The primary purpose of the appraisal reforms contained in Title XI was to  assist in protecting the federal deposit insurance funds—and, by  extension, mortgage lenders—from avoidable losses. Private entities—the Appraisal Standards Board  (ASB) and the Appraiser Qualifications Board (AQB)—establish minimum  standards for the development and reporting of real estate appraisals and  minimum qualification criteria for certified appraisers. Since the AQB set its original criteria in 1991, for example, it  has issued numerous interpretations and approved two revisions of its  criteria. Under Title XI, the federal  financial institution regulatory agencies are to accept a state’s  certifications and licenses unless the Appraisal Subcommittee issues a  written finding that the state certifying and licensing agency has failed to  recognize and enforce the standards, requirements, and procedures of  Title XI; does not have enough authority to carry out its functions under  Title XI; or does not make decisions on appraisal standards and  qualifications or supervise appraiser practices in a way that carries out the  purposes of Title XI. The federal  financial institution regulators generally require the use of certified  appraisers for commercial transactions of $250,000 or more and “complex”  residential transactions of $250,000 or more. Appraisal Subcommittee Monitors Title XI Regulatory Activities

Title XI created the Appraisal Subcommittee within the Federal Financial  Institutions Examination Council and established it as the principal federal  agency responsible for monitoring the activities of the other components  of the real estate appraisal industry oversight structure. Accordingly, the subcommittee  performs on-site field reviews of state agency programs and maintains  communications with appraisers, state and federal agencies, and users of  appraisal services. Accordingly, we recommended that the  subcommittee develop and apply consistent criteria to assess states’  compliance with Title XI requirements. Entities Cited Potential Impediments to Fulfilling Their Title XI Roles

The private, state, and federal entities involved in the oversight of the real  estate appraisal industry identified a number of factors that they believe  could constrain their ability to fulfill their Title XI responsibilities. Appraisal Subcommittee officials  reported that rule-making authority and additional enforcement sanctions  could facilitate the subcommittee’s oversight of state compliance. Industry Participants Raised Various Concerns about the Title XI Oversight Structure

Representatives of federal and state regulatory agencies, appraiser trade  groups and education providers, and the mortgage industry expressed  various concerns and conflicting viewpoints about the Title XI regulatory  structure. However, there was no clear consensus regarding the need for  or impact of possible changes. However, our survey  indicated that state regulatory agencies continue to vary widely on these  issues. Variations in State Regulatory Agencies’ Enforcement of Title XI Requirements

Some industry participants reported a lack of uniformity in processing  complaints and taking disciplinary actions against those problem  appraisers that were referred to state regulatory authorities. To improve the process for referring problem appraisals by  entities that oversee or use real estate appraisals to the state appraiser  agencies for possible enforcement actions, we recommended that the  Appraisal Subcommittee work with Fannie Mae, Freddie Mac, and HUD to  ensure that the referral of problem appraisals (1) are provided in a format  that is useful to the state appraiser agencies and (2) facilitate the  subcommittee’s efforts to monitor decisions made by the states regarding  the supervision of appraiser practices. No Clear Consensus Regarding the Need for Changes to the Title XI Regulatory Structure

Among the various representatives of trade groups, education providers,  and other industry participants that we contacted, there were differing  opinions as to what, if any, changes were necessary to Title XI.
Why GAO Did This Study

The appraisal and mortgage lending industry has changed dramatically since the passage of Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. Some have concluded that the problems Title XI was intended to address--the risk to the federal deposit insurance funds and the lack of uniform standards and qualifications--no longer exist. This statement is based on GAO's May 14, 2003, report and discusses the roles of private, state, and federal entities that oversee the appraisal industry; the challenges that Title XI presented to these entities; and industry participants' concerns about the effectiveness of the Title XI regulatory structure.

What GAO Found

Title XI created a complex oversight structure for real estate appraisals and appraisers that involves private, state, and federal entities. Two private entities under the Appraisal Foundation establish uniform rules for real estate appraisals and set minimum criteria for certifying appraisers. State regulatory agencies certify appraisers based on these criteria. In addition, states (1) implement licensing of real estate appraisers and (2) monitor and supervise compliance with appraisal standards and requirements. The federal financial regulators oversee financial institutions' use of appraisals, and a federal agency, the Appraisal Subcommittee, monitors the functions of the entities. As part of its oversight activities, the Appraisal Subcommittee performs field reviews of the state appraiser regulatory agencies. GAO found that these reviews and their resulting reports could be more useful if based on clear and consistent criteria for assessing states' compliance with Title XI requirements. All of these entities except the federal financial regulators identified potential impediments to carrying out their Title XI responsibilities. The two private entities stated that fund limitations could impede their ability to ensure that development of standards and qualifications evolve with changing conditions. State agencies said that funding shortfalls hindered their ability to enforce compliance. Appraisal Subcommittee staff reported that rule-making authority and additional enforcement sanctions could facilitate its oversight of state compliance with Title XI. The lack of funding and resources cited by state appraiser regulatory agencies and the two private entities, which establish appraisal standards and appraiser qualification criteria, could affect their future ability to fulfill their Title XI responsibilities. At the same time, the Appraisal Subcommittee has accumulated an operating surplus of almost $4 million from fees levied and collected by the states on behalf of the federal government. Industry participants raised concerns about aspects of the Title XI regulatory system for appraisers. They cited differences in state regulation that affect both lenders and appraisers, gaps in Title XI's coverage--for example, transactions of less than $250,000 do not require an appraisal, high fees and burdensome processes for having appraiser education courses approved, and weak enforcement and complaints processing. Some industry participants felt that states, traditionally involved in regulating professions, should solely regulate the appraisal industry. Others felt that the current structure needed a significant overhaul to become effective. GAO found no clear consensus among the state regulatory agencies it surveyed or other industry participants regarding the need for or impact of possible changes to the Title XI regulatory structure.