Real estate appraisers are in Washington demanding new rules to protect both lenders and the public against fraud -- and also to assure a greater role for industry professionals.

Last week, RealtyTimes writer Kenneth R. Harney broke the news that even the National Association of Realtors now supports federal legislative language prohibiting lenders and mortgage brokers from influencing appraisers' residential valuations. For several years, appraisers have complained that they are pressured by real estate agents, loan officers and others to value homes at the price needed to make the sale or refinancing go through.

These appraisers, of course, are also interested in protecting their turf by keeping appraisers they consider to be unqualified from taking away their business. But at the same time, they want to protect their profession's good name by preventing fraudulent transactions, which the Appraisal Institute claims happen all too often.

"While the vast majority of appraisers perform their assignments ethically and properly, some have been party to faulty or fraudulent mortgage transactions," said Brian Glanville, president of the Appraisal Institute.

"When an appraiser is involved in a premeditated property-flipping scheme, or has unwittingly been part of a fraudulent transaction, the Appraisal Institute is concerned for the victims and the economic consequences."

The Institute last week submitted extensive testimony to U.S. Sen. Paul Sarbanes, D-Md., chairman of the Senate Committee on Banking, Housing and Urban Affairs. The testimony blames much of the opportunity for fraud in appraisals not on bad actors, but on deficiencies in current law.

For example, U.S. law requires that real estate appraisals for federally related transactions be performed by licensed or certified appraisers in accordance with national uniform standards. Yet federal agencies and Congress have weakened the law by exempting nearly 90 percent of all transactions in the residential mortgage market from being appraised by licensed and certified appraisers. A transaction must be greater than $250,000 before the use of a licensed and certified appraiser is required. The original threshold considered was $15,000.

"We believe this change has resulted in higher risk for fraudulent activity and abuse of consumers, and in the end, an increased risk to the safety and soundness of financial institutions," Glanville said. "Unqualified individuals are now performing a large portion of the real estate valuation work throughout the country in the form of 'evaluations,' 'broker price opinions' or through 'competitive market analysis' reports.

"In many cases, evaluations are done by staff of organizations that have a vested interested in a real estate transaction," he added. "We think this practice negates the benefit of having an independent third party involved in the real estate transaction."

Because properties valued at less than $250,000 don't have to be examined by certified appraisers, "regulators have put out a welcome mat for fraud," the Appraisal Institute said.

Currently pending before the U.S. House of representatives is a Save Our Homes Act (H.R. 2531) introduced by Rep. Janice Schakowksy, D-IL, which would prohibit creditors or mortgage brokers from trying to influence an appraiser.

This won't, however, keep honest appraisers from being blacklisted if they refuse to inflate property values. And it also won't accomplish the Appraisal Institute's No. 1 priority of protecting its turf by shutting alternative professionals out of the valuation marketplace.

Congress and its lobbyists are abuzz with ideas for new legislation on both fronts. But while appraisers may see support from the NAR with regards to outlawing intimidation, it is doubtful that the nation's realtors will line up behind a proposal requiring appraisals for even the smallest of real estate transactions.

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