Protect the Public Trust
My name is Maureen Sweeney, and I am a real estate appraiser. I grew up in a real estate family and lived through the savings and loan crisis on the 1980's, which had a profound impact on my life. I witnessed firsthand illegal and unethical behavior in the mortgage industry towards homeowners. Through that experience, y greatest concern was, "who is protecting the public?". In 1989 Congress enacted Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). With this decision by Congress in 1989 I decided I wanted to be an appraiser. The appraisal profession was and still is the profession in the mortgage industry that promotes and maintains the public trust. We are the first profession in the mortgage industry that was licensed, and we are the only profession that is regulated by Congress.
Because of FIRREA all appraisers who develop opinions of value for federally related transactions must follow the Uniform Standards of Professional Appraisal Practices (USPAP). What was originally intended as assignment conditions for federally related transactions is now partially or fully embedded in all states' appraisal laws. State laws are written to protect their citizens.
Today we know that 85% to 90% of all mortgage transactions backed by the federal government and U.S. taxpayers are currently not subject to the protections Congress enacted through Title XI. Companies that provide Automated Valuation Models (AVMs) are not regulated, and their valuation process and sources of information are not verified, regulated, or publicly available. How does relying on an unregulated private industry running aggregation models protect the public trust? I don't believe it does.
There are some in the mortgage industry who champion AVMs and wish to discount or discontinue using licensed appraisers for their valuation needs. Algorithms and machine learning is built on historic data, which is primarily human driven. Machines may and have been shown to amplify bias in data. If something like racism has been perpetuated for decades in real estate, then its baked into the system and the data, what kind of data will we get from the machines? Some home that Big Data will save us from the mistakes made by humans. These humans are licensed and regulated by their individual states, and they can lose their license, get heavily fined, or go to jail for unethical or incompetent appraisal practices. I ask: who is regulating Big Data when Big Data makes mistakes?
We are once again at a crossroads in our profession. Fannie Mae, Freddie Mac, and other secondary market lenders are accepting bifurcated appraisal reports, which part of the appraisal assignment is performed by other people who may or may not be licensed appraisers. Part of the valuation process is data gathering, which includes observation. Part of the valuation process is verifying data. With data that may or may be verified, and observations which may or may not have been conducted by a licensed professional, how does this protect the public trust? By unchecked appraisal "modernization" reform, consumers will be harmed.
The appraiser is central to the checks and balances in the home lending system. The appraiser is hired by the lender to ensure that there is value in the property in which the lender will provide funds to the borrower. The licensed broker/Realtor negotiates the price of the property, but they are not qualified or licensed to determine the value. Providing valuation services is the appraisal professional's job. The appraisal professional provides checks and balances in the housing system.
Public trust is key in promoting the stability in the housing market. The continued reliance of unregulated aggregators and bifurcated products continues to erode the public trust at the expense of discarding the profession specifically intended to promote the public trust; how does this protect the public? The residential appraisal profession is at risk with this policy change. More important: the public is at risk with this policy change. The public is at risk with the continued lack of reliance of the appraisal profession.
Dave Bunton from The Appraisal Foundation said recently: "The last thirty years were witness to federal agencies doing their best to circumvent using these trained professionals. Likewise, the government sponsored enterprises are taking on riskier practices that leave appraisal protections on the sidelines. Through exemptions, appraisal waivers, promoting evaluations in lieu of appraisal, and encouraging lenders to use unlicensed individuals, the federal financial institutions regulatory agencies estimate that a mere 10 to 15 percent of all mortgage transactions backed by federal government and U.S. taxpayers are currently subject to the protections Congress enacted through Title XI."
I ask again: How does relying on an unregulated private industry running aggregation models protect the public trust? The reliance on Big Data, the acceptance of hybrid and bifurcated appraisal reports, the potential rising of the de minimis from $250,000 to $400,000, and the lack of hiring the professional that is charged by Congress to promote and maintain the public trust in the housing industry is a bad direction for our industry and our country. Please do all in your power to protect the citizens of Virginia to prevent the next housing crisis.
Thank you for your time, your service, and your attention to this matter.
Maureen Sweeney, SRA, AI-RRS