Lender Pressure: Solving the Problem
by David Brauner, Editor
Two comments in our Readers Respond section highlight the most serious problem facing appraisers today, and perhaps the best possible remedy. The problem is lender pressure or put a different, far better way – appraiser independence. In his comments about the unfairness of unregulated broker price opinions prepared by unlicensed persons, appraiser Richard Schofield asks, “Who advocates for us?”
Who indeed? Appraisers are charged with oversight in the loan decision process. They are held to rigorous ethical and professional standards to ensure that their opinions of value are accurate and honest. The independent “gatekeeper” role is vital, given the importance of the housing sector in our economy and the sacred place homeownership has in America. However, while the role of appraiser independence is heavily regulated, it is poorly defended against lender pressure.
Appraisers fight for their independence on their own against an army of commissioned brokers whose single concern is making the deal work. The system of “checks and balances” that is in place rests on appraiser independence, but there are few “checks” for lenders and no balance (fairness) for appraisers. And despite recent headlines, it isn’t a new story. Lender pressure has gone on for, at least, the last 15 years that I’ve covered this industry; every appraiser knows it and few have been fortunate enough to have been able to avoid it. The difference may be that today, as loans go bad in greater numbers, more people outside the industry are paying attention.
No one is denying that there are plenty of appraisers who are more than willing to “go along to get along” to keep business flowing and that they make this problem worse. But there are tens of thousands of ethical appraisers who take their independence seriously. For them it has been a lonely, frustrating and dispiriting fight.
Up to now, lenders have calculated acceptable loss in the loan process and have seen that it is more profitable to let business flow than to reign in their minions. The same type of calculation goes on with the use of AVMs in loan underwriting, as it is widely accepted now that the accuracy of AVMs is uneven at best. And, unfortunately, the same logical disconnect results, leaving many appraisers justifiably angry: why regulate appraisers so rigorously while the actions of mortgage brokers and lenders and the use of AVMs in the loan process are mostly unrestricted?
There have been a few recent legislative skirmishes on Capital Hill but so far no victories for appraisers. Maybe recent scrutiny of the sub-prime sector and the explosion of foreclosures will serve as a catalyst for change.
The best solution to this vexing and persistent problem may be what Barry Wilson advocates in Readers Respond: there ought to be regulation and licensing of mortgage brokers so that they will have at least as much to lose as appraisers when either party (or both) acts illegally or unethically.
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