GAO: Lenders Requiring Appraisals When None Are Needed

Lenders are obtaining appraisals in real estate transactions even when they are not required, the Government Accountability Office said in a new report.

In 2018 and 2019, lenders obtained appraisals for about 85% of the mortgages eligible for an exemption, the GAO said. The lenders could have required an evaluation—an estimate of a home’s market value not conducted by a state-approved appraiser.

For instance, GAO said, lenders typically obtained appraisals for mortgages of $250,000 or less, although they were permitted to use an evaluation.

There has been a well-documented shortage of certified appraisers in the United States. Realtors and others in the real estate business have said that shortage has led to significant delays in obtaining appraisals.

Under federal law, financial regulators have established an Appraisal Subcommittee to monitor and supervise the real estate appraisal industry.

That subcommittee may issue a temporary waiver from appraiser credentialing requirements when there is a significant delay in appraisals or when there is a scarcity of certified appraisers.

That was the case in North Dakota in 2019, the GAO said. However, the subcommittee ran into trouble with determining whether the waiver was warranted because its regulations do not define scarcity and significant delay or establish standards to determine when such conditions exist.

Appraisal Subcommittee officials said the subcommittee had not received a request for a waiver in more than 30 years prior to 2017.

“Defining the key terms in measurable ways and establishing standards to determine if such conditions exist would better ensure that ASC has a consistent and objective process for reviewing and granting future waiver requests,” the GAO said.

The GAO recommended that the subcommittee’s chairman define those terms.

Tim Segerson, the subcommittee’s chairman, agreed with that recommendation and said that staff members are working on changes to the panel’s rules.

Related:

GAO Report on Real Estate Appraisals

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