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Appraisal Problems Worsened Meltdown
Bob Ipock, a North Carolina appraiser, said the federal oversight system for appraisers is broken. Critics say that contributed to the housing collapse.
(By Chuck Burton -- Associated Press)
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When field reviews began in the 1990s, states were repeatedly warned that they were failing to comply with the law -- warnings that continue to this day. But without the ability to issue fines or impose a less destructive punishment, the Appraisal Subcommittee is powerless. It has never taken any action against a state violating the law.
And so, the violations stack up year after year, largely without consequence. In the last three years alone -- when the nation's housing market went from boom to bust -- 27 states or territories failed to investigate complaints within a year. In the District, the agency found last August that 32 of the city's 35 pending cases were older than two years. In Florida, almost 50 percent of 169 cases older than a year concerned appraisers involved in "fraud and flipping."
Faced with such backlogs, some states just give up. In New Hampshire, the state appraisal board decided in July 2006 to close all outstanding files dating to 2002 -- some of which included fraud allegations -- because they "were too old to investigate."
The failings of the appraisal regulatory system and its impact on the nation's housing market led Andrew M. Cuomo, the New York attorney general, to reach a deal in March with Fannie Mae and Freddie Mac, which purchase mortgages from other financial institutions.
The agreement, which would take effect in 2009, would create a watchdog to monitor the appraisal industry: Fannie Mae and Freddie Mac will spend $24 million to create the Independent Valuation Protection Institute, which will accept complaints from consumers and appraisers. It will also monitor the enforcement and report to Cuomo's office.
But such a system would duplicate the existing regulations, including the same lack of enforcement tools that led the existing system to failure. Cuomo didn't return repeated requests for comment. But Gary Taylor, an appraiser from New York who sits on the Appraisal Foundation board that writes qualification guidelines, said he doesn't see much hope.
"There has to be effective enforcement of some sort. There has to be reality to it," Taylor said. "What are you going to do if there is pressure on appraisers? How are you going to penalize someone who puts that pressure on appraisers? Who's going to do it? Who's going to enforce it? They need to have that or it won't work."
