Dear Representative:

Thank you for taking the time to review my concerns. I’m writing on behalf of my fellow real estate appraisers about the conflicts between Fannie Mae, appraisal management companies, and the appraisal industry. In my opinion, the recent announcement to eliminate appraisers from the mortgage loan process is reckless and beyond the scope of Fannie Mae’s mission and authority. Federal overlays presented by the government-sponsored agencies are in conflict with the intent of FIRREA and Dodd Frank I also believe the repercussions for the future are dangerous and may increase the risk for consumers and mortgage investors. As an appraiser, I am very proud of my role in the mortgage industry, but the appraisal industry has taken numerous political hits over the last decade. While I understand there are bad apples in any industry, most appraisers are dedicated to ensuring fair, unbiased valuations of real estate. We are trained to focus on being honest, fair; and are the only party in the process with no financial interest in the outcome of any transaction. Our goal is to protect the public and mortgage investors. Without appraisers, the GSEs will repeat the last real estate crisis caused mostly by out-of-control lenders who simply are not disciplined enough for this type of flexibility. The changes give the appearance of antitrust and a mortgage system designed to serve the Conservators, their bank clients, and selected third-party agents of banks above the risk for consumer citizens.

“Modernization” is the current buzzword around the appraisal industry. However, it is missing from any discussion at the National Association of Realtors® and the MLS. They are the main influence on home pricing and their level of training or modernization has not changed in two decades when it comes to understanding comparable properties and pricing real property. Realtor® set the prices and then appraisers are expected to show market support the price is fair. Appraisers continue to bear the burden of regulatory capture and unsupervised regulatory overlays by federal agencies exempt from requirements.

Fannie Mae’s two recent announcements endanger the safety, soundness, and security of our national mortgage system because bad data begets more bad data. We are very close to repeating the mistakes of the past and seem to expect a different result, based on perceived technological advances. While there have been many advances, as there have been in almost every industry, the advances do not change the fundamentals of valuations. I believe the GSEs steps aim to destroy the appraisal industry. They are also now working in partnership with six appraisal management companies, who were hand selected and basically given the keys to the mortgage industry. The agreements between these companies are a gross overstep of Fannie Mae’s authority and, in my opinion, very close to a violation of fair trade.

The systematic elimination of appraisers has occurred since Dodd Frank and in direct opposite intent of FIRREA. Fannie Mae is using appraiser’s own data and intellectual property to use against them (of which is taken without permission from signed appraisal reports) to reduce the role of appraisers in mortgage lending. The appraisal process is dependent upon reliable and accurate data which continues to be a large issue in improving the efficiency of the appraisal process. Is it not illegal for FNMA to take information from signed appraisal reports and share it with lenders and many others? All the while they refuse to share it with the party it's acquired from. Other companies (such as Zillow®) claim to have a seven-year trademark claim against their sketches (or any product created based on their sketches), yet appraisal sketches and data are removed from signed reports without agreement or compensation.

FNMA is still in conservatorship. The appraisal industry is certainly not perfect. However, compared to the world of big banks and automated valuations that have a proven track record of inaccuracy and misleading advertisements, the appraisal industry is the only true consumer protection in the mortgage process.

The appraisal process is about having trained valuation professionals provide a transparent, evidence based valuation process using recognized valuation methods to arrive at a credible assignment results. Automated valuations are anything but this process, and a user has no idea how the model developed (Standard 1 of USPAP) and reported (Standard 2 of USPAP) the assignment results. Appraisers are required to follow USPAP which sets requirements that cannot be deviated from. Automated valuation models do not have to follow these standards that were developed entirely to uphold public trust within the real estate valuation process.

As an example of an automated valuation model failure includes Zillow® and their plunge into real estate buying using an automated valuation model, and they have access to massive amounts of “data.” Zillow® showed a net loss of $162.1 million in 2021 for its AVM/iBuyer platform. In the real estate business, large amounts of data is no guarantee of fair and consistent valuations.

The latest fake news story of bias is 99.9% made up. The actual complaints in the last several years are mostly complaints against the lending industry and not appraisers. The so-called bias claims could be accounted for with appraisal management companies sending unqualified appraisers two-hundred miles to perform an assignment they are not qualified to handle. AMCs are so hard at work trying to find the least expensive appraiser, they will send anyone willing to work for fees below customary and reasonable, while the AMC fee is not required to be disclosed as are all other fees associated with a mortgage loan. If you poll appraisers, you will find the biggest problem in the industry is appraisal management companies. The lack of supervision of appraiser licensing and regulations at the state level enable federal overlays to become embedded without proper exposure for comment and state audit for compliance.  

On March 10, 2023, Fannie Mae announced a partnership with six Appraisal Management Companies to provide “valuations” with the use of third-party data collectors and without the use of a licensed appraiser. We have companies mandated as “Appraisal Management” that has been given the power to compete against the people they are mandated to “manage.” This is a huge conflict of interest. These companies now have an unfair advantage over all other free market participants and will have the time to build their connections and systems long before licensed competitors can enter the market. This appears to be a violation of free trade and well beyond Fannie Mae’s scope of power, as well as beyond the scope of power for Appraisal Management Companies.

The unlicensed third-party data collectors are another issue that allows Fannie Mae and the AMCs to eliminate an important part of the appraiser’s job; not to increase accuracy, but only to shift the profit from small businesses in every state to appraisal management companies and their shareholders. The companies Fannie Mae selected are Solidifi, Class Valuation, Clear Capital (which owns the largest LIDAR technology company for square footage scans), Mueller Services, Accurate Group, and Black Knight’s Collateral Analytics, which are all members of the Mortgage Bankers Association.

Real estate valuation is not like selling widgets, televisions, or anything similar. Valuations and appraisals are a one of a kind service. Our sincere hope is that the appraisal industry has not been already greatly reduced or eliminated until the automation myths reveal how bad data was allowed to guide the country and put great strains on an already fragile mortgage market. As long as real estate is a people business, it will require living, breathing appraisers to research, study, and report the fair valuation of real property. I appreciate you taking the time to review our concerns and we would welcome the opportunity to speak before Congress and further address these issues.

Thank you for your time and consideration.