to our testimony. we were created primarily to foster professionalism in appraising. what the appraisal foundation is the private sector expertise in the real property appraiser regulatory system under title 11. the foundation does not have
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regulatory authority but we provide the tools to the regulatory community. specifically we set the minimum education and experience requirements for someone to become a sate certified or real estate appraiser. we are the authors of the national uniform exam that all 55 states and territories use. and we are the authors of the generally recognized standards of professional conduct known as uniform standards that all must adhere to. with the work of our boards we understand the very importance of public trust. in fact, the words public trust appear in our mission statement. we learned over the years that one way to build and maintain public trust is to promote transparency whenever and wherever possible. all of our boards conduct public meetings, they issue exposure drafts often numerous times and all comment letters we receive are posted on our website. in fact, the people who serve
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