[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
WHAT'S YOUR HOME WORTH?
A REVIEW OF THE
APPRAISAL INDUSTRY
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON HOUSING,
COMMUNITY DEVELOPMENT,
AND INSURANCE
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
JUNE 20, 2019
__________
Printed for the use of the Committee on Financial Services
Serial No. 116-34
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
U.S. GOVERNMENT PUBLISHING OFFICE
39-495 pdf WASHINGTON : 2020
HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California PETER T. KING, New York
GREGORY W. MEEKS, New York FRANK D. LUCAS, Oklahoma
WM. LACY CLAY, Missouri BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri SEAN P. DUFFY, Wisconsin
ED PERLMUTTER, Colorado STEVE STIVERS, Ohio
JIM A. HIMES, Connecticut ANN WAGNER, Missouri
BILL FOSTER, Illinois ANDY BARR, Kentucky
JOYCE BEATTY, Ohio SCOTT TIPTON, Colorado
DENNY HECK, Washington ROGER WILLIAMS, Texas
JUAN VARGAS, California FRENCH HILL, Arkansas
JOSH GOTTHEIMER, New Jersey TOM EMMER, Minnesota
VICENTE GONZALEZ, Texas LEE M. ZELDIN, New York
AL LAWSON, Florida BARRY LOUDERMILK, Georgia
MICHAEL SAN NICOLAS, Guam ALEXANDER X. MOONEY, West Virginia
RASHIDA TLAIB, Michigan WARREN DAVIDSON, Ohio
KATIE PORTER, California TED BUDD, North Carolina
CINDY AXNE, Iowa DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts ANTHONY GONZALEZ, Ohio
BEN McADAMS, Utah JOHN ROSE, Tennessee
ALEXANDRIA OCASIO-CORTEZ, New York BRYAN STEIL, Wisconsin
JENNIFER WEXTON, Virginia LANCE GOODEN, Texas
STEPHEN F. LYNCH, Massachusetts DENVER RIGGLEMAN, Virginia
TULSI GABBARD, Hawaii
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota
Charla Ouertatani, Staff Director
Subcommittee on Housing, Community
Development, and Insurance
WM. LACY CLAY, Missouri, Chairman
NYDIA M. VELAZQUEZ, New York SEAN P. DUFFY, Wisconsin, Ranking
EMANUEL CLEAVER, Missouri Member
BRAD SHERMAN, California BLAINE LUETKEMEYER, Missouri
JOYCE BEATTY, Ohio BILL HUIZENGA, Michigan
AL GREEN, Texas SCOTT TIPTON, Colorado
VICENTE GONZALEZ, Texas LEE M. ZELDIN, New York
CAROLYN B. MALONEY, New York DAVID KUSTOFF, Tennessee
DENNY HECK, Washington ANTHONY GONZALEZ, Ohio
JUAN VARGAS, California JOHN ROSE, Tennessee
AL LAWSON, Florida BRYAN STEIL, Wisconsin
RASHIDA TLAIB, Michigan LANCE GOODEN, Texas, Vice Ranking
CINDY AXNE, Iowa Member
C O N T E N T S
----------
Page
Hearing held on:
June 20, 2019................................................ 1
Appendix:
June 20, 2019................................................ 31
WITNESSES
Thursday, June 20, 2019
Bunton, David S. President, The Appraisal Foundation............. 4
Dickstein, Jeff, Chief Compliance Officer, Pro Teck Valuation
Services, on behalf of the Real Estate Valuation Advocacy
Association.................................................... 7
Perry, Andre M., David M. Rubenstein Fellow, Metropolitan Policy
Program, the Brookings Institution............................. 9
Trice, Joan N., Founder, Collateral Risk Network................. 10
Wagner, Stephen S., 2019 president, the Appraisal Institute...... 6
APPENDIX
Prepared statements:
Bunton, David S.............................................. 32
Dickstein, Jeff.............................................. 56
Perry, Andre M............................................... 68
Trice, Joan N................................................ 80
Wagner, Stephen S............................................ 98
WHAT'S YOUR HOME WORTH?
A REVIEW OF THE
APPRAISAL INDUSTRY
----------
Thursday, June 20, 2019
U.S. House of Representatives,
Subcommittee on Housing,
Community Development,
and Insurance,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 2:08 p.m., in
room 2128, Rayburn House Office Building, Hon. Wm. Lacy Clay
[chairman of the subcommittee] presiding.
Members present: Representatives Clay, Sherman, Beatty,
Green, Maloney, Vargas, Tlaib, Axne; Duffy, Luetkemeyer,
Huizenga, Tipton, Zeldin, Rose, Steil, and Gooden.
Chairman Clay. The Subcommittee on Housing, Community
Development, and Insurance,will come to order.
Without objection, the Chair is authorized to declare a
recess of the subcommittee at any time.
Also, without objection, members of the full Financial
Services Committee who are not members of the subcommittee are
authorized to participate in today's hearing.
Today's hearing is entitled, ``What's Your Home Worth? A
Review of the Appraisal Industry.''
Our last Housing Subcommittee hearing examined the state of
minority home ownership and provided us with additional data,
research, and background on the impact of home ownership on the
racial wealth gap. This hearing is a follow-up as we explore
the racial wealth gap in the context of inaccurate appraisals.
I stress that we look forward to working on structured
policy solutions because we are, at our core, an optimistic
nation. We fix problems. And I invite all of my colleagues to
come together and work to find solutions to make the appraisal
process more equitable to every American community.
While this hearing will touch on a number of critical
topics affecting the industry, such as the de minimis
threshold, appraiser independence, and the role of technology
in appraisals, we would be missing the mark if the disparity in
appraisals was not part of today's discussion.
For many Americans, the purchase of a home is a gateway to
financial security and wealth, but if your path to growth is
blocked by an inaccurate or skewed appraisal because you are
living in the wrong ZIP Code, you are stifled. And in my
district, if you are a black person in north St. Louis, north
of Delmar Boulevard, you may have more reasons to worry. The
Greenlining Project noted in their 2018 St. Louis metro report
that the current framework gives the appraiser tremendous
discretion. Appraisers decide the significant neighborhood
parameters and physical boundaries that, although may appear
racially neutral, can at times serve as a racial or class
boundary.
The undervaluation of homes in minority communities
nationwide creates an appraisal gap, which can effectively
limit mortgage lending in specific geographic areas. In a
typical lending scenario, the appraisal is lower than the real
value of the home because there are additional costs to bring
the home up to code in distressed and disinvested
neighborhoods.
In a neighborhood in my district called the Greater Ville
Neighborhood, for example, say you seek to purchase a home for,
say, $35,000, and provide an additional $50,000 for
rehabilitation of the home. However, the home only appraises
for $70,000, far less than the $85,000 needed to purchase and
renovate. Because of this appraisal gap, the loan is denied.
Consequently, homes in impacted communities stay vacant and
fall further into disrepair. Families are unable to become
homeowners. It becomes an unending cycle and the racial wealth
gap is further exacerbated.
I look forward to hearing from the witnesses today about
solutions. All hardworking Americans deserve the opportunity to
achieve the American Dream of home ownership.
And at this point, I will recognize the ranking member of
the subcommittee, my colleague and friend from Wisconsin, Mr.
Duffy.
Mr. Duffy. Thank you, Mr. Chairman.
And I want to thank you for holding this hearing today. I
want to also thank our panel for being here as well. I'm
looking forward to a robust discussion on some of the issues
you all see in the industry, and solutions that we can take as
a Congress to remedy those problems that you discuss today.
I want to also get your input on a bill that Mr. Sherman
has introduced, his appraisal certification bill, which I have
been working with him on as well. A common concern I hear from
the appraisal industry is the lack of appraisers nationwide. It
is definitely a problem in rural areas, which gets exacerbated
by the distance that the already limited number of appraisers
have to cover by the drive time to go from community to
community in rural America.
I look forward to working with Mr. Sherman on this bill on
the standardization of the qualifications requirements for
appraisers to evaluate loans backed by the FHA, VA, USDA,
Fannie Mae and Freddie Mac. I have a few suggested changes, but
hopefully this will open up some of the licensed appraisers who
currently cannot appraise properties related to these programs.
I have had the opportunity to sit down with Mr. Clay, and
we have discussed the issue of appraisals one-on-one. And
miraculously, we are not too far apart, which would be shocking
to some people as they evaluate the Congress these days.
I think we all learned in the 2008 crisis that there were
overvaluations and there were undervaluations in some
neighborhoods, and I don't think we want to go back to a cycle
where we are not accurately appraising homes and their values.
I want to mention a recent legislative change that I think
is helping people who live in rural areas, such as my
constituents in central and northern Wisconsin, which I believe
was in Senate bill 2155, that allows for rural properties worth
less than $400,000 to forego the appraisal requirement. I also
want to stress that you can still get an appraisal if you think
the home is worth a different value; it is just not a
requirement under the law. Now, I know that has created some
concern in regard to how that has been interpreted and an
expansion of that S.2155 by the regulators. Maybe we can
discuss that further today.
Lastly, I want to bring up technology and how it can help
reduce cost and speed the time it takes to buy a home,
particularly utomated valuation models or computerized models
that help determine worth of a property using this AVM
technology. I am not saying this is for everyone, but they are
being utilized by many of the industries to help expedite the
closing process for those who may not have access to
appraisals, such as what we have in northern Wisconsin.
The digitization and development of large troves of data
holding millions of property records has also helped develop
algorithms and streamline valuations. At the end of the day, we
also have to make sure people still have the option to get a
physical appraisal for any modifications or additions they have
made to their home. In certain markets, physical appraisals may
still not be necessary, but you have to look at each property
and what it offers in regard to its value, whether it is the
lot size, its amenities, its age, its roof, its new kitchen,
maybe its invisible fence. I don't know if that adds any value
to a place or not. But we do know that eyes on properties also
provide probably the best insight into the value of that
property.
So, I am looking forward to your testimony today. I want to
thank you all for being here and I am looking forward to your
recommendations for what this subcommittee should do, moving
forward.
I yield back.
Chairman Clay. I thank the ranking member.
And I now recognize the gentleman from California, Mr.
Sherman, for 1 minute for an opening statement.
Mr. Sherman. Thank you. There is no more important day in
the economic life of a family than the day they buy a home.
Appraisers play an important role in that. I have a bill to
change the rules a bit on FHA appraisals, to bring them more in
line with those appraising for loans by Fannie Mae and Freddie
Mac, and to deal with the backlog that we are experiencing.
And I look forward to learning from our witnesses how the
appraisal process can be speedier, whether it is an FHA, GSE,
or otherwise outside governmental involvement loan, and how we
can keep costs at a reasonable level.
With that, I yield back.
Chairman Clay. I thank the gentleman for yielding back.
And today, we welcome the testimony of Mr. David Bunton,
president of The Appraisal Foundation; Mr. Stephen Wagner, 2019
president of the Appraisal Institute; Mr. Jeff Dickstein, chief
compliance officer of Pro Teck Valuation Services, on behalf of
the Real Estate Valuation Advocacy Association; Mr. Andre
Perry, the David M. Rubenstein Fellow at the Metropolitan
Policy Program, housed at the Brookings Institution; and Ms.
Joan Trice, founder of the Collateral Risk Network.
Witnesses are reminded that your oral testimony will be
limited to 5 minutes.
And, without objection, your written statements will be
made a part of the record.
We will start with Mr. Bunton.
You are now recognized for 5 minutes to give an oral
presentation of your testimony. You may proceed.
STATEMENT OF DAVID S. BUNTON, PRESIDENT, THE APPRAISAL
FOUNDATION
Mr. Bunton. Thank you, Mr. Chairman, Ranking Member Duffy,
and members of the subcommittee. The Appraisal Foundation
greatly appreciates the opportunity to appear before you today
to offer our perspective on the state of the real estate
appraisal profession.
By way of background, I have served as the senior staff
member of the Foundation for the past 29 years and prior to
that, I had the privilege of serving as a senior congressional
staff member for a dozen years.
Let me begin with a few words about who we are and what
makes us different. We are a nonprofit organization founded 32
years ago before the enactment of the Financial Institutions
Reform Recovery, and Enforcement Act of 1989 (FIRREA). We are
not an advocacy group. We are not a trade association. We don't
have any individual members. Rather, we are an umbrella
organization composed of about 100 organizations and government
agencies with an interest in valuation. We were created to
foster excellence, unity, and trust in appraising. We are the
private sector expertise in the real property appraiser
regulatory system under Title XI of FIRREA. The Foundation does
not have any regulatory authority, but we provide the tools for
the regulatory community.
Specifically, we set the minimum education and experience
requirements one must meet in order to obtain a State
credential. We are the authors of the national uniform
appraiser exams that are used by all 55 States and Territories.
And, lastly, we are the authors of the generally recognized
standards of conduct known as the Uniform Standards of
Professional Appraisal Practice that all State-licensed and
certified appraisers must adhere to. In addition, we have been
a resource to numerous Federal Government agencies and
currently have a cooperative agreement with the U.S. Department
of the Interior.
Mr. Chairman, this hearing is of particular importance, and
we applaud you for its timing. Thirty years ago, Congress
passed Title XI of FIRREA, which created the appraiser
regulatory system we have in place today. Unfortunately, that
system is being significantly undermined by being circumvented.
Let me explain why. Title XI contains a provision which allows
the Federal financial institution regulatory agencies to exempt
certain transactions from requiring an appraisal. As a
baseline, in 1990, the financial institution regulators set
that threshold at $50,000, with the exception of the Federal
Reserve, which set it at $100,000.
Now, fast forward to today. According to the U.S. Consumer
Price Index, that $50,000 threshold in 1990 would be about
$99,500 today, and the $100,000 threshold would be about
$199,000. But the current proposal by the financial institution
regulators is to increase that threshold to $400,000.
The National Association of REALTORS reports that in April,
the median price for an existing home was $267,300. But how can
the baseline exemption threshold be 66 percent above the median
sales price? Let's take a look at the enabling legislation,
Title XI of FIRREA. Title XI contains 7,200 words. Ironically,
the word ``evaluation'' appears one time, and that is in
reference to a GAO study. Why is it only in there one time?
That is because Congress viewed transactions below the
threshold as exemptions to the process, not the common practice
that it has become today.
So, today, instead of using competent individuals who have
been trained, tested, and who adhere to standards and are
accountable to a public board, evaluations can be performed by
individuals who are not appraisers, who don't need to follow
performance or ethical standards of conduct, and are not held
accountable to a public board. Another workaround being
embraced is automatic valuation models. Unfortunately, there
are no quality control standards for these products and how
they work is shrouded in secrecy.
What was put in place 30 years ago has been hollowed out, a
shell of what the original congressional intent was. This could
have serious ramifications for our Deposit Insurance Fund, the
home buying public, and every U.S. taxpayer. As you know,
borrowers are entitled to a copy of any valuation product
ordered by a bank in conjunction with their loan. I think it is
safe to say that most borrowers would be confused, not knowing
the difference between a professionally performed appraisal and
alternative higher risk valuation products.
Mr. Chairman, we look forward to today's discussion on this
and other important valuation issues that you have raised:
appraiser independence; impact of technology on appraising;
diversity in the profession; and performing appraisals without
bias. The testimony we have submitted contains 10 specific
recommendations regarding this issue.
Again, The Appraisal Foundation appreciates the opportunity
to share its perspective with you today, and we urge this
subcommittee and all Members of Congress to continue to use The
Foundation as a fair, impartial, and objective resource on all
valuation-related issues.
In closing, the title of this hearing begins with the
phrase, ``How much is my home worth?'' We are simply requesting
that the question be answered by a professionally trained
appraiser. Thank you very much for the time.
[The prepared statement of Mr. Bunton can be found on page
32 of the appendix.]
Chairman Clay. Thank you, Mr. Bunton, for your testimony.
Mr. Wagner, you are now recognized for 5 minutes.
STATEMENT OF STEPHEN S. WAGNER, 2019 PREIDENT, THE APPRAISAL
INSTITUTE
Mr. Wagner. Thank you. It is an honor to speak before the
subcommittee today. My compliments to you for your timely
consideration of real issues facing the appraisal profession
and the impacts they have on consumers. And we are pleased with
your direction, in terms of the FHA and registry fee bills
currently under consideration. In addition, we applaud greater
consumer transparency of fees associated with appraisal
management.
Since the Great Depression, real estate appraisal has been
an integral piece of the housing finance system used to ensure
safety and soundness and protect the consumer. Today, the
appraisal profession faces disruption on multiple levels,
impacting practitioners and compounding difficulties in
attracting the next generation of appraisers.
Altogether, the changes facing the profession are creating
confusion and driving to undercut the critical role played by
appraisers. Today's bank regulatory regime is promoting
optionality to appraisal requirements, which is contrary to the
original intent of FIRREA. These actions are sowing the seeds
for future financial difficulties and that endangers consumers
and taxpayers.
Specifically, the bank regulators are reversing course from
a recommendation to maintain the residential appraisal
threshold level and disregarding a measure enacted by the last
Congress, purely with regulatory relief in mind. Further, we
are witnessing battles between credit union and bank
regulators, perpetuating a race to the bottom on risk
mitigation. This is outrageous and should be concerning to all
taxpayers and consumers.
2018 was the first year in more than a decade where we did
not experience a bank failure. We have learned important
lessons since the financial crisis, but measures taken for risk
mitigation seem to be unraveling. Technology is being adopted
and integrated by appraisers, but also is potentially
disrupting fundamental practices within appraisal itself. The
mortgage sector is utilizing waivers and hybrid approaches to
speed up the loan-making and appraisal process.
There are standard of care questions here that remain
outstanding and unresolved. We understand appraisers may need
to adapt to new or hybrid approaches. However, we caution
against the use of hybrids becoming a standard or the norm.
Machines or secondary labor forces cannot replace the trained
eyes of appraisers when it comes to risks associated with the
property or positive attributes that contribute to value. There
is nothing like observing the subject property to an appraiser
or a trainee associated with the appraiser. A picture may be
worth a thousand words, but it is not all of the words.
In addition, those inspecting properties for valuation
purposes should have valuation training. If we are looking for
ways to speed up the appraisal process, we suggest scrutinizing
appraisal management companies, where we hear of delays related
to both the ordering and review process. Lender and underwriter
guidelines are also too often treated as rules. There needs to
be more flexibility regarding the lender and underwriter
guidelines to reduce second-guessing of appraisers. This will
allow practitioners to wield their expertise in complex markets
where sales data and activity may be limited or virtually
nonexistent.
We also need a common-sense approach to courting appraisal
services, particularly in terms of today's TILA-RESPA
Integrated Disclosure Rule (TRID) requirements. Appraisers are
often asked to bid on assignments without complete property
information, which is understandable. However, we should
acknowledge that once the appraiser sees the property, the
ultimate scope of work could easily change. This can affect
timing and fee. Therefore, the lender needs flexibility not
found in today's zero tolerance environment.
Despite this, we see real opportunities ahead in addressing
the concerns of the subcommittee and appraisers. We applaud the
approach of the hearing today and the two bills before the
subcommittee. We endorse full consumer transparency and
separation of fees paid to appraisers and AMCs. Looking ahead,
we urge this committee to explore other regulatory
improvements, such as the establishment of a nationwide
licensing system for appraisers to manage license applications,
renewals, education records, and background checks, where
required.
We look forward to working with you, Federal and State
regulators, The Appraisal Foundation, and others to accomplish
these goals. Thank you again, and I look forward to answering
any questions you may have.
[The prepared statement of Mr. Wagner can be found on page
98 of the appendix.]
Chairman Clay. Thank you, Mr. Wagner.
And, Mr. Dickstein, you are recognized for 5 minutes.
STATEMENT OF JEFF DICKSTEIN, CHIEF COMPLIANCE OFFICER, PRO TECK
VALUATION SERVICES, ON BEHALF OF THE REAL ESTATE VALUATION
ADVOCACY ASSOCIATION
Mr. Dickstein. Good afternoon, Chairman Clay, Ranking
Member Duffy, and members of the subcommittee. Thank you for
the privilege of sharing the perspective of appraisal
management companies at the subcommittee hearing today.
I have been a certified residential appraiser for 30 years,
and I hold that credential in 17 different States. As chief
compliance officer of Pro Teck Valuation Services, a national
appraisal management company, I am responsible for the
company's compliance with all Federal, State, and industry
regulations.
I am here today representing the Real Estate Valuation
Advocacy Association (REVAA), a national trade organization
representing appraisal management companies (AMCs) and lender
valuation providers. We appreciate the opportunity to provide
insight into the appraisal industry from the perspective of the
appraisal management company.
Passage of the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010, nearly a decade ago, has generated
profound changes in the appraisal industry, just as Congress
intended. AMCs are third-party service providers engaged by
banks and non-bank lenders to work with appraisers on
residential appraisals in compliance with Federal appraisal
independence requirements. AMCs have been in existence since
the 1960s. We did see growth in popularity among smaller and
midsized lenders following the 2010 financial crisis.
Dodd-Frank also adopted several important consumer
protections that REVAA supports, including but not limited to:
maintain and promote appraisal independence; and to include
AMCs within the scope of appraisal activities overseen by the
Appraisal Subcommittee.
Dodd-Frank also set up a framework to amend FIRREA for
voluntary State regulations of appraisal management companies.
That vision has largely been realized as we approach the August
10, 2019, deadline. As of today, 49 States have implemented AMC
registration programs, consistent with Federal law and rule.
Massachusetts legislation is proceeding, and we do expect that
to close. The only U.S. States and jurisdictions that are
poised to opt out are the District of Columbia, Puerto Rico,
Guam, the Virgin Islands, and the Northern Marianas Islands.
This Appraisal Subcommittee has begun reviewing State AMC
licensing programs for compliance. Additionally, the national
AMC registry is operating and will be fully populated by June
2020. We support legislation to grant the Appraisal
Subcommittee discretion to amend AMC fees, if appropriate, to
reduce some financial burdens. State regulators now provide
oversight of appraisal management company activities in their
States, along with the ability to investigate complaints and
enforce violations.
REVAA supports several collaborative industry initiatives
to make a real difference in attracting and training the next
generation of appraisers, including possible addition of
trainee appraisers to the national registry, The Appraisal
Foundation AQB new education and experience requirements for
new appraisers entering the field, as well as the creation of
PAREA.
We also support industry efforts to recruit military
veterans and other people to consider becoming appraisers, and
REVAA strongly supports and would be willing to partner in any
efforts to help sustain and diversify the appraisal profession.
REVAA feels strongly that the future of appraisal needs to
retain a human component, which is why we support the
recruitment of new appraisers to help revitalize the profession
for the next generation. The future isn't going to be solely
reliant upon new technologies and data. Modernization won't
replace appraisers. It will complement the appraiser's role in
utilizing their experience, education, and local market
knowledge to analyze the subject property, and to develop a
credible opinion of value.
Beyond appraisals, there are a wide range of valuation
products that can be available to financial institutions,
mortgage companies, investors, and others making real estate
collateral decisions: AVMs; evaluations; and hybrid, or desktop
appraisals. REVAA supports the use of these products for
permitted purposes. We do recognize that these products are not
appropriate for all collateral valuation decisions when a
complete full appraisal by a credentialed appraiser is
warranted.
REVAA appreciates the opportunity to review the November
2018 report by the Metropolitan Program at Brookings. The
information has been shared with our members, and we continue
to review and assess the conclusions contained in that report.
AMCs do employ many controls to ensure that appraisers and AMCs
do not engage in any discriminatory behavior.
As we look forward to discussing the future of the
industry, constructive dialogue and collaboration must
continue. In that effort, REVAA fully respects and requests
that Congress: pass H.R. 2852, the Homebuyer Assistance Act of
2019, which would permit licensed real estate appraisers to
perform FHA appraisals; pass legislation to permit States to
report appraiser trainees to the Appraisal Subcommittee
register; pass legislation to grant regulatory flexibility to
the subcommittee regarding AMC fees; and support the
registration oversight of AMCs in all States, Territories, and
the District of Columbia.
That is my statement. Thank you.
[The prepared statement of Mr. Dickstein can be found on
page 56 of the appendix.]
Chairman Clay. Thank you so much, Mr. Dickstein.
Mr. Perry, you are now recognized for 5 minutes.
STATEMENT OF ANDRE M. PERRY, DAVID M. RUBENSTEIN FELLOW,
METROPOLITAN POLICY PROGRAM, THE BROOKINGS INSTITUTION
Mr. Perry. Thank you, Chairman Clay, and Ranking Member
Duffy. Home ownership lies at the heart of the American Dream,
representing success, opportunity, and wealth, as it should.
The equity that typically comes from owning a home may
ultimately open a business, send a child to college, or start a
family.
The data I will present today will show that racism is at
the present day extracting money from homeowners in black
communities to a painful sum of $156 billion, keeping those who
are striving for the American Dream from actually reaping its
benefits.
We have known for some time that racism limited black
people's housing options in ways that lowered the values of
their home. De jure and de facto segregation as well as
racially restrictive housing covenants prohibited blacks from
buying in certain areas throughout the 20th Century. Racially
biased, federally backed redlining isolated people in
neighborhoods that saw lower levels of investment than their
white counterparts.
My study that is presented in the written testimony shows
that in the average U.S. metropolitan area, homes in
neighborhoods where the share of the black population or the
share of the population that is at least 50 percent black are
valued at roughly half the price as homes in neighborhoods with
little to no black residents.
Many assume the 50 percent price difference isn't about
racial bias. They attribute lower prices to inferior housing,
underfunded schools, and crime. My colleagues--Jonathan
Rothwell at Gallup, and David Harshbarger, also with the
Brookings Institution--and I tested those assumptions. We
examined homes of similar quality in analogous neighborhoods
with the exception of racial demographics to make an apples-to-
apples comparison between black and white neighborhoods. What
we found astounds. Differences in home and neighborhood quality
do not fully explain price difference. After controlling for
factors such as housing quality, education, crime, and other
influences, homes in majority black neighborhoods are worth 23
percent less. That amounts to $48,000 per home, on average.
Nationally, that is a whopping $156 billion that homeowners
lost because their homes were not priced at market rates.
The study also found that areas that had high devaluation
exhibited low economic mobility for its residents. Racial bias
reflected in the pricing and price is robbing money that people
can use to uplift communities. The valuation means
municipalities with a significant percentage of African
Americans lose tax revenue that could be put towards government
services and infrastructure. Take St. Louis, for example. Black
neighborhoods in this metro area see a 28-percent price
difference, amounting to a $30,000 loss per home. In the
Houston metro area, there is a 27-percent difference, resulting
in a $53,000 loss. The Columbus, Ohio, metro area sees homes
devalued by 21 percent, on average, or $23,000. And in the
metro area with the largest majority black City in the nation,
Detroit, Michigan, there is a 37-percent difference, resulting
in a $28,000 in loss equity per home.
Let's put that $156 billion in perspective: $156 billion
could have started 4.4 million black-owned businesses, based on
the average amount of funds blacks use to start a company; or
it could have paid for 8.1 million 4-year degrees, based on the
average tuition of public universities in 2016. These are real
wealth-building opportunities that could have catapulted the
black population to greater heights. Also, $156 billion could
have replaced pipes in Flint, Michigan, 3,000 times over, and
paid for nearly all of the damage caused by Hurricane Katrina.
That $156 billion is more than double our country's efforts to
combat the opioid crisis.
In effect, bigotry imposes a black tax on residents of
majority black neighborhoods while throttling opportunities for
economic mobility. Let's be clear: Discrimination in home
valuations impacts everyone. White and Latino homeowners in
black neighborhoods are also losing equity as well. There are
exceptions. Madison, Wisconsin, realizes a 70-percent added
value in black neighborhoods, and there are others.
Clearly, we still need better policies to give homes in
black neighborhoods their proper value. Assessment tools are
not neutral. People are not neutral. You will hear the argument
that we need more people. People are part of the problem. But
what is clear is that black people are not part of the problem.
I often say there is nothing wrong with black people that
ending racism can't solve. Whether we go to more automated
systems or more people, we still must have a neutral arbiter
that will look at these valuations critically.
[The prepared statement of Mr. Perry can be found on page
68 of the appendix.]
Chairman Clay. Thank you, Mr. Perry, for your testimony.
And Ms. Trice, you are recognized for 5 minutes.
STATEMENT OF JOAN N. TRICE, FOUNDER, COLLATERAL RISK NETWORK
Ms. Trice. Chairman Clay, Ranking Member Duffy, and members
of the Subcommittee on Housing, Community Development, and
Insurance, thank you for the opportunity to share my thoughts
regarding, ``What is Your Home Worth? A Review of the Appraisal
Industry.''
I am going to deviate a little bit from my written
testimony that I submitted and just sort of do a summation, if
I may, of what you have heard so far. The appraisal industry is
quite complex, as you have learned by now. It is an incredibly
important part of the housing finance infrastructure. And after
the last hearing that we had in 2016, I had the pleasure of
getting together with the Executive Council of the Collateral
Risk Network, which is a group of chief appraisers, risk
managers, real estate appraisers, and a few regulators that we
put together in a room and just sat down with a white board and
said, ``Okay. What is our mission here? Let's take a look at a
postmortem of the last crisis. How did we get here? Is our
current regulatory structure actually meeting the needs of a
modern 21st Century housing finance system?''
And the guiding principle in all that was, let's put
together a plan that works best for the health, safety, and
welfare of real estate finance. So what we came out with on the
other end was a plan to consolidate, if you will, all of the
different entities and regulators that impact and touch the
appraisal process today.
And, hopefully, you all will remember me as the gal who
created the spaghetti chart. If you are all a little confused
as to how we operate, you should be. It is confusing to
appraisers. It is confusing to regulators. It certainly has to
be confusing to consumers. Today, housing finance is a lot more
sophisticated than it was when I entered in 1981 at a savings
and loan in Baltimore, Maryland. Today, we have a vibrant
capital market that is much larger than it was pre-mortgage
crisis. And yet today, I don't see any progress towards
appraisal independence, more credible appraisal reports, and we
certainly aren't seeing any regulation of even new tenets that
we put into place with Dodd-Frank.
Our concern is that we do need to modernize. As Congressman
Duffy pointed out, technology--and there is also lots to be
discussed around data privacy; who owns the data? This real
estate data is being input into models. Who is monitoring the
models? We have had capital markets, long-term capital
management. We had some world-class Pulitzer Prize-winning
economists who built algorithms that were supposed to be
genius. There is a great book called, ``When Genius Failed.''
So, we have to be very careful about how we proceed forward
when we are taking real estate data that begins with the
appraiser, the boots on the ground, and carry it through the
system. There are a lot of people who touch it. And in the end,
we need to ensure that we are having credible appraisals
performed by licensed, qualified local market experts. Thank
you.
[The prepared statement of Ms. Trice can be found on page
80 of the appendix.]
Chairman Clay. Thank you so much, Ms. Trice.
And let me thank the entire witness panel for your
testimony.
We will now move to the 5-minute phase of questioning of
the panel, and I will start with 5 minutes.
Let me start with Mr. Perry. Mr. Perry, I have read your
study and heard your testimony. Can you offer up to this
committee some solutions to how we get to equitable evaluation
of home values?
Mr. Perry. First of all, again, thank you for having me.
Something that is not mentioned enough, particularly in black
communities, is there needs to be some type of micro-loan
program so that people can actually keep their homes up-to-code
and up-to-speed. Many, particularly black Americans suffer from
the same financial insecurities just from the overall market.
And so, when you don't have the discretionary resources to fix
up your home, it is going to lag.
Chairman Clay. Don't leave out the fact that also, when you
go to a financial institution for a home improvement loan, your
house is valued less.
Mr. Perry. I was going to get to that. But the devaluation
of your property impacts all of those things, your ability to
get an additional loan.
What was also clear is the consistency in the data of how
the valuation really hit black communities. And I am actually
very interested in hearing the rest of the panel's perspective
on training because it is almost as if people look at black
communities and they see worse education, they see more crime,
they see worse property, so when the assessments come out, they
are much lower. But from our vantage point, using the data that
we have, we can clearly see if you theoretically helicoptered
one property into a white neighborhood, it would increase in
value.
Chairman Clay. Let me go to Ms. Trice, because you touched
on this somewhat. How should the reporting or the appraisal
process change to improve on appraisals and weed out the
individual racial biases? How could we address that?
Ms. Trice. That is a complex question, and it is going to
take a complex answer. But I will try to keep it as simple as
possible.
I think we need to actually go back to fundamental
appraisal 101. There are three approaches to value: the cost;
the income; and the market approach. Today, we have a system
where the regulators have actually devolved the process to a
single leg of that three-legged stool, and it is the sales
price approach to value.
I respectfully submit that the codified definition of
market value needs to be modernized. And there is a lot of
confusion even amongst appraisers on price versus value. As
Warren Buffett said, ``Price is what you pay; value is what you
get.'' It is a pretty simple concept if you look at it from
that context and that construct.
So I think we have to have better education, better trained
local market experts, and less reliability on automated tools
because there is going to be disparate treatment. And that is
really my biggest concern is that if we remove and waive
appraisals for people with high credit scores, we are
disparately mistreating, I think, the affordable housing
sector.
Chairman Clay. Thank you.
Mr. Wagner, I have a draft of a bill that would provide the
AFC with increased flexibility to set fees assessed on AMCs and
increase flexibility in allocating the proceeds of such fees.
It would also allow trainee appraisers to be added to a
national registry.
Based on your experience as an appraiser, what do you
believe are the root causes of the devaluation of minority
homes, and what do you believe the solution should be?
Mr. Wagner. First of all, Congressman, I appreciate the
question and empathize with your concern relative to the
communities that you have mentioned. It is actually a concern
that is really larger than the realm of appraisal. It involves,
I think, lending in general.
Having said that, I will emphasize that a residential
appraiser is bound by standards, and cannot consider racial,
ethnic, or income makeup of a particular neighborhood or
community. And this is a complex challenge. But perhaps a
lending program similar to what is under development in Detroit
and St. Louis, greenlining, might be helpful.
And, furthermore, I would like to add that we look forward
to being a part of the conversation with you and your staff on
this complex issue.
Chairman Clay. I thank you for your response. My time has
expired.
I now go to Mr. Duffy.
Mr. Duffy. Thank you, Mr. Chairman.
Mr. Perry, if you would just kind of dig into this a little
bit for me so I can understand. Do we have in predominantly
African-American communities non-African Americans doing the
appraisals in your study?
Mr. Perry. Yes. I mean, the industry is largely white. I
want to say it is roughly 90 percent white in terms of
appraisals. And that is part of it. We do know that
representation matters in terms of how you view or measure
something. And so, in any kind of measurement, who is doing the
measuring matters.
Mr. Duffy. If you have ever tried to refinance or you have
tried to sell a home and your appraisal comes in under the
value that you think it should be, there is nothing more
frustrating that will anger you more than that. I am speaking
from experience on that myself.
Is it a chicken or an egg situation? Do we have comparable
pricing that doesn't work? I guess if we have sales of
comparable properties at one level and then the appraiser is
coming in at a lower level, that is a problem, or we just
fundamentally have lower valuations and lower sale prices?
Mr. Perry. I will echo Mr. Wagner's comments that this is
also about lending practices, real estate agent practices, and
appraisal. So, it is all combined. But what is clear from the
research is that we can actually control for neighborhood
conditions, the housing structure. We can find similar homes
across-the-board. And the only difference is the concentration
of black folks around that home that accounts for the price.
So, all of those factors, there is some type of racial bias
occurring. It is not just appraisals, but it is also in the
lending and real estate agent practices. But what is easy to
do, and I encourage the industry to at least have a neutral--an
empirically rigorous database so that they can then say, okay,
how off are our assessments? Because clearly, something is off
kilter.
Mr. Duffy. And I look forward to working with you. I know
Mr. Clay does as well. This shouldn't happen.
But just to make another note, if you drop my house from
Wausau, Wisconsin, to somewhere out here, it would probably go
up 4 times in value myself.
Mr. Perry. But if you--
Mr. Duffy. Neighborhood to neighborhood, I know your point,
but I wanted to make the point that I would be a lot wealthier.
Quickly, how many of you are appraisers? Some in the
background too are all raising their hands. I have two
appraisers, three appraisers on the panel. Obviously, we are
using more technology. And I guess I am not opposed to
technology, but I have a hard time seeing how technology and
data can replace an appraiser going to my property and looking
at all the intricacies of what my property has in regard to its
value.
Any concerns on the panel if we are going to a far more
data-driven non-human set of policies, and is that good for our
housing industry, and can we get the wrong valuations? And when
we get the wrong valuations, bad things happen, as we saw in
2008. I am asking a lot of questions. So, Mr. Wagner, if you
want to go first, raise your hand.
Mr. Wagner. Thank you, Congressman.
You know, you bring up some interesting points there. In
some instances, technology with regard to, say, automated
valuation models (AVMs), might have some place relative to very
homogeneous type of housing and so forth where there are not a
lot of differences. But also, with respect to AVMs, they are
oftentimes based on a lot of, say, assessment record data,
which may be inaccurate.
Mr. Duffy. Mr. Wagner, with regard to that data they are
using, the appraisal on my home could have been how long ago
when I actually had an appraiser there? If you were in a close
timeline, that might make some sense, but if the last appraisal
was 8 years ago, a lot of things happen to a home in 8 years.
Again, if you are close in time, I might say, ``Listen, I
know you want your 600 bucks, but we just did an appraisal last
year; come on, don't make me do another one.''
Five years ago, 8 years ago, I don't see how data replaces
the role of a man or a woman coming to my property.
Mr. Wagner. And I agree with you, because the market
conditions change and properties change. So a lot of times the
data is imperfect at best. At the end of the day, there is
nothing better than an appraiser laying his eyes on the
property. I can't tell you the number of times that I have
changed my mind after I have looked at the comparables, I have
looked at the subject, and so forth.
Mr. Duffy. I just noticed my time is up, but to save a few
bucks to get this wrong has devastating impacts on everybody in
America in a profound way. And to save a few dollars to
potentially have a massive crisis like we had in 2008, I don't
think is actually worth it. I would think we should err on the
side of safety as opposed to technology and a few dollars saved
in a closing.
With that, Mr. Chairman, my time is up, and I yield back.
Chairman Clay. Mr. Bunton, you looked like you wanted to
say something. Go ahead.
Mr. Bunton. Thank you, Mr. Chairman.
At least for now, anyway, computers don't buy houses,
people do. And computers are very good at coming up with
tangible, the square footage, the number of bedrooms and
bathrooms and all that. But it is a uniquely human quality.
There are a lot of intangibles. Call it curb appeal, call it
whatever you want, but that is going to impact on whether or
not that house sells. So, AVMs are a great tool, but appraisers
should be involved in the process.
Chairman Clay. Thank you, Mr. Bunton.
I now recognize the gentleman from California, Mr. Sherman,
for 5 minutes.
Mr. Sherman. One of the two bills we are focusing on in
this hearing is the Home Buyer Assistance Act, and it deals
with the requirements for an FHA-financed home. Over 83 percent
of the FHA home purchases made last year were obtained by
first-time home buyers, and one-third of all FHA loans were
obtained by those in minority households. So, we have a real
interest in making sure that the FHA process is one that works
well.
Fannie Mae, Freddie Mac, the other major process, allows
for either licensed or certified appraisers, and yet the FHA
continues to require certified appraisers. Now, it is my
understanding that this requirement goes back to the days when
there were no national standards for licensed appraisers, but
this committee took action to pass the Housing and Economic
Recovery Act, which now imposes minimum national standards on
licensed appraisers.
So, we have a circumstance where FHA is requiring certified
and the other major finance agencies are saying licensed or
certified. And I have a bill to correct that. I want to focus
on that the bill is supposed to deal only with single family
homes. You can make an argument that if one is financing a very
complex property, that one should go with a certified
appraiser.
I will ask Mr. Wagner and Mr. Dickstein, who both represent
the industry participants here, is a licensed appraiser
competent to appraise for FHA purposes the purchase of a single
family home? Put another way, should we require a certified
appraisal for the GSEs, Fannie and Freddie? Mr. Wagner?
Mr. Wagner. I appreciate the question, Congressman. And I
think the answer is yes, I think that licensed appraisers can
do those appraisals as long as there is an education component
because FHA requirements are over and above what you typically
see for conventional type lending, the GSE type lending that
you mentioned, or loan purchasing. So as long as that education
component is there, we see an opportunity that is worthwhile.
Mr. Sherman. Mr. Bunton?
Mr. Bunton. Yes. Our qualifications board has established
qualifications to be a licensed appraiser for 2 or 3 decades,
but with the Dodd-Frank Act in 2010, now that is the threshold,
the floor. But we have felt all along that licensed appraisers
should be able to perform residential lending for FHA and
strongly support what you are doing.
The restriction on certified appraisers has really had a
negative impact in rural America, where you had licensed
appraisers who were only doing one or two appraisals a month.
They let their license lapse because it wasn't worth it to go
back and get that higher certification. So, this is good news.
Mr. Sherman. Do certified appraisers charge more?
Mr. Bunton. I'm sorry. I didn't hear the question.
Mr. Sherman. If you are going to get an appraiser, you have
a choice between a licensed one and a certified one. Does the
certified cost more?
Mr. Bunton. It shouldn't. No, no. The certified versus
licensed has to do with the scope that you can appraise. In
other words, you can appraise commercial properties, the value.
Mr. Sherman. And, obviously, if it is a complex commercial
property, they would charge more. But to appraise the same
house, it is the same fee?
Mr. Bunton. Correct.
Mr. Sherman. And what does an appraiser need to do for an
FHA mortgage beyond what they need to do for a Fannie or
Freddie mortgage?
Mr. Bunton. I am not competent to answer that one. One of
the appraisers could do it.
Mr. Wagner. Typically, the FHA appraisals involve more in
the appraisal inspection process. They are looking for certain
things, safe, sound, sanitary, with respect to the home and so
forth. And they take into account and point out a number of
issues that they see. So there is more to--
Mr. Sherman. So FHA just requires more work to be done,
more things to be checked before you come in with that
appraisal number?
Mr. Wagner. I think that is a fair way to put it, sir.
Mr. Sherman. I yield back.
Chairman Clay. Thank you.
I now recognize the gentleman from Colorado, Mr. Tipton,
for 5 minutes.
Mr. Tipton. Thank you, Mr. Chairman. And I thank the panel
for taking the time to be here.
I would like to broaden out maybe some of the discussion a
little bit that we are having here today. I come from rural
Colorado. And we have a lot of our rural communities that
obviously have some real challenges that they are being faced
with in terms of even being able to find an appraiser to be
able to come in and to actually be able to look at the
property.
Under S.2155, which, just for clarification, was actually a
House bill slightly modified that we should have been able to
take credit for, when that was signed into law, we did have the
provisions that were put in there in regards to the exemption
with certain qualifications to try and be able to address that.
And I would just like to be able to hear maybe some of your
thoughts on where some of that was right, maybe some of the
shortcomings, your thoughts on S.2155, and did we do enough to
be able to address some of the issues for appraisers? Mr.
Bunton?
Mr. Bunton. Yes, thank you very much. A couple of things
regarding shortages in rural America, and there are underserved
areas, no question. One of the things we are trying to do is
have virtual training for appraisers. Instead of going out and
finding a supervising appraiser, you could do it from your
home, computer-based. Think of it like airline flight
simulators and things like that. It is a work in progress. We
hope to have it done in the not-too-distant future. But now, if
you are in a rural county somewhere where you can't find a
supervising appraiser, which is part of the qualifications
process, you will be able to use this high-tech version. I
think that will make a big difference as well.
We have also changed the qualifications to become a
licensed appraiser and a certified appraiser where there are
different pathways now, where you can do it through your
experience, education in lieu of a bachelor's degree, an
associate's degree. So we are allowing the pool of people to be
larger who could actually get the credential from the State.
Mr. Tipton. Great. Mr. Wagner, do you have any thoughts on
that?
Mr. Wagner. I do. And S.2155 was something that we
supported. And the idea that there could be an exemption from
getting an appraisal in a rural area if the lender had made
contact with several appraisers and weren't able to locate
somebody, that that possibility existed. We did support that.
However, it really hasn't had that much of a chance to be
tested yet.
And now the regulators are actually looking to increase
from $250,000 to $400,000, which really ignores the whole
appraisal aspect altogether at that point, as far as safety and
soundness, consumer protection. So, we would advocate certainly
that S.2155 gets its chance.
Mr. Tipton. Any other thoughts on this?
Mr. Dickstein. I would just like to add that we have seen
comments from Freddie Mac, I believe at Ms. Trice's valuation
expo conference a few times, a presentation where they have
taken their appraisal submissions to their UCDP portal and put
that up against mortgage submissions and stretched that out
over time. And they have seen that there is some shortage in
some areas, but it really is seasonally and that there is some
correction based on the season. But we have seen some shortage
at seasonal times.
Mr. Tipton. Great. Just to be able to let a little bit of
framework, part of my district has what is called the Four
Corners area. It is where Utah, New Mexico, Arizona, and
Colorado all come together. In each one of the States, within
close proximity to each other, you have communities that are
across State lines. And under current appraisal requirements,
it is State by State to be authorized on that.
Mr. Wagner, maybe you could speak a little bit about maybe
the possibility, the benefits or lack thereof of being able to
have some kind of a national sort of appraisal rating?
Mr. Wagner. Thank you for the question, Congressman.
We are in favor of looking at some sort of mortgage
license--excuse me, some appraisal licensing type platform, a
portal where appraisers could actually submit all of their
applications, renewal applications, education records; if
background checks were necessary, that as well. And we look at
it as a win-win for all the stakeholders because, not only
would that cut red tape for appraisers, because they have
different requirements among the States and different timing
among the States oftentimes for their licenses, but it would
also make it easy access for the State regulators to pull down
that information when application requests come in.
And what you are talking about in a proximity situation
like that with Four Corners, oftentimes appraisers are licensed
in multiple States. So, that would be a big benefit.
Mr. Tipton. Thank you for that.
And, Mr. Chairman, Mr. Bunton had spoken to some ideas as
well. We have a lot of our conversation, which is always framed
typically around our urban areas, and I just want to really
encourage our committee to remember that rural America plays a
very important role in this economy as well and to make sure
that when we are talking about appraisal, the access to be able
to get homes, we do not leave out rural America as well.
Chairman Clay. And I couldn't agree with the gentleman
more. This subcommittee looks at all of America, rural, urban,
suburban. So, thank you.
Mr. Tipton. Thank you, Mr. Chairman.
Chairman Clay. The gentleman from Texas, Mr. Green, who is
also the Chair of our Subcommittee on Oversight and
Investigations, is recognized for 5 minutes.
Mr. Green. Thank you, Mr. Chairman, and I thank the ranking
member and the witnesses for appearing.
I would like to agree with the chairperson that we do look
at all aspects of issues. A good many members of my family live
in rural America, so I am greatly concerned about them.
But, today, permit me to say to Mr. Perry, Mr. Perry, I
would have paid good money to hear your report. I am just blown
away by what you said. And you are with the Brookings
Institution, is that correct?
Mr. Perry. That is correct.
Mr. Green. Okay. If you are on the panel and you are
familiar with the Brookings Institution, would you just raise
your hand? Okay. Everybody is familiar--all right. Everybody
else out there, raise your hand? Brookings, okay. Everybody is
familiar. Not for profit, doesn't take a position on issues but
presents intelligence, facts, and what you have presented is
astounding. Just for edification purposes, some things bear
repeating: Homes of similar quality in neighborhoods with
similar amenities are worth 23 percent less in majority black
neighborhoods compared to those with very few or no black
residents.
Now, at some point, we can say that this is a complex issue
and I agree, but it can also be a complexion issue. There is
something going on here that is very hard to deny, given the
information that you have shared with us. I have in my office
photographs of persons from hearings very similar to this. In
fact, I brought a couple of photographs in today from a
previous hearing where I had persons raise their hands when I
asked a question. And one of these photographs has under it,
``Ask me about this picture.'' It is my way of publishing
beyond these hearings what takes place in these hearings.
So, this is going to be a photograph for my office. I will
have under this photograph, ``Ask me about this picture.'' I am
sharing this with you because I want you to know this is a
pretty important question for me, and if you care about your
station in life as it relates to this picture, it may be
important to you. Do you believe that invidious
discrimination--``invidious'' means harmful--plays a role in
the devaluation of property in neighborhoods that are
predominated with minorities but, more specifically, black
people? If you do believe this, raise your hand. I want my
staff who are recording this to be sure to get this picture.
Would you raise your hand again, please? Only one person
believes that invidious discrimination plays a role. So let me
ask again for fear that you didn't understand.
If you think black people are being discriminated against
when their property is being appraised, would you kindly raise
your hand? One person on the panel. If you think that--for fear
that I am not communicating well, if you think that black
people are not being discriminated against when their property
is being appraised, if you think they are not being
discriminated against, kindly raise your hand. Okay. Hands now.
We are getting some consternation, I see.
Yes, sir, Mr. Wagner?
Mr. Wagner. Could you repeat the question? Could you
clarify that for me a little bit more? Your question was, do we
believe they are not being discriminated against?
Mr. Green. Let's do it again. I will give you a do-over. If
you believe that black people are being discriminated against
when their property is being appraised, not all, but in these
neighborhoods where you have more than 50 percent of the
neighborhood is black people, and the property values are
similar to other--property is similar but the values are not?
Do you think there is discrimination involved in this
devaluation of that property? If so, raise your hand? One hand.
All right. Well, the picture will be up for all to see, and I
will probably bring it to future hearings. I will not let these
things go. At some point, we have to deal with racism. We call
it unintentional bias, and some of it is done with
intentionality. So, this is my way of dealing with it.
I yield back the balance of my time. Thank you.
Chairman Clay. The gentleman's time has expired.
The gentleman from Tennessee, Mr. Rose, is recognized for 5
minutes.
Mr. Rose. Thank you, Mr. Chairman.
There is a broader conversation going on right now about
potential housing finance reform. Most of the discussion over
the past few years regarding housing financial reform has
focused on the secondary market. However, it is important to
also discuss the primary market. Not only do the originators of
mortgages play an important role, but so do appraisers, given
their important role in the origination process.
Do you think there are some potential changes to the
appraisal regulatory structure that should be included in this
effort? And I will start with Mr. Bunton on that.
Mr. Bunton. Yes. I think, as I pointed out in my opening
comments there, that we need to have professional appraisers
determining what the value is of property that is the
collateral for the loan. Somehow requiring the financial
regulators to go back to using appraisers, to work with The
Appraisal Foundation, we can come up with standards for
evaluations as well as we have standards for appraisals. But,
right now, they have developed a great big work-around, and
they have circumvented everything that you all have put in
place.
Mr. Rose. Ms. Trice, would you speak to that?
Ms. Trice. Gladly. We have spent a considerable amount of
time devising what a new regulatory structure should look like.
The appraisal is used not only in the origination, as you said,
but also all the way through the system to the secondary
market.
There are a lot of people who touch an appraisal along the
way and rely on a credible appraisal report. I think today we
are--FIRREA was probably the right thing at the right time.
That was 1989. I think the most popular car in 1989 was an
Oldsmobile Cutlass. If there is still one on the road today, it
is probably being held together with duct tape. And I
respectfully submit we have an outmoded, old, tired regulatory
structure and that it is time for an overhaul.
Mr. Rose. How important are accurate appraisals to ensure
that federally backed mortgages, whether they be pulled in
Ginnie Mae securities or into the uniform mortgage-backed
security that Fannie and Freddie will be issuing, are quality
credits?
Ms. Trice?
Ms. Trice. The data today--I think that most people
actually are going to find this a little astounding. There is
less information on the collateral and the collateral value
available to investors today than there was pre-crisis. I find
that astounding. If you have ever watched, ``The Big Short,''
you are, like, how did that happen? Well, we are doing it
again. Today, in a credit risk transfer, the investor doesn't
even get the property address, so how could they possibly do
any sort of due diligence on the collateral valuation? They
can't. They are completely--it is a blind bet. And so what the
investor is relying on 100 percent is the full faith and credit
of the United States, and that, my understanding is, we are
trying to get away from a government backstop. But that implied
guarantee is not allowing us to move into a more vibrant
housing finance system, in my opinion.
Mr. Rose. And I would ask all the panel this. To your
knowledge, is there any reliable data that tells us whether the
de minimis exception properties are being checked to be sure
that there is real value there? In other words, is that de
minimis exception being gained, if you will, and what risk do
we see there? Yes, Mr. Bunton?
Mr. Bunton. The valuations are being performed by
nonprofessionals or can be performed by nonprofessionals. They
don't have to adhere to a written set of standards, and they
are not held accountable to a public board. So, if a homeowner
has an evaluation below the threshold, hasn't complained about
it, what recourse do they have? If it is an appraiser, you go
to the appraiser board, so it is gaming the system. I think
those were your words. I agree with you.
Mr. Rose. All right. And then is there a danger that,
without proper regulatory structure, appraisals could be gamed
in order to comply with Fannie/Freddie conforming loan limits?
Mr. Wagner, what is your opinion on that?
Mr. Wagner. I think that if the de minimis is raised and
use of evaluations increases, you are going to have increased
risk as well because, at this point, as Mr. Bunton has said,
the evaluations don't have to be done by anybody who subscribes
to a strict code of ethics and standards.
Mr. Rose. All right. Thank you.
I yield back.
Chairman Clay. The gentleman's time has expired.
The gentleman from California, Mr. Vargas, is recognized
for 5 minutes.
Mr. Vargas. Thank you, Mr. Chairman.
I appreciate the opportunity to speak, and I appreciate you
very much for having this hearing, and I also want to thank the
ranking member. I want to ask a few questions along the line of
my good friend, Mr. Green from Texas. I believe that there is
discrimination. I don't think there is any doubt about that in
housing. In fact, we have had redlining before. In fact, we
hear all the stories. They are anecdotal, but someone is moving
into the neighborhood. It is going to bring the property values
down. I know that was the case when my family moved from one
place to another. ``Here come the Latinos.'' And so, I
definitely think that there is some discrimination going on.
Mr. Perry, you placed it at 23 percent less the valuation. Just
out of curiosity, do you have any percentage for Latino,
majority Latino neighborhoods?
Mr. Perry. No, but we will be producing a report on
majority brown cities as well.
Mr. Vargas. Okay. I definitely think that is the case. I
have to say that sometimes--I bought a number of properties in
my day and still own a number of properties, and the appraisal
sometimes works in your favor when it comes in low, too. It
depends. I have bought a number of properties where they are in
majority minority areas, and the appraisal comes in low, so you
can negotiate the price down even further. You just have to put
more cash into the deal, but it actually comes out in your
favor. And if you have faith in that community and that
neighborhood, the value is what you ultimately think it is. I
agree with what Ms. Trice said, that is the value. The value to
you is what you think it is going to be worth. And so I have
done that a number of times, and I have come out more than
okay.
So I will ask that question. It seems to me that you were
saying that there is no discrimination, that there is no--that,
to me, sounds so far off the ball that it is almost laughable.
Mr. Bunton, I will give you an opportunity to speak. Go
ahead, sir?
Mr. Bunton. Appraisals are reflecting what could be
discrimination out there. Are homes selling for less in
minorities areas? According to appraisers, they are, according
to Mr. Perry's stats. But that is a reflection not on the
appraiser. The appraiser should be reflecting what the market
is. They don't make the market; they reflect it. Are people
willing to pay less for minority neighborhoods? Apparently,
that is the case.
Mr. Vargas. I am not sure that they are not making the
market, but I guess that is what I would argue. So, if the
appraisal comes in lower, in fact, you can push the price down.
I know I have done that a couple of times because I thought the
appraisal was going to come in lower than it should, but I had
cash to put into the deal. So I said, depending on the
appraisal, and the appraisal came in low as I expected because
of the neighborhood, then I was able to negotiate the price
down in at least two instances because I thought this is what
is going to happen. They are going to appraise this very low
because of the neighborhood. I think the value is much higher
because of location, location, location, and it worked out
quite well for me. And so I do think that the appraiser--
because the big deal with appraising, and I know you guys have
mentioned it briefly--is comparables. They are always looking
for the comps, what are the comps in the area. That is the big
deal. But you also have to take a look at, what is the value?
What do you feel it is worth? What is its proximity to downtown
or whatever, saying it is around the bay or whatever it is? So
I do think the appraisals do create part of the value of that
neighborhood, and, again, I know that, in my own case, I have
been able to negotiate what I think have been very good deals
and sold them for very good profit because the appraisal was
going to come in low because of what I thought was going to be
discrimination.
Now, it might have been simple chance. I know it worked for
me, but it seems to me that that is discrimination. Mr. Perry,
you wanted to say something?
Mr. Perry. I just want to add that we see this in cities
where there is a large influx of white people coming into
cities. They come in. Property values are very low. Within an
instant, property values go up. And the research is pretty
clear on this in terms of lending, appraisals, real estate
behavior. We have cited discrimination at every turn. The price
just reflects all of that and then some. So I don't think there
is any question there is discrimination. We have concrete
evidence, and I encourage people to read some of the review in
the report that alludes to some of that, but there is
discrimination. The housing market was predicated on
suppressing black prices in particular areas. Those areas still
exist, but more importantly, those behaviors are still there.
So, as long as you devalue black people, the tools you use
will devalue black property.
Mr. Vargas. I agree with you. My time has expired, but
again, thank you very much.
Thank you, Mr. Chairman.
Chairman Clay. The gentleman's time has expired.
The gentleman from Missouri, Mr. Luetkemeyer, is recognized
for 5 minutes.
Mr. Luetkemeyer. Thank you, Mr. Chairman.
Mr. Bunton, you are with a group that sets standards for
appraisers, is that correct?
Mr. Bunton. Yes. That is correct.
Mr. Luetkemeyer. I chaired this subcommittee a couple of
years ago, and one of the things we were talking about at that
time was a problem with appraisers, the certification of them
from the standpoint, one of the criteria was that they had to
have a college education, and I think they filled a 2-year
apprenticeship after that. Is that still the case today, or
have you changed that?
Mr. Bunton. Effective May 1, 2018, that has been changed.
Mr. Luetkemeyer. Okay. What did you change it to?
Mr. Bunton. For the certified residential, it was a 4-year
degree. Now, it is an associate's degree instead of a
bachelor's degree, and it also--there are alternate pathways
where you can take 10 college credits that would be equivalent
to an associate's degree. As far as the experience, it has now
been cut to 1,500 hours over 12 months. It was 2,000 hours over
24 before.
Mr. Luetkemeyer. Because when you have a shortage of
appraisers, I live in rural Missouri, a very rural town, 336
people, so we don't even have appraisers in our county, and so
it is very difficult to find somebody. You have to go outside
the county to find an appraiser. And my appraiser friends were
telling me, hey, this threshold of a college degree and 2 years
apprenticeship was killing them, not being able to get new
appraisers into the business to then be able to go do these
appraisals. So, thank you for doing that.
With regards to an appraisal itself, we have been
discussing a little bit here about appraisals, but I think we
need to remember that an appraisal is just a snapshot in time
as to what the value of the property is today. My youngest
daughter lives in Denver, which if you are an appraiser, you
know the values out there just explode every day. She and her
husband bought this house 5 years ago. They sold it recently
for 60 percent more than they paid for it. During the crash of
2008, in Denver, the prices never went down. But in places like
Georgia, those prices crashed, because they wound up losing 90
banks because of the value of the real estate.
I can go on and on in my own district. We had an area that
crashed because of what happened with the markets. And it is
not necessarily the neighborhoods; it was the fact that whether
you wound up with inability to buy homes because you didn't
have a job, whether it was new schools, new roads, losing
factories, losing jobs. All of these things have an effect on
the value of the property. And for all of you to try and sort
through all this is quite an ordeal.
So, having been in the financial services industry for 40
years, I am familiar with a snapshot in time what that thing is
worth, which brings me to the question, I guess, with regards
to thresholds.
I know you are all unhappy about the threshold increase,
but I am just kind of curious. Have you done any studies to see
once what the loss ratio--how much it would increase by going
from $250,000 to $400,000? Has anybody done a study on that?
Nobody has done a study on it? Are you all against raising it
from $250,000 to $400,000? Raise your hand if you are against
it? Anybody neutral on it? Okay. So, if you are against it,
tell me why if you are against it, if you can't prove your
point.
Mr. Wagner. You know, at the outset, I would say,
Congressman, that it is an indication of a degradation in risk
management in general. It signals a degradation in that vein,
and do we know--
Mr. Luetkemeyer. When was the $250,000 set in law or as a
rule or suggestion?
Mr. Bunton. In 1994.
Mr. Luetkemeyer. So, 1994. What kind of inflation amount
have we experienced from 1994 to 2019? At least double? At
least 50, 100 percent?
Mr. Bunton. I guess it is probably in the low 400s.
Mr. Luetkemeyer. Okay. So, if you put an inflation
multiplier on $250,000, where would you come up to, then, if
you raised your threshold to match what it was in 1994?
$400,000?
Mr. Wagner. Somewhere in that range, but I think it is
important to keep in mind what Mr. Bunton was pointing out
earlier with the median price of a home. It is nowhere near
that level. So, there were a whole lot of loans out there--
Mr. Luetkemeyer. I can tell you from being a regulator in a
previous life as well, when you go into a bank and you look at
their mortgage loan portfolio, you don't look at every loan.
You have what they call a cut, and you take a certain level,
and all the loans above that, which are the big loans, which
are the ones that if you lost it, you lost a lot of money. With
little loans below that, while there is exposure there, because
they are small and because if you lost one, yes, you would lose
a little bit of money. But compared to losing a big one, if you
cut at $40,000 versus $400,000, that is a big deal. I think for
perspective point of view here, I am not for or against it at
this point, I am just trying to discuss it, but I think we have
to keep in mind the values, the inflation factor, the area of
the country that we are in, and the fact that if you look in
the large sense of a portfolio, is that really a risk to the
entire portfolio?
Thank you, Mr. Chairman.
Chairman Clay. I thank my friend from Missouri, and his
time has expired.
The gentlewoman from Michigan, Ms. Tlaib, is recognized for
5 minutes.
Ms. Tlaib. Thank you, Mr. Chairman.
Thank you all so much for being here. We have a home
ownership crisis in my district and across Michigan. We have
lost more black home ownership than any other State in the
country, in part because traditional mortgages are so difficult
for people in my district to acquire.
Take Detroit as an example. In 2007, when my black
neighbors made up 82 percent of the population, they received
about 75 percent of Detroit home loans. By 2017, black
Detroiters, despite still being 79 percent of the population,
received just about 48 percent of home loans. When people can't
get mortgages, they are forced to turn to land contracts, which
I am working on to address, to realize their American Dream.
And while land contracts can provide an important path to home
ownership, due to the lack of oversight, too many in our
community are being taken advantage of, and many are scamming
folks out of their money in labor.
This situation has all been created in part by flaws in the
appraisal process. Appraisals are lagging behind in sale
prices, meaning folks are unable to get mortgages large enough
to complete the deals and face a hurdle to the security and
stability home ownership provides. Lagging appraisals put
moving into many of our vacant homes and renovating them out of
reach and perpetuates neighborhood decline.
This question is for Mr. Bunton. One of the things--when
investors renovate the homes in Detroit and some of my Wayne
County communities I represent, ultimately, it drives some of
the property values up. Can original lower sale prices still be
used as comparables for neighboring appraisals?
Mr. Bunton. I am going to defer to the appraiser members on
the panel. That doesn't sound correct, but I would defer to the
appraiser members.
Mr. Wagner. I am just going to say, and I think the
gentleman earlier was talking about the comparable sales that
get used. At the end of the day, based on sales, say, in a
sales comparison approach, the value is the value, okay? Market
value basically means, if you stick a sign in the yard, what
will the property sell for? And if the market data in the area
indicates a particular value, then it is what it is. And that
is why, earlier, while I am very empathetic to this situation
that you are referencing, it is bigger than the realm of
appraisal. It involves lending and so forth, and I mentioned
earlier that--
Ms. Tlaib. And I mention that a lot. Can you talk in
detail, because what I have read and researched on is about how
appraisal management companies perpetuate pressures from
lenders to appraise a home at a cost different from the home's
worth? With your membership in the appraisal community, are you
all getting pressure to appraise at a higher cost?
Mr. Wagner. There are times when we see pressure, and some
of it is less than overt. There can be times when appraisers
are actually supporting adjustments or attempting to support
adjustments, and they are being questioned, second-guessed on
their support and even for positive things, all right.
As far as actual pressure for hitting a certain number,
that's not quite as prevalent, I think, as it once was. But,
nevertheless, there are other kinds of pressures that
appraisers experience with unreasonable turnaround times and so
forth.
Ms. Tlaib. Thank you, Mr. Wagner. I appreciate it.
Mr. Perry, you were very thoughtful. I could take you home
to my district, and everyone would be nodding their head. I
have the third poorest congressional district in the country,
and I always tell people: If you want to see what doing nothing
looks like in communities of color, I will show you, and we end
up paying as Americans twofold in trying to address poverty.
Land contracts are a huge struggle right now in my
district. Many turn to land contracts. How can we make land
contracts safer for home buyers? I am just curious about your
opinion.
Mr. Perry. I don't have an opinion on land contracts. I
will say this, that there needs to be a lot of support for home
buyers and sellers, that our devaluation report clearly
identified areas where someone who is renting can actually buy
a home.
Ms. Tlaib. That is right.
Mr. Perry. We need to prioritize people living in districts
where there is severe devaluation, provide them first-time home
buyer assistance beyond what is given currently and give them
the ability to buy a home, particularly in places like Detroit,
because the conversation now is how to bring the middle class
back in Detroit. You know, we should not bring in people to buy
in Detroit at the expense of poor people because folks just
don't go away. They move to other areas. So, there is an
opportunity here.
Ms. Tlaib. Thank you, Mr. Chairman.
I yield back.
Chairman Clay. You are welcome, and the gentlewoman's time
has expired.
The gentleman from New York, Mr. Zeldin, is recognized for
5 minutes.
Mr. Zeldin. Thank you, Mr. Chairman.
Thank you to the whole panel for being here today.
Ensuring that our consumers have accurate, transparent, and
fair appraisal data is a critical priority in my district on
Long Island and nationwide. That applies to potential home
buyers or sellers or the professionals in the real estate
industry. We definitely need more innovative ways to do this,
and the rules and regulations need to be consistent and clear,
but one thing that would not be helpful is several different
sets of rules that could hurt the market, and most importantly,
the consumers.
A question first for Ms. Trice. Are the appraisal rules and
regulations for mortgages under the GSEs like Fannie and
Freddie the same for FHA mortgages?
Ms. Trice. No, they are not.
Mr. Zeldin. Is it good policy to have a separate set of
rules for FHA mortgages versus mortgages that are securitized
by Fannie and Freddie or for other totally private mortgages?
Ms. Trice. I think consistency and a clear roadmap is how
you get credible appraisal reports and reliable information.
Mr. Zeldin. How much influence do the GSEs--Fannie Mae and
Freddie Mac--exert over the appraisal process today?
Ms. Trice. They virtually own it. They are the de facto
regulator, if you will. They create the forms that the entire
industry uses. The VA and the FHA use the Fannie and Freddie-
devised form that is under development now for a new form, and
there is even pressure being put upon the VA--I think there is
some proposed regulation that the VA is being asked to use
unlicensed individuals to inspect properties because that fits
the mold that the GSEs are going towards.
Mr. Zeldin. Do the GSEs consistently require the use of
appraisals on the loans they purchase?
Ms. Trice. I'm sorry, say it one more time?
Mr. Zeldin. Do the GSEs consistently require the use of
appraisals?
Ms. Trice. No. They have a waiver program where there is a
reps and warrants relief to the lender. Both entities have
different programs, and today, they are piloting a hybrid
appraisal report where the inspection is being done by
unlicensed individuals. Literally, there are no qualifications.
You could be an Uber driver today and show up to inspect a home
tomorrow. That will be input into the appraisal process.
Mr. Zeldin. I appreciate that. I am actually going to yield
the remainder of my time to Mr. Duffy.
Mr. Duffy. I appreciate the gentleman for yielding.
I just want to note that I thought it was a good point to
make that appraisers don't make markets; they reflect the
pricing in the market. I don't think we can lose sight of that.
But, also, Mr. Perry, you made me think a lot, and I
appreciate your testimony. I don't want you to take this out of
context. I am trying to see, what is causing the problem? What
are the solutions to problems? But we have had a lot of
conversations in this room about affordability. And what
happens to communities if we say, ``You know what, the market
says,'' as someone puts a sign in their yard and they get an
offer on it, ``the home is worth this much, you know,'' supply
and demand, and buyers and sellers come together at a meeting
of the minds; if we bring those prices up 23 percent, what
happens to the affordability of those homes in the neighborhood
in which we are talking about? It probably makes it less
affordable, right?
Mr. Perry. That is why I said this is about providing
support on the supply and the demand, that people, one, have to
receive--it could be anything from a tax credit to make up for
differences to also additional loan support, but clearly, there
is market failure. I would differ in the sense of the market is
the market.
Mr. Duffy. But we get in trouble--if we give people
mortgages on houses they can't afford, and they can't pay for
them, and then, all of a sudden, we have done something wrong
about giving mortgages that they can't pay for. I look at it,
as the prices have gone up, I don't think there is any racial
overlay of what has happened at The Wharf or the Navy Yard down
here, but prices have gone up dramatically. People who own the
properties, they made a lot of money. But what has happened
with--I don't know anyone on this panel who can buy a place
down there. What has happened? There is a gentrification
problem that has gone on too, and you have all of a sudden
moved people out of one area.
Mr. Perry. I just want to emphasize, the type of
devaluation we are seeing is--you have to assume that there is
something systemic. And the market is failing if you have
communities where you have 50 percent comparable homes priced
50 percent or more or less than that same home a few blocks
away. So what I am getting at is there has to be some effort to
say: Hey, assessors, lenders, we have to recalibrate this.
Mr. Duffy. I know my time is up, but I would like to work
with you more on this. I want to understand your study a little
further. I would imagine, though, that if an offer comes in 50
percent or 25 percent higher, and the appraiser is appraising
it at 25 percent less, and so he can't get a mortgage on the
property, now, that would be a problem.
But if we are having a meeting of the minds where the
buyers and sellers are meeting and the appraisal comes in where
the buyers and sellers have matched on price, I would see that
as less of a problem. I would like to talk to you more if you
are willing and kind of drive into this because I am picking up
what you are putting down and I think we should engage further.
Chairman Clay. At this point--no, no. We are going to enter
into a second phase. We are going to call it a lightning round
where each Member is limited to 2 minutes.
Mr. Duffy. Mr. Chairman, we make up the rules as we go,
right?
Chairman Clay. That is right. It is 2 minutes, but it will
be equal time. And so let me start by saying that, Mr. Perry, I
appreciate the fact that you have highlighted the disparities
in the process of appraisals, and I would urge the rest of the
panel, in order to address the wealth gap, the racial wealth
gap, that we think outside of the box, that we actually look at
other methods than comparable sales in the appraisal process if
there is a geographic area that you are not getting the market
value of the homes. Look at the cost of replacement of the
home. We can think outside the box, and we can come up with
solutions as far as how many or how we allow others to enter
this profession as apprentices, how we increase diversity in
that area.
And so, Mr. Dickstein, perhaps you can tell us, how could
we do this in a method that is outside of the traditional box
that you now operate in?
Mr. Dickstein. We currently have three methods as
appraisers that are acceptable: first, we have one you alluded
to, the sales comparison; second, we have the cost approach;
and third, we have the income approach. So appraisers do have
the ability to look at a cost approach, looking at the value of
the land, a new structure. We have the ability to look at rents
in the area and determine value based on rents. But like
whatwas said earlier, I think it is the chicken or the egg. You
have so many lenders, investors, servicers who, as soon as the
loan goes into a default situation, they are now left with--I
think Mr. Perry alluded to maintenance of the home. A lot of
these people in some of these areas just can't afford to
maintain the home properly. So now that passes on to a lender
and investor, and now they have an asset that they are holding
onto that is in disrepair. They now have holding costs in the
form of property taxes, upkeep in the neighborhood, property
preservation. Now, they want this asset off their book so they
throw it on the market priced for a quick sale.
Chairman Clay. At a discount.
Mr. Dickstein. At a discounted price. So what happens is
sometimes if you get a market that is going through a downturn,
whether it be job loss in the area, loss of manufacturing, loss
of any type of income stability for that neighborhood, there is
a trickle down, and it affects the neighborhood as a whole.
Chairman Clay. It is cyclical.
Mr. Dickstein. Absolutely. And appraisers are just
reporting what is happening.
Chairman Clay. All right. And I appreciate that.
And now, Mr. Zeldin, would you like to--
Mr. Zeldin. I would like to yield my 2 minutes to Mr.
Duffy.
Mr. Duffy. Thank you.
Chairman Clay. Go right ahead.
Mr. Duffy. Can I just ask, what should our takeaways be
from this hearing? Give us the snapshot of the top lines of
what Mr. Clay and I and this subcommittee should be working on
as we leave today. Mr. Bunton, we will start with you.
Mr. Bunton. The first one is, let's use valuation
professionals to determine the value of the collateral for
loans, and more and more, we are getting away from that,
whether it is ABM or nonappraisers.
Mr. Duffy. You like human beings.
Mr. Bunton. Pardon me?
Mr. Duffy. You like human beings.
Mr. Bunton. Correct.
Mr. Duffy. All right. Mr. Wagner?
Mr. Bunton. With technological tools. Absolutely.
Mr. Wagner. I would like to emphasize the use of human
beings as well, and I would also like to emphasize one other
thing relative to thinking outside the box, so to speak. I
tried to touch on it earlier, and that is some of the programs
that are under development in Detroit and St. Louis, and it
involves lending and how a loan is structured.
And, also, in terms of promoting diversity within the
industry, just as an example, the Appraisal Institute has a
number of ongoing--
Mr. Duffy. You have to go quickly, Mr. Wagner. I have three
more witnesses to get to. What is my takeaway?
Mr. Wagner. That we are promoting diversity as well.
Mr. Duffy. Okay. Mr. Dickstein?
Mr. Dickstein. I echo the sentiments of both Mr. Bunton and
Mr. Wagner.
Mr. Duffy. Human beings.
Mr. Perry?
Mr. Perry. I am going to emphasize data. It is clear that
human beings have burdened some and not advantaged others, that
the decisions that are made at the appraisal process have to be
countered with data in the report that I authored.
Mr. Duffy. Ms. Trice?
Ms. Trice. Appraisal reforms with a focus on safety and
soundness so that we have a safe housing system for all
Americans.
Mr. Duffy. Thank you. Listen, I think you all have done a
great job today giving us your feedback and viewpoint, very
diverse, but I think very useful to us, and I appreciate your
time and your testimony.
I yield back.
Chairman Clay. Thank you so much.
And, Ms. Tlaib, we will let you finish it off.
Ms. Tlaib. I was getting into it with Mr. Perry. So, the
one thing that I noticed is, I think I saw some statistics that
a majority of my residents in the 13th Congressional District,
close to half of them are renters now. We used to be, like, 70
percent home ownership. It created stability, even built up our
school system. Everything is so connected to home ownership.
The one area I kept looking at was the fact that they were
paying 30 percent more in their income. So if I got them into a
home, which sometimes some are worth, you know, outside of the
7.2 miles in downtown Detroit, in those areas, was able to--
homes that are, like, valued at $40,000, $50,000, but people
are not lending at those kinds of low prices, is them not being
able to get access to that. But even when they came out to
appraise in one neighborhood specifically, it came out even
lower than that, and then they would have to come up with the
cash difference.
And all of the appraisals--all of you folks are obviously
working in a broken system, but I also ask all of you, and Mr.
Perry, maybe you can help in creating this, that I don't think
everything fits into just one little box and that we are
looking at all of the circumstances, all of the things. Even
projecting out what is happening now in the 7.2 miles, how that
is going to trickle down into the other neighborhoods. I have
to tell you what I am seeing is that there are neighborhoods,
honestly, where the houses look the same. It is the exact same
house, exact same issues, high rates of this or that way. But
because more white people are moving into that neighborhood,
the prices skyrocketed. I don't understand why.
And then there are some of my residents who obviously
benefit from that because they are, like, you know, I am going
to turn around and just sell it and go to the suburbs where it
is cheaper to live because now the pricing is high, and they
have to pay income tax in Detroit and all of those things.
Even my colleague on the other side of the aisle, trying to
get down whether it is human or not, I just feel like, even
with appraisals, we are just sticking to these, like,
checklists of things. And I feel like if it is in a low- to
moderate-income neighborhood, that you all need a little bit
more flexibility in how you value a home with all of the--and,
Mr. Perry, you know, every time--
I am a social worker at heart. I come from the nonprofit
sector. I just know for 12 years that one of my residents--this
is a true story--is paying $700 a month on rent, but I can get
him into a house for $400 a month in a mortgage. I don't
understand but for the fact that he can't, in the same
neighborhood, get it to be appraised for what--it is, like,
that difference is why he can't because he doesn't have the
cash in hand. I just don't understand why the system is built
that way.
Mr. Perry. I just always remind people that we have been in
this period before. After World War II, we enacted policies
that enabled people to buy a home. We can create Federal policy
that is creative, that is innovative to get black and brown
people into homes. We keep trying to avoid the policy
conversation to get people into homes and back into our sectors
that are clearly biased. Again, it is not just appraisals. It
is lending. It is real estate agents. It is the economic
structure. There are a lot of things, but we all have a
responsibility to have some legislation to address racism and
structural bias. We have a responsibility to do that.
Chairman Clay. Thank you. And on that note, as I close,
thank you, Mr. Perry, and I thank the entire panel of witnesses
for your contribution to this hearing today. I found it quite
educational. And as I close, I will note the assistance of the
Metropolitan St. Louis Equal Housing and Opportunity Council,
and I look forward to their continued guidance in the area of
appraisals.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
This hearing is adjourned. Thank you.
[Whereupon, at 3:49 p.m., the hearing was adjourned.]
A P P E N D I X
June 20, 2019
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