WASHINGTON — A new government study raises tough questions about both the growing role of appraisal management companies in the mortgage market as well as the government's oversight of the appraisal industry.
In a report released Thursday, the Government Accountability Office was critical of the federal arm that is responsible for overseeing state regulation of appraisers. That arm, known as the Appraisal Subcommittee of the Federal Financial Institutions Examination Council, has yet to fulfill certain duties it was given under the two-year-old Dodd-Frank Act, according to the report.
The study, which was released in connection with a House hearing on the appraisal industry, also expressed concern that the appraisal management companies, known as AMCs, have hurt the quality of appraisals.
"Some industry participants voiced concerns that some AMCs may prioritize low costs and speed over quality and competence," the GAO stated.
The rise of appraisal management companies can be traced back to housing bubble-era concerns about inflated appraisals and conflicts of interest with lenders. The firms have taken greater market share following the enactment of an industry of code of conduct that was developed by New York officials.
Concerns about the negative impact of the management companies were echoed by both lawmakers and industry participants during a Thursday hearing of the House housing subcommittee.
Rep. Gary Miller, R-Calif., said that the companies are often sending appraisers to properties where they have little knowledge of the local real-estate market.
"You're getting them in areas sometimes they don't have expertise," Miller said.
Karen Mann, a California appraiser who was testifying on behalf of the American Society of Appraisers, said that the management firms are squeezing margins for appraisers.
"The problem is that the experienced appraisers don't prefer to work with the AMCs because the fees are so low," she said.
Don Kelly, executive director of the Real Estate Valuation Advocacy Association, a trade group for the appraisal management companies, defended the industry's role in reforming the appraisal industry.
"Importantly, by acting as the sole point of contact between the lender and appraiser, AMCs insulate the individual appraiser from any influence or coercion by the lender," Kelly said in written testimony.
The GAO report also blamed federal banking regulators, including the Consumer Financial Protection Bureau, for failing so far to establish minimum standards for appraisal management companies to be used by the states, which are responsible for registering the firms.
"Setting minimum standards that address key functions AMCs perform on behalf of lenders could provide greater assurance of the quality of the appraisals that AMCs provide," the report stated.
