Lender pressure and appraiser independence--gimme shelter.
While the appraiser's strongest defense against the storm will always be his or her personal knowledge, experience and ethics, it does not hurt to have interested champions in the form of the federal government and the vendor-management industry. Appraiser independence and objectivity are acknowledged as critical to the integrity of the collateral valuation component of the lending process. As such, independence and objectivity should and must be maintained when selecting appraisers, ordering appraisals and reviewing appraisals for all lending activity.
Congress is taking steps to address this issue. On March 16, 2005, Reps. Bob Ney (R-Ohio) and Paul Kanjorski (D-Pennsylvania) introduced the new Responsible Lending Act, to address, in Kanjorski's words, the need for "strong national lending standards with appropriate enforcement mechanisms." While the bill tackles complex issues such as requirements for high-cost loans, state law coordination and the establishment of minimum standards for mortgage brokers, it does not stop there. Title IV of H.R. 1295 provides some welcome definition and clarity for the appraisal industry. Under the proposed provisions, the bill would require a physical appraisal of the property for certain loans by a certified or licensed appraiser that meets or exceeds the criteria issued by the Appraiser Qualifications Board of The Appraisal Foundation, Washington, D.C. Further, the bill provides for state reciprocity and allows professional designations to be considered when selecting an appraiser.
While the debate continues on topics ranging from the strength of the various provisions to the benefits of federal versus state oversight, it is my belief that H.R. 1295 is a step in the right direction, providing some much-needed protection for the independence and professionalism of appraisers through improved oversight and accountability. Apparently, there are others who share this view.
"For the appraisal community, this bill addresses the toughest issues we have raised over the last several years," says Don Kelly, vice president of public affairs at the Appraisal Institute, Chicago. "We have been calling on Congress to take up the serious problem of client pressure on appraisers and enhancement of state regulatory bodies, and this bill goes right to the heart of the problem. This is a good bill for consumers and a good bill for appraisers."
But the H.R. 1295 legislation is only one step toward true independence and objectivity. Where else can one find shelter from the storm? The appraiser vendor-management industry and companies like Valocity work to act as a value-added intermediary between the lender and the appraiser. This business model creates a value proposition for both the lender and the appraiser. Specific to this new legislation, the vendor-management companies (VMCs) can benefit lenders by helping them ensure they are in compliance with federal appraiser independence initiatives such as those promulgated by the Office of the Comptroller of the Currency (OCC).
By acting as a value-added intermediary, VMCs can mitigate some of the pressure currently borne by appraisers. By establishing independent relationships with the lender and the appraiser, valuation-solutions providers can facilitate the best business practices of each client group while minimizing or eliminating undue pressure or influence from the process.
The Responsible Lending Act is taking steps to create a level playing field and reduce or remove the pressure and undue influence on the appraiser to provide an unsupported and unreasonable value for a property. The appraisal industry in general, and the VMC industry specifically, provide a value-added buffer between those that would want to influence the collateral-valuation process and those that want to provide a high-quality, independent, unbiased and objective opinion of value.
But these legislative and industry initiatives are only supplemental to one true and best defense to client pressure: the personal knowledge, experience, ethics and integrity of the service provider. Let the winds of influence howl--there is shelter from the storm.
Shawn McGowan is president and chief executive officer of Valocity, Memphis, Tennessee, a national valuation solutions provider. He can be reached at firstname.lastname@example.org.
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|Title Annotation:||executive essay; Responsible Lending Act; vendor management companies play a crucial role|
|Date:||Jan 1, 2006|
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