[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]

ASSESSING VA APPROVED APPRAISERS AND HOW TO IMPROVE THE PROGRAM FOR THE
21ST CENTURY

=======================================================================

HEARING

BEFORE THE

SUBCOMMITTEE ON ECONOMIC OPPORTUNITY

OF THE

COMMITTEE ON VETERANS' AFFAIRS
U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTEENTH CONGRESS

FIRST SESSION

__________

TUESDAY, APRIL 4, 2017

__________

Serial No. 115-10

__________

Printed for the use of the Committee on Veterans' Affairs

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

Available via the World Wide Web: http://www.fdsys.gov

__________

U.S. GOVERNMENT PUBLISHING OFFICE
29-406 WASHINGTON : 2018

----------------------------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Publishing Office,
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center,
U.S. Government Publishing Office. Phone 202-512-1800, or 866-512-1800 (toll-free).
E-mail, gpo@custhelp.com.

COMMITTEE ON VETERANS' AFFAIRS

DAVID P. ROE, Tennessee, Chairman

GUS M. BILIRAKIS, Florida, Vice- TIM WALZ, Minnesota, Ranking
Chairman Member
MIKE COFFMAN, Colorado MARK TAKANO, California
BRAD R. WENSTRUP, Ohio JULIA BROWNLEY, California
AMATA COLEMAN RADEWAGEN, American ANN M. KUSTER, New Hampshire
Samoa BETO O'ROURKE, Texas
MIKE BOST, Illinois KATHLEEN RICE, New York
BRUCE POLIQUIN, Maine J. LUIS CORREA, California
NEAL DUNN, Florida KILILI SABLAN, Northern Mariana
JODEY ARRINGTON, Texas Islands
JOHN RUTHERFORD, Florida ELIZABETH ESTY, Connecticut
CLAY HIGGINS, Louisiana SCOTT PETERS, California
JACK BERGMAN, Michigan
JIM BANKS, Indiana
JENNIFFER GONZALEZ-COLON, Puerto
Rico
Jon Towers, Staff Director
Ray Kelley, Democratic Staff Director

SUBCOMMITTEE ON ECONOMIC OPPORTUNITY

JODEY ARRINGTON, Texas, Chairman

GUS BILIRAKIS, Florida BETO O'ROURKE, Texas, Ranking
BRAD WENSTRUP, Ohio Member
JOHN RUTHERFORD, Florida MARK TAKANO, California
JIM BANKS, Indiana LUIS CORREA, California
KATHLEEN RICE, New York

Pursuant to clause 2(e)(4) of rule XI of the Rules of the House, public
hearing records of the Committee on Veterans' Affairs are also
published in electronic form. The printed hearing record remains the
official version. Because electronic submissions are used to prepare
both printed and electronic versions of the hearing record, the process
of converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S

----------

Tuesday, April 4, 2017

Page

Assessing VA Approved Appraisers And How To Improve The Program
For The 21St Century........................................... 1

OPENING STATEMENTS

Honorable Jodey Arrington, Chairman.............................. 1
Honorable Beto O'Rourke, Ranking Member.......................... 2
Honorable David P. Roe, Chairman, Full Committee................. 3

WITNESSES

Mr. Jeffrey London, Director, Loan Guaranty Service, Veterans
Benefits Administration, U.S. Department of Veterans Affairs... 4

Accompanied by:

Mr. Gerald Kifer, Supervisory Appraiser, Loan Guaranty
Service, Veterans Benefits Administration, U. S.
Department of Veterans Affairs

Ms. Michelle Bradley, 2016 Real Property Valuation Committee
Chair, National Association of Realtors........................ 5
Prepared Statement........................................... 26
Mr. Stephen S. Wagner, MAI, SRA, AI-GRS, Vice President,
Appraisal Institute............................................ 7
Prepared Statement........................................... 31
Mr. Russell Johnson, Chief Revenue Officer, Clear Capital........ 8
Prepared Statement........................................... 35

STATEMENTS FOR THE RECORD

Honorable Greg Walden, U.S. Representative, Oregon's Second
District....................................................... 38

ASSESSING VA APPROVED APPRAISERS AND HOW TO IMPROVE THE PROGRAM FOR THE
21ST CENTURY

----------

Tuesday, April 4, 2017

Committee on Veterans' Affairs,
U. S. House of Representatives,
Washington, D.C.
The Subcommittee met, pursuant to notice, at 2:34 p.m., in
Room 334, Cannon House Office Building, Hon. Jodey Arrington,
[Chairman of the Subcommittee] presiding.
Present: Representatives Arrington, Bilirakis, Wenstrup,
Rutherford, Banks, O'Rourke, Takano, Rice, Correa.
Also Present: Representatives Roe, Walden, Bergman.

OPENING STATEMENT OF JODEY ARRINGTON, CHAIRMAN

Mr. Arrington. Good afternoon. The Subcommittee will come
to order. I want to welcome everyone to today's Subcommittee on
Economic Opportunity Oversight Hearing entitled ``Assessing VA
Approved Appraisers and How to Improve the Program for the 21st
Century.''
Before we begin, I ask unanimous consent that our
colleagues Chairman Walden and Mr. Bergman be allowed to sit at
the dais and ask questions.
Hearing no objection, so ordered.
The benefits administered by VA's Loan Guaranty Program are
one of the crown jewels of benefits that are provided to
American servicemembers and veterans. Since its inception in
1944, the program has helped over 22 million veterans achieve
their piece of the American dream.
I am proud to say that this program is also a win-win for
taxpayers. Unlike most other VA benefit programs, the home loan
program operates as a partnership between the VA and the
private sector. It is because of the partnership and VA's high
underwriting standards that VA-backed loans consistently have
one of the lowest foreclosure and delinquency rates in the
country. This means more veterans are staying in their homes
and fewer taxpayers are footing the bill.
While this program is clearly performing well, it is the
Subcommittee's job to conduct oversight over this program, as
well as propose changes when needed. We need to examine all of
VA's processes to ensure that requirements for appraisals are
aligned with industry and that we are not hurting veterans'
chances for purchasing homes because of outdated or unnecessary
regulations.
It is also our duty to the veteran who is the customer here
and to the taxpayers to modernize processes, so the
administration of this program doesn't fall behind emerging
technologies used in the private sector and end up like the
systems in place to process disability claims which created the
long wait times and backlogs that are still occurring.
Today we are specifically going to discuss VA's appraisal
process for veteran home buyers. Receiving an accurate and
timely appraisal is crucial to protecting the homeowner in any
situation and it is even more important for VA-guaranteed loans
so that we protect the taxpayers' interest if the veteran does
default on the loan.
Currently, VA uses its own panel of approved appraisers and
the cost of these appraisals are paid for by the veteran as a
part of their closing costs. While the timeline for completing
a VA-approved appraisal remains efficient for the veteran in
most instances, there are growing concerns that with some
veterans in highly rural areas and with a shrinking economy of
appraisers nationwide that this timeline could begin to
increase. This is important for today's discussion, because
these wait times and higher costs could begin to affect the
veteran's ability to close on a home.
While I understand that in many of these instances VA's
hands are tied because the only option they really have is to
increase the allowable fee for appraisals, I think it is time
to examine new and emerging technologies to cut down on wait
times and reduce the out-of-pocket cost to the veteran. My goal
is to not advocate necessarily for wholesale replacement of the
current appraisal process, but we should look at every
regulation, every process to ensure that they are meeting the
veteran's needs, which is the goal that I know everybody on the
panel and my colleagues on the Subcommittee share.
Before I yield to the Ranking Member, I want to thank the
witnesses for being here today after given somewhat short
notice, and I want to specifically thank Mr. London with VA for
the professional and timely assistance he and his staff have
always provided and continue to provide to this Subcommittee on
any home loan issue.
The Loan Guaranty Service and in fact all the business
lines under the VA Office of Economic Opportunity, including
the Education Service, continue to be a model for the rest of
the department as to how positive interactions with Congress
should work. And that is why Chairman Roe named me Chairman of
this Subcommittee, right? He wanted to give me something that
worked really well as a new Member of Congress and I appreciate
that.
I again thank the witnesses for being here this afternoon.
I look forward, as I am sure my colleagues do, to your
testimony. I now want to yield to my friend from the great
State of Texas, Ranking Member Beto O'Rourke.

OPENING STATEMENT OF BETO O'ROURKE, RANKING MEMBER

Mr. O'Rourke. Thank you, Mr. Chairman. And I want to thank
you for calling this hearing and bringing together these
witnesses, who I am so excited to hear from, and to thank you
also for highlighting some concerns that are reflected in
communities that we care about throughout this country and
certainly in Texas. We spoke to a realty company in Odessa,
Trower Realtors, who reflected the concern in the long wait
times and the fact that there are not enough VA appraisers
right now. Those are things that we need to work on.
I agree with you we do not need to replace the system, we
need to find out where we can improve it without sacrificing or
diminishing the terrific success that the VA has had in
ensuring that veterans, Americans have access to affordable
home loans that perform, outperform the rest of the market. I
think we can accomplish both things.
I am so interested in hearing from our witnesses today, Mr.
Chairman, that I will prove it by concluding my opening remarks
now and turning it back over to you.
Mr. Arrington. Thank you, Mr. O'Rourke.
I want to recognize Dr. Phil Roe, the Chairman of what I
call our parent Committee, the VA Committee or the Committee on
VA Affairs. Dr. Roe.

OPENING STATEMENT OF DAVID P. ROE, CHAIRMAN, FULL COMMITTEE

Mr. Roe. Thank you, Mr. Chairman Arrington and Ranking
Member O'Rourke, for allowing me to be here today to discuss
the VA's home loan program and the appraisal process.
And I want to commend the work of the Loan Guaranty
Service, as it is one of the most well run business lines
within the Veterans Business Administration.
With that being said, I know there are rising concerns
about the dwindling population of appraisers, as Mr. O'Rourke
just said, across the nation, not just VA appraisers, and I
want to ensure that we do everything we can to pursue and
ensure veterans do not begin to experience long wait times to
receive an appraisal.
I thank the Chairman for holding our hearing today, so we
can discuss how to continue and to provide timely and efficient
appraisals to veterans who are using their VA home loan
benefits, but also improve the process where necessary so that
veterans, especially those in more rural areas where I live,
receive an appraisal in a reasonable amount of time and in a
way that doesn't force them to spend more out-of-pocket money.
And I can tell you having just sold a piece of property
here in Washington, D.C., it ain't cheap to do it here. And
when you see the fees and so forth, if you take a first-time
home buyer, and I have been a first-time home buyer, that can
be really an obstacle to you purchasing a home. I mean, when
you have very limited dollars and so much of it is chewed up on
this fee, and you wonder what is that for and this appraisal is
for and that and so on, I'm afraid it scares people away.
But again I want to thank you all for being here, and thank
both Chairman Arrington and Ranking Member O'Rourke for
allowing me to be here, and I yield back my time.
Mr. Arrington. Thank you, Mr. Chairman, and thank you, Mr.
O'Rourke.
I now want to recognize our first and only panel of
witnesses. Today with us we have Mr. Jeffrey London, Director
of VA's Loan Guaranty Service, and he is accompanied by Mr.
Gerald Kifer, who is the Supervisory Appraiser for VA's Loan
Guaranty Service. We also have Michelle Bradley, the 2016 Real
Property Valuation Committee Chair for the National Association
of Realtors; Mr. Stephen Wagner, Vice President of the
Appraisal Institute; and Mr. Russell Johnson, Chief Revenue
Officer for Clear Capital.
Thank you all for being here today.
Mr. London, let's begin with you, and you have five minutes
for your opening statement.

STATEMENT OF JEFFREY LONDON

Mr. London. Good afternoon, Chairman Arrington, Ranking
Member O'Rourke, and other Members of the Subcommittee. Thank
you for the opportunity to appear before you today to discuss
the Department of Veterans Affairs Home Loan Program and its
appraisal system and process.
With me today is Gerald Kifer, Supervisory Appraiser,
Department of Veterans Affairs Home Loan Guaranty Program.
Our program's mission is a very simple one: we work to
maximize opportunities for veterans and servicemembers to
obtain, retain and adapt homes. However, our program does not
generally make loans, build or sell houses, service loans, nor
do we build adapted homes. Instead, we rely on lenders,
realtors, appraisers, servicers, builders, and many others in
the mortgage industry to help us deliver these benefits to our
veterans, benefits which they have earned, many at great
sacrifice.
Through these strong partnerships, our focus on veterans
and our continuous drive to innovatively [sic] enhance
operations and performance, we have built a program that has
guaranteed over 22 million loans totaling over $1.9 trillion
since the original GI Bill in 1944.
During 2016, at a time when the home ownership rate was at
the lowest in 51 years, VA guaranteed over 705,000 loans, an
all-time record last year. VA appraisal volume also rose over
70 percent between fiscal year 2012 and fiscal year 2016, from
361,000 to 615,000. And despite the worst housing market crash
since the Great Depression which began around 2008, VA has
successfully worked with private sector loan servicers to help
over 630,000 veterans and their families retain their homes or
avoid foreclosure since 2009.
Further, VA's foreclosure inventory rate, the percentage of
loans in foreclosure has been one of the lowest foreclosure
rates in the industry over the past eight years, second only to
prime loans. In fact, VA outperformed prime loans during and
immediately following the market crash for six of the last
eight years.
VA has worked to increase our program's efficiency and
effectiveness by partnering with our mortgage industry
stakeholders like our colleagues here today, the National
Association of Realtors and the Appraisal Institute. These
stakeholders have helped make our program work better for our
nation's veterans.
To ensure our partnerships remain effective, we maintain a
robust oversight and risk-management program to secure a world-
class veteran experience, ensuring these private sector
stakeholders adhere to our program goals, values, statutes, and
regulations.
In the appraisal program the last few years have been
challenging as we strive to meet our mission to provide
veterans with accurate assessments of property values and
reasonable assurance that the property meets basic standards
for a safe, sound, and sanitary home.
In recent years, the arena of residential property
valuations, we like all of the mortgage industry have seen a
decrease in the availability of qualified appraisers,
particularly in remote or rural areas. As a result, there have
been longer turn times for appraisals and competition for
available appraisers. Fees in these areas have increased as
lenders and programs compete to maintain a semblance of timely
appraisal delivery.
We have worked to streamline our appraisal business process
to ensure there are no bottlenecks in delivering a timely
appraisal.
We have also undertaken several initiatives in the past
fiscal year to increase appraisal fees, personalize and
redouble appraiser recruitment efforts, and enhance our
technology, all toward the goal of increasing the speed and
quality of appraisals while decreasing wait times for appraisal
assignments.
These efforts have been successful in significantly
reducing the inventory of outstanding unsigned appraisals, but
some remaining inventory exists because no appraiser is
available to immediately take the case. For the first time in
recent history, though, we have seen that our attempts at
recruitment have been declined. Appraisers cite they are too
busy to take on additional work.
We know the appraisal industry as a whole is challenged by
the situation with finding, training, and retaining qualified
appraisers. We look forward to working with our industry
partners to collaborate on programs and policies that will
bring qualified and talented individuals into the industry.
Mr. Chairman, I appreciate the opportunity to speak today,
and I look forward to answering any questions that you or the
other Members of the Subcommittee might have.

[The prepared statement of Jeffrey London appears in the
Appendix]

Mr. Arrington. Thank you, Mr. London.
Ms. Bradley, you are now recognized for five minutes.

STATEMENT OF MICHELLE BRADLEY

Ms. Bradley. Thank you, Chairman Arrington, Ranking Member
O'Rourke, and Members of the Subcommittee.
My name is Michelle Bradley. I have been a realtor for 31
years and a VA appraiser for 20 years. I served as the 2016
Chair of the Real Property Valuation Committee with the
National Association of Realtors, and today I'm representing
more than 1.2 million members working in all aspects of real
estate. NAR is a strong supporter of housing opportunities for
veterans.
The VA Home Loan Guaranty program is a vital tool,
providing veterans with centralized, affordable and accessible
method of financing home purchases with a zero down payment
option. According to a recent NAR study, veterans made up 18
percent of all recent home buyers and 54 percent of them used a
VA guaranty loan.
VA loans are among the safest loans made with one of the
lowest foreclosure rates. Much of the credit can be given to
the VA appraisal system and its appraisers.
The VA uses a panel of approved appraisers and appraisals
are assigned in rotation. Every VA appraiser must have a
minimum of five years' experience and must provide several
letters of recommendation attesting to their knowledge and
their character.
These appraisers, myself included, strive to provide well-
documented, credited appraisals in a timely manner using both
cutting-edge technology and traditional methods of analysis. Of
course, nothing is perfect.
NAR is aware of complaints that have surfaced regarding the
VA's appraisal system, particularly in rural markets. From the
buyer's or agent's point of view, it takes too long to get an
appraisal, so there must be a shortage. The sales price and the
appraised value are sometimes far apart.
As a VA appraiser in rural Western Pennsylvania, I know
these issues well, but there is more to the story. Let me give
you an example.
There is a rural county near me where there are only two
VA-approved appraisers. These individuals also happen to be
sales agents who are related, but work for competing companies.
If a buyer uses a VA loan to purchase a home in that area and
one of these two related appraisers happened to be involved in
the sale, both have a conflict of interest and neither can
complete the appraisal. The VA then has to find an appraiser
from an adjoining county, which results in a delay in loan
processing.
Now, there are qualified appraisers in that county;
however, they are not choosing to seek appointment to the VA
panel. In my personal opinion, I am not speaking for NAR here,
this is my personal opinion, this is because the VA fees are
not always adequate in light of the requirements for completing
highly rural market assignments. This is especially true in
these rural areas where simply making exterior inspections and
driving by the outside of our comparables may take several
hours.
Over 50 percent of appraisers are dissatisfied with their
compensation and feel overburdened by regulations. This is not
just an issue in the VA system, but this is a general concern
in the industry. Many appraisers are having difficulty taking
on trainees and the requirements to enter the profession can be
quite burdensome, which could affect future numbers of
appraisers. NAR has been hearing stories of buyers regardless
of the type financing losing out on a home because the
appraised value is different than the sales price.
Unlike other forms of financing, the VA has a process
called the reconsideration of value, sometimes referred to as
the Tidewater Initiative. This allows a lender a way to provide
relevant market data to appraisers prior to the completion of
the value opinion. The purpose of Tidewater is not to make sure
the transaction works, the purpose as it is intended is to
assure the veteran and the lender that the appraiser has
reviewed all relevant data. If the sales price is not supported
by the appraisal, this protects the veteran from paying too
much, and is also a reason the VA enjoys a very low foreclosure
rate.
NAR is willing to work with Members of this Committee and
the VA to address the issues brought up in this hearing, and I
commend you Members of this Committee for your support of our
veterans and thank you for the opportunity to address you today
on this important issue.

[The prepared statement of Michelle Bradley appears in the
Appendix]

Mr. Arrington. Thank you, Ms. Bradley.
Mr. Wagner, you are now recognized for five minutes.

STATEMENT OF STEPHEN S. WAGNER

Mr. Wagner. Good afternoon, everyone. On behalf of the
Appraisal Institute, thank you, Chairman Arrington, Ranking
Member O'Rourke, and Members of the Subcommittee for the
opportunity to testify on improving the VA Appraiser Fee Panel.
The Appraisal Institute supports the basic framework of the
VA fee panel in contrast to what is currently found in the
Federal Housing Administration or the private sector. By
comparison, the structure of the fee panel facilitates a better
degree of appraisal independence and represents a much more
positive environment for real estate appraisers.
Outside of the VA, appraisers often face a litany of
challenges, ranging from marginally qualified lender review
processes to stifling fee compression. The panel is somewhat
insulated from these trends in that it is a screened list of
approved appraisers that are on a rotation.
The VA Appraiser Fee Panel enjoys support from other
objective observers. A recent review by a reputable think tank
concluded that the VA processes and procedures provide more
taxpayer protection, and help to produce lower defaults and
loss severity.
Generally speaking, the VA fee schedules tend to be more
indicative of customary and reasonable than what is found in
the private sector today. This is largely because the schedule
is developed independently by the VA through surveys of local
market participants.
Another positive: the VA has in place an innovative process
referred to as the Tidewater Initiative that requires the
appraiser to contact a party to the transaction when the
appraisal does not support the sale price. This provides an
opportunity to offer more information to the appraiser for
consideration.
As a former VA panel appraiser, the VA staff I encountered
were extraordinarily dedicated to veterans. I either personally
witnessed or hears stories of veterans being treated with
respect and assistance in times of challenge that have
protected and benefitted them. In that vein, the panel is
integral to protecting veterans, the VA, and the public
interest.
Significantly changing the VA roster platform that provides
for a critical level of independence would be a mistake.
Furthermore, seeking alternative valuation products such as
automated valuation models or even desktop appraisals would
also be a mistake in terms of collateral risk mitigation.
I will acknowledge, on occasion the lending industry
experiences high loan demand which can lead to appraisal
delivery times that are elevated to less than optimum levels.
Though these intervals can be somewhat protracted, they are
temporary, as witnessed recently. Changing a working system is
not the answer. Instead, we offer suggestions to enhance an
already workable and successful system.
From time to time the VA recruits appraisers to the fee
panel. Some of our members report an inconsistent response with
regard to approvals. We recommend the VA enhance recruitment
efforts by targeting appraisers who have completed peer-review
requirements for professional appraiser designations. The panel
would benefit from greater involvement by highly qualified
appraisers, along with exploring a standby list of appraisers.
We also recommend to improve VA lender processes relative
to timeliness issues by encouraging lenders to provide
appraisers with better property information on the front end of
the appraisal assignment.
Lastly, we believe the panel would be much more attractive
to appraisers if concerns about past due or delinquent
appraisal fee payments were rectified by the VA.
We think these enhancements can preserve the integrity of
the panel, first and foremost to the benefit of veterans.
Thank you for the opportunity to testify today and I look
forward to taking your questions.

[The prepared statement of Stephen S. Wagner appears in the
Appendix]

Mr. Arrington. Thank you, Mr. Bradley--actually, Mr.
Wagner, that would be your name. Sorry.
[Laughter.]
Mr. Arrington. Finally, Mr. Johnson, you are now recognized
for five minutes.

STATEMENT OF RUSSELL JOHNSON

Mr. Johnson. Chairman Arrington, Ranking Member O'Rourke,
and Members of this Committee, on behalf of Clear Capital I am
pleased to appear today to talk about new ideas of efficient
appraisals and how they can help veterans realize home
ownership by utilizing the Home Loan Program from the United
States Department of Veterans Affairs.
I am veteran of the United States military. I was a deep
sea diver in the U.S. Navy for four years.
When I left the U.S. Navy, becoming a homeowner was a top
priority. I wanted to start a family, provide a safe place for
my family to grow and call home.
I started the process by asking questions of the
professionals in the real estate and lending industry,
questions that would help me navigate this process that most
people only experience a couple times in their lives. I always
asked if I could use my VA loan benefit. I was told it is more
expensive, I was told it takes longer, and that sellers are
less likely to accept a VA-backed offer.
I realized that I was steered away from using my benefit
and toward conventional mortgages. We know this isn't the
position of the VA or relevant national, state and local trade
organizations; nonetheless, this was my experience.
I work for Clear Capital now. Clear Capital's focus is
applying new technologies to solve real estate valuation
problems with the highest degree of integrity, quality and
customer service to the mortgage, lending, investing, and
housing industry.
Over the past few years and across all home purchase
products, VA and non-VA loans, appraisal wait times and costs
have risen significantly in some pockets of the country. In
large part this is a result of a shortage of appraisers in some
markets.
The shortage of appraisers is slightly exaggerated with the
VA program, because as I understand it the appraisal is more
specialized, using separately approved appraisers to ensure
greater protection of the veteran home buyer. This is a
valuable benefit.
Clear Capital suggests that the VA consider the use of a
desktop appraisal based on physical inspection of a subject
property by an industry professional. The product is a hybrid
of the traditional appraisal process and leverages a qualified,
arm's length professional performing a visual inspection of the
subject property, and providing other market insight and
analytics.
Desktop appraisals are compliant with both Uniform
Standards of Professional Appraisal Practice, USPAP, and the
Interagency Appraisal and Evaluation Guidelines. The desktop
appraisal process allows a single appraiser to complete several
more appraisals per day than is possible with a traditional
approach.
In some parts of the country, an appraiser spends 30
percent of his or her time driving to and from a property. This
is not a productive use of time for these specially trained,
skilled, and knowledgeable professionals.
Today's technology makes it possible for detailed property
measurements, characteristics, market comparables, and other
detailed information to be delivered to the appraiser within
minutes of collection. This wasn't possible decades ago when
the current model was created. Today we can quickly provide the
appraisers with the information they need to perform accurate
and timely appraisals of the highest quality.
Appraisers completing these reports would remain subject to
the same licensing and certification requirements, as well as
the standards provided under USPAP. Likewise, the process could
be rolled out in agreed-upon cases for completion by appraisers
on the VA panel and subject to appropriate quality-assurance
reviews.
To conclude, the VA Home Guaranty Program provides our
veterans and active duty personnel with an incredible and
unique earned benefit. It has allowed them to improve their
economic opportunity by accruing home ownership equity.
This earned benefit, thanks to the VA staff and lenders,
performed exceptionally well, as stated earlier, in the last
downturn. At the same time, we must work together to ensure
that going forward this program continues to serve the veterans
and active duty servicemembers efficiently, cost-effectively,
and carefully.
I want to thank the Economic Opportunity Subcommittee for
having me in today, and I thank the VA staff for their
dedication and service to veterans.

[The prepared statement of Russell Johnson appears in the
Appendix]

Mr. Arrington. Thank you, Mr. Johnson.
I am delighted to have with us Chairman Greg Walden from
the Energy and Commerce Committee. I know he has a great
interest in this issue. And in the interest of your time, sir,
I would like to give you five minutes for comments, questions.
Mr. Walden. Well, I thank the gentleman. Mr. Chairman,
thank you very much.
And to the Members of the Committee, thanks for your
courtesy in letting me come and share a few comments. And I
appreciate what the witnesses have had to say, your testimony
is most helpful, and I appreciate your Committee taking a look
at this topic.
Throughout my district, I have heard from veterans who are
waiting a long time, too long, frankly, to be able to get an
appraisal on their VA-backed home loans. You all know this is
going on. I have had a dozen or more different veterans contact
me for assistance while facing significant delays in receiving
their VA-guaranteed home loans due to this appraisal backlog.
I have also heard from realtors and loan officers who find
that in their efforts to secure homes for veterans and their
families receiving a VA-approved appraisal is the most
challenging and time-consuming requirement. I have had seven
town hall meetings in my district so far this year and I think
in just about every one this topic has come up as an issue
affecting our veterans and these are in different parts of
Oregon.
Some of these veterans and their advocates have waited up
to nine weeks to even have an appraiser assigned to their case,
Mr. Chairman, nine weeks, making them far less competitive as
prospective buyers in the housing market. One veteran even lost
his prospective home when his interest rate lock expired as he
waited for an appraisal and, I think we would all agree, that
is simply unacceptable.
At the end of last year, I wrote to the VA Regional Loan
Center to ask how we could address this problem head-on, and I
hope in your hearing today we can get some answers to that.
I know that higher appraisal fees have been approved for
some counties in my district. I heard that was one of the
issues, that if you were doing a VA appraisal you didn't get
paid as much if you were doing another kind, and I know they
have tried to address that.
The VA has managed to cut down on some of the appraisal
backlogs in rural Oregon and I appreciate your attention to
that, but in my conversations with realtors, veterans groups,
and VA approval I have heard that the appraisal shortage is a
market-wide issue that may soon spill over into other federal
programs and eventually into the private sector.
Increased federal regulations and barriers to entry for
would-be appraisers seem to be moving us in the wrong
direction. I think that is something we all have to figure out
and that is not just the purview of this Committee, Mr. Chair,
but I think Financial Services and other Committees probably
have a role in this as well, but it is serious. An increase in
VA appraisal fees may help in the short run, but it looks like
we need some other policy changes as well.
So we have to look at the longer-term issue, but in the
meantime we must take care of veterans; we must make sure they
are not handcuffed by a process when they are just trying to
get a roof over their heads.
So I look forward to working with you, Mr. Chairman, and
Chairman Roe and my colleagues on this Committee to fix the
problem here for our veterans, but also for others across our
country. And I greatly appreciate the courtesy of being able to
share those comments and I appreciate your leadership on this,
Mr. Chairman, and I thank you and I return the balance of my
time.
Mr. Arrington. Thank you, Chairman Walden, and thanks for
your great interest on this issue and for your time.
Now I would like to yield five minutes to the Ranking
Member. Mr. O'Rourke.
Mr. O'Rourke. Thank you, Mr. Chairman.
I would like to thank the panel for their comments and for
ensuring that we understand your concerns, but also what I
think what we are grateful for is some of the suggestions that
you have offered to improve the process.
I wanted to ask Mr. London, how often is the Tidewater
provision employed?
Mr. London. Yes, thank you for that question. To my
knowledge, the Tidewater Initiative is invoked, but we do not
keep regular statistics about how often that initiative is
invoked. But I am going to turn to Mr. Kifer, who may have more
information about, generally speaking, how often that
initiative is invoked.
Mr. Kifer. Thank you, Chairman Arrington and Mr. O'Rourke.
We do have automated systems these days to track some of
these issues and we do track, just recently have started
tracking what is called the Tidewater Initiative. It has been
described briefly and it was developed in the Tidewater area of
Virginia where we were experiencing very much the situation we
are hearing about today with delays and property value
appraisals not meeting sale prices, and so on and so forth.
That was back--
Mr. O'Rourke. I think what I am trying to get at and I am
sorry to interrupt you, but just because I do not have a ton of
time, but I want to know how often that is used and what that
adds to the wait for someone, because then I want to get to the
recommendation made by Mr. Wagner that there be better property
information on the front end and I wonder if that would obviate
the need to use Tidewater. And I may not understand the process
totally.
So if you can tell me how often it is used and how much
that adds to it, that would be helpful, and then that helps us
assess Mr. Wagner's recommendation in terms of the impact.
Mr. Kifer. Our recent data shows that the Tidewater
Initiative is employed approximately 24 percent of the time. It
adds typically two days to the appraisal process. The process
calls for the appraiser when they recognize they are not going
to meet the sale price that they must contact the lender or the
lender's point of contact and give them two days to submit
additional support for the case.
So it typically is a two-day issue.
Mr. O'Rourke. That is helpful. When we heard from the
Chairman of the Energy and Commerce Committee, the gentleman
from Oregon, his concern about folks waiting nine weeks, the
concern is probably with those appraisers who choose not to
work with the VA and within this system, and perhaps just the
number of appraisers in general who are willing to do this kind
of work, that we need more appraisers in those under-served
communities.
I wonder if Mr. London or Mr. Kifer could also comment on
Mr. Johnson's recommendation for desktop appraisals. It seems
like, you know, we know more and more, especially with Mr.
Wagner's suggestion that we include more on the front end about
the properties and relative valuations in the area, that all
that could be put in in the front end, and we could have a
pretty good idea of valuation and a pretty good idea of the
borrower's ability to pay back.
What are your thoughts on his recommendation?
Mr. London. Yes, first I want to respond by saying that VA
currently has a process where we use front-end data. We have a
tool that has been developed by CoreLogic Corporation where not
only are they an AMC or appraisal management company, but they
also are a data aggregator, and they collect front-end
information across the entire marketplace. So today every VA
appraisal that is completed actually goes through CoreLogic's
system to look at the market data that is available on the
front end, and we actually grade every single appraiser and
every single appraisal to ensure that it meets VA standards and
that it also is using good information to determine value.
The other thing that it helps us to do is to allow us to
conduct oversight of the appraisal process as well.
One of the challenges that we have had, and I think this is
a market problem, is in some of the rural and remote areas
these systems do not have enough data to have the integrity
that you would need to have the confidence that you can rely on
the data. So that is one of the limitations that the industry
is dealing with.
So having a geographic competency to actually go in and
look at the properties, especially if you are an appraiser who
is familiar with that territory, has been something that has
been very helpful.
But I will turn it to Mr. Kifer to see if he has additional
thoughts.
Mr. O'Rourke. You know what, I am going to have to take
that for the record. I am out of time, but I appreciate the
answers, and I have got some follow-up questions that we may we
submit for the record.
So thank you very much.
Mr. London. I look forward to addressing those. Thank you.
Mr. O'Rourke. Yes.
Mr. Arrington. Thank you, Mr. O'Rourke.
I now want to yield five minutes to Dr. Wenstrup.
Mr. Wenstrup. Thank you, Mr. Chairman, and I would like to
yield to Mr. Bergman.
Mr. Bergman. Thank you, Dr. Wenstrup.
Thank you, Mr. Chairman, and thank you for inviting me to
be here for a few minutes today.
Veterans have given a lot for their country. In life, they
took on life, you know, in tough situations, we shouldn't make
it tougher for them when they come back. We know that, that is
why we are here having these hearings.
I represent the 1st District of Michigan, a lot of
veterans, higher than the national average, almost double the
rest of the veterans in districts within Michigan, but a very
rural district.
Now, do I understand correctly, and this is anybody to
answer, I don't have this specific, when a veteran applies for
a VA loan for a specific home or project they need three
comparables?
Mr. London. That is correct, sir. In our policy we do say
that the appraiser submits at least three comparable
properties.
Mr. Bergman. Is there a geographic distance, put the pin in
the middle of the project and what the distance is?
Mr. London. In our guidance, we are somewhat general, we
say that the comparables have to be in close proximity to the
properties. But as I alluded to, in some rural or remote areas
the next comparable could be miles away and the appraiser would
have that knowledge, so they are able to use that.
Mr. Bergman. How about potentially hundreds of miles? And
the point is, what do we have in your system for relief when we
have a delay in the process because the appraiser cannot meet
the requirements for the comparables, yet everything is
validated, I guess. I have heard from veterans, I have heard
from realtors, I have heard from home builders in our area,
they can't comply with the rules because of the sparse
population. What do we do?
Mr. London. Well, again, we say that you need to have at
least three comparable sales. However, we do have some latitude
in our process to accept the available information that the
appraiser has, including if the property is not in close
proximity, because one of the things that you would look to,
and I turn it to my appraiser professionals to explain it a
little bit more in depth, but you can look at like properties
that have similar characteristics of the subject property that
you are examining.
Mr. Bergman. The challenge we have is the tyranny of
distance and because of veterans coming, a lot of times we will
be building a new project, potentially getting a VA loan and
there hasn't been a whole lot of new housing. So what we are
looking for is a way for those appraisers to somehow create a
valid appraisal so that the loan be approved, so that veteran
can either buy or build that home when there really isn't three
comparables within any relatively close distance, and that is
all I am looking for is how do we do that.
Mr. Wagner. There are some conditions at times where it can
be a really big challenge for an appraiser to accumulate data
that would fit within the parameters such as Mr. London was
referencing. In those situations, when you have a professional
appraiser out there in the field taking a look at that type of
situation, he can use his judgment to say go back in time. Not
all the comparables have to be six to twelve months, within six
to twelve months, unfortunately, maybe it's 18 months or
something like that and find a comparable perhaps in a
competitive market that is representative of the subject
property.
So there is more than one way to do this. Certainly the
parameters that Mr. London mentioned would be ideal to begin
with and that is where you start, but sometimes you have to
make adjustments and be flexible and use your judgment.
Mr. Bergman. Okay. So what I hear you saying is, when I go
back to the 1st District I can find out who the appraisers are
and I can tell them that they can use their best judgment?
Mr. Wagner. I think that they can use their best judgment
with an awful lot of support and explanation.
Mr. Bergman. Well, no problem. The commonalities are easy
to handle, it is the differences between the norm and the edges
where in life some situations fall through the cracks and I
just happen to live in a district where that is quite honestly
the majority of our 24,000 square miles.
Mr. Wagner. Clearly, that is a challenge, and in the
underwriting area they need to be able to have adequate support
and explanation from the appraiser that shows that this is the
best that can be done at this point, and that should make it
acceptable.
Mr. Bergman. Well, thank you.
Mr. Chairman, thank you very much for the time and I yield
back.
Mr. Arrington. Thank you, General Bergman, for your time
and interest.
And now I will yield five minutes to Mr. Takano.
Mr. Takano. Thank you, Mr. Chairman. And I want to ask Mr.
London a few questions.
Mr. London, thank you for the work you do to ensure that
eligible veterans and their families are getting into safe and
structurally sound homes and, through the appraisal panel
process, owning homes that represent a sound financial
investment. Clearly, these efforts on behalf of veterans by the
Loan Guaranty Service have been successful in that, as you
said, VA's foreclosure inventory is so low.
Can you describe a little more in detail how you are
attempting to deal with the shortage of VA-approved appraisers
in rural locations?
Mr. London. Yes, thank you for that question.
What we have done, especially in areas where we have
identified that either they are rural or remote areas, or they
are hot real estate markets, we have taken a look at the
appraisal Subcommittee's available appraiser list and we have
literally contacted every single licensed appraiser in those
remote and rural areas to invite them to apply to be Members of
our panel.
We have had some success over the last year in doing so.
Because of this initiative, nationwide we have added over 700
appraisers to our fee panel. And specifically in Washington,
Oregon and Colorado, in the past six months we have added over
120 appraisers to our panel through this recruitment effort.
So the first thing that we did is just identify where we
are in a severe need and we again contacted every single
licensed appraiser to invite them to apply to the panel.
Mr. Takano. How do you decide what is customary and
reasonable compensation in booming markets where appraisers are
in high demand?
Mr. London. Yes, we actually survey lenders and other
program participants who are actually on the ground in those
specific geographic markets, and we ask them for real-time
information and what they are experiencing of what the going
rate for an appraisal in that particular area.
We used to do those surveys on an annual basis or sometimes
on a biannual basis, but more recently we have been looking at
these fees on a quarterly basis to make sure that we are
reflective of the current marketplace.
Mr. Takano. Wow, you can change that fast.
How do the VA panel appraisers and lenders negotiate a
mutually acceptable fee in a high-demand situation and when it
is inconsistent with those set forth in the VA schedules, what
does VA do?
Mr. London. So from a VA perspective, the fee that we
permit the veteran to pay is the fee that we set forth.
However, that does not preclude a veteran if he or she wishes
to choose to pay a premium for an appraisal assignment, the
lender could offer that and the veteran can make a decision on
whether or not he or she is willing to pay the difference, but
VA's fee is the fee that we say is permissible for that
assignment.
Mr. Takano. And what should industry be doing to encourage
qualified appraisers to join local VA panels?
Mr. London. Well, one of the things that we have to do is
make sure that the appraisers don't have a misconception about
the VA program, because some may be thinking about old
experiences that they have had or even some of their colleagues
have had sometimes a decade or more ago. The VA program is
extremely flexible and we make sure that we provide the
appraisers with clear guidance on what we expect and we also
ensure that they understand that we are good partners with
them.
So that is the first thing that we have to do is make sure
that we get over the misperception.
And I will also use a second point, which you were
questioning me about and with the fees, we want to make sure
that we have competitive fees. And I think that one of the
things that we really don't have to educate appraisers on is
the fact that when they do a VA assignment they are getting the
full fee, whereas if they were doing a conventional appraisal,
sometimes they do that through an appraisal management company
that may take a portion of the fee.
So it was discussed earlier that sometimes appraisers have
to travel long distances to go to their assignment and they
have that burden of those extra expenses, with the VA fee you
get the full fee for that assignment.
Mr. Takano. Did you anticipate the 70-percent appraisal
volume increase from the years 2012 to 2016?
Mr. London. Well, we have enjoyed in the last few years an
increase in the program and veterans and servicemembers taking
advantage of their benefit, so we were aware of the increase.
And that is one of the reasons why we implemented the tool that
I mentioned, the tool that we have with CoreLogic, so that we
can make sure that we have an appraisal processing system that
can meet veterans' needs and demands.
And actually the recruitment process that I described
actually began a few years ago where we noticed that we were
losing some fee panel members and we had various recruitment
efforts over the years to ensure that we had adequate appraisal
fee panel members around the country.
Mr. Takano. Thank you.
I'm sorry, Mr. Chairman, I went over time.
Mr. Arrington. Thank you, Mr. Takano.
And I now yield five minutes to Dr. Wenstrup.
Mr. Wenstrup. Thank you, Mr. Chairman.
I appreciate everybody being here today. I mean, in my
opinion, this is what we are supposed to be doing, right? To be
able to sit and discuss any nuances or problems that we are
having within our programs and try and work those out, and I
appreciate the efforts of everybody involved here today.
Mr. London, one question I have is, what is the reason or
origin for the different standards between VA appraisers and
FHA appraisers from the beginning?
Mr. London. Some of the requirements that we have are
statutory. For instance, it was described earlier that you have
to have recommendations from other appraisers to join the
panel, also that you have to go through a background check,
things of that nature. Some of those requirements are
statutory, so it begins there.
Mr. Wenstrup. No, I appreciate that. I have a VA home loan,
I am pleased to say, actually. I think one of the things that
helped us is that we were looking both at VA and then outside
of a VA home loan through the bank, and our appraiser happened
to also be a VA appraiser and so things went pretty smoothly.
So at one point people thought it was going to be a glitch, but
it ended up working out for us.
But again, that is really the only question I have, and I
do appreciate everybody being here. And hopefully we will make
the process smoother and continue to help more veterans through
the process.
Thank you.
Mr. London. Thank you.
Mr. Arrington. Thank you, Dr. Wenstrup.
And now we will yield five minutes to Miss Rice.
Miss Rice. Thank you, Mr. Chairman.
So we spent a lot of time talking about the effect of the
appraiser process in rural areas. I happen to come from the
State of New York, which has some of the highest home prices in
the country. And I know that there have been times when
veterans have come in expressing frustration with the fact that
it is almost impossible to get a loan in the amount that you
need to to put a roof over your head in the places where you
want to live.
Just one quick question. There was a note in here that said
that there was loan that was guaranteed in Malibu, California
for $9 million, I was just curious about what that is all
about.
Mr. London. Yes, I am familiar with that case and I
actually looked at that appraisal myself to make sure that it
was accurate. Fortunately, some of our veterans and
servicemembers, just like other Americans, they do well.
Miss Rice. I just wanted to make sure that that was the
reason.
Mr. London. That is correct.
Miss Rice. It was not just a total--
Mr. London. And the interesting thing about that particular
case is that veteran obviously had the means to purchase a very
expensive home, but as we stated earlier this program is a
benefit entitlement program and that retired officer wanted to
use his VA benefit, and he obviously put down a sizeable down
payment on that loan.
Miss Rice. Well, as well as he should have been able to for
sure, he or she who could afford it.
So what are the instances where there is a long period of
time to get an appraisal and in how many instances does that
affect the interest rate, say, that a veteran can get from a
financial institution that is working on this program?
Mr. London. One of the things that we encourage our lender
partners to do is if they have a deal that there is a risk the
seller will no longer be involved in the transaction or in the
instance that you're saying, that the interest rate is about to
expire, we encourage lenders to contact VA so that we can get
involved to make sure that we can find an available appraiser
on our fee panel to take that assignment more quickly. And more
times than not, when lenders do reach out to us, we are able to
work with the lender and with our appraisal partners to find an
appraiser to take on that assignment more expeditiously.
Miss Rice. And so in a place like New York where home
prices, like other places in the country, are high, I mean, is
there an access issue here? I mean, I know today we are talking
about the appraisal process, but that is just one aspect of it.
I mean, if you are living in an urban or city area that, you
know, in any of the boroughs of New York, I mean, it used to
just be Manhattan that you were priced out of, now it is hard
to find a home in Queens or Brooklyn that you can afford.
So how do you address that, especially in the instance
where they are not required to put any money down and in those
instances do you have higher default rates than you do
elsewhere around the country? Because I know that it didn't say
the percentage, but whatever your default rate is, it seemed
pretty low, you know, as compared to the private sector.
Mr. London. Sure, and thank you for that question. The
first point that I would like to make is that VA by statute is
limited on the amount that we will guarantee. So right now we
are currently tied to the Freddie Mac conforming loan limit;
however, that does not preclude a veteran from using his or her
VA loan eligibility to purchase a property.
Basically, what a veteran would do in a situation in a
high-cost area that the Freddie Mac conforming loan limit does
not meet the sales price of the home is he or she would have to
pay a down payment at that point for 25 percent of the
difference of the amount above the Freddie Mac conforming loan
limit. So the veterans can still take advantage of the VA Home
Loan Program and certainly can make a smaller down payment than
if they chose another loan product.
The second thing that I would say is that when it comes to
cost, you know, I think we see a lot of veterans take advantage
of the program not only because of the down payment aspect, but
because the fees for VA are much less than other alternative
loan products. So even in high-cost areas veterans can take
advantage and save some of the money that they have or would
not have to come with so much money to the table because the
fees for VA are much lower.
And for almost the last two years VA loans have enjoyed the
lowest interest rate in the marketplace than any other loan
product. So veterans are incentivized to use the VA loan
program even in high-cost areas.
Miss Rice. Well, and they certainly should be the
recipients of that benefit. I think it is one of the great
moral failures of this country that we have even one homeless
or jobless veteran. So thank you all for everything you are
doing.
Mr. London. And I do want to address the one that you made
about loan performance, I apologize. Based on our analysis
internally in VA, we found that high-cost loans, if you will,
even though VA loans overall enjoy a low foreclosure rate and a
low serious delinquency rate, we found that the higher-cost
loans actually perform better than even the lower-cost loans.
Miss Rice. Well, maybe you can let us in on that little
secret, how that is happening, that would be great.
Thank you all very much.
I yield back. Thank you.
Mr. Arrington. Thank you, Miss Rice.
Now I would like to yield five minutes to Mr. Rutherford.
Mr. Rutherford. Thank you, Mr. Chairman.
Ms. Bradley, let me ask on your study that the National
Association of Realtors conducted, I noticed that the
foreclosure rate for the VA is great actually, if you look at
it, particularly between 2009 and 2014, they were the lowest of
any other loan, what I am wondering, did you--so that is a good
thing. So the quality of what they are doing in protecting
veterans, because it is a protection for them too, because they
don't get foreclosed on by buying a home that they can't
afford, did you look at rural versus urban in the wait time
situation?
Ms. Bradley. I was not part of that original study. The VA
foreclosure rate is enjoying a very low foreclosure rate
because of the dual--there is the lender can overwrite,
underwrite the appraisal, the VA then does their own oversight,
so that dual protection protects the veteran, ultimately giving
a zero down payment.
And if I may address the rural aspect of that. It is not
just about fees, folks, it is not just about the appraisal
fees, sometimes the VA--or the appraiser, excuse me, simply
cannot take the assignment. If we do not have the data to
develop geographic competency in that market, we simply cannot
take on that assignment. So not just the--
Mr. Rutherford. And that kind of leads to my next question
for you.
Mr. London, when did CoreLogic come into use in the
appraisal process?
Mr. London. A little over three years ago.
Mr. Rutherford. Okay, so that would have been '14 roughly?
Mr. London. Yeah, about '13, 2013.
Mr. Rutherford. Okay. And has there been a change, Ms.
Bradley, in the wait time since then, do you know?
Ms. Bradley. I would like to emphasize that overall the
wait times are not extraordinary.
Mr. Rutherford. Okay.
Ms. Bradley. We have had a perfect storm in our country
over the past few years. We have historically low interest
rates, we have pent-up housing demand from all of these
borrowers who wanted to buy a home but were nervous after the
ten years ago we had the biggest housing collapse in our recent
history. So we have a pent-up demand and we also have a lot of
veterans looking to purchase a home now because we have so many
more vets.
So we have a perfect storm of a situation. It is not a
nationwide problem, this is in highly rural markets that they
are experiencing that. I am from a rural market myself and the
VA has called me often and asked me to do appraisals in an
adjoining county. If I don't have access to that data to be
able to develop a competent appraisal that is credible, that
could protect the veteran by making sure that there is
sufficient collateral for that loan, I can't take that
assignment.
Mr. Rutherford. Right. Let me ask you this. From 2004 to
2015, there was a great loss of certified appraisers, but there
was a huge--I'm sorry, licensed appraisers, there was a huge
drop in the licensed appraisers, but there was a 20-percent
increase in certified appraisers. Does VA use certified
appraisers and is that part of the issue here as well?
Ms. Bradley. No, actually VA uses both licensed and
certified appraisers.
Mr. Rutherford. Okay.
Ms. Bradley. They have to have a minimum five years'
experience. That is not part of the issue.
Mr. Rutherford. So that is not an issue at all. Okay.
And I would also ask, Mr. London, what is your view of
desktop-based appraisals? Mr. Johnson I think sounded very
supportive of them, thinks that they are effective. Does VA use
that very often or at all?
Mr. London. We currently do not do desktop appraisals as
described today; however, as I mentioned, we do have the
CoreLogic system that does have that information available. And
again, one of the limitations that we have of that current
system--and again, this is not a CoreLogic issue, this is an
issue across the industry--is that for these rural and remote
areas the data simply just is not there to do those type of
assignments through a desktop.
Again, that is why we are harkening back to geographic
competence from an individual who is familiar with that
particular geographic area.
And I attend many industry conferences and obviously meet
with many lenders who participate in our program, and what
lenders tell me is that they because of risk, because the data
has not been proven, most lenders tell me that they are not
supportive of that type of review, that they feel more
comfortable with the current appraisal process.
Mr. Rutherford. Okay, I see I am out of time.
Thank you all very much for what you are doing for our
veterans. Thank you.
Mr. Chairman, I yield back.
Mr. Arrington. Thank you, Mr. Rutherford.
And now we will yield five minutes to Mr. Banks.
Mr. Banks. Thank you, Mr. Chairman. And thanks to each of
you.
There is nothing more infuriating to me than when we
discuss issues or restrictions, government bureaucracy or rules
that prevent us from serving our veteran population better. So
on one hand, while I am pleased that we are having the
discussion that we are having today, it is very difficult at
times to understand why we make it so much more difficult than
it has to be to better serve our veteran population.
So with that, Mr. London, one area where I am scratching my
head is how exactly do we justify the more stringent,
significantly more stringent vetting process for the VA than
what the FHA has for appraisers? What is the justification, how
do I defend that to the veteran constituents in my district who
are frustrated?
Mr. London. Sure. Thank you for that question.
As I alluded to earlier, VA is simply following the
statute. The statute requires us to go through this vetting
process. But what I will add to that comment is the fact that,
again, this is a benefit that veterans and servicemembers have
earned, again, as I stated earlier, many at great sacrifice.
And so not only does the vetting process and our overall
appraisal process protect the government and the risk that it
may take if the home goes to foreclosure, but it also protects
that veteran and servicemembers when he or she is purchasing
the home because they know that they are getting a home, even
though the VA appraisal process is not an insurance program,
because it can't give the veteran an insurance, we request that
they get a home inspection to get added assurance.
But the appraisal process that we have, because we look at
minimum property requirements to make sure that the home is
sound, safe, and sanitary, that is giving that veteran and
servicemember that extra comfort that not only are they
utilizing the benefit that they have earned, but they are
getting a sound asset as well.
Mr. Banks. So I am brand new, I am a freshman Member of
Congress, brand new to this Committee, I have a lot to learn,
but I did serve in the state house for six years. You said the
more stringent vetting rules are per the statute?
Mr. London. That is correct.
Mr. Banks. Is that a statute of rules, administrative rules
from the VA, or are those congressionally approved rules that
have created that more stringent process?
Mr. London. The statutory reference is 38 U.S.C. 3731, so
congressional.
Mr. Banks. So are those rules that your organization could
repeal?
Mr. London. No, sir.
Mr. Banks. Make less stringent?
Mr. London. No, sir, we cannot, not without a statutory
change.
Mr. Banks. So you are pointing the finger at this
Committee, the Congress to solve that rather than through the
administrative process that you would be involved with?
Mr. London. Well, let me make sure we are clear when we
talk about a more stringent, you know, process.
First and foremost, as Ms. Bradley indicated, VA can use
licensed appraisers, whereas FHA in comparison have to use a
certified residential appraiser, which is a bar above.
Mr. Banks. Well, what I am trying to get to the bottom of
is who has created this more stringent rules?
Mr. London. Understood. It is statutory, is my
understanding.
Mr. Banks. It is your understanding?
Mr. London. That is correct.
Mr. Banks. So it sounds like maybe we need to do a little
bit more homework. Maybe you and I, maybe us together with you
to find out how we scale back those more stringent rules.
Mr. London. I will assist you in any way I can and any
other Member of the Committee.
Mr. Banks. I appreciate your willingness to do that.
And I appreciate the interest of this Committee on this
topic, as it is a source of frustration of so many veterans who
do deal with this process.
And with that, Mr. Chairman, I yield back.
Mr. Arrington. Thank you, Mr. Banks.
I yield myself five minutes.
I want to follow the line of questioning of my colleague
Mr. Banks. I just want to start with the fundamental question,
why do we need a certification? Why do we need government
certification? We are exposed, as my understanding, 25 percent
of the loan, the private sector has 75 percent exposure, they
have more risk in this. Why would we need additional standards
beyond, and I am looking at one of the surveys, the
conventional prime, you know, process for appraising, why do we
need more than that?
I know you didn't write the law, I am not blaming you, Mr.
London, but let's just say you have a blank slate. Let's say
that there are no statutory requirements and restrictions on
you. What would you do to change the law so that we could
manage risk and serve the customer, being the veteran?
Mr. London. Well, as I stated, I will be happy to work with
you and other Members of the Subcommittee on any legislation
that you may propose to improve the appraisal process.
One of the things that I can say about the current system
and process that we have is I think in part it bears out in the
performance that we stated today with the low foreclosure rate
and the low delinquency rate. The fact that, for instance just
use one of the examples of one of the vetting steps that you
have to go through to serve on the panel, is you have to have
recommendations from other appraisers, and a second step that
is also statutory is that you have to have a demonstration
project or demonstration appraisal to show that you have the
competency.
So the fact that we actually look at the fact of whether or
not the person is competent and that their peers will attest to
their competency, I think that has helped with the current
success that the program is enjoying to serve our veterans.
Mr. Arrington. I do think that the foreclosure rate is good
but, you know, it is comparable to the conventional prime, I
mean, it is right there, and yet when the NAR did a survey of
appraisers and asked which ones are least desirable among a
long list, the number one by far that was least desirable was
to conduct appraisals for VA loans. And then when she cited,
Ms. Bradley, the regulatory burden is the top reason that
appraisers are leaving the profession, that leads one to
believe that there may be too many regulations, too much
regulatory burden.
So, you know, I could mitigate risk to almost zero, but not
serve my customer very well. So there is a balance, I think you
would appreciate that.
Help me again understand--well, what are the unnecessary
regulatory restrictions, in your opinion, those things that
don't have a cost-benefit value in this process?
Mr. London. Well, if I look at the statutory construct,
again, the way that I understand it, the fact that we are
asking for, if you have experience as an appraiser that we are
asking for an example of the work that you have completed and
also recommendations from your peers, from just a pure burden
standpoint, in my view I don't think that that is an extremely
high bar for entry to be on the fee panel.
Mr. Arrington. Okay. Ms. Bradley, could you help me with
identifying those requirements that are unnecessary and may be
a barrier to serving the veteran, rural or otherwise?
Ms. Bradley. As a VA appraiser for the past 20 years, I
worked for FHA and I work in the conventional market, the VA is
the gold standard, it does not need to be changed, in my
personal opinion.
Mr. Arrington. Why do so many appraisers say it is the
least desirable, I mean significantly, exponentially greater
than most of them on that list?
Ms. Bradley. The question asked I believe was which entity
are you least likely to work for and if that appraiser didn't
happen to be on the VA-approved panel they are going to answer
no. And perhaps there are many appraisers that choose, as we
had said, not to request appointment to the VA panel because of
misinformation about over-regulation, I believe that is the
reason it was chosen.
Moving forward, I believe for the VA's recruitment of
appraisers, if they provided continual education and they do
regional training, I believe if they bring in new appraisers
who maybe have a misconception that there is too much
regulation, that can help them.
Appraisers who have never done a VA appraisal before think
I don't know what a minimum property requirement is, I am too
concerned to do it for liability purposes. If there were
training for new appraisers to join the panel in conjunction
with the open enrollment, I think that would dissuade people
from being concerned.
Again, it is highly rural markets that we are talking
about, this is not the norm throughout the country. And I need
to reiterate, please, the VA is the gold standard for appraisal
independence.
Mr. Arrington. So thank you.
I have exceeded my own time restriction and so I am going
to ask my colleague Mr. O'Rourke if he has further questions or
comments.
Mr. O'Rourke. Thank you, Mr. Chairman.
Mr. Arrington. And I yield the full five minutes.
Mr. O'Rourke. Thank you. Again, I want to thank you for
bringing everyone together and addressing an important issue
that in the going on five years that I have been on the
Committee we really have not addressed. I am grateful for that
and I think something good is going to come of it.
I do want to stress, because there is very legitimate
concern today about availability of timely VA loans and
appraisals in rural areas, especially those that are
experiencing an economic boon as the Chairman's district in
Oregon is and as we are seeing in some parts of Texas. I want
to make sure that we meet that need and address that concern in
a way that is going to be effective without at all diminishing
or undermining the extraordinary success that this VA loan
program has had. Samantha on my team was just telling me that
there was a 24-month period between 2014 and 2016 where these
VA loans were the lowest average rate in the country.
So we are providing a tremendous earned benefit to the
veterans who put their lives on the line and are getting that
extra help, as they should, and we are also protecting the
taxpayer, as we should, and we are also increasing the rate of
home ownership significantly, as we should. So lower rates,
lower foreclosures, more home ownership, all very good things.
Let's meet the demand in some of these extraordinary, you know,
unique cases. As the Chairman brought up and as we are seeing,
we were talking about Odessa, Texas earlier today and I know
there are other parts of the country that face this.
I wonder, and I am of course speaking just on my behalf,
but whether or not this panel could come back to us with a
unified approach to addressing this that may or may not require
more legislation. If only 42 percent of appraisers in this
country choose to work for the VA, how do we increase the rate
of participation? If we are having these unique challenges in
rural and under-served districts, how do we meet them? Do we
need to change statute and law, is it an act of Congress
literally?
Again from the benefit of, you know, four-plus years in
this place, it is very hard to get something through this
Committee, the House, the Senate, and onto the President's desk
and signed into law. So if this is urgent and if this is a
crisis, let's not wait for statute. If the five of you could
agree on something and come back to us within a month and say
here--and you offered a number of ideas, but they were each
offered individually and separately--if these are consensus
opinions or you could arrive at them and come back to us.
Perhaps the VA voluntarily says, you know what, here's some
stuff that does not require a statute, we are going to do it
because it is going to ensure more veterans get into more homes
more quickly. Or you may need to make some tweaks to law, you
know, that's on us, or here is a way to reach out to appraisers
in some of these markets. Or as the Committee staff just
suggested, is there some way to cross state lines where you
have the capacity in California in the north of that state that
can serve Oregon, you know, in the south of that state. I don't
know, but you all know this stuff, you are going to have the
solutions. I know just having worked with the Chairman now for
a little over three months, he gets on this stuff and he is
already probably working on, if I had to guess on legislation,
which I would really like to see and I think could make it
better. If we can do something in addition to that legislation
or in place of that, all the better.
Forgive me, Mr. Chairman, I am not trying to predict what
you are doing, just this is such an important issue I want to
make sure that we don't wait on it. If you could come back to
us within a month, the five of you together--
Mr. Arrington. Absolutely.
Mr. O'Rourke [continued]. --that would be great.
Mr. Arrington. Would the gentleman yield?
Mr. O'Rourke. So I yield back.
Mr. Arrington. You took the words out of my mouth. And, you
know, you have been here a few more years and so look how you
just beat me to the punch and shamed me in front of my
colleagues like that.
Mr. O'Rourke. No, no, no.
Mr. Arrington. I couldn't agree more. You guys are closest
to the problem. I have heard good responses, but I think if we
could frame them and maybe the Ranking Member and I can work on
framing this with more than just one central question, maybe
three to five questions, you guys work on it and come back and
submit those for further discussion.
But this ought to be something we can solve, this ought to
be the most easy-to-get-to bipartisan solution with stakeholder
input of anything I have encountered yet. And so I know there
is no problem that is easy, but relatively speaking, we ought
to be able to tackle this.
So I appreciate your suggestion. Right on, I second that.
And may I just ask one more question of Mr. Johnson,
just would you all indulge me for just a minute?
Your product, how would your product apply to this problem-
solving exercise and is it mature enough and nuanced to meet
this particular problem? I would like to hear more from you
about how we can bring technology to bear to provide greater
access, especially in the rural areas.
Mr. Johnson. Absolutely. Thank you for the question and the
opportunity.
I see this as primarily an efficiency utilization. How do
we best utilize the resources that we have available to us? As
has already been stated, the VA program is the gold standard
and the VA has done a wonderful job servicing veterans,
especially in light of this increase in demand; they have
increased fees, they have increased their recruitment programs,
they have on-boarded several more appraisers, so they have been
doing an excellent job with what they have available to them.
I think that the product that we are talking about today,
the desktop appraisal, allows appraisers to focus on where they
apply their knowledge and their skill set. As opposed to
driving hundreds of miles every day to look at homes and take
pictures and do measurements, other qualified professionals in
the industry can perform those duties at different locations
while the appraiser is looking at the data that is provided.
Right now we can provide that information within moments, as
opposed to decades ago when this process was created it took a
lot of time.
So if somebody else can, you know, another industry
professional can take the photos, drive out to the locations,
maybe they live nearby anyway, then you supply the appraiser
with the data they need to apply the skills that they have
learned and the expertise that they have, and they don't have
to spend their time doing those other tasks.
So it is more about the efficiency utilization of the
resources in a couple of different areas, that is one example.
The other example is that there is a large portion of
properties that do fit into a standard category to where they
are not so complex. And if we can apply this technology into
the non-complex properties, we free up time again for the
appraiser to go visit out in the rural areas and be able to
attack those problems.
So I think there's a couple of different ways that the
product does help the situation, help the appraiser be more
efficient and more effective, and help the veteran to be able
to get into the homes that they want without having to wait
with these unknown lead times and unknown costs.
Mr. Arrington. All right, thank you for your comments.
Mr. O'Rourke, do you want to close this with any comments?
Mr. O'Rourke. No, sir.
Mr. Arrington. Are you okay?
Well, like the Ranking Member said and I agree
wholeheartedly, let us frame this, and if you are willing, Mr.
London, we'll just submit those to you to frame it up. And then
I would like for you to work with the stakeholders present and
come back with recommendations.
Don't let the current statute or law restrict your vision
for a better construct to serve the customer, which is the
veteran, as we steward, manage the risk and steward the
taxpayer monies, but there has got to be a better way. There
has got to be some creative solutions here and I think you guys
are just the right team to give us some recommendations.
I really appreciate your time and your preparation and your
thoughtful responses.
So I now ask unanimous consent that all Members have five
legislative days in which to revise and extend their remarks,
and include any extraneous material on today's hearing.
Without objection, so ordered.
Thank you all again for being here today. This hearing is
now adjourned.

[Whereupon, at 3:59 p.m., the Subcommittee was adjourned.]

A P P E N D I X

----------

Prepared Statement of Michelle Bradley
Introduction
Chairman Arrington, Ranking Member O'Rourke, and members of the
Subcommittee, my name is Michelle Bradley. I am a third generation
REALTOR with 31 years' experience as a state-certified general real
property appraiser and a licensed real estate broker in Pennsylvania. I
am here representing the more than 1.2 million members of the NATIONAL
ASSOCIATION OF REALTORS (NAR) who work in all aspects of real estate.
NAR represents a wide variety of real estate industry professionals,
including approximately 25,000 licensed and certified appraisers,
committed to the development and preservation of the nation's housing
stock and making it available to the widest range of potential
homebuyers.
I am currently on the VA appraiser panel and the FHA appraiser
roster. In addition to being a full-time appraiser-practitioner, I am
also a principal with Bradley Consultants, a real estate appraisal
school. In this capacity, I author and present education courses for
both real estate licensees and appraisers in multiple states. I am one
of only 500 instructors certified by The Appraisal Foundation to teach
courses on the Uniform Standards of Professional Appraisal Practice
(USPAP). I have served as chair of the Pennsylvania Association of
REALTORS Appraisers' Forum, as well as the 2016 Chair of the National
Association of REALTORS Real Property Valuation Committee. I currently
serve as the chair of the Appraisal Standards Board Issues Committee
with The Appraisal Foundation Advisory Council (TAFAC).
NAR believes a strong and independent appraisal industry is vital
to the home buying process and to the housing industry as a whole. A
credible valuation provided by a qualified professional (1) ensures the
property value is sufficient to collateralize the mortgage, (2)
protects the buyer, (3) allows secondary markets to have confidence in
the mortgage products and mortgage-backed securities, and (4) builds
trust in the real estate profession.
NAR commends the Committee for holding this hearing on an issue
that is key to the safety and soundness of the Department of Veterans
Affairs (VA) Veterans Home Loan Guaranty Program. NAR is a strong
supporter of housing opportunities for veterans and active-service
members.
The VA Home Loan Guaranty Program and the Role of the Appraisal
According to the U.S. Census, there were 19.3 million military
veterans in the United States in 2014. The VA Home Loan Guaranty
program serves a large veteran population and is doing it well. The
homeownership rate for veterans was 76 percent in 2014 - well above the
national average of 64 percent.
For over 70 years, the VA Home Loan Guaranty Program has been a
vital tool that provides veterans and active-service members with a
centralized, affordable, and accessible method of financing home
purchases as a benefit for their service to our nation. This
entitlement program encourages private lenders to offer favorable home
loan terms to qualified veterans and active-service members. According
to NAR's 2016 Veterans and Active Military Home Buyers and Sellers
Profile, veterans make up 18 percent of all recent homebuyers, while
active-service members make up 2.0 percent. Of these buyers, 74 percent
of active-service members and 54 percent of veterans use a VA loan to
finance their home purchase. \1\
---------------------------------------------------------------------------
\1\ National Association of REALTORS, 2016 Veterans and Active
Military Home Buyers and Sellers Profile.
---------------------------------------------------------------------------
VA's strong yet flexible underwriting standards allow veterans and
active-service members the ability to purchase a home of their own
without depleting their savings. More than 81 percent of veterans and
active-service members utilize the zero-down payment option provided by
VA. Yet, despite this, VA's foreclosure rate is very low:

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

In fact, during the height of the foreclosure crisis, VA's
foreclosure rate was lower than that of conventional mortgages. For the
second half of 2016, VA's foreclosure rate of 1.1 percent was
comparable to that of conventional loans, which had a 0.9 percent
foreclosure rate. Since 2009, more than half a million veterans,
active-service members, and survivors kept their homes, at a savings to
the U.S. Government of over $16.3 billion.
The success of the VA Home Loan Program is the result of the strong
underwriting standards expected of VA lenders. VA requires
participating lenders to ensure that the loan payments are appropriate
for the veteran or active-service member's present and anticipated
income and expenses and solidly underwrite the loans using debt-to-
income ratios and credit history. Additionally, in contrast to
conventional lending and even FHA, VA also uses a residual income test.
Residual income calculates how much income a borrower will have left
for other monthly expenses after home payments. This calculation
considers the borrower's complete financial picture, and ensures money
is available for emergencies or other contingencies. VA also requires
the use of manual underwriting for those veterans and active-service
members who marginally qualify. For these borrowers, lenders must look
at non-traditional factors and give veterans and active-service members
the benefit of the doubt when making a decision.
A major element of the strong underwriting provided by VA lenders
is the well-developed appraisal system and high quality of VA
appraisers that the VA employs to estimate the value of a given
property. The VA appraisal is important because it assures the lender
the property provides adequate collateral for the loan and protects the
veteran or active-service member from overpaying for a property. The
typical VA appraisal report will include the necessary data and
analysis to estimate the market value for loan underwriting and
determining the home meets the VA's requirements. The VA allows for two
levels of appraisal scrutiny (1) the lender reviews the appraisal, and
(2) the VA Regional Loan Centers then reviews the appraisal for any
errors or concerns. This double oversight procedure creates a safety
net for the veteran or active-service member that assures their home
meets the VA's minimum property requirements and contains enough value
to act as collateral against the loan.
The VA recognizes the value of qualified appraisers that create
sound valuations, which protect VA buyers and lenders. Only appraisers
that meet a high level of work quality and experience are able to
become members of the VA appraiser panel. Every VA appraiser must be a
state licensed or certified appraiser with a minimum of five years'
experience in appraising residential properties. The VA also requires
letters of recommendation attesting to the applicant's character and
experience as a residential appraiser. As a result, VA appraisers are
serious about their profession, their duty to the veterans and active-
service members they are serving, and thus strive to produce well-
documented, credible appraisal reports in a timely manner.
The VA maintains a closed panel of appraisers that receive VA
appraisal assignments on a rotating basis. This ensures strict
appraiser independence by removing the possibility of collusion between
the lender and the appraiser. An independent and impartial analysis of
real property is a critical component of the mortgage transaction,
which is consistent with the Dodd-Frank Wall Street Reform and Consumer
Protection Act that implemented rules and regulations to protect the
independence of the appraiser.

The Perceived Appraiser Shortage

NAR has been closely following the growing concern over a perceived
shortage of appraisers reported by real estate professionals from
various geographic areas, including markets with quickly increasing
home values such as Portland, OR and Denver, CO, as well as rural areas
in Kansas and Texas. NAR members report long waits to schedule an
appraisal, increasing turn-around times for appraisals, and the need to
pay rush or expedited fees to obtain an appraisal in a timely manner.
NAR is also aware of difficulty in recruiting new appraisers into the
field and the growing frustrations of current appraisers with the state
of the appraisal industry.
All this suggests a drop in the number of appraisers in the U.S.
Yet, the data provided by David Bunton, President of The Appraisal
Foundation, shows less than a 1,000 person reduction in appraisers from
2004 to 2015. Digging deeper into the data, the number of licensed
appraisers decreased by several thousand while certified appraisers
increased by roughly 20 percent. \2\ So why are many markets facing
situations that suggest a much greater shortage of appraisers? To gain
a richer understanding of these matters, NAR conducted a survey of
REALTOR appraisers in early 2017. \3\
---------------------------------------------------------------------------
\2\ https://www.appraisalbuzz.com/a-shortage-of-appraisers/
\3\ National Association of REALTORS, 2017 Appraisal Trends
Survey.
---------------------------------------------------------------------------
NAR found that appraisers are generally dissatisfied with most
elements of their job. Over 50 percent felt dissatisfied with their
level of compensation and overburdened by the level of regulation in
the appraisal industry. Those appraisers intending to leave the
profession in the next five years cited excessive regulation and
insufficient compensation as the two main reasons for their departure.

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

One element of this issue is that appraisers, like individuals in
any free-market based profession, have the ability to choose the
assignments based on their skills, limitations, financial needs and
interests. Many qualified appraisers indicated a reluctance to take on
certain assignments.

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

NAR found that 47.1 percent of the survey respondents chose not to
perform VA appraisals. Of course, some of the appraisers surveyed are
likely not qualified to be a member of the VA appraisal board. However,
it is also likely that some appraisers who are well qualified to join a
VA appraisal panel may be unwilling to accept VA assignments. Given the
current low-interest rate environment, growth in the economy, and the
resurgence of a demand for housing \4\, the opportunity for appraisers
to be selective in choosing assignments has likely increased. The VA
should consider whether the current VA Appraisal Fee Schedules provide
adequate and reasonable compensation in light of the work and
competence necessary to perform a VA appraisal. While the VA allows for
the appraiser and the lender to negotiate a mutually acceptable fee for
complex assignments, that can be a time-consuming, cumbersome, and thus
costly endeavor. There is also no guarantee that the parties will reach
an agreement or that VA will even consider or agree to a fee that is
inconsistent with those set forth in the VA schedules.
---------------------------------------------------------------------------
\4\ https://www.nar.realtor/news-releases/2016/11/nar-2017-
forecast-existing-home-sales-up-a-turning-point-for-first-time-buyers

---------------------------------------------------------------------------
Overly Burdensome Trainee Appraiser Requirements

It is more difficult than ever to become an appraiser. Individuals
interested in becoming appraisers must meet education requirements,
experience requirements, and pass state administered national
examinations. To become a state-certified appraiser, individuals are
required to take 200 hours of education coursework and complete 2,500
hours of experience in a minimum of 24-month period. \5\
---------------------------------------------------------------------------
\5\ Real Property Appraiser Qualification Criteria. 2015.
---------------------------------------------------------------------------
These are minimum standards as established by The Appraisal
Foundation's Appraisal Qualifications Board (AQB). States may require
additional training. The experience requirement, which is effectively
an apprentice program, is extremely difficult to meet. This is
compounded by the fact that some appraisers do not take on trainees.
For example, less than one in five appraisers surveyed by NAR currently
take on trainees. Of the appraisers that currently do not take on
trainees, over half previously did so. The lack of compensation for
teaching and the refusal of lenders to accept work product done by
trainees are the main reasons cited for refusing to take on new
trainees. \6\ Simply stated, the apprentice system is in need of
reform.
---------------------------------------------------------------------------
\6\ National Association of REALTORS, 2017 Appraiser Trends
Survey.
---------------------------------------------------------------------------
The AQB is in the process of revising the qualification
requirements as a way to help bring new appraisers into the industry.
Recent proposed changes include introducing alternative way to comply
with the current Bachelor's degree requirement and the practical
experience components. NAR has engaged with the AQB on these matters
for over a year and is hopeful that non-class based alternatives to the
education requirement and reconsideration of the structure of the
experience requirements will be developed in a way that creates highly
skilled and competent new appraisers.

How VA Appraisals Function in Rural Areas

Rural real estate transactions have always presented their own
unique appraisal challenges. Many of the properties in rural areas are
``unique'' and do not easily fit into a well-defined metric for
determining the value. In some cases, an appraiser is dealing with a
farmhouse or ranch on several hundred acres of land with the closest
neighbors miles away. It is common for an appraiser serving a rural
area to drive over an hour just to view a comparable home sale. Rural
appraisers have to factor in time and gas costs that exceed those of
suburban or urban appraisers. According to NAR's Appraiser Trends
Survey, appraisals for unique or odd lots, which many rural properties
are, take nearly 50% longer than a standard appraisal.
It is important to note that Uniform Standards of Professional
Appraisal Practice (USPAP) does NOT limit the distance an appraiser may
travel to an assignment. While a distance traveled limit sounds like a
simple solution it is far from effective. This is because markets vary
widely - an appropriate distance limit in an urban market may not be
appropriate in a nearby rural area. What is important is that clients
retain services from appraisers with a level of geographic competence
sufficient to complete the assignment with credibility. Geographic
competency entails more than a deep analysis of the sales and
demographic data. Appraisers must take the time to learn the
characteristics and qualities of the specific market, including the
current housing supply and demand for that area.
REALTORS from rural Michigan document the challenges faced. For
example, a REALTOR working with veteran clients in rural Michigan is
aware of only two VA appraisers that take on assignments in their area.
One of these appraisers comes from one hour away. The other works in a
town a three-hour drive away. Unfortunately, the experience of
REALTORS in Michigan is that the appraisals in VA transactions have
recently been coming in well below the agreed upon selling price, in
one situation $60,000 lower. REALTORS across the country, including
Texas and Oklahoma, have shared similar anecdotes.
Recently, many home purchase transactions across the country have
come undone due to a difference in the sales price and the appraised
value of a home. Unlike with other forms of financing, in a VA loan
transaction, when an appraiser realizes that the appraised value of a
property is coming in below the sales price, they are to stop work and
notify the lender's point of contact. This process is called the
Reconsideration of Value, often referred to as the ``Tidewater
Initiative''. After notification by the appraiser, the lender's point
of contact has two days to provide support for the sales price, which
can include additional comparable home sales. The appraiser reviews any
information provided and then completes the appraisal report. In some
cases, it may result in a revised appraised value for the property. In
the Michigan example cited, it did not; the appraised value remained
below the listing value and the deal fell apart.
NAR's members understand the reality is that sometimes real estate
deals will fall apart over a difference in appraisal value versus the
agreed upon selling price. Nevertheless, there are best practices to
address these situations and ideally reach a satisfactory conclusion.
An effective solution to these conflicts with the appraisal and the
buyer's expectation is to improve the understanding between the
parties. Contact between appraisers and real estate agents and their
clients is not prohibited and should, in fact, be encouraged by the VA.
Appraisers should feel comfortable with offering their competency to
stakeholders. Real estate agents and their clients should ask questions
to get a better understanding of the appraiser's qualifications,
education, experience, and professional designations. While
understanding should be encouraged, NAR also believes that coercion and
other attempts to influence value are, and should continue to be,
prohibited. If all parties feel that contact and information was
received properly, the ability to understand the difficult outcome of
failing to purchase a particular house is much easier for the veteran
or active-service member to handle.

Conclusion

The NATIONAL ASSOCIATION OF REALTORS strongly supports housing
opportunities for our nation's veterans and active-service military
professionals. The VA Home Loan Guaranty Program appraisal system is an
imperfect but necessary element to ensure our veterans and active-
service members are protected when using a VA home loan. NAR is willing
to work with the VA and the members of this Committee to address many
of needs of the current system, including the re-evaluation of
requirements for trainee appraisers, ensuring good understanding
between the appraiser and the veteran or active-service homebuyer, and
recognizing the realities of the market in terms of appraiser choice in
assignment. NAR firmly believes that the VA Home Loan Guaranty Program
will continue to provide a vital benefit to the men and women who
bravely fought for our country, so they may find a home that serves
them and their needs.

Prepared Statement of Stephen S. Wagner
Chairman Arrington, Ranking Member O'Rourke and Members of the
Subcommittee on Economic Opportunity, thank you for the opportunity to
testify on improving the VA Appraiser Fee Panel on behalf of the 19,000
members of the Appraisal Institute, the largest professional
association of real estate appraisers in the United States.

EXECUTIVE SUMMARY

The U.S. Department of Veterans Affairs (VA) Appraiser
Fee Panel purposefully is unique, given the charge of supporting our
nation's veterans. The VA loan program is an important veteran benefit
that performs better than other government loan programs, in part,
because it has strong appraisal independence mechanisms.
The VA appraisal staff are some of the most accessible
and responsive within the federal government relative to real estate
appraisal issues. They often help resolve payment and underwriting
issues between VA appraisers and VA lenders.
The Appraisal Institute opposes changing the VA Fee Panel
to one that mirrors what is found in the Federal Housing Administration
or the private sector. We do not believe that this would reduce
turnaround times for appraisals, nor would it be in the best interest
of veterans.
Measures may be taken to improve the consistency of the
program and to maintain its competitiveness with the private sector, as
discussed in greater detail in Part 3:
Maintain an independent Fee Panel of VA appraisers;
Develop a ``stand-by'' list of approved VA appraisers;
Enhance appraiser recruitment efforts;
Encourage lenders to provide better information at the
time of the appraisal assignment; and
Address appraiser concerns about unpaid appraisal fees.

Part 1. Background and Private Sector Issues

VA Fee Panel

The Veterans Administration (VA) maintains a Fee Panel of approved
real estate appraisers who work on behalf of the agency in providing
collateral risk assessment in support of the VA Home Loan program. The
Fee Panel is directly managed by the VA and consists of a pool of
several thousand appraisers who accept VA appraisal assignments on a
rotating basis.
The Federal Housing Administration once maintained a panel similar
to the VA Fee Panel, but in the 1990s that program was changed to what
is known as ``Lender Select.'' This allowed FHA Direct Endorsement
lenders to manage the appraisal process and to engage appraisers
directly. The FHA Lender Select program operates similarly to the
conventional mortgage market.
By comparison, the VA Fee Panel is a much stronger proponent of
appraisal independence and presents a much more positive environment
for real estate appraisers than what is found in other government
programs or the private sector. Outside of the VA, appraisers often
face a litany of challenges ranging from marginally qualified appraisal
review processes to stifling fee compression. This, along with a
complicated national regulatory structure that is in need of
modernization \1\, has produced an overall unattractive environment for
real estate appraisers, particularly residential appraisers.
---------------------------------------------------------------------------
\1\ On November 16, 2016, The House Financial Services Committee
Subcommittee on Housing and Insurance held a hearing on, ``Modernizing
Appraisals - A Regulatory Review and the Future of the Industry.''
Available at http://financialservices.house.gov/calendar/
eventsingle.aspx?EventID=401174

---------------------------------------------------------------------------
Appraiser Population Trends

The Appraisal Institute has been tracking appraiser population
trends for many years. The trend has been downward for several years,
with the ranks of residential appraisal accounting for nearly the
entire decline. Real fees for residential mortgage appraisers have been
in decline for many years, while the costs of doing business (I.e.,
licensing fees, continuing education, books, supplies, vendor fees,
etc.) have gone up. When one adds in fee-splitting with appraisal
management companies, many residential appraisers actually are making
much less than they were some 20-30 years ago (see attached chart -
U.S. Appraiser Population Estimates

Licensed/Certified Residential).

We anticipate a continued decline in the number of practicing
appraisers, between 20-25 percent, over the next 5-10 years.
AI data does not indicate a national shortage of appraisers at this
time, but there are indications of temporary shortages in some markets.
We anticipate, however, that longer-term shortages will appear going
forward should the projected decline materialize.
The VA Fee Panel is somewhat insulated from these national trends
in that it is a hand-picked list of approved appraisers. While the
national pool of appraisers has narrowed in recent years, there still
is an ample number of appraisers to support the VA Home Loan program.
Moreover, the national figures better represent the status of private
sector residential appraisal issues and problems than issues
transpiring within the VA Home Loan program.

Interim Final Rule & Customary and Reasonable Fees

The Dodd-Frank Act requires creditors and their agents to pay
``customary and reasonable'' fees to appraisers to reflect what an
appraiser typically would earn for an assignment absent the involvement
of an appraisal management company. Under the Act, evidence for such
fees may be established by objective third-party information, such as
government agency fee schedules, academic studies and independent
private sector surveys.
Rules that have been promulgated by the Federal Reserve (Interim
Final Rule) and the Consumer Financial Protection Bureau (Final Rule)
are not consistent with the plain language and intent of the Dodd-Frank
Act \2\. Two presumptions of compliance are provided by the Federal
Reserve and accepted by the CFPB that are internally inconsistent. One
presumption requires independent studies or fee schedules that align
with retail appraisal fees direct from the appraiser, while the other
accepts internally-generated results that include what amounts to
wholesale fees involving third parties.
---------------------------------------------------------------------------
\2\ The Appraisal Institute's comment letter on the issue of
customary and reasonable fees is available at http://
www.appraisalinstitute.org/file.aspx?Document=AI-ASFMRA-ASA-NAIFA--on--
IFR-Final.pdf
---------------------------------------------------------------------------
The CFPB adopted a final rule earlier this year, leaving these
presumptions unchanged. We continue to have concerns with the internal
inconsistencies found in the two presumptions for compliance.
The problem of customary and reasonable fees paid to appraisers is
masked by consumer disclosure rules that allow the co-mingling of the
fee paid to the appraiser and separate appraisal management company
fees on the Appraisal line of the Consumer Disclosure form issued by
the CFPB. This co-mingling confuses consumers into believing that they
are paying appraisers more for services today, when, in fact,
compensation levels may have declined significantly because appraisal
management companies are taking a sizable portion of the total cost
paid by the consumer.
The Dodd Frank Act authorized the CFPB to require the disclosure of
AMC fees separate from fees paid to appraisers. In developing the final
TRID (TILA-RESPA Integrated Disclosure) rule, the CFPB conducted
consumer testing of sample Closing Disclosure forms. This testing
concluded that consumers were indifferent to the disclosure of AMC fees
separate from appraisal fees. Consumers were not confused by a
disclosed appraisal management company fee. Despite this, the CFPB
opted to allow disclosure simply on a voluntary basis, but not to
mandate it. Today, while some lenders break out the fees paid to AMCs
separate from appraisal fees, most do not do so.
As discussed below, the VA Fee Schedule essentially is the only
government agency fee schedule that exists, and it is a strong measure
of our concern and the inconsistencies between retail appraisal fees
and those paid by some appraisal management companies. Changing the VA
Fee Panel to the model employed by the private sector would result in
stiff fee compression for VA appraisers and come at the expense of the
strong appraisal independence components and expertise found in the
current VA Fee Panel.

Loan Program Performance and Taxpayer Protection

The VA Appraiser Fee Panel enjoys support from other objective
observers. Recently, the American Enterprise Institute reviewed the VA
appraisal program in comparison with the FHA operations and concluded
that the VA processes and procedures provide more taxpayer protection
and helped to produce lower defaults and loss severity. VA appraiser
engagement helps to create a more positive environment for risk
management and loan performance, among other things, the report
concluded \3\.
---------------------------------------------------------------------------
\3\ Pinto, E. (2013). Alignment of Incentives - VA Best Practices.
American Enterprise Institute. Available at http://www.aei.org/wp-
content/uploads/2013/08/-pinto-alignment-of-incentives-va-best-
practices-082613--110818557056.pdf

---------------------------------------------------------------------------
Part 2. VA Appraisal Issues

VA Fee Schedules

Generally speaking, the VA fee schedules are much more indicative
of customary and reasonable than what is found in the private sector
today. This largely is because the schedule is developed by surveying
local market participants. As such, the schedule has become an
important measure for customary and reasonable fees in the marketplace.
In recent years, several states have recognized the VA Fee Schedule in
assessing customary and reasonable fees.
Below is the current Fee Schedule from the Phoenix VA Regional Loan
Center for Arizona, California, New Mexico and Nevada, effective
December 1, 2016:

Fees and Timeliness

Effective for all VA appraisals, repair inspections and compliance
inspections, please see the following table:

----------------------------------------------------------------------------------------------------------------
Fannie Mae 1004 1004C 1073 2055 1075 1025 Multi- Appraisal 1004d Repair Appraiser
Forms Single Family* Exterior Family* Updates All Inspection Timeliness
----------------------------------------------------------------------------------------------------------------
Arizona, $600.00 $450.00 $750.00 $200.00 $100 7 Business
California, Days
New Mexico,
Nevada
----------------------------------------------------------------------------------------------------------------
*If the appraisal is completed for liquidation appraisal purposes, appraisers are authorized to charge an
additional $50.

In contrast, we contacted an AI professional in the California
market and asked what was being offered by several national appraisal
management companies that bundle the fee paid to the appraiser and the
appraisal management company fees, as opposed to a ``cost-plus'' model
that would charge the management fee on top of the appraiser service
fee:

National Appraisal Management Company A:

$350 for 1004 (Fannie Mae form) Single Family

National Appraisal Management Company B:

$255 for 1004 (Fannie Mae form) Single Family

National Appraisal Management Company C:

$255 for 1004 (Fannie Mae form) Single Family

This professional indicated several banks that engage appraisers
directly (as opposed to using appraisal management companies as third
parties) in this particular market are paying appraisers $450, on
average, for the same service request.

Timeliness

The VA also maintains timeliness requirements of seven (7) business
days for the VA Fee Panel, as you can see in the VA fee schedule cited
above. We are aware of complaints about appraisal timeliness in some
markets. This was particularly acute last year where loan volumes were
strong in many markets. We do not believe this was a national problem,
but it was experienced in many markets around the country, particularly
in rural areas. Here, turnaround times for appraisals may have exceeded
more than 30 days in some areas.
We understand that many of these markets have normalized since
December when interest rates increased. As such, appraisal volumes have
declined and we expect that turnaround times have declined in these
markets, as well. Further, we do not believe that the experiences in
some markets last year were unique to the VA Fee Panel, as similar
concerns were expressed in the conventional market in many of these
areas.

Underwriting and Review

VA lenders are using an automated appraisal review program that
attempts to warn them of items to check in the report narrative.
However, lenders often take it as a cue to call the appraiser and ask
for more of the same language in a different place in a revised report.
Further, lenders frequently confuse the VA requirements with those of
FHA or Fannie Mae/Freddie Mac. This is particularly bad whenever a new
VA lender comes online.

As one VA Panel Appraiser/AI Member stated recently:

On the positive, it is good that VA says the appraiser can use
their three best comps (we are often lucky to have one good one in
rural areas, while the other two are the best of a sorry lot), and that
if a lender wants more, they have to pay extra. VA does a pretty good
job of backing up the appraiser to the lender, and, as you know, the
assignments are on rotation. As one who is very well qualified, I
dislike working at the same fee as a newbie, but at least the
assignments are fair.
Personally speaking, as one who has been a VA Panel appraiser in
the not-too-distant past, I believe in the VA appraisal program and
truly believe it to be of great benefit to Veterans. The personnel I
have encountered at the VA, during my time on the panel, were
extraordinarily dedicated to Veterans. I either personally witnessed or
heard stories of Veterans being treated with respect and assistance in
times of challenge that have protected and benefited them. In that
vein, the VA appraiser panel is integral to protecting Veterans, the VA
and the public interest. Maintaining a roster of objective, qualified
and professional appraisers is the way that effective real estate
collateral risk mitigation is accomplished.
Dismantling or significantly changing the VA Roster platform that
provides for a critical level of independence would be a mistake.
Furthermore, seeking alternative valuation products, such as desktop
appraisals, also would be a mistake in terms of collateral risk
mitigation. I will acknowledge that from time-to-time we experience
high volume demand for appraisals and delivery times are elevated to
less-than-optimum levels. Nevertheless, although these intervals can be
somewhat protracted, they are temporary. Dismantling a working system
is not the answer. The Appraisal Institute would like to offer some
suggestions to enhance an already-workable and successful system.

Lender Payment Concerns

Our members report that some lenders fail to pay for services
rendered or push payment off for months - even years. Some appraisers
write off a certain number of fees every month, knowing that lenders
will fail to pay. What is even more frustrating for VA Fee Appraisers
is being forced to complete assignments for the same lender that is in
arrears with the appraiser. This serves as a major disincentive for
some appraisers who otherwise would be interested in applying to be on
the VA Fee Panel.

``Tidewater Initiative''

The VA maintains a process that requires the appraiser to contact
the agent or seller when the appraisal does not support the sales
price. This provides the agency/seller with the opportunity to provide
more information to the appraiser for consideration.
We had our doubts about the Tidewater Initiative when it first was
released, but according to our members who participate in the program,
it has worked relatively well. Many appraisers proactively request
information from the agent and seller on the front end to avoid
complication after the appraisal is complete. We now are supportive of
the program and believe that it could be replicated by other agencies
and the private sector.
In our opinion, the whole system would be improved if we could
adopt the VA appraisal model of a limited panel of appraisers who
routinely are reviewed by someone without an agenda, and which uses
fair rotation and establishes some sort of fee range to reward
experience and qualification.

VA Fee Panel Recruitment

The VA recruits appraisers on an ongoing basis to the Fee Panel,
and the AI even has assisted the agency in marketing the opportunity to
the appraisal community. But some of our members report an uneven
response from the VA regarding their applications. While those
appraisers who currently are on the VA Fee Panel generally give it high
marks, those who are not on the Fee Panel and are interested in doing
so have expressed some frustration about the length of approval time or
their outright rejection.
VA officials report that it actively recruits existing licensed and
certified appraisers to the Fee Panel, which currently stands at
roughly 5,700 appraisers nationally. The agency has apparently
undertaken efforts to proactively contact licensed and certified
appraisers encouraging application to the Fee Panel. However, if
appraisers are choosing not to apply or deferring work in favor of the
conventional appraisal assignments, that would indicate the agency must
do more to remain attractive to appraisers in the marketplace, such as
increasing fees or reducing administrative burdens. We understand that
the recent fee increases in states such as Oregon have produced
positive results, and we would encourage similar actions elsewhere.

Part 3. Recommendations

As Congress reviews appraisal issues, we would like to suggest
several reforms to help improve the VA Home Loan program and the VA
Appraiser Fee Panel, as follows:

1.Avoid the pitfalls found in the private sector and other
government agencies by maintaining an independent Fee Panel of VA
appraisers. By comparison, we do not believe that a move to a lender
select program, such as those found in the conventional or FHA mortgage
markets, would improve timeliness, nor would it be in the best
interests of veterans.

2.Develop a ``stand-by'' list of approved VA appraisers to serve as
a ``buffer'' against surges in loan demand. This would help avoid what
may have been observed in some markets last year.

3.Enhance appraiser recruitment efforts by targeting appraisers who
have completed peer review and/or demonstration appraisal requirements
for professional appraisal designations from nationally recognized
professional appraisal organizations. The VA Fee Panel would benefit
from greater involvement by highly-qualified appraisers.

4.The VA should make several improvements to VA lender processes,
including:

a.Improve timeliness by encouraging lenders to provide appraisers
with better information, such as the legal description, on the front
end of the appraisal assignment. We often see the form VA 26-1805-1
form incompletely filled out. In areas where there are ingress-egress
easements, this can eat up a tremendous amount of time trying to obtain
property-access details, which is a critical mortgage security and
collateral value component.

b.Improve the attractiveness of the VA Fee Panel by addressing
prompt payment concerns. Authorize VA Appraisers to reject appraisal
assignments when lenders are in arrears more than 60 days.

Thank you for the opportunity to testify on this important issue. I
would be happy to answers any questions.

Prepared Statement of Russell Johnson
Chairman Arrington, Ranking Member O'Rourke, and members of this
Subcommittee: on behalf of Clear Capital, I am pleased to appear today
to talk about how new ideas of efficient appraisals can help veterans
realize homeownership by utilizing the Home Loan program from the
United States Department of Veterans Affairs.
I am a veteran of the US military, having served more than 4 years
in the United States Navy as a Deep Sea Diver. My duty stations
include: SIMA Dive Locker Guantanamo Bay Cuba, USS Acadia (AD-42) Dive
Team, Mobile Diving and Salvage Unit Det. 1, Explosive Ordnance
Disposal Group Coronado.
I have purchased homes but have not used my Department of Veterans
Affairs housing benefit. In my experience, I have personally dealt with
real estate brokers and lenders who portray the VA program as too
complex, expensive, and time consuming.
Thus, I realize that I was steered away from using my benefit and
toward conventional mortgages. I also know that such actions are not
practiced by most real estate brokers or lenders and are certainly not
the policy espoused by state, local or national associations such as
the National Association of Realtors (NAR) or the various lending
associations. Nonetheless, this was my personal experience in the
lending process. I believe that veterans should enjoy using the VA's
mortgage guaranty benefit provided to them for their service. They have
truly earned this benefit, and our country is better served when
veterans are appreciated and when they become homeowners.
The VA home loan benefit should be perceived by veterans, and the
broader market, as an efficient, expeditious, and positive experience.
I am here today in a capacity where I believe I can help my fellow
veterans have an improved home buying experience and increase usage of
this benefit and the program. The VA Home Loan benefit is an
extraordinary benefit that, not only assists with the financial aspects
of purchasing a home, but also provides a service to help veterans with
one of the biggest financial decisions of their lives. This is
particularly important because, similar to many Americans, most
veterans have very little experience with purchasing a home and working
with the mortgage lending community.
I work for an organization called Clear Capital. Clear Capital's
focus is applying new technologies to solve real estate valuation
problems with the highest degree of integrity, quality, and customer
service to the mortgage lending, investing, and housing industry. My
experience with Clear Capital has allowed me to observe a way veterans
could be served in a more efficient manner, and improve the experience
of using the Veterans Home Loan Guaranty Benefit. I would like to
explore these methods of using technology and new approaches to solve
real problems affecting our veterans today.
Over the past few years and across all home purchase products - VA
and non-VA loans - appraisal wait times and costs have risen
significantly in some pockets of the country. In large part, this is a
result of a shortage of appraisers in some markets. The shortage of
appraisers is slightly exaggerated with the VA program because, as I
understand it, the appraisal is more specialized, using separately-
approved appraisers, to ensure greater protection of the veteran
homebuyer. Unfortunately, during some peak lending periods, the result
in some areas of the country has been that veterans must wait weeks for
an appraisal that can cost hundreds of dollars more to obtain. Since
the mortgage applicant pays directly for an appraisal the extra cost is
borne by the veteran mortgage applicants. (Although the cost of an
appraisal in the non-VA market is also borne by the borrower, such
costs are somewhat less.)
In addition, the perception of lengthy cycle times for appraisals
can result in a veteran being steered away from this valuable earned
benefit in favor of a quicker process through a conventional or FHA
program. While the VA has lead an effort with other stakeholders to
make the VA home mortgage more accepted by market participants,
including real estate agents and lenders, some steering likely occurs
due to the different and sometimes lengthier appraisal times.
In fact, in a recent survey by the National Association of
Realtors, VA loans were identified as the appraisal assignments that
responding appraisers were most likely not to perform.
I have been asked to provide Congress with information on
alternative appraisal options in addition to the traditional appraisal
process used today. In doing so, I'd like to pose two key questions to
evaluate any such new ideas:
First, do any new potential appraisal approaches save a veteran
money, and speed the process of obtaining for the veteran this valuable
mortgage guaranty benefit?
Second, do these approaches provide the necessary Quality Control
over time to protect both the veteran and the soundness of the VA
Mortgage Guaranty program?
If yes to the first two questions, what would a proper timeframe
and implementation process look like?
The appraisal remains an integral component of the mortgage finance
industry. In the 1980's the United States experienced a major financial
crisis in the Savings and Loan industry that was fueled in part by
faulty and fraudulent appraisals. Congress passed the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) to
address the crisis and implement industry reforms. Title XI of FIRREA
created the appraiser regulatory system we have in place today.
Subsequently the standards for independence of the appraiser were
enhanced by the Home Valuation Code of Conduct (HVCC). And finally,
after the 2008 housing crisis, the appraisal independence system was
codified in Dodd-Frank. The latter two developments were to ensure and
to increase the independence of appraisers from interested parties in a
real estate transaction.
The appraiser regulatory structure implemented by the passage of
the Dodd-Frank Act in 2010 greatly expanded the federal government's
role in appraisal oversight with new requirements for appraisals,
appraisers, and appraisal management companies. Regulatory authority
was transferred to the newly formed Consumer Financial Protection
Bureau to further support protections to borrowers designed to
eliminate predatory lending practices.
The real estate valuation industry is evolving in a number of ways
that we believe can aid the efficiency of appraisers in the important
role they play in the mortgage lending process. New data and analytics
are being developed to assist the appraiser in their consideration of a
property, its local market and ultimately its value. Efforts are
underway to attract more participants into the appraisal profession,
and to reinvigorate the use of trainees in support of an efficient and
reliable appraisal process.
With the advent of new products, services and analytics, Clear
Capital suggests that the VA consider the use of a desktop appraisal,
based on the physical inspection of a subject property by an industry
professional, where appropriate as an option by the Department of
Veterans Affairs. The product is a hybrid of traditional appraisal
process and methods and leverages a qualified, arms-length, real estate
professional, such as a real estate broker or agent, performing a
visual inspection of the subject property and providing other market
insight and analytics.
The inspection and other market data are provided to a
geographically-competent, licensed appraiser for analysis, along with
supporting data such as real-time MLS information, public records, and
local market data and analytics. The appraiser analyzes all the
information and data and concludes the final value of the property.
Desktop appraisals continue to evolve in conformity with both the
Uniform Standards of Professional Appraisal Practice (USPAP) as well as
the evaluation requirements in the Interagency Appraisal and Evaluation
Guidelines.
It is important to note that the desktop appraisal is not new to
the marketplace. It is currently used in the home equity space, the
servicing space, and within financial markets with great success.
Applying these methods and techniques that are currently already used
by many market participants will allow our valued veterans to improve
their experience with the VA program.
Now let's return to our key questions. First, how does this help
the veteran?
The desktop appraisal process allows a single appraiser to complete
several more appraisals per day than is possible with the traditional
approach. In some parts of the country, an appraiser spends 30% of his
or her time driving to and from a property. This is not a productive
use of time for these skilled and knowledgeable professionals. Neither
should an appraiser necessarily need to spend valuable time taking room
measurements. Rather, wherever possible the appraiser should be
applying their expertise and knowledge by performing the analysis of
data and information about a property, in order to arrive at a solid
property valuation. He or she should not need to be an Uber-driver, or
handle a tape measure, or be a photographer, for hours on end for every
valuation assignment. This only drives up the cost of an appraisal-to
the veteran, remember-and slows the decision-making process.
Today's technology makes it possible for detailed property
measurements, characteristics, market comparables and other detailed
information to be delivered to the appraisers within minutes of
collection. This wasn't possible 40 years ago when the current model
was created. Today we can very quickly provide the appraisers with the
information they need to perform accurate and timely appraisals of the
highest quality.
Second, does this option provide the necessary Quality Control to
protect both the veteran and the integrity and soundness of the VA
program? Yes.
We believe that high quality desktop valuation reports can be
generated in a broad range of scenarios by leveraging increased access
to data and analytics in the real estate industry and focusing an
appraiser's professional expertise on efficiently evaluating the
credible information provided for analysis. Appraisers completing these
reports would remain subject to the same licensing and certification
requirements, as well as the standards provided under USPAP. Likewise,
the process could be rolled out in agreed upon use cases for completion
by appraisers on the VA panel, and subject to appropriate quality
assurance reviews.
In many situations, value thresholds and other complexity factors
will require a traditional appraisal; in addition, in some parts of the
country, veterans do not experience price squeezes or extended wait
times. However, where lead times are long, costs are high, and
resources are increasingly scarce we must create a more efficient
model. Providing a solution that allows an appraiser to apply their
expertise in an environment of highest quality and reduced time to
complete each appraisal will reduce costs to the veteran, will reduce
the time to close, and greatly improve the veteran's experience when
using this benefit, thus increasing veteran adoption of this good
program and increasing veteran home ownership.
To conclude, the VA home guarantee program is a gem. It has
rewarded our veterans and active-duty personnel with an incredible, and
unique, earned benefit. It has allowed them to improve their economic
opportunity by accruing home ownership equity. This earned benefit
program, thanks to the VA staff and lenders, performed exceptionally
well during the last downturn, avoiding the problems other mortgage
programs had with faulty underwriting and inadequate servicing
processes. It's a program of which we should all be proud. At the same
time, we must work together to ensure that going forward, this program
continues to serve the veterans and active-duty servicemembers
efficiently, cost-effectively, and carefully. I want to thank the
Economic Opportunity Subcommittee for having me in today, and thank the
VA staff for their dedication.

Statements For The Record

HONORABLE GREG WALDEN
December 15, 2016

Ms. Melanie Renaye Murphy
Director
U.S. Department of Veterans Affairs
Denver Regional Office
155 Van Gordon Street
Lakewood , CO 80228

I write to express my concern about the difficulty veterans in my d
istrict are having in getting an appraiser assigned to thei r VA-
guaranteed home loan.

Over the past several weeks, Ihave heard from more than a dozen
different veterans throughout my district who have experienced
significant delays in receiv ing their VA- guaranteed home loan due to
the backlog in appraisals for these loans. I have also heard from
several realtors and loan officers who find that in their efforts to
secure homes for veterans and their families, receiving a VA-approved
appraisal is the most challenging and time- consuming requirement. Some
of these veterans and their advocates have waited up to nine weeks to
even have an appraiser assigned to their case, making them far less
competitive as prospective buyers in the housing market.

These lengthy delays present a hardship both financially and
logistically by creating unce11ainty of housing for veterans. One
veteran in Deschutes County, Oregon, for example, recently asked me for
help when he realized that he and his family would soon be homeless if
their current home was sold and they had not secured a new place to
live because they were waiting for an appraisal. Another veteran in
Gilliam County, Oregon, tried to refinance his home through the VA, but
waited over seven weeks to have his case assigned to an appraiser and
received no response or status update from the VA despite repeated
attempts to contact them. Another veteran waited so long for his
appraisal that his interest rate lock expired and he lost the home due
to interest rate increases.

These cases speak to the larger issue that is plaguing veteran s in
both rural and more urban areas in my district. My office has been in
contact with staff members of the Regional Loan Center in Denver, CO,
and I understand that everyone is aware of the larger trends leading to
a decreasing appraiser population across the country. With those
impending challenges in mind, l ask that you please report on what
strategies, if any, the VA is utilizing to account for this overall
shortage in the appraiser market and reduce the average wait times for
veterans seeking an appraisal for a VA-backed home loan. I also fear
that this shortage of appraisers wilJ soon have an effect on other
government agencies and on the market at large, so please include any
discussions you have had with state or national realtors associations,
appraiser certification and licensing boards,and relevant federal
regulators such as the Appraisal Subcommittee (ASC), or the three
independent appraisal boards that ASC oversees. Thank you for your
attention to this matter.

Best regards,

Greg Walden
U.S. Representative
Oregon's Second District

[all]