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The Responsible Lending Act (HR 1295)

The Responsible Lending act introduced in the house this spring addressed the issue of appraisal pressure. The section of the bill to refer to TITLE IV–APPRAISAL ACTIVITIES [1] primarily addresses predatory lending in the sub prime market.

The appraisal portion of the bill has been covered in the media [2] and here [3] and here [4] and here [5] and here [6].

You get the point.

This was probably in response to a rash of appraisal fraud that has been happening in then the relaxed lending guideline environment, proliferation of sub prime lending, increased wholesale mortgage origination, specifically in markets like the Poconos [7], which was highly publicized. [8]

The bill provides terminology that specifically equates appraiser pressure to a criminal act. Its a giant step in the right direction but at the end of the day, we believe nothing will change to prevent overall fraud in the industry within the bill’s current format.

With 72,000+ licensed appraisers nationwide, state enforcement is limited at best. The average enforcement department for each state is something in the order of a few staff members and limited funds.

The government is currently analyzing the appraisal industry and will produce a detailed analysis. Hopefully, it will show that the lack of separation between the sales function and the underwriting function promotes fraud. In other words, those individuals paid on commission, should not decide which appraisers get the assignment.

One of the best descriptions of the current problem can be found from the think tank DEMOS. [9]