Real estate valuations, which encompass appraisals and other estimation methods, have come under increased scrutiny in the wake of the recent mortgage crisis. The Dodd-Frank Wall Street Reform and Consumer Protection Act mandated that GAO study the various valuation methods and the options available for selecting appraisers, as well as the Home Valuation Code of Conduct (HVCC), which established appraiser independence requirements for mortgages sold to Fannie Mae and Freddie Mac. GAO recently released its study.  GAO examined:

  • the use of different valuation methods,
  • factors affecting consumer costs for appraisals and appraisal disclosure requirements, and
  • conflict-of-interest and appraiser selection policies and views on their impact.

GAO concluded that, partly in reaction to appraiser independence requirements, lenders have increasingly relied upon appraisal management companies, or AMCs, to perform certain functions. Despite the increased use of AMCs, GAO believes direct federal oversight of AMCs is limited because the focus of regulators is primarily on lenders, and state-level requirements for AMCs are uneven, ranging from no laws to laws with specific standards for registering with the state.   GAO noted some appraisal industry participants have raised concerns that the management practices of some AMCs may be negatively affecting appraisal quality. Among the areas of concern are AMCs’ practices for key functions, including selecting appraisers for assignments, reviewing completed appraisal reports, and establishing qualifications for appraisal reviewers. The federal banking regulators have emphasized the importance of these functions in guidelines that apply to lenders’ appraisal functions. The Dodd Frank Act requires the federal banking regulators and other federal agencies to set minimum state standards for registering AMCs, which provides an opportunity for the regulators to address these areas of concern and promote more consistent oversight of these functions, whether performed by lenders or AMCs. GAO believes doing so could help to provide greater assurance to lenders, the enterprises, and federal agencies of the quality of the appraisals provided by AMCs.

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