Banks oppose appraisers' plan


A coalition of Maryland appraisers is pushing once again for a law that would require lending institutions to use state-licensed appraisers when they make home loans.

But Maryland bankers are opposed to the change, and the chairman of a key Maryland legislative panel expressed concern that it might increase closing costs.

Currently, licensed appraisers are required only when the mortgage is over $250,000. Lenders are increasingly using less expensive, unlicensed "evaluations" as they compete to slash closing costs.

A House of Delegates hearing last week featured testimony from appraisers and their allies, complaining that the current law allows incompetent or dishonest practitioners to flourish. The appraisers were supported by the Maryland Association of Realtors.

And a representative of the Fair Housing Council of Greater Washington also argued that licensing requirements will make it easier to eliminate discriminatory appraisals that assign lower values to homes in minority neighborhoods, making it more difficult for applicants in these communities to get mortgages.

"At a time when housing discrimination has become a subtle art form, we feel that any efforts to establish uniform criteria and make the housing provision process as objective as possible are valuable and necessary," Talia Inbar testified.

According to Maryland Appraisers Coalition estimates, some 300 500 of the 3,100 appraisers working in this state are not licensed.

"We really don't know how many there are out there," said Peter R. Vidi Jr. of Howard County, an appraiser who heads the coalition and is president of the National Association of Independent Fee Appraisers.

Maryland has a Real Estate Appraisal Commission that licenses appraisers, but people can do appraisals in many instances without being licensed.

Maryland and other states passed laws setting up regulation of the appraisal industry five years ago under pressure from federal banking regulators.

The collapse of much of the savings and loan industry in the mid-1980s focused attention on appraisal practices, particularly when large foreclosed developments had to be sold for much less than the value of their mortgages.

Maryland's law takes its cues from federal banking regulators, such as the Federal Deposit Insurance Corp. The state law requires licensed appraisals only in "federally related residential transactions" -- houses with mortgages over $250,000.

Originally, federal regulators determined that they wanted licensed appraisals in connection with home loans as low as $100,000. But they raised the amount to $250,000 last year over the protest of appraisers nationally but with the endorsement of banks and savings and loans.

So, in many real estate transactions, Maryland law does not require lending institutions to use licensed appraisers to determine what a home is worth.

In practice, many Maryland financial institutions still use licensed individuals, in part to make it easier to resell mortgages to investors.

But mounting pressures to reduce closing costs and speed up the mortgage process has led lenders to look for cheaper, simpler ways to determine whether the real estate is good collateral for a loan. Licensed appraisals run between $275 and $325, and costs are typically passed on to the loan applicant.

Two appraiser-backed bills introduced in the General Assembly earlier this year would have required licensed individuals to be used in real estate appraisals regardless of the value of the property. The Senate bill was defeated in committee, and that stopped further action in the House during the last session, according to Mr. Vidi.

Mr. Vidi warned that as lenders increasingly rely on their own employees or unlicensed outside contractors to determine values, objectivity and independence will diminish. He said that he knows of one bank that is using unlicensed individuals for one-third of its mortgage loans.

But John B. Bowers Jr., executive vice president of the Maryland Bankers Association, said the current law "has worked well." He said the problems of savings and loans in the 1980s were not caused by the "small cookie-cutter" residential developments.

Mr. Bowers said advances in technology have made it possible to tap a wealth of databases to determine accurate values. Lenders should have "freedom of choice" to decide when licensed appraisals are needed, he said.

For relatively small loans secured by real estate, such as home equity lending, a licensed appraisal would be "cumbersome, expensive and time-consuming," Mr. Bowers added.

Del. Michael E. Busch, chairman of the House Economic Matters Committee that held last week's hearing, expressed concern about adding more regulatory requirements to real estate transactions.

The legislature has been trying to reduce closing costs, Mr. Busch noted.

"I will assure you that whatever legislation [gets passed] will not cause an increase in the closing costs of a residence in the state of Maryland," said Mr. Busch, an Anne Arundel Democrat.

He said that lenders have a great stake in ensuring that property is appraised correctly because they are often lending 95 percent of the home's value.

"They make a good case," he said of the lenders. "They're the ones making a majority investment in the property."

Delegate Busch said that while he didn't see "a whole lot of enthusiasm" among legislators for the appraisers' position, "I'm going to give everybody their day in court."

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