A group of federal agencies put out a release on Wednesday to help create a temporary fix to the current appraisal shortage that’s impacting loan turn times. The release highlights two existing options already out there, but according to at least one veteran appraiser, the two suggestions don’t bring the clarity needed and missed the mark on effectiveness.
Matt Simmons, a partner at Maxwell, Hendry & Simmons, who also recently sat on a recent HousingWire panel to discuss the state of the appraisal industry, gave extra feedback on what the release means for the industry.
The advisory note recommends two paths for FDIC-supervised institutions to satisfy their appraisal requirements in areas where the institution believes that there is a shortage of appraisers.
For the first option, the release pointed to temporary practice permits. Simmons explained that the first path essentially encourages institutions to get appraisers in neighboring states to cover areas in states where there is a shortage.
This, he added, can be broken down two ways. “The first involves the use of Temporary Practice Permits (TPP), where appraisers can come from other states to complete individual assignments. TPP’s, however, are assignment specific and the appraisal must relate to a Federally Related Transaction (FRT),” said Simmons. “Getting a TPP is an older and slower way of having appraisers work across state lines.”
Instead, Simmons explained that the newer and more effective method is through license reciprocity, which allows licensees in an Appraisal Subcommittee (ASC) governed jurisdiction to seek recognition in any other ASC governed jurisdiction (subject to local law testing, etc.).
But, it’s important to remember that these options have been around for years, and appraisers and lending institutions know they can do this, he said.
“Appraisers don’t seek work in this manner because of the lack of economic incentive for them to pursue it,” said Simmons. “There’s just not enough money to be made on these appraisals to get appraisers to do this.”
“What’s funny about this is that in many, if not most of these ‘shortage areas’, there are plenty of active appraisal credentials within the geographic region. The appraisers in those areas are just not willing to work for the low wages being offered for the assignments. How anyone would think that appraisers traveling farther distances and having to do additional work to gain geographic competency will drive down appraisal turnaround-times or prices is beyond me,” he continued.
Then there is the second option that the release points to: temporary waivers.
“The second path is far more interesting to hear the Interagencies point out,” said Simmons.
Section 1119 of Title XI in the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) addresses the concept of allowing for appraisal waivers.
Simmons explained that in concept, this provision would allow certain interested parties to ‘put on a case’ to the ASC about why a waiver for using credentialed appraisers is needed.
Then, he stated, the ASC’s decision in the matter is also reviewed by the FFIEC but it would allow a member institution, again for FRT’s, to sidestep the use of credentialed appraisers.
“What’s fascinating to consider is the potential theatrics of a lending institution presenting this case. The petitioning entity must present substantive evidence to prove that there is a shortage,” said Simmons. “I can only imagine the backlash, concerted effort, and opposing presentations that would emerge from appraisers, appraisal membership groups, and appraisal coalitions to rebut the notion that there is a shortage in that area.”
And on top of this, Simmons added that if the waiver was granted, it would apply to any member institution, regardless of whether or not they were the petitioning entity, but it would not absolve the institution from their other appraisal-related obligations.
Overall, Simmons said, “While I think there are several concerning things taking place in the valuation arena that aim to sidestep appraisers, I’m not sure that this is one that will ultimately pose a real threat.”