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Taking Orders, Separating Mortgage Functions

William Apgar [1], the former head of FHA said it is time to change the way appraisals are ordered in the article Unraveling th Pyramid [BrokerUniverse] [2].

This article addresses the fundamental issue with appraisals today – the independence of the appraisal function. To paraphrase: Its so important that on Oct. 27, 2003 the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, and the National Credit Union Administration, issued a Joint Statement that requires the separation between loan production, appraisal ordering, and the appraisal review function. In May 2005, the regulators again issued guidelines and warned that financial institutions may not understand the risk of aggressive lending standards.

To say that our mortgage system is unique would be an understatement. The American Dream of home ownership has become a reality for more people than anywhere on the globe. Lending money based on the securitization of loans backed by real estate has been the rock on which this phenomena has been built. Fundamental to this system is the fair, objective and unbiased valuation of the real estate that secures these loans and provides the confidence Americans have in the value of their home. For this reason the industry has created and depended upon a profession that has been central to our mortgage economy – the independent fee appraiser. This profession is wholly based on its separation from all others within the mortgage system. It cannot be tainted by self-interest or the desire of others to profit from a mortgage transaction. It is the cornerstone upon which the value of real estate is dependent. In fact, one of the key features of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 was to make certain that trained and certified licensed professionals completed the valuation process.