V. Murphy Specialist in Financial Economics
estate appraisers attempt to measure the value of a property that is being
purchased or refinanced. In mortgage contracts, the property serves as
collateral for the loan. Banks and their regulators may rely on the
appraisal to reduce the potential losses if the borrower fails to repay the
loan. Property purchasers may also rely on an appraisal if they wish to
reassure themselves that the price they offered was reasonable given
market conditions. This report discusses the regulation of appraisers and
provides information on related statutes and rules.
The fallout from the housing bubble raised questions about the effectiveness of
the regulation of residential real estate appraisers before and during the
financial crisis. Real estate prices rose rapidly in some areas, then fell
rapidly. When the real estate bubble burst, questions arose about the
accuracy of the appraisals that supported the mortgage loans during the housing
Traditionally, regulation of real estate appraisers was handled at the state
level, with a federal agency, the Appraisal Subcommittee (ASC), overseeing
the state boards that licensed and certified appraisers. The Dodd-Frank
Wall Street Reform and Consumer Protection Act (Dodd Frank Act, P.L.
111-203) increased federal requirements for real estate appraisers and
transferred some federal oversight powers from banking regulators to the
new Consumer Financial Protection Bureau (CFPB).
The Appraisal Foundation, a professional organization, issues the specific
standards for conducting appraisals. These standards form the Uniform
Standards of Professional Appraisal Practice (USPAP), but are not federal
law. The Appraisal Subcommittee (ASC) of the Federal Financial
Institutions Examinations Council (FFIEC) provides some of the funding for the Appraisal
Foundation and oversees its activities.
Business practices of banks and securities firms that offer or purchase a large
share of mortgages can influence appraisal standards. The rules that
banking regulators and the Federal Housing Finance Agency (FHFA) set for
these institutions can influence industry-wide standards, even when the
rules do not technically apply to all firms. During the financial crisis, the
Home Valuation Code of Conduct (HVCC) was an informal industry standard created
as part of a settlement between the attorney general of New York and
Fannie Mae and Freddie Mac, which are regulated by the FHFA. The
Dodd-Frank Act included a sunset provision for the HVCC, and directed the
banking regulators to propose interim regulations until the CFPB began
Title XIV, subtitle F of the Dodd-Frank Act included other changes to the
regulation of real estate appraisals. Major provisions of subtitle F
include a requirement of a property visit for appraisals of a home financed
by a high-risk mortgage; conditions for a second appraisal at no cost to the home
purchaser; mandated independence for appraisers; portability of some
residential property appraisals; rules for customary and reasonable fees;
standards for appraiser education; and a mandatory annual report to
Congress by the ASC on its activities.
The ASC, banking regulators, and the CFPB are proposing and implementing
several new rules. For example, the agencies issued an interim final rule
for reasonable and customary fees for appraisers, as required by Section
1472 of the Dodd-Frank Act.
Date of Report: June 26, 2012
Number of Pages: 12 Order Number: RS22953 Price: $29.95
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