	Real Estate Price Volatility and Appraisal Regulation

Appraisers provide an estimate of the value of real estate prior to the completion of a sale or refinance of the property. Lenders typically rely on independent real estate appraisers because the property serves as collateral for the loan used to finance the transaction. 101-73 ) enacted after the Savings and Loan Crisis, and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act, P.L. It did so by establishing the Appraisal Subcommittee (ASC) within the Federal Financial Institutions Examinations Council (FFIEC), but the licensing and certifying of appraisers was left to the states. The Dodd-Frank Act transferred some of the regulation of residential mortgages to the new Consumer Financial Protection Bureau (CFPB), established more specific criteria for residential property appraisals and the appraiser profession, and also required a property visit for appraisals financed by a high risk residential mortgage. The Appraisal Subcommittee (ASC)

The ASC is a federal agency that oversees state licensing and certification of appraisers and appraisal management companies. The ASC oversees the state codes of professional responsibility for real estate appraisers. The USPAP are not federal statutes, but they are the standards guiding industry professionals. Other significant provisions include a requirement of a property visit for appraisals financed by a high-risk mortgage; conditions for a second appraisal at no cost to the home purchaser; mandated independence for appraisers; portability of some residential property appraisals; rules for customary and reasonable fees; standards for appraiser education; and a mandatory annual report to Congress by the ASC on its activities. Appraisal Requirements for High Risk Loans

The Dodd-Frank Act, Title XIV, Subtitle F, set new standards for the independence of appraisers. Sunset of the HVCC

The Home Valuation Code of Conduct (HVCC) was an industry standard for appraisals created during the subprime mortgage crisis. The HVCC resulted from an out of court settlement of a legal investigation into Fannie Mae and Freddie Mac by the attorney general of the state of New York. Rulemaking Authority of the CFPB and the Financial Regulators

The DFA transferred authority and personnel for regulating many consumer-related issues from the banking regulators to the CFPB. It directs the regulators to jointly issue rules for the registration of AMCs. Specifically, AMCs must
(1) register with and be subject to supervision by a State appraiser certifying and licensing agency in each State in which such company operates;
(2) verify that only licensed or certified appraisers are used for federally related transactions;
(3) require that appraisals coordinated by an appraisal management company comply with the Uniform Standards of Professional Appraisal Practice; and
(4) require that appraisals are conducted independently and free from inappropriate influence and coercion pursuant to the appraisal independence standards established under section 129E of the Truth in Lending Act (TILA). October 2010 Federal Reserve TILA Rule

The Federal Reserve issued an interim final rule for appraisal independence in October 2010. It sets the standards for the payment of reasonable and customary compensation to appraisers as required by the Dodd-Frank Act. Unlike the banking regulator's FIL, the CFPB rule applies to all lenders, not just banks.
Real estate appraisers attempt to measure the value of a property that is being purchased or refinanced. In mortgage contracts, the property serves as collateral for the loan. Banks and their regulators may rely on the appraisal to reduce the potential losses if the borrower fails to repay the loan. Property purchasers may also rely on an appraisal if they wish to reassure themselves that the price they offered was reasonable given market conditions. This report discusses the regulation of appraisers and provides information on related statutes and rules.
The fallout from the housing bubble raised questions about the effectiveness of the regulation of residential real estate appraisers before and during the financial crisis. Real estate prices rose rapidly in some areas, then fell rapidly. When the real estate bubble burst, questions arose about the accuracy of the appraisals that supported the mortgage loans during the housing bubble.
Traditionally, regulation of real estate appraisers was handled at the state level, with a federal agency, the Appraisal Subcommittee (ASC), overseeing the state boards that licensed and certified appraisers. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd Frank Act, P.L. 111-203) increased federal requirements for real estate appraisers and transferred some federal oversight powers from banking regulators to the new Consumer Financial Protection Bureau (CFPB).
The Appraisal Foundation, a professional organization, issues the specific standards for conducting appraisals. These standards form the Uniform Standards of Professional Appraisal Practice (USPAP), but are not federal law. The Appraisal Subcommittee (ASC) of the Federal Financial Institutions Examinations Council (FFIEC) provides some of the funding for the Appraisal Foundation and oversees its activities.
Business practices of banks and securities firms that offer or purchase a large share of mortgages can influence appraisal standards. The rules that banking regulators and the Federal Housing Finance Agency (FHFA) set for these institutions can influence industry-wide standards, even when the rules do not technically apply to all firms. During the financial crisis, the Home Valuation Code of Conduct (HVCC) was an informal industry standard created as part of a settlement between the attorney general of New York and Fannie Mae and Freddie Mac, which are regulated by the FHFA. The Dodd-Frank Act included a sunset provision for the HVCC, and directed the banking regulators to propose interim regulations until the CFPB began operating.
Title XIV, subtitle F of the Dodd-Frank Act included other changes to the regulation of real estate appraisals. Major provisions of subtitle F include a requirement of a property visit for appraisals of a home financed by a high-risk mortgage; conditions for a second appraisal at no cost to the home purchaser; mandated independence for appraisers; portability of some residential property appraisals; rules for customary and reasonable fees; standards for appraiser education; and a mandatory annual report to Congress by the ASC on its activities.
The ASC, banking regulators, and the CFPB are proposing and implementing several new rules. For example, the agencies issued an interim final rule for reasonable and customary fees for appraisers, as required by Section 1472 of the Dodd-Frank Act.