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.
Independence Day
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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