John Taylor is the president and chief executive officer of the National Community Reinvestment Coalition in Washington who wrote How to Insulate Appraisers from Production Staff [American Banker]. He states that:
We believe that appraisal inflation is so pervasive that it requires this type of action. Over 8,000 appraisers have signed a petition circulated by the Appraisal Institute alerting the public to this pressure and warning them that their home may be overvalued. A recent survey of appraisers found that half had been pressured to increase appraisals by 10% or more.
His suggestions to reduce appraisal pressure is to:
- Restructure internal operations so that loan officers do not select or interact at all with appraisers or approve them for rotating lists.
- Isolate mortgage brokers from the appraisal process in the same manner.
- Hire independent appraisers or appraisal management companies. Do not hire an appraisal company that is a subsidiary of the lender ordering the appraisal or of the title company supplying the title, because all stand to gain financially from a higher home price.
- Never depend solely on automated valuation for an appraisal; each home must be seen by a qualified appraiser.
- Sign a code of conduct developed by the Center for Responsible Appraisals and Valuations, agreeing to resolve differences between themselves and appraisers through the center’s arbitration pro-cess.
Federal regulators, such as the Office of the Comptroller of the Currency, have urged lenders to ensure the independence of appraisers from their loan production staff. Creating this independence, however, requires more than a few superficial steps that an aggressive loan production staff can easily dodge. Lenders must build a corporate structure that does more than simply hide the conflict of interest.
Currently, there is no promising solution for this problem. Associations that represent lenders and appraisers generally tout self-policing or the pending Responsible Lending Act (HR 1295) bill (which is currently stalled in Congress), but these issues amount to window dressing since the problems are inherent in the structure of the lending system and don’t address appraiser indepenedence.
A potential solution is not politically popular since few representatives want to go on record with a solution that will potentially increase loan application costs (near-term) and reduce turn around times.