Instead, as I have discussed above, the problems are rooted in the inability of the various elements of the modem subprime lending system - including lenders, brokers, appraisers, secondary market investors, and others - to work together in a manner that adequately serves the interests of homeowners.
In addition to the realistic and utterly compelling steps taken by your bill, I believe that Congress should go one step further, and restrict the usage of pre-payment penalties. Studies show that borrowers in predominately African-American and Latino neighborhoods disproportionately receive prepayment penalties. Indeed, in the subprime world, prepayment penalties do not necessarily provide the borrower with any interest rate savings at all.
For subprime purchase loans, borrowers who had loans with prepayment penalties paid higher interest rates than similarly situated borrowers who had loans without prepayment penalties. Finally, I strongly urge Congress to hold hearings on the failure of the regulators and the U.
Department of Housing and Urban Development to adequately enforce fair housing laws. For example, although the Maine signature loans Federal Reserve has flagged 270 institutions for potential fair lending violations, there have been no cases brought or public actions taken by HUD, DOJ, or any other entity. In addition, Congress should hold hearings on the failure of the regulators to adequately ensure that their member institutions are meeting their obligations under the Community Reinvestment Act. As the current crisis continues to unfold, however, I am confident - regrettably so -- that the need for the common-sense approaches outlined in your bill will become more and more self- evident with every passing day. Thank you for both the opportunity to speak today and for your leadership as we move forward in addressing this developing crisis. I look forward to answering any questions you may have. Society of k Appraisers ASA Tht InUntatioml Society of Profeseionat VtAten Prcfiefiy Ea 5 Prcfessionds Testimony presented on behalf of the Appraisal institute American Society of Appraisers American Society of Farm Managers and Rural Appraisers National Association of independent Fee Appraisens Before the Senate Committee on Banking Subcommittee on Housing, Transportation and Community Development On "Ending Mortgage Abuse: Safeguarding Homebuyers" Presented by Alan E.
Hummel, SRA Chair, Government Relations Committee Appraisal Institute Senior Vice President and Chief Appraiser Forsythe Appraisals, LLC Minneapolis, MN June 26, 2007 169 Joint Testimony Presented by Alan E. Hummel, SRA On Behalf of the Appraisal Institute American Society of Appraisers American Society of Farm Managers and Rural Appraisers National Association of Independent Fee Appraisers Before the Subcommittee on Housing, Transportation, and Community Development Committee on Banking, Housing and Urban Affairs United States Senate Chairman Schumer, Ranking Member Crapo, and members of the Subcommittee on Housing, Transportation and Community Development, I am Alan E. Hummel, SRA, Senior Vice President and Chief Appraiser of Forsythe Appraisals, LLC in Minneapolis, Minnesota.
Today, I am pleased to be here on behalf of the Appraisal Institute, American Society of Appraisers, American Society of Farm Managers and Rural Appraisers, and the National Association of Independent Fee Appraisers, the four largest professional appraisal organizations in the United States, representing 30,000 real estate appraisers. People have lost their homes to foreclosure, entire segments of the mortgage market have collapsed, and mortgage fraud has surged. Neighborhoods throughout the country have been devastated by mortgage lending abuse.
For years, professional real estate appraisers have been warning Congress about the endless schemes perpetrated on consumers and lenders by real-estate rogues, including some mortgage lenders, mortgage brokers, realty agents, loans for bad credit in Iowa title officials, and investors. Too often, appraisers, either through incompetence or by turning a blind eye, facilitate bad mortgage loans. The entire real estate industry faces critical problems. We believe that much of the mischief grows in the boundary dividing those segments of the real estate industry that are regulated from those that operate without effective oversight. Let me describe these issues in more detail below, with suggestions for remedies. Disparate oversight Our organizations are deeply concerned with the disparity of oversight and regulation of the appraisal process in the mortgage market today. There are rules governing federally regulated financial institutions, but virtually none for all other mortgage originators in the marketplace.
Greater appraisal problems spring up in the unregulated Kentucky online payday loans wilderness. Pursuant to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), federally regulated financial institutions must maintain independent appraisal processes.
Individuals within these institutions responsible for making final loan decisions are prohibited from playing a role in the appraisal management Maine signature loans function. For example, a loan officer signing off on a loan decision cannot also be the person ordering and reviewing the appraisal. These rules attempt to enact an effective institutional "firewall" for appraisal independence. After identifying widespread breakdowns in appraisal independence, lately federal bank examiners have been forced to issue guidelines reminding federally regulated institutions of their appraisal independence obligations, reemphasizing the need to maintain independent appraisal processes in mortgage transactions. The federal bank regulatory agencies are to be commended for identifying and addressing this issue. Yet our members still report problems with bank staff with a vested interest in a transaction controlling the appraisal process inappropriately. To work, the guidelines must be rigorously enforced.
Different rules — or no rules at all — commonly govern entities under state jurisdiction, especially mortgage brokers and non-bank mortgage lenders. Except for the few states prohibiting appraiser coercion, intimidation, and bribery, we are not aware of any state-mandated appraisal management requirements for Maine signature loans either non-bank mortgage lenders or mortgage brokers.
They can coerce, pressure, entice, or conspire with appraisers, virtually without consequences. As a result, many deem appraiser coercion the way to do business. Too many brokers and lenders unfortunately view the appraisal process as something to be manipulated. Professional appraisers treasure their integrity and take Maine signature loans great pride in upholding strong ethics as a critical part in the mortgage financing process. To preserve an independent appraisal process, we believe that this gaping hole must be closed. Appraiser coercion Appraiser pressure has received a great deal of media attention in recent months, and it was the subject of an independent study conducted earlier this year by the October Research Corporation.
This study found that 90 percent of appraisers were pressured by mortgage brokers, lenders, realty agents, consumers and others to raise property valuations to enable deals to go through.
This was nearly double the abuse findings of a similar study three years ago.