By Neil Pierson
Lenders and appraisers square
off over regulatory proposal
Neil Pierson is editor of Scotsman Guide Commercial
Edition. Reach him at email@example.com or
“Right now, we have thousands of mortgage bro-
kers with appraisal requirements that are getting loans
closed in 15 to 18 days,” he says. “I mean, how fast do
people want to close a loan? … Do we want to be able
to close loans in 48 hours? I think that’s a bit exces-
sive. There needs to be a series of checks and balances
throughout the entire process.”
Ron Haynie, senior vice president of mortgage
finance policy for the Independent Community Bank-
ers of America, says U.S. median home values no lon-
ger support the $250,000 appraisal threshold that is
now 25 years old. According to the U.S. Census Bureau,
the nation’s median sales price for a new home has
increased from $126,000 in 1994 to $309,700 as of
this past October.
Haynie also points out that even if the new appraisal rules are adopted, lenders will still need to complete a property evaluation that is, as regulators
phrase it, “consistent with safe and sound banking
practices.” These evaluations include interior and exterior inspections of the home, as well as an analysis of
sales data of comparable properties within the same
area to establish market value. And the people conducting the evaluations, in many cases, are formerly
licensed or certified appraisers, Haynie says.
“The difference is the bank does not have to go out-
side and get a licensed, certified appraiser to complete
an appraisal,” he says. “These are people that are going
to be employed by the lender themselves. … The reg-
ulators are pretty careful and pretty specific about a
lot of things that need to be in this evaluation, so it’s
not like you drive by, take a picture of the house and it
looks OK. They need to do some work on it.”
There is a larger trend of moving away from certi-
fied appraisals, however. In 2017, the GSEs adopted
of $250,000 has been in place since 1994.
Mortgage originators who work exclusively with
conventional loans or government-backed loans aren’t
directly impacted by the regulatory proposal, but it
could affect them indirectly if competing lenders take
on more portfolio loans to capitalize on the new rules.
If adopted, the rules would essentially apply only
to home mortgages of $400,000 or less that a lender
is willing to keep on its books. The government-sponsored enterprises (GSEs) Fannie Mae and Freddie
Mac, as well as the Federal Housing Administration
(FHA), U.S. Department of Veterans Affairs (VA) and U.S.
Department of Agriculture (USDA), are exempt and
would continue to set their own rules around appraisal
The number of licensed appraisers in the U.S.
declined by 35 percent from 2012 to 2017, and federal
legislation adopted in May 2018 reduced the potential
workload of those still in the field. Smaller lenders may
now waive appraisals for home sales of $400,000 or
less if they cannot get an appraisal in a timely manner,
and the appraisal-requirement threshold doubled to
$500,000 for commercial real estate transactions.
The appraisal industry, however, is concerned about
the recent proposed rule changes, which could go into
effect sometime after the regulators’ public-comment
period ends on Feb. 5. Those newly proposed rules
would expand the exemption adopted this past May
by allowing any lender to waive appraisals on home
sales valued at $400,000 or less — so long as the mortgage is retained in the lender’s loan portfolio.
Potential appraiser job losses aside, a big concern
for the industry is that further erosion of appraisal standards threatens to raise the level of risk for lenders,
says Jim Murrett, president of the Appraisal Institute.
“The argument given is, well, it saves time and it saves
money,” Murrett says. “Nowhere in the conversation
does it say that the appraisals serve the risk-mitigation
function, which is a safety and soundness issue.”
Rick Bettencourt, president of the National Associ-
ation of Mortgage Brokers, says his organization has
not taken an official stance on the proposed change.
Because the rules are not changing for conventional or
government-backed loans, “it’s not going to affect the
lending world in which we operate,” he says.
Bettencourt believes, however, that appraisals serve
a necessary and useful function within the loan origination process. Additionally, he says the argument
that waiving appraisals reduces costs and shortens the
loan-closing period for borrowers doesn’t hold water.
waivers for a larger number of transactions. Today,
Fannie Mae and Freddie Mac will issue waivers for
single-family home and condominium purchases if
they have a recent appraisal on file and the borrower
has made a downpayment of at least 20 percent.
Murrett is concerned that the waivers may now cover
up to 12 percent of GSE transactions.
“Their argument is, we have a database of appraisals that supports the value,” he says. “Well, that database is going to get stale pretty quick, if you don’t get
appraisals on new transactions.
“The situation with those two entities is that they
compete with each other. Literally, it is a race to the
bottom to see who can loosen their underwriting
standards to out-compete each other.”
In rural areas, Haynie says there are simply fewer
appraisers to work with smaller populations. And
appraisers seem to be retiring more quickly than
their replacements can be found, exacerbating the
tight-supply issue. Haynie believes the proposal at
hand will help community lenders without increasing
“You’ve got to remember that the banks lending,
they’re on the hook for 100 percent of the credit risk
on this loan [if it’s retained in their portfolio], so they’re
going to be careful,” he says. “They’re not just going to
do this to sort of check the box. They’re pretty care-
ful about making sure the collateral supports the loan
Based on 2017 transaction volumes, federal regula-
tors estimate that increasing the appraisal threshold
to $400,000 would exempt an additional 214,000
mortgages annually. That equates to 3 percent of
loans covered by the Home Mortgage Disclosure Act
and 16 percent of home loans issued by federally
And Bettencourt doesn’t believe the appraisal-rule
shifts will make their way into the government-loan
sphere anytime soon. “I don’t think you’ll ever see
appraisals being waived or exempted for FHA, VA or
USDA [loans],” he says. n
“Literally, it is a
race to the bottom
to see who can
loosen their under-