The battle over new appraisal standards began to heat up on Capitol Hill last week. In a "Dear Colleague" letter, four lawmakers said an amendment they plan to offer will do litle more than reaffirm current law. Bank groups have responded with nationwide faxes blistering and amendment and urging bankers to lobby against it.
Here are excerpts from the letter signed by Rep. Charles E. Schumer, D-N.Y.; Rep. Henry B. Gonzalez, D-Tex.; Rep. Peter Deutsch, D-Fla.; and Rep. Floyd H. Flake, D-N.Y., followed by an excerpt from a "fax alert" sent out by the Independent Bakers Association of America.
Despite what you may have heard, this amendment will not change the statutory appraisal standards adopted in 1989.
Rather, we simply intend to reaffirm the most basic principle of that landmark bill: the evaluation of collateral take by financial institutions for loans should be performed by state-licensed and -certified -- i.e., qualified -- professionals utilizing proven and professional appraisal principles.
Standards for Short-Form Appraisals
The national standards-setting board for professional appraisers has recently adopted new standards for short-form appraisals, which will take less time and cost the consumer less money. These short-form appraisals will provide consumer protection and proper safeguards for the lending institutions.
All we intend to say in our amendment is that short-form appraisals may be used by lenders whenever federal regulators permit, and all appraislas must be done by state-licensed and -certified appraisers, inclduing bank employees who have obtained the requisite state license or certification.
From the IBAA:
The appraisal amendmenmt would require insured institutions to use a state-certified or -licensed appraiser whenever an estimate of value is made for mortgage loans under $250,000.
Currently, evaluation rules only require an institution to establish prudent standards to conduct evaluations and that they be completed by "competent persons capbale of rendering an unbiased estimate of value."
Requiring the use of licensed or certified appriasers serves only the employment needs of the appraisers and raises costs for consumers.
Abolishing the $100,000 Minimum
This amendment would also affect those transactions under the current de minimis of $100,000 where banks have been performing the evaluation of capital.
There is no safety and soundness justification for this amemdment. The issue has been studied an nauseam, and the regulators have certified to the Congress that the regulators have certified to the Congress that the higher de minimis will not pose any threat to the financial system, noting that these loans are "traditionally the safest in the lending institution's portfolio."
The agencies also found that the appraisal requirements may have adversely affected the ability of borrowers to obtain credit.