Almost five years after a major push for reform, the real estate appraisal industry remains troubled.

The problems are numerous, lenders and appraisers say. A major complaint is that appraisal quality has not improved significantly since the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 singled out appraisers as one of its major targets for change.

The continuing disarray in the appraisal business is worrisome to lenders, who base loan amounts in part on what appraisers report.

Even small miscalculations can result in significant losses, said Robert O'Toole, an economist with the Mortgage Bankers Association of America. He said that is especially true as loan-to-value ratios get higher.

Lender Pressure Cited

But appraisers also complain that lenders sometimes pressure them into making inflated appraisals to facilitate loans.

Some key issues facing appraisers and lenders:

* Certification of appraisers, as required by the 1989 law, is problem-laden. The troubles range from burdensome paperwork and complex and everchanging regulations to lack of reciprocity among states.

* New regulations will allow fewer loans to be appraised by certified appraisers -- exactly what the new law tried to avoid -- and reduce the amount of work available to appraisers.

Title XI of FIRREA was passed to clean up the appraisal industry. The thrift-rescue act required all government-related properties to be appraised by certified appraisers.

83,000 Licenses Issued

Each state was instructed to create a certification or licensing system. An appraisal subcommittee of the Federal Financial Institutions Examination Council was created, in part to evaluate each state's system.

According to the subcommittee, some 83,000 appraiser licenses have been issued. With some appraisers receiving more than one license, the subcommittee estimates there are 75,000 to 80,000 appraisers nationwide.

Edwin W. Baker, executive director of the appraisal subcommittee, thinks the thrift act has been successful -- for a relatively new program.

"To say it was completely mature would be an exaggeration," Mr. Baker said.

His main complaint about the system is reciprocity. Certifications are not honored nationwide. Some states have agreements with others, but it's spotty at best.

Interstate Banking Threat

Richard L. B. LeCompte, an assistant professor of finance at Wichita State University and a writer on the appraisal industry, said the lack of nationwide certification system would pose even more significant problems if interstate banking became a reality.

Complete nationwide reciprocity "will probably never be there," said Mr. Baker of the appraisal subcommittee.

Mr. Baker also acknowledged that becoming an appraiser is no longer an easy process. In order to be certified, appraisers must have experience. Without a certificate, appraisers can't get the experience.

Many states, including New York and Ohio, are considering or have started trainee programs.

Shortage of Appraisers

Some states, especially in rural areas, have experienced shortages of appraisers, Mr. LeCompte said. In some instances, state agencies have been forced "to crank new appraisers through the system," said David M. Ott, an appraiser at Summit Bank, Akron, Ohio.

Mr. Baker insists that FIRREA has accomplished what it was designed to do: it has created uniform standards and an enforcement process.

But appraisers and industry leaders acknowledge that the new certification process has not cured all appraiser ills.

"You always have people, no matter what you do, who do not have best interests at heart," said Douglas C. Brown, president of the Appraisal Institute, the industry's largest trade group. "Licensing and certification is probably not going to cure that problem. I'd like to think so, but I would have to think there isn't a solution."

Mr. Ott said certification has done little more than increase the amount of paperwork required by appraisers.

The regulatory framework to improve the industry's quality is not fully in place. Lenders and appraisers said some states have too few investigators. Ohio, for example, has only two regulators for more than 2,200 certified appraisers.

"It is the normal case that we are asked to lie or stretch the truth," said Bruce Sokol, an appraiser.

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