captions copyright national cable satellite corp. 2008 we're producing several training videos at a time of tight state budgets. state regulators can receive training at their desk without having to fly anywhere. and then because all 55 states and territories are using the same document for enforcement, we have created something called a voluntary disciplinary action matrix and what that is, it lists specific violations and recommended disciplinary action. it also lists aggravating and mitigating circumstances. it's completely voluntary and a simple tool for states to use. i've been asked to touch on two internal foundation issues. one of them is the foundation strategic plan. it's premature to get into details of the plan because it will not be presented to our board of trustees until next month. assuming it is accepted by our

board, the foundation will publicly expose the draft plan as it did with its current plan to all stakeholders for 90 days. this november the board of trustees will take into account public comments received and make a final determination on approving the strategic plan. i was also asked to comment on the appraisal practices board. there's a lot of misinformation about this newest board that was constituted in july 2010. this essentially is the how-to board, if you will. how do i appraise with a foreclosed properties and short sales and things like that. four things i want to mention about the apb. number one, the appraisal practice of the board does not have any congressional authorities, adherence to the guidance is strictly voluntary. number two, the apb does not operate with any public funds or any grant money. number three the apb valuation advisory do not establish new valuation methods or techniques but a compilation of existing ones into one place. and lastly, the valuation advisories are available to

anyone at no cost. earlier we heard from the general government accounting office and over the past decade there have been 16,000 disciplinary actions, 2,300 revocations and 1,800 suspensions. they've been very active. title 11 is the glue that holds these 35 jurisdictions together and it's important to remember without the use of any appropriated funds. madam chair, the appraisal foundation stands ready to assist the subcommittee in think way you believe we can help this effort. thank you. >> thank you so much. mr. gregori, you're recognized for five minutes. >> good morning. i thank you for the opportunity to testify on behalf of the national association of realtors about appraisal and the regulatory impact on consumers and businesses. nar represents more than 1 million real estate professionals, including approximately 30,000 licensed and certified appraisers.

my name is francois k. gregoire. i go by frank. i do not speak french. i'm a realtor but earn my living as a real estate appraiser. my qualifications are fully detailed in my written testimony. nar believes a strong independent rah appraisal profession is important to real estate consumers and the industry and vital to restoring faith to the mortgage origination process. appraisals are critical for the housing market recovery. there's no question about the importance of appraisals in real estate and mortgage transactions. a credible valuation by a competent, licensed or certified professional provides benefits to the lender, borrower and secondary markets. public trust in the real estate profession is enhanced. there are obstacles to preventing realization of these benefits. among the obstacles is weakened appraiser competency. despite good intentions,

litigation and regulation has diminished the importance of appraisal economicy as criteria for appraisal selection and retenti retention. the insertion of appraisal management companies between loan originators and appraisers results in a focus on fee and turnaround time rather than appraiser competency and experience. the most common concern expressed by our members whether they be a broker or an appraiser is knowledge of the local market or geographic competency. the uniform standards of professional appraisal practice requires appraisers to have competency or to acquire competency to understand the nuances of a particular market. the current amc model tends to disregard this necessary focus on competency. appraiser competency may be enhanced with education and communication. communication between appraisers and real estate agtsz agents and their clients is not prohibited and should in fact be encouraged. of course efforts to intimidate, bribe or coerce an appraiser are

and should continue to be prohibited. some amcs provide legitimate services for reasonable fees but many contribute to problems in the appraisal business and the overall housing market. contrary to their claims, there is evidence appraiser independence is compromised by the amc. assignment conditions such as unreasonable turnaround times and unrealistic scope of work for reduced fees interferes with the decision making process necessary for a credible appraisal. experienced appraisers refuse these assignments instead of selecting the best appraiser for the job, the assignment is often awarded to the appraiser who responds first to a mass e-mail, not the best selection method. the independent judgment of appraisers is compromised when amc reviewers unreasonably question comparable sales selection. non-appraiser amc staff with only a cursory knowledge of

valuation interfere by insisting that specific information be included or excluded from appraisal reports. the altered business relationships between appraisers and their clients, unreasonable completion time requirements, diminished fees and interference in the appraiser's independence all contribute to the failure to recognize positive movement in prices and values in many market areas. nar did not support the dodd-frank language that regulates amcs on two different tracks. we believe exempting some amcs from state registration has aggravated the problems. nar believes that all amcs should be registered with state regulatory agencies. additional appraisal challenges include limitations of the current standard forms, reporting format, lagging market information, discrepancies in market definitions, privacy concerns, the funding structure of appraisal programs, and a declining number of appraisers. nar is the only real estate trade association able to speak

with authority on appraisals and alternative valuation products. we have long been proactive in ensuring credible valuation of real property for our industry and embracing all-encompassing approach. appraisals are certainly the gold standard for mortgage origination but there is a role for broker price opinions, comparative market analyses and automated valuation models. through our subsidiary, realtors property resource and our valuation committee, nar is able to provide comprehensive data sets and tools to assist in determining credible home values. thank you for holding this hearing to examine an issue which is paramount to restoring confidence in the u.s. housing market. nar is dedicated to the idea that homeownership matters. it contributes to our nation, benefitting individuals, families and communities. our efforts are directed at ensuring that the dream of home ownership is available to the next generation. we look forward to working with the committee on this issue and i'm anxious to answer your

questions. >> thank you. mr. kelly, you're recognized for five minutes. >> thank you, madame chair. i'm delighted to be here again. it's good to see you opinion. i believe that you and your staff have hit a home run here if you look at the panels that have been put together here. tremendous amount of experience. so many of us have known each other in this business for so long and i won't say how long, just to protect the innocent here. >> thank you. >> and despite some of our disagreements, i must say that on behalf of reva and fair coalition, i'll say personally that i love appraisers. i've been working with appraisers for 30 years, and they are composed of tremendous

professionalism, and it's been a delight to work with them. my members love appraisers as well. because without good appraisers, there would be no appraisal management companies. allow me to summarize my testimony. first, regarding appraisal management company operations. r.e.v.a. and fair members provide necessary services to financial institutions as well as benefits to appraisers and consumers in the course of a mortgage transaction. second, in regard to regulation, we are working proactively with the federal government and states to implement regulatory requirements of the dodd-frank act and state legislation. third, we encourage the consumer financial protection bureau to continue to rely on the reason utilized by the board for payment of customary and reasonable fees. to my first point our manages manage the production and delivery of real estate valuation products. they have been responsible for advancements in technologies that benefit mortgage investors,

servicers, originators, appraisers and ultimately consumers. amcs typically operate national networks of employee-based and independent contractors for the independent contractors for the completion of appraisal reports. because mortgage lending is a national undertaking, amcs act as a centralized resource for mortgage lenders and servicers that operate nationwide. there are approximately 315 amcs in operation today owing to the diversity of the lending industry and the competitive marketplace. amcs work to match assignments with qualified local appraisers. the average appraiser utilized by an amc has 15 years of experience and typically travels less than 13 miles on any given assignment. amcs perform extensive administrative and quality control functions on behalf of the appraiser and the lender to

ensure delivery of high quality reports. member companies require on appraisers to work and work diligently to ensure quality. as part of the selection criteria, our members typically confirm the physical location of the appraiser's office, that location is what they call geo coded and used to calculate the distance to subject properties and other metrics. in addition, objective metrics are applied toe an appraiser's performance and appraisals are reviewed by quality assurance teams who specialize in product development and review. contrary to what some have suggested, appraisers directly benefit by working with an amc by having an indicate to ensure appraisal independence and that no attempt is made to influence the appraisal process. in addition, amcs provide value added services to appraisers such as quality control, review, marketing, insurance, technical support, and billing processes. with loan rate lock-ins and time

sensitive negotiations, amcs help consumers by reducing the time required for appraisal delivery. to my second point regarding regulation, amcs are subject to new regulatory requirements under dodd-frank and prior to passage of the act, several states have begun the process of enacting laws to require registration of amcs. we have been actively involved with the states since the inception of these registration laws and have long supported transparency and independence in the appraisal process. we believe it's important to work towards consistency and uniformity in state laws and regulations to ensure amcs can effectively operate on a national basis. we believe the appraisal subcommittee and relevant banking agencies can and should contribute to ensuring a consistent set of national requirements in this regard. finally, dodd-frank requires that lenders and their agents amcs compensate appraisers at a customary reasonable rate for appraisal services. we believe the federal reserve

board acted appropriately and logically to implement the congressional intent of this provision. the board has recognized that appraisal services are not one size fits all, and has created a compliance structure for fees that reflect market realties and ensures that the appraisal cost born by consumers will remain competitive and fair. ed we believe the cfpb should maintain the criteria articulated by the federal reserve board. to reconsider the issue could result in additional confusion and even lead to setting a fixed fee which may not reflect local market and industry conditions. since we last met, states have been active in establishing registration programs for amcs. by and large, states have been diligent and consistently required registration for a set fee, background checks for amcs and employees, bonds, minimum education requirements and built-in protections for

appraisers engaged by amcs. however, because mortgage lend something national in scope, we believe it is important to work toward greater consistency and uniformity in state amc laws and regulations. we support laws to improve the industry as a whole but also believe the federal banking agency should provide clarification and guidance for the industry. thank you for the opportunity to testify. i look forward to your questions. >> thank you, mr. kelly. ms. mann, you are recognized for five minutes. >> thank you very much. thank you very much. good morning, chairwoman biggert and ranking member gutierrez and members of the subcommittee. i am an appraiser. i'm karen mann. i've been an appraiser for 32 years and i'm currently the president of my firm, mann and associates, in northern california. today i'm here to testify on behalf of the american society of appraisers, asa, and the

national association of independent fee appraisers. that's niafa. i am speaking for their behalf today. the current appraisal regulatory structure is a dramatic improvement over what was in place prior to the savings and loan debacle. prior to that, you could own a clipboard, you get a business card, get a tape measure, and you go out and call yourself an appraiser. the problem became as it became like the wild west where people thought that they could be an appraiser at any time. thanks to the implementation of title 11, we found that there were rules and regulations that us appraisers had to follow and it was good. doesn't mean that we always wanted to follow rules but we had to. and that makes a more organized society. it's very important. the role of the appraiser had to recognize that the appraisal industry had changed over the years.

as a result of that, we needed something that was a foundation for us. a basis. so now we have a standard of accountability and the standard of accountability was the basis was title 11 and now with augmentation of the dodd-frank act we'll have a fine tuning of that original standard format. we also believe that the appraisal foundation has been and continues to be an indispensable and positive factor in the growth of the appraisal profession. currently some 65% of practicing appraisers are not a part of a professional appraisal organization for guidance. the appraisal foundation has been an important element for these appraisers. professional appraisal organizations have been around since the 1930s. however, the presence of approximately 65,000 licensed and certified appraisers relying on some source of a foundation requires the use and implementation of the appraisal foundation guidance.

it has been important to note that the -- it is important to note that the foundation decisions involving standards, qualifications, best practices and qualifications are made in a transparent manner and are open for comment, review, and recommendation by appraisers and stakeholders. improving the current system is currently in process with the proposed implementation of the appraisal portion of the dodd-frank act. the current regulatory system is adequate. however we recognize, like anything that's being developed, one must tweak it. one must go in and improve it. we agree with the 2012 report regarding the need for greater effectiveness at the appraisal subcommittees.

however, we also believe the appraisal subcommittee is showing improvements. they are trying to increase their skill sets and are more effective and more efficient. we have several issues facing appraisers in today's environment. first and foremost as an appraiser, customary and reasonable fees. with implementation of the amcs, we don't disagree that having an amc is appropriate or could be appropriate. but the problem is the experienced appraisers don't prefer to work for amcs because fees are so low. amcs will charge and it's customary for the va to publish that fees for appraisers are approximately $450. the amcs keep it between 30% and 40%, which means that the remainder goes to the appraiser. the appraiser then has a lower fee in today's business practice, having a lower fee, when your expenses are the same, or increasing, it makes it very difficult to stay in business.

a lot of the newer and less experienced appraisers are choosing to work for the amcs, which is not a good thing for the consumers, because the consumers may not be getting necessarily the most qualified appraiser. i hear this every day from homeowners who contact me and say this person came from fresno and they're appraising a property in san francisco. that's 400 miles and that's a long distance. completely different markets. the next item we have to recognize is that the dodd-frank reform has not yet fully been implemented. so the fact that it hasn't been fully implemented, we're working on the presumption that it's going to happen, but once it's implemented we anticipate that the improvement to the entire process will be accelerated immensely. the good faith estimate and settlement form mortgage disclosures do not disclose that the appraisal fee paid by the consumer is actually two pieces.

one piece is what goes to the amc. the remainder goes to the appraiser. the homeowner, the property owner, should really know which part goes to which because they think that when we go out there, they say we paid you $500 for this appraisal. and when they find out that the appraiser is only getting $300 of it, the homeowner feels deceived and they wonder what's going on with the process. one other factor that's been a bone of contention for appraisers for years is eliminating and reducing the de minimis. currently the de minimus means that properties with a price value of less than $250,000 for residential properties and $1 million for commercial properties do not necessarily need a typical appraisal and other types of valuation products may be used. we firmly believe that compromises the system and it

compromises the homeowner, the consumer, of properties worth less than 250,000, which is a considerable amount when you consider the average price of the home in the united states. finally, we have other issues with day-to-day operations but we don't think that your subcommittee should worry about our minor little issues. we will try to endeavor to participate and encourage and to try to develop processes that work and help the committee and each other improve our system so that we've got a professional appraisal group of professional appraisers for every single consumer. thank you for allowing me to represent my organizations. >> thank you. ms. stevens, you're recognized for five minutes. >> thank you. madam chairman biggert, ranking member gutierrez, my name is sarah w. stevens and i'm president of the appraisal

institute, the largest association of real estate appraisers in the united states representing 23,000 professionals and more than half of all professionally designated appraisers in the united states. in 2007, chief justice roberts writing for a unanimous u.s. supreme court stated, "value is not a matter of mathematics, rather the calculation of true market value is an applied science, even a craft. most appraisers estimate market value by employing not one methodology but a combination. these various methods generate a range of possible market values which the appraiser uses to arrive what he considers to be an accurate estimate of market value based on careful scrutiny of all data available." so true are these words. appraisal methods and techniques require judgment by the appraiser. the choice of methods and techniques are the responsibility of the appraiser. for instance, in valuing a parcel of residential and

commercial real estate, appraisers are trained to decide whether or not to use replacement costs. and when and how to adjust for seller sales concessions. these decisions by the appraiser are dependent on the actions of the marketplace and should not be mandated. sadly this tenet is at risk. established under a false premise that timely guidance on appraisal methods and techniques does not exist the appraisal practices board of the appraisal foundation is attempting to assert itself as the authority over appraisal methodology, a move that flies in the face of the decision of the supreme court case that i just quoted. despite having no authorization from congress in this area, proponents are attempting to dictate appraisal methodology. in fact, even though the appraisal foundation maintains that the guidance documents are voluntary, the appraisal foundation is now encouraging states to adopt them as compulsory. furthermore, the appraisal

foundation has professed to reference them and the latest document addition of the uniform standards of professional appraisal practice essentially codifying them into state law. we believe that congress should exercise oversight over this insidious attempt to confuse the public by subtly abusing existing congressional authority. the appraisal process is not aided by more rules. instead, the appraisal profession is at risk of having innovation curtailed. furthermore, the appraisal institute supports realigning the appraisal regulatory structure with those of other industries in the real estate and mortgage sectors. as a model, we believe congress could turn to the national mortgage licensing system and its system for mortgage originators, which is mandated by the safe act, and overseen by the financial consumer protection bureau. this is not a self-regulatory organization but one that is owned and operated by the state bank regulators.

we see several benefits to a realignment of the appraiser licensing and certification system including enhanced communation among regulators and reduced red tape for appraisers. congress saw reason to authorize this body to assist others within the real estate sector, so, too, can it be for appraisers and appraisal regulators. congress also should remain engaged on the issues involving appraisal procurement and appraisal management companies, including the payment of customary and reasonable fees and consumer disclosure of fees paid to a appraisal management companies. we hear from real estate agents, home builders and others that poorly performed appraisals are killing deals and/or holding back economic recovery. these accusations are unfounded and misguided, as appraisers do not make the market. they report the market. the purpose of an appraisal is not to support a contract sales price, but instead is an integral part of lender missing management.

any crisis of confidence regarding appraisals is a direct result of the way in which lenders which are under the oversight of bank regulatory agencies procure appraisals today. here the predominant factor in the appraisal hiring decision are often price and turnaround time of the appraisal, not quality of service or geographic or market competency of the appraiser. the dumbing down of appraisals cannot continue and we ask congress for its continued oversight. lastly, we know nothing is perfect. the regulatory system that appraisers operate with today is 20 years old. and we believe it is time for a fresh look. appraisers do not need a set of arbitrary rules. as the supreme sort has stated, the careful scrutiny of data is should be at the forefront of the appraisal process and is essential to maintaining its integrity. we ask for your oversight of these matters. i thank you very much for the opportunity to be here and i

will be glad to answer your questions. >> thank you, ms. stevens. we'll now proceed to questions from the members of congress and i would start with myself and yield myself five minutes. the appraisal subcommittee is in the process of developing new standards or rules as required by dodd-frank act. and dodd-frank was enacted in 2010, almost two years ago, and this question is for all of you. do you believe that the appraisal subcommittee has been effective by taking more than two years and still counting to comply with the dodd-frank act. let eight start with you, mr. birnbaum and just go down the line. >> thank you. i think that's a very important question. >> could you turn on your mike, please. >> yes, i'll move it a little

closer. we are anxious for the appraisal subcommittee to move ahead very quickly in this space particularly with regard to monitoring the activities of the other prudential regulators. we have raised issues such as flopping, such as the quality of appraisal compensation, such as issues with regard to expanded use of automated models to in fact the prudential regulators, and despite the lessons that should have been learned in this financial crisis, it appears to us, working with consumers across the country that the prudential regulators are not acting quickly enough. and so the asc will and should be playing a critical role in that space as well as frankly working with the fha as well. >> thank you. mr. bunton? be brief. because i've got some other questions, too, please. >> i think they're doing much better. the appraisal subcommittee today is a far different organization than it was seven months ago. i believe they have four of the seven members that were not serving seven months ago. they are new. they are higher level policy people. for the first time you have a

chair who is an appraiser. i attend every one of their public meetings. the difference between then and now is night and day. >> thank you. mr. gregoire? >> the national association of realtors does not have a specific policy related to your question. however, unlike a lot of other federal agencies, the asc operates without an appropriation. they operate on an appraiser tax, so they don't have the flexibility or the funds to move in the same way that a lot of federal agencies do. and i believe that has to be taken into account. the folks that are funding the operation of the appraisal subcommittee are actual licensed and certified appraisers, and as mr. park testified, that number of folks is diminishing. >> thank you. mr. kelly? >> thank you. we would like to see the asc move a little quicker. as i testified, states are