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Regulators 'diluting' appraisal protection.

State licensure and certification of real estate appraisers is on track at the state level, but federal regulators have substantially diluted the intent of appraisal reform legislation - to protect financial institutions and the public, according to Appraisal Institute President Patricia J. Marshall, MAI.

"Federal regulatory agencies have recently adopted a series of rules which ignore the intent of Title XI of the Federal Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA)," said Marshall. "These new rules make a mockery of Title XI by exempting transactions under $100,000 from the Title XI requirement that a state licensed or state certified appraiser must be used in all federally related transactions. These rules also allow unqualified appraisers to value commercial property under $250,000, which endangers small businesses and 'mom and pop' operations."

Marshall voiced these concerns at a hearing before the House Banking Subcommittee on General Oversight and Investigations. The hearing was held to evaluate the implementation of Title XI of FIRREA, which will become effective nationwide on Jan. 1, 1993. Title XI requires that appraisers be state licensed or certified in order to perform appraisals for federally related real estate transactions. Signed into law by President Bush in 1989, FIRREA (better known as the Savings and Loan Bailout Bill) was intended to protect the public's interests in the aftermath of the savings and loan crisis.

"Ironically, the new rules adopted by the FDIC, OTC, FRB, and OTS have eliminated the need for an appraisal by a qualified appraiser in mortgage loans to low- and moderate-income home buyers," Marshall said, "and these are the individuals who need it the most. As the result of the new rules, they have less protection now than they had before Title XI."

The regulators' failure to require the use of a properly qualified appraiser also may put taxpayers at risk. "An undervaluation of the property will lead to rejection of the mortgage loan, which is detrimental to all concerned," Marsha]l explained, but an overvaluation will put both the borrower and the lender at risk. In the aggregate, such overvaluations could affect the safety and soundness of financial institutions, as was demonstrated in the thrift industry debacle."
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Title Annotation:federal regulators weaken intent of real estate appraisal reform legislation
Publication:Real Estate Weekly
Date:Sep 23, 1992
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