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Report to Congressional Requesters:

May 2003:

Regulatory Programs:

Opportunities to Enhance Oversight of the Real Estate Appraisal 
Industry:

GAO-03-404:

GAO Highlights:

Highlights of GAO-03-404, a report to Congressional Requesters 

Why GAO Did This Study:

Since the passage of Title XI of the Financial Institutions Reform, 
Recovery, and Enforcement Act of 1989, the appraisal and mortgage 
lending industry has changed dramatically.  Some have concluded that 
the law is obsolete because the problems Title XI was intended to 
address—the risk to federal deposit insurance funds and the lack of 
uniform standards and qualifications—no longer exist.  Others argue 
that the law’s purpose and scope should be expanded. To help Congress 
better understand these issues, GAO looked at the roles of the 
private, state, and federal entities that oversee the appraisal 
industry, the challenges Title XI presented to these entities, and 
industry participants’ concerns about the effectiveness of the Title 
XI regulatory structure. 

What GAO Found:

Title XI created a complex oversight structure for real estate 
appraisals and appraisers that involves private, state, and federal 
entities.  Two private entities establish uniform rules for real 
estate appraisals and set minimum criteria for certifying appraisers.  
State regulatory agencies certify appraisers based on these criteria. 
The federal financial regulators oversee financial institutions’ 
use of appraisals, and a federal agency, the Appraisal Subcommittee, 
monitors and coordinates the functions of the parties involved in 
regulating appraisals and appraisers.

All of these entities except the federal financial regulators 
identified potential impediments to carrying out their Title XI 
responsibilities.  The two private entities stated that fund 
limitations could impede their ability to ensure that development of 
standards and qualifications evolve with changing conditions. State 
agencies said that funding shortfalls hindered their ability to 
enforce compliance. Appraisal Subcommittee staff reported that rule-
making authority and additional enforcement sanctions could facilitate 
its oversight of state compliance with Title XI.  

Industry participants raised concerns about aspects of the Title XI 
regulatory system for appraisers. They cited differences in state 
regulation that affect both lenders and appraisers, gaps in Title XI’s 
coverage—for example, transactions of less than $250,000 do not 
require an appraisal—high fees and burdensome processes for having 
appraiser education courses approved, and weak enforcement and 
complaints processing. Some industry participants felt that states, 
traditionally involved in regulating professions, alone should 
regulate the appraisal industry.  Others felt that the current 
structure needed a significant overhaul to become effective.

What GAO Recommends:

Among other things, the Chairman of the Appraisal Subcommittee should:
* develop and apply consistent criteria for determining and reporting 
states’ compliance levels with Title XI;
* explore potential options for assisting states in carrying out their 
Title XI activities, particularly for investigating appraiser 
complaints; and
* explore alternatives for providing future Title XI grant funding to 
the Appraisal Foundation and its two boards.  

www.gao.gov/cgi-bin/getrpt?GAO-03-404.

To view the full report, including the scope
and methodology, click on the link above.
For more information, contact David G. Wood (202) 512-8678 or 
woodd@gao.gov.

[End of section]

Letter:

Results in Brief:

Background:

Title XI Created a Complex Appraiser Regulatory Oversight Structure:

Private, State, and Federal Entities Cited Potential Impediments to 
Fulfilling their Title XI Roles:

Industry Participants Raised Various Concerns about the Title XI 
Oversight Structure:

Conclusions:

Recommendations:

Agency Comments:

Appendixes:

Appendix I: Survey of State Regulatory Agencies (results included):

Appendix II: Scope and Methodology:

Appendix III: List of Agencies and Groups Contacted:

Federal Agencies:

Government Sponsored Enterprises:

Private Organizations:

State Appraiser Regulatory Agencies:

Private Consultants:

Appendix IV: National Registry Database of the Appraisal
Subcommittee:

Appendix V: Evolution and Use of Automated Valuation Models:

Three Types of AVM Models Are Currently Used:

Data Sources for AVMs Vary in Completeness and Reliability:

AVMs Have Both Advantages and Disadvantages:

Guidance and Regulations on Using AVMs Are Relatively New:

Appendix VI: The Appraiser Qualifications Board’s Process and Fees for
Approving Appraiser Education Courses and Certifying Instructors:

AQB’s Course Approval Program:

AQB’s USPAP Instructor Certification Program:

Options Provided by AQB for Approving Distance Education Courses:

Relative Costs of AQB Course Approval and Instructor Certification
Programs:

State Fees for Course and Instructor Approval:

Appendix VII: Federal Financial Institutions Examination Council’s 
Legal Advisory Group Opinion:

Appendix VIII: Comments from the Appraisal Subcommittee:

Appendix IX: Comments from the Appraisal Foundation:

Appendix X: Comments from Fannie Mae:

Appendix XI: Comments from Freddie Mac:

Appendix XII: Comments from Department of Housing and Urban
Development:

Appendix XIII: GAO Contacts and Acknowledgments:

GAO Contacts:

Acknowledgments

Tables:

Table 1: Title XI Roles and Responsibilities for Appraisal Standards 
and Appraiser Qualifications:

Table 2: State Appraiser Licensing Requirements:

Table 3: Active Appraiser Licenses, by State and Type:

Table 4: Disciplinary Actions, by State (Active and Inactive 
Licensees):

Table 5: Approval Service Fees, by Service Provider as of February 
2003:

Abbreviations:

AQB: Appraiser Qualifications Board:

ASB: Appraisal Standards Board:

AVM: Automated Valuation Model:

ECAFS: Education Council for Appraisal Foundation Sponsors:

FDIC : Federal Deposit Insurance Corporation :

FHA : Federal Housing Administration :

FIRREA : Financial Institutions Reform, Recovery, and Enforcement Act 
of 1989 :

FRS : Federal Reserve System :

GSE : Government Sponsored Enterprises :

HUD : Department of Housing and Urban Development :

IDECC: International Distance Education Certification Center:

NCUA: National Credit Union Administration :

OCC: Office of the Comptroller of the Currency :

OTS: Office of Thrift Supervision :

USPAP : Uniform Standards of Professional Appraisal Practice:



Letter May 14, 2003:

The Honorable Paul S. Sarbanes
Ranking Minority Member
Senate Committee on Banking, 
 Housing, and Urban Affairs
United States Senate:

The Honorable Zell Miller
United States Senate:

Recent predatory mortgage lending cases, involving fraudulent and 
inflated appraisals, have highlighted the need for accurate real estate 
appraisals in preventing losses to the federal government and 
significant financial harm to individual consumers. When making 
mortgage loans, lenders need an objective and accurate assessment of 
the value of properties used as collateral to help avoid losses in the 
event that borrowers do not repay the loans. Congress enacted Title XI 
of the Financial Institutions Reform, Recovery, and Enforcement Act of 
1989 (FIRREA) in response to concerns that faulty and fraudulent 
appraisals played a major role in the savings and loans crisis of the 
1980s. Title XI provisions address both the quality of appraisals and 
the qualifications of appraisers. Specifically, Title XI requires that 
real estate appraisals used in connection with federally related 
transactions be performed (1) in writing, in accordance with uniform 
professional standards, and (2) by individuals whose competency has 
been demonstrated and whose professional conduct is subject to 
effective supervision.[Footnote 1]

To ensure that the purpose of the legislation was carried out, Title XI 
created a regulatory structure to monitor and oversee the real estate 
appraisal industry. Among other things, it established a federal entity 
called the Appraisal Subcommittee to monitor the Title's 
implementation. Title XI provides for national uniformity in appraisal 
standards and minimal national qualification requirements for some, but 
not all, appraisers. The Title XI regulatory structure was set up 
primarily to protect federally insured depository institutions from 
losses and by extension the federal deposit insurance funds.

Because of your concerns about the effectiveness of the current 
regulatory structure, you requested that we assess the appraisal 
oversight structure established in response to Title XI. As agreed with 
your offices, this report describes (1) the specific responsibilities 
under Title XI of the private, state, and federal entities that oversee 
the appraisal industry and the way these entities perform their roles; 
(2) factors that these entities identified as potential impediments to 
carrying out their Title XI responsibilities; and (3) concerns 
expressed by regulatory entities and industry participants about the 
effectiveness of the existing regulatory structure.

To answer these questions, we reviewed FIRREA and its legislative 
history; interviewed representatives of the private, state, and federal 
entities involved in the Title XI regulatory scheme; and, using a 
mailed questionnaire, surveyed appraiser regulatory agencies in the 50 
states, the District of Columbia, and 4 U.S. territories.[Footnote 2] A 
copy of the questionnaire, including summary responses to each 
question, can be found in appendix I. Additionally, we contacted 
industry participants, including trade groups that represent appraisers 
and lenders; Fannie Mae and Freddie Mac, two government-sponsored 
enterprises (GSE) that establish standards for appraisals used in 
connection with mortgages that they purchase; the Department of Housing 
and Urban Development (HUD), which establishes requirements for 
appraisals used in connection with mortgages it insures; 
representatives of appraiser education providers; and academic experts 
on issues related to real estate appraisals. We also obtained and 
reviewed records of the Appraisal Subcommittee's state oversight 
activities, as well as information on appraisers maintained in the 
subcommittee's national registry database. We conducted our work 
between March 2002 and March 2003 in accordance with generally accepted 
government auditing standards. Appendix II provides a detailed 
discussion of our scope and methodology, and appendix III contains a 
list of the entities that we contacted.

Results in Brief:

Title XI created a complex regulatory system that relies upon the 
actions of private, state, and federal entities to help assure the 
quality of appraisals and the qualifications of appraisers used in 
federally related transactions.

* The two private entities--the Appraisal Standards Board and Appraiser 
Qualifications Board--respectively establish (1) uniform rules for 
preparing and reporting real estate appraisals and (2) minimum 
qualification criteria for certified real estate appraisers. Certified 
real estate appraisers are one of the two categories of appraisers 
listed in Title XI, the other being licensed real estate appraisers.

* Title XI defers to the states with respect to the minimum 
qualification criteria for the licensed appraisers. In addition, Title 
XI relies on the states to (1) implement the certification and 
licensing of all real estate appraisers and (2) monitor and supervise 
compliance with appraisal standards and requirements. To assure the 
availability of certified and licensed appraisers, all of the states 
and territories have adopted structures to regulate and supervise the 
appraisal industry. These structures typically consist of a state 
regulatory agency coupled with a board or commission to establish 
education and experience requirements, license and certify appraisers, 
and monitor and enforce appraiser compliance.

* The federal financial institution regulators--defined in Title XI as 
the Federal Reserve System (FRS), Federal Deposit Insurance Corporation 
(FDIC), Office of the Comptroller of the Currency (OCC), Office of 
Thrift Supervision (OTS), and National Credit Union Administration 
(NCUA)--are responsible for ensuring that federally insured depository 
institutions comply with Title XI requirements. To meet these 
responsibilities, the regulators have (1) adopted rules and policies 
specifying transactions for which regulated financial institutions are 
required to obtain an appraisal by a certified or licensed appraiser, 
(2) developed examination procedures to ensure that regulated financial 
institutions are in compliance with Title XI, and (3) appointed agency 
representatives to the Appraisal Subcommittee.

* The Appraisal Subcommittee is responsible for monitoring the 
implementation of Title XI by all parties--private, state, and federal. 
The subcommittee monitors the efforts of the federal financial 
institution regulators in developing and adopting appraisal-related 
regulations and policies, conducts periodic reviews of each state's 
licensing and certification program, and provides grants to the 
Appraisal Foundation to support the Title XI-related activities of its 
two boards--Appraisal Standards Board and Appraiser Qualifications 
Board.

The private, state, and federal entities involved in the Title XI 
regulatory structure described a number of factors that they believe 
could constrain their ability to perform more effectively and 
efficiently. For example, officials of the Appraisal Standards Board 
and the Appraiser Qualifications Board told us that insufficient 
federal grant funding may impede their ability in the future to ensure 
that standards and qualifications evolve with changing conditions, such 
as how to appraise contaminated or polluted properties. State appraiser 
agencies--which are funded at the state level--reported resource 
limitations as the primary impediment in carrying out their oversight 
responsibilities. For example, of the 54 states and territories that 
responded to our survey, 26 reported that the current number of 
investigators was insufficient for meeting its regulatory 
responsibilities, 37 cited a need for increasing the staff directed at 
investigations, and 22 cited a need for more resources to support 
litigation. Officials of the five federal financial institution 
regulators reported no major impediments to accomplishing their Title 
XI responsibilities. The Appraisal Subcommittee reported that rule-
making authority and additional enforcement sanctions could facilitate 
its oversight of state compliance with Title XI. Subcommittee officials 
stated that the only enforcement action they can take under Title XI is 
to decertify a state, which would prohibit all licensed or certified 
appraisers from that state from performing appraisals in conjunction 
with federally related transactions. Subcommittee officials stated that 
using this sanction would have a devastating effect on the real estate 
markets and financial institutions within the state. However, the 
Appraisal Subcommittee stated that it has always been able to achieve 
states' compliance under the current enforcement and regulatory 
structure.

In addition to the impediments described above, officials of the 
regulatory agencies, appraiser trade groups, education providers, 
mortgage industry, HUD, and the GSEs raised concerns about the Title XI 
regulatory structure. However, there was no clear consensus regarding 
the need for or impact of possible changes. Some industry participants 
stated that a growing number of real estate transactions, such as those 
placed through mortgage brokers and those involving dollar amounts 
below the threshold level established by the federal financial 
institution regulators, are not universally subject to Title XI 
appraisal requirements. In addition, some industry participants cited 
concerns with the lack of a national qualification standard for the 
licensed real estate appraiser category. Education providers and 
appraiser trade groups expressed concerns about the Appraiser 
Qualifications Board's fees and requirements for instructor 
certification and course approval. Federal and state regulatory 
officials expressed concern about the apparent reluctance of lending 
institutions to make referrals or complaints regarding questionable 
appraisals they identify. HUD and GSE officials expressed concerns 
about a lack of consistent and effective enforcement actions by the 
states on referred cases and the adequacy of the Appraisal 
Subcommittee's oversight of state programs. This report makes 
recommendations to the Appraisal Subcommittee intended to enhance the 
effectiveness of the existing regulatory structure.

We received written comments on a draft of this report from the 
Appraisal Subcommittee, the Appraisal Foundation, HUD, Fannie Mae, and 
Freddie Mac. In addition, we received technical comments from the 
federal financial institutions regulators, who indicated that their 
overall comments had been incorporated into those provided by the 
Appraisal Subcommittee. The Appraisal Subcommittee agreed to take 
action on our recommendation to develop and apply consistent criteria 
for determining and reporting states' compliance with Title XI, and did 
not comment on our recommendation for greater coordination with HUD, 
Fannie Mae, and Freddie Mac on referrals of problem appraisers. 
Concerning the remaining two recommendations, the Appraisal 
Subcommittee:

* agreed that additional funding for the states would improve 
compliance with Title XI, but stated that the Subcommittee is not the 
answer to that issue. Because the recommendation is to explore 
additional funding as well as other options for assisting the states, 
we did not revise it.

* agreed that the Appraisal Foundation faces future grant funding 
constraints, but stated that using the Subcommittee's surplus is not a 
long-term solution. We modified the report to emphasize that we are 
recommending that the subcommittee explore options, including drawing 
on the subcommittee's surplus, if necessary, for addressing future 
Appraisal Foundation grant shortfalls.

HUD agreed with our recommendation for greater coordination on 
referrals of problem appraisers to state appraiser agencies. Both 
Fannie Mae and Freddie Mac expressed concern about this recommendation, 
commenting that they are not regulatory entities. We revised the 
wording of our recommendation to emphasize the role that HUD, Fannie 
Mae, and Freddie Mac can play in helping the subcommittee carry out its 
oversight responsibilities.

Background:

An appraisal is a decision-making tool used to facilitate a real estate 
transaction. The primary role of appraisals in the loan underwriting 
process is to provide evidence that the collateral value of the 
property is sufficient to avoid losses on loans if the borrower was 
unable to repay the loan. Consumers often mistakenly assume that 
appraisals are intended to validate the purchase price of the property 
in question. Furthermore, appraisals are sometimes confused with home 
inspections, which are intended to warn consumers about serious defects 
in the home being purchased that should be repaired. In a loan 
transaction, the lender rather than the borrower engages the appraiser 
and this usually occurs after the borrower has agreed to purchase the 
property. The primary intent of the appraisal reforms contained in 
Title XI was to protect the federal deposit insurance funds--and, by 
extension, mortgage lenders--from avoidable losses.

An appraisal is an opinion of the value of a property as of a specific 
date. Appraisers generally consider the property's value from three 
points of view--cost, income, and comparable sales--and determine an 
estimated value based upon weighing the three valuation methods. The 
cost approach is based on an estimate of the value of the land plus 
what it would cost to replace or reproduce the improvements minus the 
physical deterioration, functional obsolescence, and economic 
obsolescence. The income approach is of primary importance in 
ascertaining the value of income producing properties and is an 
objective estimate of what a prudent investor would pay based upon the 
net income the property produces. The comparable sales approach 
compares and contrasts the property under appraisal with recent 
offerings and sales of similar property. This approach is usually 
considered the most appropriate valuation approach for estimating the 
value of residential real estate property.

In 1986, the House Committee on Government Operations issued a report 
concluding that faulty and fraudulent appraisals were an important 
contributor to the losses that the federal government suffered during 
the savings and loan crisis.[Footnote 3] In response, Congress 
incorporated provisions in Title XI of FIRREA that were intended to 
ensure that federally related transactions had appraisals that were (1) 
performed by real estate appraisers that had met minimum qualifications 
criteria and (2) conducted in compliance with uniform standards.

In addition to those identified in Title XI, there are other federal 
and government sponsored entities that have roles with respect to 
oversight of the real estate appraisal industry. Among these entities, 
the most important with respect to appraisal oversight issues are the 
HUD's Federal Housing Administration (HUD/FHA) and the two large GSEs 
that purchase residential loans in the secondary market--Fannie Mae and 
Freddie Mac. HUD/FHA uses appraisals to determine a property's 
eligibility for mortgage insurance and to estimate the value of a 
property for mortgage insurance purposes. Certified and licensed 
appraisers wishing to perform appraisals for HUD/FHA loans must first 
be placed on the FHA Roster of Appraisers, which requires the appraiser 
to pass a HUD/FHA examination on appraisal methods and meet other 
eligibility requirements. Both Fannie Mae and Freddie Mac consider 
appraisals or evaluations of the property value as a vital part of 
their risk analysis for loans that they purchase. For those loans for 
which Fannie Mae and Freddie Mac require an appraisal, the lender is 
required to use an appraiser that is state licensed or certified in 
accordance with the provisions of Title XI.[Footnote 4] Fannie Mae and 
Freddie Mac largely hold the lender responsible for the selection and 
quality control of the appraiser. As such, Fannie Mae and Freddie Mac 
do not maintain a list of approved appraisers.

Title XI Created a Complex Appraiser Regulatory Oversight Structure:

Various private, state, and federal entities play a role with respect 
to the Title XI regulatory structure (table 1). Private entities--the 
Appraisal Standards Board (ASB) and the Appraiser Qualifications Board 
(AQB)--establish minimum standards over the development and reporting 
of real estate appraisals and minimum qualification criteria for 
certified appraisers. States conduct the certification and licensing of 
appraisers, including setting education and experience requirements 
that, at minimum, must meet AQB criteria for certified appraisers and 
enforcing compliance with appraisal standards. FRS, FDIC, OCC, OTS, and 
NCUA--hereinafter referred to as the federal financial institution 
regulators--issue appraisal requirements for the financial 
institutions under their jurisdiction and monitor compliance with their 
regulations. Lastly, the Appraisal Subcommittee has primary 
responsibility for monitoring and reviewing the actions of the private, 
state, and federal entities as they relate to Title XI.

Table 1: Title XI Roles and Responsibilities for Appraisal Standards 
and Appraiser Qualifications:

[See PDF for image]

Source: GAO.

[End of table]

Appraisal Foundation and Its Two Boards Establish Appraisal Standards 
and Minimum Appraiser Certification Criteria:

The Appraisal Foundation, a nonprofit educational organization composed 
of groups from the real estate industry, provides the organizational 
framework for the ASB and AQB to carry out their Title XI-related 
responsibilities.[Footnote 5] It was founded in 1987 by eight leading 
professional appraisal organizations in the United States to foster 
professionalism in appraising. The ASB and the AQB establish minimum 
standards for developing and reporting an appraisal and the minimum 
criteria for the certified appraiser category in connection with 
federally related transactions.

The ASB, which is responsible for setting standards for appraisals, is 
composed of six appraisers who are appointed for 3-year terms by the 
Board of Trustees of the Appraisal Foundation. The ASB's minimum 
standards for appraisals are contained in the Uniform Standards of 
Professional Appraisal Practice (USPAP). Under Title XI, these minimum 
standards apply to all federally related transactions. The standards 
cover both the steps appraisers must take in developing appraisals and 
the information the appraisal report must contain. The Foundation sells 
copies of USPAP but provides a copy of each updated version, free of 
charge, to the state regulatory agencies.

The AQB, which is composed of five appraisers who are appointed for 3-
year terms by the Board of Trustees of the Appraisal Foundation, 
establishes the minimum education, experience and examination 
requirements for state-certified real estate appraisers (set out in 
Real Property Appraiser Qualification Criteria and Interpretations of 
the Criteria). In addition, the AQB performs a number of ancillary 
duties related to real property and personal property appraiser 
qualifications. The AQB's criteria cover four categories of appraisers-
-certified general, certified residential, licensed, and trainee--each 
with specific education, experience, examination, and continuing 
education requirements. Title XI does not require states to adhere to 
AQB criteria for licensed appraisers or for trainees.

Both the ASB and the AQB regularly evaluate USPAP and the appraiser 
qualification criteria to determine whether revisions are needed. 
According to the Appraisal Foundation, both boards solicit comments 
from appraisers, users of appraisal services, and the public before 
making final changes. Since the AQB set its original criteria in 1991, 
for example, it has issued numerous interpretations and approved two 
revisions of its criteria. As of January 2003, it was reviewing 
comments on a third draft of Real Property Appraiser Qualification 
Criteria.

State Agencies Oversee the Licensing and Certification of Real Estate 
Appraisers:

Under Title XI, states may establish their own agencies to certify and 
license appraisers. At the time of our review, all 50 states, the 
District of Columbia, and 4 of the U.S. territories had established 
such agencies, which typically oversee the activities of appraisers for 
all types of transactions, including those that are federally related. 
Of the 54 state and territorial agencies responding to our survey, 30 
reported operating as independent bodies, while 23 reported to another 
state agency or department.[Footnote 6],[Footnote 7] In addition, 
survey respondents reported that they used boards or commissions as 
well as state employees to carry out Title XI activities.[Footnote 8]

All the agencies had established programs for certifying appraisers. 
Licensing requirements, however, differed. Some states did not require 
licenses unless appraisers planned to work with federally related 
transactions. Other states required appraisers to be either licensed or 
certified to perform a real estate appraisal, even for transactions 
that are not federally related. State agencies' licensing and 
certification programs typically included temporary and reciprocal 
licensing programs. An appraiser must, in general, obtain some type of 
license--temporary or reciprocal if not a standard state license--in 
all states where they want to perform appraisals for federally related 
transactions.[Footnote 9]

In addition to conducting licensing and certification activities, all 
survey respondents indicated that they approve courses for appraisers' 
education or training, enforce state regulations concerning appraisals, 
and investigate complaints. Over half of the states reported that they 
had adopted appraisal standards in addition to those set by the ASB, 
and nearly 70 percent reported that they had introduced additional 
qualifications.

Although the states are responsible for the certification and licensing 
of appraisers under Title XI, the Appraisal Subcommittee has a role in 
ensuring that state qualifications satisfy Title XI objectives. Title 
XI directs federal agencies not to accept state certifications and 
licenses if the subcommittee issues a written finding that:

* the state certifying and licensing agency has failed to recognize and 
enforce the standards, requirements, and procedures of Title XI;

* the state agency does not have enough authority to carry out its 
functions under Title XI; or:

* the state agency does not make decisions on appraisal standards and 
qualifications or supervise appraiser practices in a way that carries 
out the purposes of Title XI. [Footnote 10]

In addition, Title XI requires states to provide the Appraisal 
Subcommittee with the names of those appraisers who become certified or 
licensed in accordance with Title XI and to collect from them an annual 
registry fee that goes to the subcommittee.

Federal Regulators Determine Which Transactions Require Appraisals and 
Establish Compliance Standards for Depository Institutions:

Title XI requires the federal financial institution regulators to 
ensure that real estate appraisals used in connection with federally 
related transactions are performed in accordance with standards 
developed by the ASB.[Footnote 11] In addition, Title XI requires that 
the federal regulators prescribe the categories of federally related 
transactions that should be appraised by a state certified appraiser 
and those that should be appraised by a licensed appraiser. Under the 
statute, state certified appraisers generally must be used in 
connection with federally related transactions for all commercial real 
estate transactions greater than $250,000 and all residential 
transactions in excess of $1,000,000.[Footnote 12] All other federally 
related transactions, unless subject to an exemption as authorized 
under Title XI, may utilize a state-licensed appraiser.[Footnote 13]

Under Title XI, the federal financial institution regulators may 
establish a threshold level at or below which a certified or licensed 
appraiser is not required. As of December 30, 2002, each of the five 
regulatory agencies had set their appraisal threshold at 
$250,000.[Footnote 14] Thus, financial institutions have the option of 
obtaining either an appraisal or some other form of an evaluation of 
the property's value for mortgage loans of $250,000 or less. The 
regulators have issued guidelines to the institutions under their 
jurisdiction that specify the requirements for evaluating real estate 
collateral for those transactions that do not require an appraisal.

The federal financial institution regulators require that all 
appraisals for federally related transactions conform, at a minimum, to 
USPAP, that they be written, and that they contain sufficient 
information and analysis to support the institution's decision to 
engage in the transaction. Regulatory agencies may take informal and 
formal enforcement actions, including memorandum of understanding, 
removal, prohibition, and cease and desist orders, and imposing civil 
money penalties against institutions that violate their appraisal 
regulations. These actions can apply to contract (fee) appraisers as 
well as appraisers who are employees of the institutions and 
institution-affiliated parties. Moreover, pursuant to the FDIC 
Improvement
Act of 1991, the federal financial institutions regulators can take 
action against institution-affiliated parties such as an 
appraiser.[Footnote 15]

According to representatives of the regulatory agencies, regulators 
typically review an institution's compliance with appraisal regulations 
during examinations of business risk management policies and practices, 
during targeted examinations (for example, of real estate transactions 
and practices), or during reviews of lending transactions. If 
regulators detect violations or deficiencies, they may take enforcement 
action or address it within discussions with the institution's 
management for corrective action if they believe it affects the 
institution's safety and soundness.

Appraisal Subcommittee Monitors Title XI Regulatory Activities:

Title XI established the Appraisal Subcommittee as the principal 
federal agency responsible for monitoring the activities of the other 
components of the real estate appraisal industry oversight structure. 
Specifically, the subcommittee is responsible for:

* monitoring and reviewing the practices, procedures, activities, and 
organizational structure of the Appraisal Foundation--including making 
grants in amounts that it deems appropriate to the Appraisal Foundation 
to help defray costs associated with its Title XI activities;

* monitoring the requirements established by the states, territories, 
and the District of Columbia and their appraiser regulatory agencies 
for the certification and licensing of appraisers;

* monitoring the requirements established by the federal financial 
institution regulators regarding appraisal standards for federally 
related transactions and determinations of which federally related 
transactions will require the services of state-licensed or state-
certified appraisers;

* maintaining a national registry of state-licensed and state-certified 
appraisers who may perform appraisals in connection with federally 
related transactions; and:

* transmitting an annual report to Congress regarding the activities of 
the subcommittee during the preceding year.[Footnote 16]

The Appraisal Subcommittee has six board members and seven staff 
members. The board members are designated by the heads of the five 
financial institution regulatory agencies that collectively make up the 
Federal Financial Institutions Examination Council--OCC, FRS, FDIC, 
OTS, and NCUA--and HUD. The subcommittee funds its activities through a 
portion of the fees assessed by the states against individual 
appraisers for licensing and certification.[Footnote 17]

According to subcommittee officials, the subcommittee monitors the 
Appraisal Foundation by attending all significant meetings and events 
associated with its Title XI activities and reviewing all proposed 
changes or additions to its appraiser qualifications criteria or USPAP-
related documents. In addition, the subcommittee reviews the Appraisal 
Foundation's grant requests to ensure that the requested funds will 
only be used for activities related to Title XI. The subcommittee 
evaluates the foundation's initiatives to determine whether they are 
eligible for reimbursement; the initiatives must be reasonable and not 
arbitrary or capricious.

The subcommittee monitors the federal financial institution regulators 
primarily through informal channels. For example, all six Appraisal 
Subcommittee board members are involved in the offices responsible for 
appraisal regulation in their individual agencies and provide input 
from the subcommittee informally to the agencies. The subcommittee also 
provides technical assistance on proposed regulations on appraisal 
issues. One official told us that the issues subject to subcommittee 
monitoring in this regard are few and tend not to change often. He 
stated that the only change he could recall in nearly 7 years was the 
NCUA's recent decision to raise the minimal threshold for transactions 
requiring appraisals from $100,000 to $250,000 to match the levels of 
the other regulatory agencies.

Monitoring state appraiser regulatory agencies requires performing on-
site field reviews of state agency programs and maintaining close 
communications with, among others, appraisers, state and federal 
agencies, and users of appraisal services. The subcommittee has two 
primary review cycles for states--3 years and 18 months. Most states 
are scheduled on the 3-year cycle, and states are moved to an 18-month 
cycle if more frequent on-site visits are warranted--generally because 
of concerns identified during the prior field review. According to the 
Appraisal Subcommittee, its field review manual is intended to insure 
consistent review and policy applications from state to state. The 
reviews cover open and closed complaints; approved and disapproved 
education providers and courses; state statutes and regulations on 
certifying and licensing appraisers; minutes of board meetings; 
appraiser registries and fees; temporary practice and reciprocity; and 
topical issues such as predatory lending, fraud, and illegal real 
estate flipping.[Footnote 18] The letters that summarize the results of 
the state field reviews identify concerns, discuss whether the previous 
review's concerns have been resolved, and make general conclusions 
about the state's compliance with Title XI and Appraisal Subcommittee 
policy statements. The state field review letters are posted on the 
subcommittee's Web site.

We reviewed the Appraisal Subcommittee's state field review letters 
from 1992 to 2002. While the letters provide some information to the 
state regulatory agencies, we found no evidence of transparent criteria 
for how the subcommittee determined and reported states' compliance 
levels. For example, state field review letters were sometimes 
inconclusive about whether the state regulatory program was in 
compliance. When the letter contained a determination of compliance, 
the rationale for this decision was not always given. For example, some 
states with identified concerns were deemed compliant, while others 
with identified concerns were deemed noncompliant. Developing and 
applying consistent criteria to assess states' compliance with Title XI 
requirements could increase the usefulness of (1) the letters issued to 
the states in identifying best practices and how one state measures 
against other states and (2) the annual reports that the Appraisal 
Subcommittee provides to Congress on the implementation of Title XI.

Under Title XI, the subcommittee is also required to maintain a 
registry of state-certified and -licensed appraisers who are eligible 
to perform appraisals for federally related transactions.[Footnote 19] 
The registry database is designed to allow users to determine (1) 
whether an appraiser is eligible to perform such appraisals and (2) 
whether the appraiser has been subjected to disciplinary action. In 
addition to eligibility information, the database includes information 
about the number of active and inactive licenses, the types of 
licenses, and any disciplinary actions taken by states against 
appraisers. Appendix IV contains a detailed description of the database 
and summary information regarding the number of appraisers by license 
type and enforcement actions reported by the states.

Private, State, and Federal Entities Cited Potential Impediments to 
Fulfilling their Title XI Roles:

The private, state, and federal entities involved in the oversight of 
the real estate appraisal industry identified a number of factors that 
they believe could constrain their ability to fulfill their Title XI 
responsibilities. ASB and AQB officials stated that an impediment that 
they may face in the future is inadequate federal funding, which would 
hinder their ability to ensure that appraisal standards and 
qualification criteria keep pace with changes in the mortgage industry 
and marketplace. State appraiser agencies reported that they often lack 
funding to revise their regulations with every USPAP update and to 
cover the increasing cost of administering the licensing and 
certification processes. The federal financial institution regulators 
did not identify any major impediments to fulfilling their Title XI 
responsibilities, but they did state that reaching consensus on 
regulatory standards was difficult because of the number of entities 
involved in the appraisal industry. Appraisal Subcommittee officials 
reported that rule-making authority and additional enforcement 
sanctions could facilitate its oversight of state compliance.

The Appraisal Standards and Appraiser Qualifications Board Cited 
Concerns about Federal Funding:

The ASB and AQB reported that financial challenges arise when federal 
grant funding falls short of their needs. Since 1991, the Appraisal 
Subcommittee has allocated a total of over $9 million in grants to the 
Appraisal Foundation to defray the costs of the ASB's and AQB's Title 
XI-related activities. For most of this time the allocations have been 
less than what the ASB and AQB have requested. For example, the ASB and 
AQB requested a total of over $9 million in grant money between 1994 
and 2003, but less than $7 million was approved. However, the Appraisal 
Foundation also has other sources of revenue other than the grants it 
receives from the Appraisal Subcommittee. For example, the $870,373 
grant that the Appraisal Foundation received during calendar year 2001 
represented approximately 36 percent of the Appraisal Foundation's 
total revenue of $2.4 million for that year. (The largest source of 
revenue for the Appraisal Foundation in 2001 was $1.1 million from 
publication sales.) Further, in commenting on a draft of this report, 
the Appraisal Subcommittee noted that the ASB and AQB had not used all 
of the grant funds provided in past years.

The Appraisal Subcommittee told us that it did not have the current-
year funds to fully meet the ASB's and AQB's grant requests over the 
past 3 years. However, the Appraisal Subcommittee had a $3.7 million 
surplus as of December 2001. According to Appraisal Subcommittee 
officials, the surplus was built up in its early years of operation 
when its revenues exceeded its expenses and grants to the ASB and AQB. 
Subcommittee officials stated that in recent years its expenses have 
increased--primarily due to inflation and expenses associated with its 
monitoring activities--and that this in turn has limited the amount of 
funds available for grants to the ASB and AQB from current-year funds. 
They explained that it has not been the Appraisal Subcommittee's policy 
to use the surplus to provide grants to the ASB and AQB. When the ASB's 
and AQB's initial grant requests have exceeded the difference between 
the Appraisal Subcommittee's current-year revenues minus its 
expenditures, the Appraisal Subcommittee has requested that the 
Appraisal Foundation adjust its grant requests accordingly.

Appraisal Subcommittee officials also stated that inflation and other 
factors will likely continue to raise the boards' expenses by up to 5 
percent per year. Given that the number of appraisers has remained 
static for the last several years, subcommittee officials did not 
anticipate their revenues, which are based primarily on licensing and 
certification fees, to increase. As a result, future grants to the ASB 
and AQB are expected to fall unless the subcommittee uses its surplus, 
raises the $25 fee that states collect from appraisers on the 
subcommittee's behalf, or both.

According to ASB and AQB officials, future funding shortfalls may limit 
the activities they believe enhance the quality, timeliness, and 
usefulness of standards and qualifications. For example, the AQB chair 
commented that additional funding is needed to update their "body of 
knowledge," which outlines the concepts, theories, paradigms, and 
applications of the real property appraisal profession and delineates 
the skill necessary to practice. The AQB believes that updating its 
body of knowledge is necessary to keep pace with changes in the 
marketplace. Likewise, ASB and AQB officials stated that funding is 
needed to ensure that its education and professional standards keep 
pace with trends and issues such as the lack of terrorism insurance and 
polluted properties and how they might impact a property's value. 
According to ASB and AQB officials, the ultimate impact of funding 
shortfalls could be a weakening in the protections intended by Title XI 
because appraisal standards and appraiser qualifications may not keep 
pace with changes in the marketplace.

States Cited Funding Limitations and Frequent USPAP Updates as 
Impediments:

Most of the states identified funding and staffing deficiencies as the 
most serious challenges they faced in carrying out their Title XI 
duties. Of those states that reported challenges, about two-thirds of 
the states said that they needed additional funding to conduct 
investigations, and over three-quarters said that they needed 
additional staff. The states also reported that the frequency of USPAP 
updates was an administrative burden and created challenges in 
investigating and enforcing complaints of USPAP violations.

Based on our survey of state and territorial regulators of the 
appraisal industry, the average state agency had about 3 staff members, 
who were responsible for overseeing almost 2,000 appraisers. Many of 
these state agencies reported that they needed to share resources--
administrative staff, office space, investigators, or all three--with 
other state agencies in order to perform their Title XI duties. The 
survey results indicated that investigations of complaints about 
problem appraisers suffered most from these shortages. The majority of 
states sharing resources were sharing investigators, who often had no 
real estate appraisal experience. In one agency newsletter, a state 
official explained that without adequate funding states could not 
effectively administer their appraiser certification programs and 
investigate and dispose of disciplinary cases in a timely manner. 
According to an official from another state, the agency knows that more 
enforcement and faster turnaround times are needed in investigating 
complaints but is hindered by its limited resources. According to 
Appraisal Subcommittee officials, their general counsel analyzed 
whether the subcommittee could provide grants to the states to help 
provide funding for their Title XI activities and determined that it 
lacked the necessary legal authority.

Seventy percent of state appraiser regulatory agencies responding to 
our survey indicated that USPAP updates are too frequent. One state 
reported that frequent changes to USPAP have made processing complaints 
difficult because staff had to review so many versions of USPAP to 
determine whether complaints were valid. Another state pointed out that 
regulating appraisers was difficult when the appraisal standards 
changed so frequently. According to ASB officials, USPAP has been in 
place for only 15 years, and annual updates have been needed because so 
many changes have occurred in the appraisal industry. Moreover, they 
told us that many of the changes that have been incorporated into USPAP 
are a result of requests from state regulators. The officials explained 
that over the years the ASB has experimented with different formats for 
updating USPAP but has found that issuing an annual publication has 
been the best way to ensure that everyone is using the same standards. 
The ASB and the Foundation are currently working on developing a future 
publishing schedule of having USPAP issued biennially. In addition, ASB 
officials stated that they have recently started providing state 
regulators complimentary newsletters highlighting ASB and AQB 
activities and noting any changes, modifications, or clarifications to 
USPAP or appraiser qualifications criteria. Some states have found the 
annual updates to be a legislative burden in terms of getting the new 
regulations adopted, but the majority of states reported that they had 
been able to update their real estate appraisal regulations or rules in 
6 months or less.

Federal Financial Institution Regulators Did Not Identify Any Major 
Impediments:

The federal financial institution regulators indicated that they have 
not encountered any major impediments to fulfilling their Title XI 
responsibilities. However, some of the federal financial institution 
regulators stated that the number of different entities involved in the 
Title XI oversight structure sometimes made resolving issues difficult 
and hindered efforts to develop a common approach to examining 
structural issues. They noted that faulty and fraudulent real estate 
appraisals have been associated with losses incurred by federally 
insured financial institutions--such as in the case of illegal real 
estate flipping--and have resulted in financial harm to individual 
consumers. However, all of the regulators stated that real estate 
appraisals have not been a major factor in the failure of depository 
institutions since the passage of Title XI.

Appraisal Subcommittee Stated That Rule-Making Authority and 
Enforcement Options Could Facilitate Its Oversight of States:

As discussed earlier, the Appraisal Subcommittee is responsible for 
monitoring states' compliance with Title XI. According to subcommittee 
officials, the lack of rule-making authority and limited enforcement 
powers make achieving the uniformity and standardization intended by 
Title XI more difficult. In addition, the officials noted that because 
the 55 state appraiser regulatory agencies took a variety of approaches 
to implementing Title XI, expanding the subcommittee's function to 
allow it to issue regulations would help ensure greater consistency 
among the states in credentialing appraisers and enforcing the most 
current version of USPAP. However, giving the Appraisal Subcommittee 
rule-making authority would also change the subcommittee's role under 
Title XI from a monitoring to a regulatory function.

The Appraisal Subcommittee has issued 10 policy statements to "assist 
the states in the continuing development and maintenance of appropriate 
organizational and regulatory structures for certifying, licensing, and 
supervising real estate appraisers."[Footnote 20] For example, 
Statement 5 indicates that states should not require temporary 
practitioners--appraisers from other states with temporary licenses--
to affiliate with in-state appraisers and recommends that states 
forward information about disciplinary actions against visiting 
appraisers to the appraisers' home states. However, adherence to these 
recommendations varies across states. Our survey indicated that 98 
percent of respondents adhered to the nonafiiliation policy but that 
less than 50 percent were notifying home states about disciplinary 
actions.

Subcommittee officials stated that currently the only enforcement 
action they can take under Title XI is to decertify a state. 
Decertification prohibits all licensed or certified appraisers from 
that state from performing appraisals in conjunction with federally 
related transactions. Because this action is so severe and could 
significantly affect a state's real estate market, the subcommittee has 
never used it, and its impact has not been tested. In addition, the 
decertification action can be taken only for the limited purposes 
specified in Title XI and is subject to proof requirements and judicial 
review.[Footnote 21]

During our review, the Appraisal Subcommittee noted that its oversight 
of the states could be strengthened if it had more enforcement 
authority--for example, the authority to assess monetary penalties or 
to require that a state stop an activity or practice. However, in 
commenting on a draft of this report, the subcommittee stressed that it 
has always been able to ensure that states are complying with Title XI 
within the current supervisory and enforcement structure.

Industry Participants Raised Various Concerns about the Title XI 
Oversight Structure:

Representatives of federal and state regulatory agencies, appraiser 
trade groups and education providers, and the mortgage industry 
expressed various concerns and conflicting viewpoints about the Title 
XI regulatory structure. Some of the industry participants cited the 
concern that Title XI left the minimum qualification criteria for 
licensed real estate appraisers to the states resulting in the lack of 
a national standard and gaps in Title XI's regulatory coverage, 
particularly the exclusion of certain types of financial institutions 
and mortgage brokers who increasingly account for a large volume of 
loan originations. Second, some cited concerns about a lack of 
uniformity among the states in (1) licensing and certification 
practices, (2) requirements for approving educational activities, and 
(3) complaint referrals and enforcement activities, especially for 
suspected problem appraisers. These perceived gaps in the Title XI 
oversight structure are, in part, reflective of the primary intent of 
Title XI, which was to protect the federal deposit insurance funds 
rather than individual consumers. There was no clear consensus 
regarding the need for or impact of possible changes to the existing 
Title XI regulatory structure.

Industry Participants Cited Lack of National Licensing Criteria:

Participants in the real estate appraisal industry expressed concern 
that licensed real estate appraisers, unlike certified appraisers, do 
not have to meet national qualification criteria. According to many of 
the groups we contacted, Title XI's most significant shortcoming is the 
provision that leaves the criteria for licensed appraisers to each 
state, including decisions such as how often appraisers should be 
licensed and whether they should be licensed at all. Under Title XI, a 
"state-licensed appraiser" is defined as "an individual who has 
satisfied the requirements for state licensing in a state or 
territory."[Footnote 22] In contrast, certified appraisers must meet 
certification
criteria that adhere to the AQB's requirements.[Footnote 23] While 
Title XI contains this mandate for certified appraisers, it contains no 
reference to licensing requirements for licensed appraisers. Moreover, 
Title XI specifies that the subcommittee will not set requirements for 
licensing and that any subcommittee recommendations are 
nonbinding.[Footnote 24] However, the federal financial institutions 
regulators have the authority to issue additional qualification 
requirements as needed to carry out their statutory 
responsibilities.[Footnote 25]

Some groups believe that this provision has led to a lack of uniform 
qualifications in licensing across the country (for example, in 
education and experience) and may also have helped to create an 
environment conducive to mortgage fraud. According to an official from 
the Appraisal Subcommittee, Title XI's intent was to ensure that 
appraisers for federally related transactions met minimum requirements 
for experience and education and had been examined in order to ensure a 
minimum level of competency. Under the current system, individuals in 
some states can qualify for an appraiser license without having 
satisfied any educational requirements or met any criteria for work 
experience and without having passed any examinations.

Officials from the Appraisal Subcommittee reported that while most 
states have adopted statutory or regulatory provisions requiring 
licensed appraisers to meet AQB recommended criteria, six states do not 
have a state-licensed appraiser category, and six have licensing 
requirements that are less stringent than the AQB's. As a result, 
subcommittee officials said, some licensed appraisers may not meet 
recommended qualifications criteria. For example, in 2002, one state 
passed legislation that eliminated the experience requirement for its 
licensed appraisers; and, in 2001, another state revised its licensing 
criteria to comply with AQB requirements but at the same time 
"grandfathered" in several hundred licensed appraisers. As a result, 
lenders and homebuyers who rely on proof of licensing when hiring 
appraisers may not know what kind of criteria, if any, the appraisers 
were required to meet. The Appraisal Subcommittee:

and other industry participants view the issue as a growing problem, 
since licensed appraisers are likely to perform the majority of 
residential appraisals.

According to two regulatory officials, problems related to the lack of 
uniformity in licensing appraisers are compounded by the fact that 
Title XI also makes licensing voluntary at the state level. Voluntary 
licensing means that the state does not have a legislative requirement 
that appraisers be licensed or certified. However, the volunteer states 
do provide the opportunity for an appraiser to become licensed or 
certified to perform federally related transactions. These regulators, 
as well as one appraiser trade group, view voluntary licensing as a 
serious flaw in the industry's regulatory structure and a probable 
contributor to mortgage fraud. Moreover, voluntary licensing may 
indirectly place the onus on financial institutions to ensure that 
appraisers for federally related transactions have the appropriate 
qualifications. According to officials from the Appraisal Subcommittee, 
state licensing requirements for appraisers falls into one of three 
categories--voluntary, mandatory for federally related transactions, 
and mandatory (table 2). As of March 2003, 10 states were classified as 
being in the voluntary licensing category, and one federal financial 
institution regulator reported that most of the mortgage fraud problems 
it has encountered have occurred in states where licensing is 
voluntary. His views were echoed in an earlier Federal Bureau of 
Investigation testimony at a special congressional hearing on predatory 
lending in March 2000.[Footnote 26] According to this testimony, the 
most egregious property flipping problems have occurred in states where 
licensing is voluntary for transactions that are not federally related.

Table 2: State Appraiser Licensing Requirements:

State licensing requirement; Description of requirement; States.

Voluntary[A]; State law does not require appraisers to be state 
licensed or certified. A person wanting to perform appraisals connected 
with federally related transactions may choose to become state licensed 
or certified.[B]; Alaska, Indiana, Iowa, Kentucky, Louisiana, 
Massachusetts, North Dakota, Ohio, Oklahoma, and Wyoming (10).

Mandatory for federally related transactions only; State law requires 
all appraisers connected with federally related transactions to be 
state licensed or certified. Persons performing appraisals in 
transactions that are not federally related need not be licensed or 
certified.; Arkansas, California, Colorado, Florida, Georgia, Hawaii, 
Illinois, Kansas, Maryland, Montana, New Hampshire, New York, Vermont, 
Wisconsin, and Guam (15).

Mandatory; State law requires all persons performing any kind of 
appraisal activity for any kind of real estate transaction to be state 
licensed or certified.; Alabama, Arizona, Connecticut, Delaware, 
District of Columbia, Idaho, Maine, Michigan, Minnesota, Mississippi, 
Missouri, Nebraska, Nevada, New Jersey, New Mexico, North Carolina, 
Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, 
Tennessee, Texas, Utah, Virginia, Washington, West Virginia, Northern 
Mariana Islands, Puerto Rico, and Virgin Islands (30).

Source: Appraisal Subcommittee.

[A] According to a subcommittee official, under this requirement 
appraisers who are not licensed or certified could perform appraisals 
in connection with federally related transactions without violating 
state law, but the federally regulated financial institution using that 
appraiser's services could be subjected to federal regulatory action.

[B] Under state law, federally related transactions should include 
transactions involving the Federal Housing Administration and the two 
government-sponsored enterprises, Fannie Mae and Freddie Mac.

[End of table]

Industry Participants Were Concerned That Title XI Does Not Cover Many 
Transactions:

Industry participants also voiced concerns about the fact that Title XI 
does not cover financial institutions and mortgage brokers that are not 
subject to federal regulation. When Title XI was enacted, federally 
regulated lending institutions made most mortgage loans. Today, other 
financial institutions, such as mortgage bankers and finance companies, 
account for a substantial share of the mortgage marketplace. Many of 
these financial institutions that are not federally regulated, as well 
as an increasing portion of regulated financial institutions, use 
mortgage brokers to originate loans, so that these brokers now 
originate about 50 percent of all mortgage loans. These entities and 
individuals may have state licenses, but they are not monitored by 
federal or state entities through, for instance, examinations
or audits.[Footnote 27] Appraisers have anecdotally reported that these 
originators pressure them the most to appraise properties at or near 
the purchase price to assure that the mortgage transaction will occur.

As previously noted, the federal financial institution regulators have 
set the minimum for transactions requiring appraisals at $250,000. Some 
industry participants have said that this threshold and any increases 
to it undercut efforts to protect consumers. These groups believe that 
oversight of real estate appraisals should be geared toward the 
interests of consumers, who should be able to expect an unbiased, 
objective third-party opinion of the value of real property offered as 
security for a loan. However, Title XI was enacted in response to the 
impact of appraisal problems on federally insured depository 
institutions, and federal financial institution regulators have 
identified few problems or risks to depository institutions associated 
with loans valued below the $250,000 threshold. For transactions of 
less than $250,000, federal financial institution regulators allow 
lenders to use either an evaluation--a simpler assessment of a 
property's market value. For example, the results of a computerized 
valuation known as an automated valuation model (AVM) could be used as 
the basis for an evaluation.[Footnote 28] The two groups holding some 
of the largest portfolios of residential real estate mortgages, Fannie 
Mae and Freddie Mac, increasingly are using AVMs in place of 
traditional appraisals. However, because an evaluation or AVM is not 
considered an appraisal, it is not subject to the same standards and 
does not require a licensed or certified appraiser. Appendix V 
describes the basic types of AVMs and the benefits and concerns that 
have been associated with them.

Industry Participants Cited Differences Among State Licensing Programs:

Representatives of various groups we contacted expressed some concerns 
about differences in the standards that states have set for temporary, 
reciprocal, and general licenses. The differences noted by these groups 
focused on the lack of uniformity in the implementation of Title XI 
requirements. According to these groups, the lack of uniformity between 
states in the implementation of Title XI has created difficulties for 
lenders and appraisers who operate in multiple states.

Industry participants cited a lack of uniformity in the way states 
grant temporary and reciprocal licenses. Because credentials from one 
state may not be recognized by another, appraisers often have to carry 
multiple state licenses. Title XI requires states to recognize on a 
temporary basis real estate appraisers who have been certified or 
licensed by another state if certain conditions are met and encourages 
states to develop reciprocity agreements that readily authorize 
appraisers who are licensed by and in good standing with their home 
state to perform appraisals in other states.[Footnote 29] The Appraisal 
Subcommittee has issued policy statements on temporary practice and 
encouraging reciprocity. However, our survey indicated that state 
regulatory agencies continue to vary widely on these issues. For 
example, of the 53 states and territories that responded to this 
question, 40 issued temporary licenses for single assignments, 16 
allowed an appraiser only one temporary license at a time, and 15 
limited the number of temporary licenses an appraiser could receive 
annually. Six of the 54 respondents to our survey indicated that 
visiting appraisers are required to pass a state exam in order to 
receive a reciprocal license. This practice is not only inconsistent 
with the spirit of Title XI but also with the Appraisal Subcommittee's 
guidance recommending that states accept licenses or certification from 
other states meeting AQB requirements. In addition, a representative 
from a banking trade group told us that lenders are dissatisfied with 
state reciprocal licensing requirements, which make it difficult to use 
the same appraisers in multiple jurisdictions or states. The trade 
group representative added that some states are more restrictive than 
others. According to our survey, 23 states and territories require a 
reciprocity agreement with the state or territory issuing an 
appraiser's original license before issuing a reciprocal license. The 
inability to readily obtain a license in another state may be 
especially problematic during periods of heavy refinancing, when some 
states may need more appraisers.

Further, the states do not use uniform appraiser classifications or fee 
requirements. The Appraisal Subcommittee recognizes four licensing 
categories in its National Registry of Appraisers--licensed, certified 
general, certified residential, and transitional license. We found that 
the number of categories for licensed and certified appraisers used by 
the states and territories ranged from two to seven and included such 
non-AQB classifications as residential real property appraiser and 
limited general appraiser. The states' license fees also varied by the 
type of license or certification sought and the number of years it 
covered. Individual states set fees for certifying and licensing 
appraisers, with annual fees ranging from $22 to $450 and initial 
licensing terms of from 1 to 4 years. For the 55 state agencies with a 
certified general appraiser classification, we found that 22 states had 
a 1-year term with fees ranging from $120 to $450, 28 states had 2-year 
terms and fees from $44 to $680, and 3 states had 3-year terms with 
fees from $150 to $470. One state had a 4-year term but did not provide 
information on its fees.[Footnote 30]

The results of our analysis of license renewal fee requirements were 
similar. Specifically, for the certified general appraiser 
classification, we found that 19 states had a 1-year term with fees 
ranging from $105 to $400, 29 states had 2-year terms with fees from 
$100 to $610, and 6 states had 3-year terms with fees from $225 to 
$470. We also found that these provisions varied depending on the 
category of license or certification sought. For example, the renewal 
term for a licensed real property appraiser (residential) ranged 
between 1 to 4 years across states, while the renewal term for a 
licensed real property appraiser (general) ranged from 1 to 2 years.

Industry Participants Expressed Concerns about the Costs and Lack of 
Uniform Approval Processes for Appraiser Education Courses:

Several state regulators and education providers expressed concerns 
about the expenses and lack of uniformity in the processes associated 
with approving instructors and courses for appraisers' continuing 
education. A representative of an appraisers' trade group noted that 
gaining approval for a course and an instructor in one state does not 
necessarily translate into approval in other states. As a result, the 
trade group spent around $30,000 having courses for a July 2000 
training conference approved in all jurisdictions. He added that one-
fourth of the states require certified checks, notarized documents, or 
both to initiate the course approval process. These participants 
believe that the added cost and procedures involved in acquiring 
approval in each state is overly burdensome.

AQB officials told us that the board has set up a voluntary national 
system for approving courses and that these concerns had influenced 
their project. AQB and Appraisal Foundation officials said that their 
efforts were not intended to usurp the states' authority. According to 
the AQB, the course approval program was designed to be a convenience 
for both course providers and state regulators while helping to ensure 
quality appraisal courses. However, AQB's course and instructor 
approval programs have met opposition in some quarters. For example, 
some state officials and other industry participants stated that 
requiring AQB approval for all USPAP refresher courses and instructors 
and restricting course materials and examinations to AQB publications-
-for which AQB charges a royalty fee--represent a conflict of interest. 
However, AQB officials stated that any educational provider may submit 
a USPAP course for consideration to be deemed equivalent to the 
national USPAP courses and added that, to date, four educational 
providers have submitted courses which have been approved as equivalent 
to the national USPAP courses. In addition, some education providers 
have stated that the fees charged by the AQB for its course and 
instructor approval are excessive. On the other hand, some state and 
federal financial institution regulators believe that the Appraisal 
Foundation and its boards possess expertise and resources the states do 
not have and thus are needed to ensure that the quality of appraiser 
education and training is not compromised. Appendix VI contains 
information on the fees charged by the AQB for its course and 
instructor approval programs.

Similarly, some states and educators have expressed concern that the 
AQB and Appraisal Subcommittee have encroached upon state authority in 
setting certain appraisal standards and appraiser qualifications. For 
example, the regulatory agency and an education provider in one state 
objected to certain AQB education requirements for certified 
appraisers, in particular a requirement that education providers be 
certified through the AQB's instructor certification program. As part 
of its industry monitoring function, the Appraisal Subcommittee 
reviewed those standards and determined that the AQB had acted 
appropriately in adopting them. The Appraisal Subcommittee has also 
instructed states to rescind approvals of distance education courses 
for certified real property appraisers if the courses or their 
providers did not conform to AQB criteria.[Footnote 31] The state 
appraiser regulatory agency and education provider contended that the 
education provider standards exceed the scope of the AQB's 
responsibility as contemplated by Title XI and that the Appraisal 
Subcommittee, by recognizing and affirmatively applying those 
standards, acted beyond its monitoring authority.

In light of those assertions, the Appraisal Subcommittee requested a 
legal opinion from the Legal Advisory Group of the Federal Financial 
Institutions Examination Council on (1) the scope of AQB's authority to 
adopt education-related standards for certified appraisers; (2) the 
scope of the Appraisal Subcommittee's responsibility in monitoring the 
AQB; and (3) the Appraisal Subcommittee's authority to oversee state 
regulators' implementation of AQB standards.[Footnote 32] In a June 
2002 opinion, the Legal Advisory Group concluded that the AQB's and 
Appraisal Subcommittee's actions appeared to be consistent with and 
authorized by Title XI. Referring to the legislative history of Title 
XI, the Legal Advisory Group opinion stated that with Title XI Congress 
intended to create consistent certification standards for appraisals 
nationwide and that Congress relied on the AQB to set minimum appraiser 
certification criteria. A copy of this decision can be found in 
appendix VII.

Industry Participants Cited a Need for Improvement in the Referral 
Process for Problem Appraisers:

Participants in the real estate appraisal industry described the 
process of referring questionable appraisals or appraisers to state 
regulatory authorities as needing improvement, saying that few 
referrals were being made. Title XI instructs federal agencies or 
federal instrumentalities to report any action of a state-certified or 
-licensed appraiser that represents a violation of Title XI 
requirements to the appropriate state agency.[Footnote 33] According to 
an Appraisal Subcommittee official, a referral is basically a notice to 
the state agency that a potential violation exists that warrants 
investigation.

State regulatory officials also said that they had received few 
referrals from lenders and bank regulators. The state officials 
believed this problem was a serious one and felt that institutions 
engaging appraisers should be responsible for referring appraisers to 
agencies for investigation and disciplinary action. Our survey of state 
regulators suggests that lenders and federal agencies are referring few 
problem appraisers. Results of the survey showed that the greatest 
percentage of complaints came from consumers and other appraisers. 
Likewise, Appraisal Subcommittee staff reported that based on their 
state reviews, lenders and bank regulators are not actively making 
referrals and that when they do, the referrals are often incomplete or 
unspecific.

Federal financial institution regulators have an official interagency 
policy encouraging depository institutions to make referrals. But 
officials from the regulatory agencies told us that the institutions 
often follow the advice of their legal departments and simply stop 
using offending appraisers rather than reporting them because of the 
potential for lawsuits. In addition, one regulatory official stated 
that regulations on confidentiality and disclosure prevented them from 
providing information discovered during an examination unless a 
criminal act had occurred.

However, both HUD and Fannie Mae have made referrals to state 
regulatory agencies. HUD, for example, has made such referrals, even 
though it has internal systems in place for disciplining problem 
appraisers. HUD imposes administrative sanctions--usually removing the 
problem appraisers from the FHA Register for a specified time--and then 
notifies the state licensing or certification agency in writing of its 
action. During calendar year 2002, HUD made 112 referrals to state 
regulatory agencies. In the referrals, HUD provided the state agency 
with the appraiser's license or certification number, the reason for 
removal, and copies of the original appraisal(s) and HUD's review. 
Officials from Fannie Mae, which made 860 referrals to 45 different 
state regulatory agencies between August 2001 and August 2002, 
commented that the agency had revised its referral program to better 
meet state regulatory agencies' information needs for processing a 
referral. Fannie Mae officials informed us that they provided a 
complete copy of each questionable appraisal report and an appraisal 
review performed by another state-licensed or -certified appraiser in 
the same state to help identify the appraisal deficiencies for the 
state's review and investigation. The officials also noted that it was 
difficult to refer questionable appraisals to the different state 
agencies due to the lack of consistent processes and procedures for 
accepting, reviewing, and investigating questionable appraisal 
reports.

In the case of both HUD and Fannie Mae, neither entity was routinely 
providing the Appraisal Subcommittee with copies or listings of the 
referrals made to the states. According to Appraisal Subcommittee 
officials, information on referrals made to the states would aid them 
in their field reviews of the states' responsiveness to complaints 
about appraisers. According to Fannie Mae officials, they provided the 
Appraisal Subcommittee with 27 cases (involving 13 different states) in 
May 2002, along with the states' responses, to demonstrate lack of 
effective enforcement actions by some of the states. Fannie Mae 
discontinued sharing information on referrals with the Appraisal 
Subcommittee due to its perception that the subcommittee did not take 
action on the specific referrals.

Industry Participants Noted Variations in State Regulatory Agencies' 
Enforcement of Title XI Requirements:

Some industry participants reported a lack of uniformity in processing 
complaints and taking disciplinary actions against those problem 
appraisers that were referred to state regulatory authorities and cited 
this issue as an obstacle to an effective enforcement program. 
Furthermore, the state agencies told us that while they have 
enforcement structures in place, some agencies have questioned their 
ability to mount effective enforcement programs because of funding 
shortfalls; as noted earlier, many states responding to our survey 
reported funding inadequacies. In general, the complaint process 
entails filing a complaint alleging a violation, conducting an 
investigation, determining whether a violation occurred, and rendering 
an outcome, including any disciplinary actions. Industry participants' 
concerns about the enforcement process included differences in state 
requirements and practices for filing a complaint, the quality and 
timeliness of investigations, and complaint outcomes.

Several entities reported that states' complaint filing requirements 
ranged from simple to onerous. For example, some states require simply 
that complainants submit information on an allegation, while other 
states accept complaints only on a specific form. Further, some states 
required that complaint documents be notarized or that complainants 
provide witnesses and testify against appraisers. Some industry 
participants also stated that the length of time needed to resolve a 
complaint was too long--for example, one state required 1 to 2 years--
potentially allowing the appraiser to continue what might be fraudulent 
or questionable practices. Some groups also cited statutes of 
limitations as a major obstacle in penalizing appraisal violators. For 
example, statutes in at least three states prohibit both investigations 
into and punitive actions for unlawful appraisal activities that 
allegedly took place more than 3 to 5 years earlier. Finally, at least 
one complainant reported concerns about the expertise of investigators, 
noting that investigators in the Attorney General's office handling a 
case of mortgage fraud may not be knowledgeable about the appraisal 
profession.

In addition to concerns about the complaint process, industry 
participants reported misgivings about outcomes, including 
disciplinary actions and feedback. For example, Fannie Mae officials 
commented that they had been dissatisfied with some state decisions on 
punitive actions and with the lack of feedback on actions that had 
actually been taken. The officials added that some states do not 
penalize appraisers for multiple violations if the appraisers have 
already been disciplined or do not tell complainants what action was 
taken. The Fannie Mae officials reported that they have observed a lack 
of consistent and effective investigation and enforcement by some of 
the states. As an example, they noted that some states appeared to 
perform meaningful investigations and took appropriate actions while 
other states appeared unwilling to investigate similar cases with 
comparable support and documentation. According to the officials, 
Fannie Mae is considering discontinuing the practice of sending 
referrals to several states because, in their view, the state 
regulatory agencies have failed to act on them. HUD officials echoed 
this view, saying that states typically do not take action when they 
are notified that an enforcement action has been taken against an 
appraiser. In those rare instances when a state does take an action, it 
often refuses to disclose this information to HUD, citing privacy 
concerns. However, Appraisal Subcommittee officials told us that in 
many states, state law might prohibit the disclosure of actions that 
are not a matter of public record. Another industry participant 
reported that there is little incentive to make referrals given the 
fact that there is no assurance that the state will take action.

According to Appraisal Subcommittee officials, a number of states have 
told them that the referral information that Fannie Mae and HUD have 
provided to the states is frequently in a format or manner that they 
cannot readily absorb or use. For example, some of the states indicated 
that they received over a hundred referrals from Fannie Mae as one 
group, which overwhelmed the states' ability to review and investigate 
the referrals in a timely basis. Other states stated that the referrals 
were for real estate transactions for which the state's statute of 
limitations had already expired. Fannie Mae officials indicated that 
their referrals consistently include a copy of the questionable 
appraisal and an appraisal field review performed by a state-licensed 
or -certified appraiser in the same state. Fannie Mae recommended that 
the states adopt the one-unit residential appraisal field review report 
as sufficient documentation for referred appraisals of one-unit 
properties.[Footnote 34]

We analyzed data states submitted to the Appraisal Subcommittee and 
found that the number of disciplinary actions taken differed widely. 
For example, one state reported taking only a single disciplinary 
action against an appraiser, while two other states accounted for over 
25 percent of the 4,360 disciplinary actions reported as of October 31, 
2002.[Footnote 35]

Industry Participants Indicated No Clear Consensus Regarding the Need 
for Changes to the Title XI Regulatory Structure:

There was no clear consensus among the industry participants that we 
contacted regarding the need for or impact of possible changes to the 
existing Title XI regulatory structure. For example, our survey did not 
indicate a clear consensus among state regulatory agencies on the 
impact of eliminating various aspects of the current Title XI 
regulatory oversight structure. However, one state appraiser agency 
official said that Title XI had achieved its intended purpose of 
protecting federal interests and that federal involvement in the 
oversight of the real estate appraisal industry is no longer needed. 
Another representative of a state appraiser agency stated that Title XI 
needed to be dramatically amended to correct deficiencies in the 
current appraisal oversight structure.[Footnote 36]

Among the various representatives of trade groups, education providers, 
and other industry participants that we contacted, there were differing 
opinions as to what, if any, changes were necessary to Title XI. 
Likewise, the responses to the survey that we sent to the state 
appraiser agencies did not indicate a clear consensus regarding states' 
views of the impact of eliminating some of the central aspects of the 
Title XI regulatory structure. For example, 22 states and territories 
(41 percent) said that eliminating the Appraisal Subcommittee would 
help in regulating appraisers, while 17 (31 percent) responded that 
eliminating the subcommittee would be a hindrance. The remaining states 
felt that not having the subcommittee would neither help nor hinder 
regulation. The states responded more positively to the ASB and AQB, 
with 31 and 23 states, respectively, indicating that eliminating them 
would hinder efforts to regulate appraisers.

However, some officials from state appraiser agencies have expressed 
strong viewpoints regarding the need for changes to Title XI. For 
example, an official from one of the state appraiser regulatory 
agencies noted that of over 30 regulated professions, only the 
appraisal profession has federal oversight. According to this official, 
Title XI has resulted in the establishment of state appraiser 
regulatory agencies in each of the states and the adoption of minimum 
appraisal standards and appraiser qualification criteria, thus 
protecting federal interests in regulating the appraisal industry. This 
official stated that the states are now in a position to oversee the 
real estate appraisal industry without any federal involvement, much as 
they do other professions. He suggested that Congress eliminate the 
Appraisal Foundation and the AQB and make the ASB independent and self-
supporting.

An official from another state regulatory agency said that to correct 
the present system's problems, Congress would need to completely 
restructure the Title XI structure. He also recommended eliminating the 
Appraisal Subcommittee and the Appraisal Foundation, replacing them 
with a new board at the federal level. The new board would represent 
the appraisal industry more broadly and have strong Congressional 
accountability. In addition, he recommended that the minimum standards 
for appraisals and appraiser qualifications be amended only every 5 
years, if needed. He also suggested that Congress clearly designate the 
states as having sole responsibility for administering and enforcing 
Title XI.

Conclusions:

Title XI brought about significant changes in the real estate appraisal 
industry. According to federal financial institution regulators, real 
estate appraisals have not been a major factor in the failure of 
federally insured financial institutions since the passage of Title XI. 
However, opportunities exist to enhance the effectiveness of the 
current regulatory system to help ensure that federally related 
transactions are based on accurate assessments of the value of 
properties used as collateral for loans.

Developing and applying consistent criteria to assess states' 
compliance with Title XI requirements could increase the usefulness of 
the letters that the Appraisal Subcommittee provides to the states 
based on its field reviews as well as the annual report that the 
Appraisal Subcommittee provides to Congress on the Title XI program. 
Further, the Appraisal Subcommittee's field reviews of the states could 
be enhanced if HUD and the government sponsored enterprises provided 
the subcommittee with information on referrals made to the states on 
questionable appraisals and problematic appraisers. Similarly, the 
Appraisal Subcommittee could help HUD and Fannie Mae ensure that 
referral information on problem appraisals is provided to the state 
appraiser agencies in a format and manner that facilitates appropriate 
follow-up action by the states.

Achieving Title XI's purpose depends in part on the ability of ASB and 
AQB to ensure that appraisal standards and qualification criteria for 
appraisers are reflective of changes in the real estate mortgage 
industry and marketplace; these entities' ability, in turn, depends in 
part on the amount of funding provided to them annually by the 
Appraisal Subcommittee. Achieving Title XI's purpose also depends on 
actions taken by the states. The lack of funding and resources cited by 
state appraisal regulatory agencies suggests that some states may be 
unable to adequately enforce appraiser compliance with the minimum 
standards envisioned by Title XI. At the same time, the Appraisal 
Subcommittee--the primary federal entity in the oversight structure 
created by Title XI--has accumulated an operating surplus of almost $4 
million, generated from the fees levied and collected by the states on 
behalf of the federal government.

Recommendations:

To improve its monitoring of the implementation of Title XI, we 
recommend that the Chairman of the Appraisal Subcommittee:

* develop and apply consistent criteria for determining and reporting 
states' compliance levels with Title XI requirements;

* explore potential options for funding or otherwise assisting states 
in carrying out their Title XI activities, particularly the 
investigation of complaints against appraisers; and:

* explore alternatives for providing future grant funding, including 
drawing on its surplus if necessary, to the Appraisal Foundation and 
its two boards in support of their Title XI activities.

To improve the process for referring problem appraisals by entities 
that oversee or use real estate appraisals to the state appraiser 
agencies for possible enforcement actions, we recommend that the 
Chairman of the Appraisal Subcommittee work with the Chairmen of Fannie 
Mae and Freddie Mac and the Secretary of the Department of Housing and 
Urban Development to help ensure that referrals of problem appraisals 
(1) are provided to states in a format that is useful to the state 
appraisal agencies and (2) facilitate the subcommittee's efforts to 
monitor decisions made by states regarding the supervision of appraiser 
practices.

Agency Comments:

We requested and received written comments on a draft of this report 
from HUD, Fannie Mae, Freddie Mac, the Appraisal Foundation, and the 
Appraisal Subcommittee that are presented in appendixes VIII through 
XII. In addition, we requested comments from FDIC, FRS, OCC, OTS, and 
NCUA who indicated that their comments had been incorporated into those 
provided by the Appraisal Subcommittee. The entities provided a variety 
of written comments. The principal comments and our response are 
summarized below. Technical comments have been incorporated into the 
report where appropriate.

HUD concurred with our recommendation that the Chairman of the 
Appraisal Subcommittee work with HUD, Fannie Mae, and Freddie Mac on 
referrals of problem appraisals to states for follow-up and appropriate 
enforcement. However, HUD pointed out that it is already involved in 
the work of the subcommittee, as a HUD representative serves as a 
member of the subcommittee. Our draft report noted that the six 
Appraisal Subcommittee Board members are designated by the heads of the 
five financial institution regulators and by HUD. Both Fannie Mae and 
Freddie Mac expressed concern about this recommendation, commenting 
that they are not regulatory entities. We did not intend to imply that 
these entities have a regulatory role under Title XI. Rather, we 
directed the recommendation to the Appraisal Subcommittee, which is 
responsible for monitoring state activities under Title XI. However, 
both Fannie Mae and Freddie Mac review the quality of certain 
appraisals for loans that they purchase and can refer problematic ones 
to the states for action. Therefore, the two government-sponsored 
enterprises are in a unique position to provide expertise, information, 
and lessons of experience to the subcommittee. As Fannie Mae noted in 
its comments, it has "extensive experience in referring unacceptable 
appraisals to state agencies" and has observed both a lack of 
uniformity in state processes and a lack of consistent and effective 
enforcement actions by state licensing or regulatory boards. We have 
revised the wording of our recommendation to emphasize the role that 
HUD, Fannie Mae, and Freddie Mac can play in helping the subcommittee 
carry out its oversight responsibilities.

Fannie Mae also commented that, based on its experience in referring 
unacceptable appraisals, issues of format have not impeded the states 
from taking effective enforcement action. However, as our draft report 
noted, Appraisal Subcommittee staff involved in field reviews reported 
that (1) referrals are often incomplete or unspecific and (2) according 
to state officials, referrals that Fannie Mae and HUD provided to the 
states frequently were in a format or manner that they could not 
readily absorb or use. We recognize that, by itself, providing 
referrals in a more useful format will not guarantee more, or more 
consistent, state enforcement actions. Our draft report noted that 
several factors affect the extent of state enforcement efforts, 
including state-level funding and staffing shortages and a scarcity of 
referrals from lenders and bank regulators. However, we continue to 
believe that improving the referral process could help achieve the 
objectives of Title XI. As our draft report also noted, Fannie Mae has 
revised its referral program to better meet state regulatory agencies' 
information needs. Consequently, we did not change our recommendation.

In our draft report, we noted that we found no transparent criteria in 
the subcommittee's field review letters for the reporting of states' 
compliance with Title XI. In its comment letter, the Appraisal 
Subcommittee agreed that it did not have a formalized rating system 
that would provide each state with an overall rating. However, the 
Appraisal Subcommittee noted that it employs "an informal [rating] 
system (i.e., Tier 1 and Tier 2) based on a state's overall compliance 
with Title XI." The Appraisal Subcommittee stated that it had 
previously considered developing a rating system that would allow for 
comparisons across states and had concluded that such a rating system 
would not assist its Title XI enforcement efforts. However, the 
Appraisal Subcommittee stated in its comment letter that it would 
review this issue again based on our recommendations.

Our draft report expressed a concern of the Appraisal Foundation's two 
boards (the ASB and AQB): that shortfalls in federal grant funding 
provided by the Appraisal Subcommittee have limited activities that the 
two boards believe enhance the quality, timeliness, and usefulness of 
standards and qualifications. In commenting on our draft report, the 
Appraisal Foundation clarified that federal grant shortfalls could 
impede the boards' future ability to ensure that standards and 
qualifications continue to keep up with changing industry conditions. 
Similarly, the Appraisal Subcommittee chair commented that in the past 
the Appraisal Foundation has not used all of the funds provided in the 
federal grants. Our draft report noted that the foundation has other 
sources of revenue and that the subcommittee expected future grants to 
the two boards to decline unless the subcommittee took certain actions. 
We revised our report to clarify that the two boards view federal grant 
funding shortfalls as a potential future impediment to their Title XI 
activities.

Our draft report also characterized the Appraisal Subcommittee's lack 
of rule-making authority and limited enforcement powers as impediments 
to the subcommittee's ability to carry out its Title XI 
responsibilities. The basis for this characterization was statements 
made by subcommittee officials. For example, in its April 11, 2002, 
written responses to GAO questions, the Appraisal Subcommittee stated,

"Federal oversight [over state appraisal authorities] could be more 
effective … if the ASC were given rule-making authority, which could be 
used to establish mandatory state reporting mechanisms. Finally, 
oversight could be strengthened if the ASC had more administrative 
options when addressing noncompliant states. ... The ASC should have 
additional authorities, such as 'cease and desist' authority and 
monetary penalties.":

In commenting on the draft report, the Appraisal Subcommittee agreed 
that general rule-making authority might facilitate its Title XI 
enforcement and that its enforcement options are "limited in number." 
But the subcommittee also stated that the lack of this authority has 
not been an impediment to achieving compliance. We modified our report 
to clarify the Appraisal Subcommittee's views and noted that, according 
to the subcommittee, it has always been able to achieve state 
compliance within the current Title XI regulatory and enforcement 
structure. The Appraisal Subcommittee further noted that its policy 
statements are its formal interpretations of Title XI and stated that 
these should be given deference, citing a February 2000 GAO decision. 
In that decision, we determined that the Appraisal Subcommittee 
reasonably interpreted one provision in Title XI relating to a state's 
collection and submission of appraiser fees to the subcommittee.

In response to our recommendation that the subcommittee explore options 
to assist the states in carrying out their Title XI responsibilities, 
the Appraisal Subcommittee commented that while overall state 
compliance with Title XI would be improved if states had more funding, 
it did not see the subcommittee as the answer to that issue. The letter 
noted that the Appraisal Subcommittee's only method of obtaining 
additional funds to provide to the states is to increase the national 
registry fee assessed against each appraiser. We agree that the states 
are in a better position to identify needs and to address fee and 
revenue issues to resolve those needs. However, our recommendation 
addressed exploring options in addition to providing funding to help 
states carry out their Title XI activities. For example, the Appraisal 
Subcommittee could encourage several states to pool investigative 
resources or use other options to help address temporary shortages of 
trained investigators in one state. Alternatively, the Appraisal 
Subcommittee could use its field review reports to identify funding 
gaps as an issue negatively affecting states' ability to comply with 
Title XI's provisions. Consequently, we did not change our 
recommendation.

We are sending copies of this report to the Chairman and Ranking Member 
of the Senate Committee on Banking, Housing, and Urban Affairs; the 
Chairman and Ranking Minority Member of the House Committee on 
Financial Services; the Secretary of the Department of Housing and 
Urban Development; the Chairman of the Board of Governors of the 
Federal Reserve System; the Chairman of the Federal Deposit Insurance 
Corporation; the Comptroller of the Currency; the Director of the 
Office of Thrift Supervision; the Chairman of the National Credit Union 
Administration; the Chairman and Chief Executive Officer of Fannie Mae; 
the Chairman and Chief Executive Officer of Freddie Mac; the Chairman 
of the Appraisal Subcommittee; and the Executive Vice President of the 
Appraisal Foundation. We will also provide copies to others on request. 
This report will be available at no charge on our home page at http://
www.gao.gov.

If you or your staff have any questions about this report, please 
contact me at (202) 512-8678 or Harry Medina at (415) 904-2000. Key 
contributors are listed in appendix XIII.

[See PDF for image]

[End of figure]

David G. Wood
Director, Financial Markets and Community Investments:

Signed by David G. Wood:

[End of section]

Appendixes :

[End of section]

Appendix I: Survey of State Regulatory Agencies (results included):

[See PDF for image]

[End of figure]

[End of section]

Appendix II: Scope and Methodology:

To describe the specific responsibilities under Title XI of the 
private, state, and federal entities that oversee the real estate 
appraisal industry, we reviewed Title XI and its legislative history to 
identify the specific responsibilities assigned to each entity. We 
interviewed representatives of private entities and federal officials 
and surveyed state regulatory agencies to obtain information on how 
they interpreted their responsibilities under Title XI. In addition, we 
attended a conference sponsored by an association of state regulatory 
agencies on the agencies' role in Title XI's oversight structure. 
Finally, we reviewed the literature, issue papers, and documents by 
industry participants, experts, and observers on Title XI and the 
regulatory structure for appraisers.

To describe how the entities carry out their duties under Title XI, we:

* obtained information from the Appraisal Foundation and its two 
boards, the Appraisal Standards Board and the Appraiser Qualifications 
Board on Title XI-related activities such as (1) submitting grant 
proposals to the Appraisal Subcommittee for Title XI-related 
activities, (2) providing information to the Appraisal Subcommittee on 
Title XI-related activities, (3) establishing minimum standards for 
conducting appraisals and qualifications for appraisers, and (4) 
disseminating information on revisions to these standards and 
qualifications.

* surveyed the 55 state regulatory agencies for appraisers to gather 
information on the agencies' organizational structures, specific tasks, 
staff size, licensing and certification practices and fees, revenues 
and expenditures, and complaint and enforcement activity. We also 
analyzed survey results to determine whether any trends existed or 
significant issues were reported.

* obtained and reviewed federal financial regulators' policies, 
procedures, regulations, and advisory opinions with respect to 
oversight of the appraisal industry and information on enforcement 
activities related to complaints and referrals arising from 
noncompliance with the Uniform Standards of Professional Appraisal 
Practice or Title XI.

* obtained and reviewed Appraisal Subcommittee annual reports, state 
field review reports, and grants to the Appraisal Foundation. We also 
performed selected analyses of information contained in the Appraisal 
Subcommittee's National Registry of Appraisers database.

To describe factors that private, state, and federal entities 
identified as impediments to carrying out their Title XI roles and 
responsibilities, we interviewed officials representing the various 
entities. In addition, we analyzed the results of our survey of state 
regulatory agencies, contacted several state officials about the 
written comments included in their survey responses, and reviewed 
correspondence and an agency newsletter we received from state 
regulatory officials.

To describe and identify other concerns about the effectiveness of the 
current regulatory structure in achieving the purposes of Title XI, we 
interviewed officials representing regulatory entities, industry 
participants, and industry observers. Specifically, we interviewed (1) 
private and federal entities cited in Title XI; (2) officials from the 
Department of Housing and Urban Development, Fannie Mae, and Freddie 
Mac; and (3) groups representing mortgage lenders, appraisers, 
appraiser education providers, and academic experts on issues related 
to appraisals. We also reviewed congressional hearings and prior GAO 
reports on appraisal reform and federal and state regulatory 
objectives. Finally, we downloaded information on appraisal issues from 
the Internet, including correspondence, reports, and issue papers 
prepared by industry participants and observers.

We performed our work from March 2002 through March 2003 in accordance 
with generally accepted government auditing standards.

[End of section]

Appendix III: List of Agencies and Groups Contacted:

Federal Agencies:

* Appraisal Subcommittee of the Federal Financial Institutions 
Examination Council (ASC) 
http://www.asc.gov/:

* Board of Governors of the Federal Reserve System (FRB)
http://www.federalreserve.gov/:

* Federal Deposit Insurance Corporation (FDIC)
http://www.fdic.gov/:

* National Credit Union Administration (NCUA)
http://www.ncua.gov/:

* Office of the Comptroller of the Currency (OCC)
http://www.occ.treas.gov/:

* Office of Thrift Supervision (OTS)
http://www.ots.treas.gov/:

* United States Department of Housing and Urban Development (HUD)
http://www.hud.gov/:

Government Sponsored Enterprises:

* Federal National Mortgage Association (Fannie Mae)
http://www.fanniemae.com/:

* Federal Home Loan Mortgage Corporation (Freddie Mac)
http://www.freddiemac.com/:

Private Organizations:

* American Bankers Association (ABA)
http://www.aba.com/default.htm:

* American Society of Appraisers (ASA)
http://www.appraisers.org/:

* Appraisal Foundation (AF)
http://www.appraisalfoundation.org/:

* Appraisal Institute (AI)
http://www.appraisalinstitute.org/:

* Experian
http://www.experian.com/consumer/index.html:

* FNC Inc.
http://www.fncinc.com/:

* International Association of Assessing Officers (IAAO)
http://www.iaao.org/:

* Lee and Grant Company
http://www.leeandgrant.com/:

* Mortgage Bankers Association of America (MBA)
http://www.mbaa.org/:

* National Association of Realtors (NAR)
http://www.realtor.org/rodesign.nsf/pages/HomePage?OpenDocument:

* Peter S. Barash Associates:

* UC Berkeley Fisher Center for Real Estate and Urban Economics
http://groups.haas.berkeley.edu/realestate/Fisher/fisherinfo.asp:

State Appraiser Regulatory Agencies:

* Alabama Real Estate Appraisers Board
http://reab.state.al.us:

* Alaska Board of Certified Real Estate Appraisers
http://www.dced.state.ak.us/occ/papr.htm:

* Arizona Board of Appraisal
http://www.appraisal.state.az.us:

* Arkansas Appraiser Licensing & Certification Board
http://www.state.ar.us/alcb:

* California Office of Real Estate Appraisers
http://www.orea.ca.gov:

* Colorado Board of Real Estate Appraisers
http://www.dora.state.co.us/real-estate/appraisr/appraisr.htm:

* Commonwealth of the Northern Mariana Islands:

* Connecticut License Services Division
http://www.dcp.state.ct.us/licensing/realestate.htm:

* Delaware Council on Real Estate Appraisers
http://www.state.de.us/research/profreg/realesapp.htm:

* District of Columbia, Occupational & Professional Licensing 
Administration
Offline: 12/19/02 http://www.dcra.org/bplaboards.shtm:

* Florida Division of Real Estate
http://www.state.fl.us/dbpr/re/freab_welcome.shtml:

* Georgia Real Estate Appraisers Board
http://www2.state.ga.us/grec/greab/greabmain.html:

* Guam Department of Revenue & Taxation:

* Hawaii Real Estate Appraisers Section
http://www.state.hi.us/dcca/pvl/areas_real_estate_appraiser.html:

* Idaho State Certified Real Estate Appraisers Board
http://www2.state.id.us/ibol/rea.htm:

* Illinois Office of Banks and Real Estate, Appraisal Division
http://www.obre.state.il.us/REALEST/APPRAISAL.HTM:

* Indiana Real Estate Appraiser Licensure & Certification Board
http://www.in.gov/pla/bandc/appraiser/:

* Iowa Real Estate Appraiser Examining Board
http://www.state.ia.us/government/com/prof/realappr.htm:

* Iowa Real Estate Appraiser Examining Board
http://www.state.ia.us/government/com/prof/realappr.htm:

* Kansas Real Estate Appraisal Board
http://www.ink.org/public/kreab/:

* Kentucky Real Estate Appraisers Board
http://www.kyappraisersboard.com:

* Louisiana Real Estate Commission
http://www.lreasbc.state.la.us/:

* Maine Board of Real Estate Appraisers
http://www.state.me.us/pfr/olr/categories/cat37.htm:

* Maryland Commission of Real Estate Appraisers & Home Inspectors
http://www.dllr.state.md.us/license/occprof/reappr.html:

* Massachusetts Board of Registration of Real Estate Brokers & 
Salespeople
http://www.state.ma.us/reg/boards/ra/default.htm:

* Michigan Board of Real Estate Appraisers
http://www.michigan.gov/commerciallicensing:

* Minnesota Department of Commerce
http://www.state.mn.us/cgi-bin/portal/mn/jsp/home.do?agency=Commerce:

* Mississippi Real Estate Appraiser Licensing & Certification Board
http://www.mrec.state.ms.us/:

* Missouri Real Estate Appraisers Commission
http://www.ded.state.mo.us/regulatorylicensing/
professionalregistration/rea:

* Montana Department of Labor & Industry, Business Standards Division
http://discoveringmontana.com/dli/bsd/license/bsd_boards/rea_board/
board_page.htm:

* Nebraska Real Estate Appraiser Board
http://linux1.nrc.state.ne.us/appraiser:

* Nevada Real Estate Division
http://www.red.state.nv.us:

* New Hampshire Real Estate Appraiser Board
http://www.state.nh.us/nhreab/:

* New Jersey Board of Real Estate Appraisers
http://www.state.nj.us/lps/ca/nonmed#real11:

* New Mexico Real Estate Appraisers Board
http://www.rld.state.nm.us/b&c/real_estate_appraisers_board.htm:

* New York Division of Licensing Services
http://www.dos.state.ny.us/lcns/appraise.html:

* North Carolina Appraisal Board
http://www.ncappraisalboard.org:

* North Dakota Real Estate Appraiser Qualifications & Ethics Board
http://www.governor.state.nd.us/boards/boards-query.asp?Board_ID=92:

* Ohio Division of Real Estate
http://www.com.state.oh.us/odoc/real/appmain.htm:

* Oklahoma Real Estate Appraiser Board Division
http://www.oid.state.ok.us/agentbrokers/realestate.html:

* Oregon Appraiser Certification & Licensure Board
http://www.oregonaclb.org:

* Pennsylvania State Board of Certified Real Estate Appraisers
http://www.dos.state.pa.us/bpoa/cwp/view.asp?a=1104&q=432589:

* Puerto Rico Department of State Board of Examiners Division
no website:

* Rhode Island Division of Commercial Licensing & Regulation
http://www.dbr.state.ri.us/real_estate.html:

* South Carolina Professional & Occupational Licensing Real Estate 
Appraisers Board
http://www.llr.state.sc.us/POL/RealEstateAppraisers/:

* South Dakota Appraiser Certification Program
http://www.state.sd.us/dcr/appraisers/appraiser.html:

* Tennessee Real Estate Appraiser Commission
http://www.state.tn.us/commerce/treac:

* Texas Appraiser Licensing & Certification Board
http://www.talcb.state.tx.us/:

* US Virgin Islands Department of Licensing & Consumer Affairs:

* Utah Division of Real Estate
http://www.commerce.utah.gov/dre:

* Vermont Board of Real Estate Appraisers
http://vtprofessionals.org/opr1/appraisers/:

* Virginia Real Estate Appraiser Board
http://www.state.va.us/dpor/apr_main.htm:

* Washington Department of Licensing, Real Estate Appraisers
http://www.wa.gov/dol/bpd/appfront.htm:

* West Virginia Real Estate Appraiser Licensing and Certification Board
http://www.state.wv.us/appraise:

* Wisconsin Department of Regulation & Licensing
http://www.drl.state.wi.us:

* Wyoming Certified Real Estate Appraiser Board
http://realestate.state.wy.us:

Private Consultants:

* Lewis Allen, Consultant, Automated Valuation Models:

* Walt Humphrey, IFAC, Humphrey and Associates, Inc.

[End of section]

Appendix IV: National Registry Database of the Appraisal Subcommittee:

Title XI requires the Appraisal Subcommittee to maintain a national 
registry of state-licensed and -certified appraisers eligible to 
perform appraisals in connection with federally related transactions. 
The National Registry database, created in 1992 and revised and updated 
in 1997,[Footnote 37] provides names and qualifications of appraisers 
in each state and statistics on, among other things, active and 
inactive licenses, types of licenses, and disciplinary actions. The 
database contains both public and nonpublic information--for example, 
some data on disciplinary actions are restricted to authorized 
representatives of state regulatory agencies. Users can access the 
database from the Internet and may download the entire public portion 
at no charge.

According to the Appraisal Subcommittee's 2001 annual report, the 
registry is designed to allow users to determine (1) whether an 
appraiser is eligible to perform appraisals in connection with 
federally related transactions and (2) whether the appraiser's 
credentials have ever been suspended, revoked, or surrendered. The 
registry helps in facilitating temporary reciprocity by allowing states 
to determine an appraiser's licensing status and assists state agencies 
in enforcing laws governing appraisers. In addition, financial 
institutions can receive updates via the Internet on revocations, 
suspensions, surrenders, and expirations of licenses.

Information contained in the database comes from the states, which 
periodically submit files to the Appraisal Subcommittee for inclusion 
in the registry, with most states submitting data monthly. The registry 
reports on four classes of appraisers--licensed, certified general, 
certified residential, and transitional. According to an Appraisal 
Subcommittee official, the database also serves as an archive, as no 
records are ever deleted. Our research showed that nearly one-half of 
the appraisers included in the database were classified as inactive 
because of retirements, death, departure from the profession, or other 
reasons. Some appraisers were listed as both active and inactive, since 
they had given up one type of license and obtained another kind.

As of October 31, 2002, the database reported nearly 89,000 appraisers 
eligible to perform appraisals for federally related transactions. The 
number of appraisers reported by state appraisal regulatory agencies 
ranged from 10 in the Northern Mariana Islands to nearly 9,500 in 
California (table 3). Certified general and certified residential 
appraisers accounted for nearly 76 percent of the licensed appraisers.

Table 3: Active Appraiser Licenses, by State and Type:

Issuing states and U.S. territories.

Alabama; [Empty]; Type of license: Licensed: N: 113; Type of license: 
Certified general: N: 420; Type of license: Certified residential: N: 
510; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 1,043.

Alaska; [Empty]; Type of license: Licensed: N: [A]; Type of license: 
Certified general: N: 70; Type of license: Certified residential: N: 
82; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 152.

Arizona; [Empty]; Type of license: Licensed: N: 424; Type of license: 
Certified general: N: 568; Type of license: Certified residential: N: 
626; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 1,618.

Arkansas; [Empty]; Type of license: Licensed: N: 113; Type of license: 
Certified general: N: 343; Type of license: Certified residential: N: 
314; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 770.

California; [Empty]; Type of license: Licensed: N: 2,124; Type of 
license: Certified general: N: 3,395; Type of license: Certified 
residential: N: 3,936; Type of license: Transitional license: N: [A]; 
[Empty]; All: Number: 9,455.

Colorado; [Empty]; Type of license: Licensed: N: 737; Type of license: 
Certified general: N: 1,092; Type of license: Certified residential: N: 
971; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 2,800.

Connecticut; [Empty]; Type of license: Licensed: N: 31; Type of 
license: Certified general: N: 505; Type of license: Certified 
residential: N: 583; Type of license: Transitional license: N: [A]; 
[Empty]; All: Number: 1,119.

Delaware; [Empty]; Type of license: Licensed: N: 61; Type of license: 
Certified general: N: 169; Type of license: Certified residential: N: 
214; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 444.

District of Columbia; [Empty]; Type of license: Licensed: N: 327; Type 
of license: Certified general: N: 212; Type of license: Certified 
residential: N: [A]; Type of license: Transitional license: N: [A]; 
[Empty]; All: Number: 539.

Florida; [Empty]; Type of license: Licensed: N: 105; Type of license: 
Certified general: N: 1,944; Type of license: Certified residential: N: 
2,824; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 4,873.

Georgia; [Empty]; Type of license: Licensed: N: 1,034; Type of license: 
Certified general: N: 1,430; Type of license: Certified residential: N: 
894; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 3,358.

Guam; [Empty]; Type of license: Licensed: N: 9; Type of license: 
Certified general: N: 10; Type of license: Certified residential: N: 3; 
Type of license: Transitional license: N: [A]; [Empty]; All: Number: 
22.

Hawaii; [Empty]; Type of license: Licensed: N: 22; Type of license: 
Certified general: N: 131; Type of license: Certified residential: N: 
150; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 303.

Idaho; [Empty]; Type of license: Licensed: N: 191; Type of license: 
Certified general: N: 221; Type of license: Certified residential: N: 
133; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 545.

Illinois; [Empty]; Type of license: Licensed: N: 2,342; Type of 
license: Certified general: N: 1,037; Type of license: Certified 
residential: N: 1,768; Type of license: Transitional license: N: [A]; 
[Empty]; All: Number: 5,147.

Indiana; [Empty]; Type of license: Licensed: N: 829; Type of license: 
Certified general: N: 528; Type of license: Certified residential: N: 
728; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 2,085.

Iowa; [Empty]; Type of license: Licensed: N: [A]; Type of license: 
Certified general: N: 528; Type of license: Certified residential: N: 
485; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 1,013.

Kansas; [Empty]; Type of license: Licensed: N: 261; Type of license: 
Certified general: N: 419; Type of license: Certified residential: N: 
328; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 1,008.

Kentucky; [Empty]; Type of license: Licensed: N: 90; Type of license: 
Certified general: N: 448; Type of license: Certified residential: N: 
698; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 1,236.

Louisiana; [Empty]; Type of license: Licensed: N: [A]; Type of license: 
Certified general: N: 340; Type of license: Certified residential: N: 
556; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 896.

Maine; [Empty]; Type of license: Licensed: N: 103; Type of license: 
Certified general: N: 268; Type of license: Certified residential: N: 
214; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 585.

Maryland; [Empty]; Type of license: Licensed: N: 820; Type of license: 
Certified general: N: 724; Type of license: Certified residential: N: 
780; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 2,324.

Massachusetts; [Empty]; Type of license: Licensed: N: 524; Type of 
license: Certified general: N: 675; Type of license: Certified 
residential: N: 726; Type of license: Transitional license: N: [A]; 
[Empty]; All: Number: 1,925.

Michigan; [Empty]; Type of license: Licensed: N: 2,074; Type of 
license: Certified general: N: 987; Type of license: Certified 
residential: N: 73; Type of license: Transitional license: N: [A]; 
[Empty]; All: Number: 3,134.

Minnesota; [Empty]; Type of license: Licensed: N: 148; Type of license: 
Certified general: N: 790; Type of license: Certified residential: N: 
835; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 1,773.

Mississippi; [Empty]; Type of license: Licensed: N: 344; Type of 
license: Certified general: N: 451; Type of license: Certified 
residential: N: 406; Type of license: Transitional license: N: [A]; 
[Empty]; All: Number: 1,201.

Missouri; [Empty]; Type of license: Licensed: N: 247; Type of license: 
Certified general: N: 616; Type of license: Certified residential: N: 
994; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 1,857.

Montana; [Empty]; Type of license: Licensed: N: 42; Type of license: 
Certified general: N: 225; Type of license: Certified residential: N: 
140; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 407.

Nebraska; [Empty]; Type of license: Licensed: N: 120; Type of license: 
Certified general: N: 344; Type of license: Certified residential: N: 
110; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 574.

New Hampshire; [Empty]; Type of license: Licensed: N: 115; Type of 
license: Certified general: N: 288; Type of license: Certified 
residential: N: 296; Type of license: Transitional license: N: [A]; 
[Empty]; All: Number: 699.

New Jersey; [Empty]; Type of license: Licensed: N: 674; Type of 
license: Certified general: N: 987; Type of license: Certified 
residential: N: 648; Type of license: Transitional license: N: [A]; 
[Empty]; All: Number: 2,309.

New Mexico; [Empty]; Type of license: Licensed: N: 62; Type of license: 
Certified general: N: 249; Type of license: Certified residential: N: 
221; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 532.

Nevada; [Empty]; Type of license: Licensed: N: 160; Type of license: 
Certified general: N: 319; Type of license: Certified residential: N: 
263; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 742.

New York; [Empty]; Type of license: Licensed: N: 388; Type of license: 
Certified general: N: 1,440; Type of license: Certified residential: N: 
1,811; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 3,639.

North Carolina; [Empty]; Type of license: Licensed: N: 169; Type of 
license: Certified general: N: 678; Type of license: Certified 
residential: N: 1,435; Type of license: Transitional license: N: [A]; 
[Empty]; All: Number: 2,282.

North Dakota; [Empty]; Type of license: Licensed: N: 59; Type of 
license: Certified general: N: 117; Type of license: Certified 
residential: N: [A]; Type of license: Transitional license: N: [A]; 
[Empty]; All: Number: 176.

Northern Mariana Islands; [Empty]; Type of license: Licensed: N: [A]; 
Type of license: Certified general: N: 9; Type of license: Certified 
residential: N: 1; Type of license: Transitional license: N: [A]; 
[Empty]; All: Number: 10.

Ohio; [Empty]; Type of license: Licensed: N: 1,684; Type of license: 
Certified general: N: 863; Type of license: Certified residential: N: 
543; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 3,090.

Oklahoma; [Empty]; Type of license: Licensed: N: 564; Type of license: 
Certified general: N: 389; Type of license: Certified residential: N: 
361; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 1,314.

Oregon; [Empty]; Type of license: Licensed: N: 686; Type of license: 
Certified general: N: 471; Type of license: Certified residential: N: 
151; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 1,308.

Pennsylvania; [Empty]; Type of license: Licensed: N: [A]; Type of 
license: Certified general: N: 1,150; Type of license: Certified 
residential: N: 1,777; Type of license: Transitional license: N: [A]; 
[Empty]; All: Number: 2,927.

Puerto Rico; [Empty]; Type of license: Licensed: N: 9; Type of license: 
Certified general: N: 148; Type of license: Certified residential: N: 
40; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 197.

Rhode Island; [Empty]; Type of license: Licensed: N: 69; Type of 
license: Certified general: N: 143; Type of license: Certified 
residential: N: 183; Type of license: Transitional license: N: [A]; 
[Empty]; All: Number: 395.

South Carolina; [Empty]; Type of license: Licensed: N: 434; Type of 
license: Certified general: N: 560; Type of license: Certified 
residential: N: 626; Type of license: Transitional license: N: [A]; 
[Empty]; All: Number: 1,620.

South Dakota; [Empty]; Type of license: Licensed: N: 66; Type of 
license: Certified general: N: 137; Type of license: Certified 
residential: N: 16; Type of license: Transitional license: N: [A]; 
[Empty]; All: Number: 219.

Tennessee; [Empty]; Type of license: Licensed: N: 203; Type of license: 
Certified general: N: 553; Type of license: Certified residential: N: 
747; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 1,503.

Texas; [Empty]; Type of license: Licensed: N: 375; Type of license: 
Certified general: N: 2,161; Type of license: Certified residential: N: 
1,787; Type of license: Transitional license: N: 36; [Empty]; All: 
Number: 4,359.

Utah; [Empty]; Type of license: Licensed: N: 99; Type of license: 
Certified general: N: 325; Type of license: Certified residential: N: 
563; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 987.

Vermont; [Empty]; Type of license: Licensed: N: 49; Type of license: 
Certified general: N: 116; Type of license: Certified residential: N: 
101; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 266.

Virgin Islands; [Empty]; Type of license: Licensed: N: [A]; Type of 
license: Certified general: N: 11; Type of license: Certified 
residential: N: 9; Type of license: Transitional license: N: [A]; 
[Empty]; All: Number: 20.

Virginia; [Empty]; Type of license: Licensed: N: 787; Type of license: 
Certified general: N: 855; Type of license: Certified residential: N: 
871; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 2,513.

Washington; [Empty]; Type of license: Licensed: N: 391; Type of 
license: Certified general: N: 845; Type of license: Certified 
residential: N: 1,201; Type of license: Transitional license: N: [A]; 
[Empty]; All: Number: 2,437.

West Virginia; [Empty]; Type of license: Licensed: N: 169; Type of 
license: Certified general: N: 161; Type of license: Certified 
residential: N: 190; Type of license: Transitional license: N: [A]; 
[Empty]; All: Number: 520.

Wisconsin; [Empty]; Type of license: Licensed: N: 556; Type of license: 
Certified general: N: 606; Type of license: Certified residential: N: 
872; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 2,034.

Wyoming; [Empty]; Type of license: Licensed: N: [A]; Type of license: 
Certified general: N: 213; Type of license: Certified residential: N: 
91; Type of license: Transitional license: N: [A]; [Empty]; All: 
Number: 304.

All; [Empty]; Type of license: Licensed: N: 21,003; Type of license: 
Certified general: N: 32,684; Type of license: Certified residential: 
N: 34,885; Type of license: Transitional license: N: 36; [Empty]; All: 
Number: 88,608.

Source: GAO Analysis of Appraisal Subcommittee National Registry of 
Appraisers Database as of 10/31/02.

[A] Not applicable.

[End of table]

As previously noted, the database contains information on disciplinary 
actions taken and reported by state regulators (table 4). Of the 4,360 
disciplinary actions reported for active and inactive licensees in the 
database as of October 31, 2002, the category "other" accounted for the 
greatest number --1,088 (25 percent) followed by "fines" with 788 
instances (18 percent).[Footnote 38] The number of disciplinary actions 
taken by state appraiser regulatory agencies ranged from a single 
action to as many as 668. Specifically, Vermont reported taking a 
single action, while California, Oklahoma, and Virginia accounted for 
nearly 34 percent (1,473 actions) of the actions reported. Table 4 
identifies the number and type of disciplinary actions taken against 
active licensees in each state.

Table 4: Disciplinary Actions, by State (Active and Inactive 
Licensees):

Issuing states
and U.S. territories: Alabama; [Empty]; Type of disciplinary action: 
Other: N: 15; Type of disciplinary action: Warnings: N: [A]; Type of 
disciplinary action: Additional education: N: [A]; Type of disciplinary 
action: Fine: N: 2; Type of disciplinary action: Probation: N: [A]; 
Type of disciplinary action: Down-grade: N: 3; Type of disciplinary 
action: Suspen-sion: N: 12; Type of disciplinary action: Revoca-tion: 
N: 3; Type of disciplinary action: Voluntary surrender: N: 3; Type of 
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of 
actions: 38.

Issuing states
and U.S. territories: Alaska; [Empty]; Type of disciplinary action: 
Other: N: [A]; Type of disciplinary action: Warnings: N: [A]; Type of 
disciplinary action: Additional education: N: [A]; Type of disciplinary 
action: Fine: N: 1; Type of disciplinary action: Probation: N: 2; Type 
of disciplinary action: Down-grade: N: [A]; Type of disciplinary 
action: Suspen-sion: N: 1; Type of disciplinary action: Revoca-tion: N: 
[A]; Type of disciplinary action: Voluntary surrender: N: 1; Type of 
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of 
actions: 5.

Issuing states
and U.S. territories: Arizona; [Empty]; Type of disciplinary action: 
Other: N: 119; Type of disciplinary action: Warnings: N: [A]; Type of 
disciplinary action: Additional education: N: [A]; Type of disciplinary 
action: Fine: N: [A]; Type of disciplinary action: Probation: N: 35; 
Type of disciplinary action: Down-grade: N: 1; Type of disciplinary 
action: Suspen-sion: N: 19; Type of disciplinary action: Revoca-tion: 
N: 15; Type of disciplinary action: Voluntary surrender: N: 12; Type of 
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of 
actions: 201.

Issuing states
and U.S. territories: Arkansas; [Empty]; Type of disciplinary action: 
Other: N: [A]; Type of disciplinary action: Warnings: N: 7; Type of 
disciplinary action: Additional education: N: 6; Type of disciplinary 
action: Fine: N: 4; Type of disciplinary action: Probation: N: 12; Type 
of disciplinary action: Down-grade: N: [A]; Type of disciplinary 
action: Suspen-sion: N: 3; Type of disciplinary action: Revoca-tion: N: 
5; Type of disciplinary action: Voluntary surrender: N: [A]; Type of 
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of 
actions: 37.

Issuing states
and U.S. territories: California; [Empty]; Type of disciplinary action: 
Other: N: 5; Type of disciplinary action: Warnings: N: 108; Type of 
disciplinary action: Additional education: N: 3; Type of disciplinary 
action: Fine: N: 105; Type of disciplinary action: Probation: N: 6; 
Type of disciplinary action: Down-grade: N: 2; Type of disciplinary 
action: Suspen-sion: N: 87; Type of disciplinary action: Revoca-tion: 
N: 83; Type of disciplinary action: Voluntary surrender: N: 45; Type of 
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of 
actions: 444.

Issuing states
and U.S. territories: Colorado; [Empty]; Type of disciplinary action: 
Other: N: [A]; Type of disciplinary action: Warnings: N: 2; Type of 
disciplinary action: Additional education: N: 3; Type of disciplinary 
action: Fine: N: 29; Type of disciplinary action: Probation: N: 18; 
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary 
action: Suspen-sion: N: 7; Type of disciplinary action: Revoca-tion: N: 
6; Type of disciplinary action: Voluntary surrender: N: 3; Type of 
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of 
actions: 68.

Issuing states
and U.S. territories: Connecticut; [Empty]; Type of disciplinary 
action: Other: N: 4; Type of disciplinary action: Warnings: N: [A]; 
Type of disciplinary action: Additional education: N: 4; Type of 
disciplinary action: Fine: N: 5; Type of disciplinary action: 
Probation: N: [A]; Type of disciplinary action: Down-grade: N: [A]; 
Type of disciplinary action: Suspen-sion: N: 1; Type of disciplinary 
action: Revoca-tion: N: 1; Type of disciplinary action: Voluntary 
surrender: N: [A]; Type of disciplinary action: Official reprimand: N: 
1; [Empty]; All: No. of actions: 16.

Issuing states
and U.S. territories: Delaware; [Empty]; Type of disciplinary action: 
Other: N: [A]; Type of disciplinary action: Warnings: N: [A]; Type of 
disciplinary action: Additional education: N: 2; Type of disciplinary 
action: Fine: N: [A]; Type of disciplinary action: Probation: N: 2; 
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary 
action: Suspen-sion: N: [A]; Type of disciplinary action: Revoca-tion: 
N: [A]; Type of disciplinary action: Voluntary surrender: N: [A]; Type 
of disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. 
of actions: 4.

Issuing states
and U.S. territories: Florida; [Empty]; Type of disciplinary action: 
Other: N: [A]; Type of disciplinary action: Warnings: N: 3; Type of 
disciplinary action: Additional education: N: 9; Type of disciplinary 
action: Fine: N: 80; Type of disciplinary action: Probation: N: 31; 
Type of disciplinary action: Down-grade: N: 1; Type of disciplinary 
action: Suspen-sion: N: 8; Type of disciplinary action: Revoca-tion: N: 
26; Type of disciplinary action: Voluntary surrender: N: [A]; Type of 
disciplinary action: Official reprimand: N: 1; [Empty]; All: No. of 
actions: 159.

Issuing states
and U.S. territories: Georgia; [Empty]; Type of disciplinary action: 
Other: N: 87; Type of disciplinary action: Warnings: N: 3; Type of 
disciplinary action: Additional education: N: [A]; Type of disciplinary 
action: Fine: N: 26; Type of disciplinary action: Probation: N: [A]; 
Type of disciplinary action: Down-grade: N: 1; Type of disciplinary 
action: Suspen-sion: N: 34; Type of disciplinary action: Revoca-tion: 
N: 56; Type of disciplinary action: Voluntary surrender: N: 23; Type of 
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of 
actions: 230.

Issuing states
and U.S. territories: Hawaii; [Empty]; Type of disciplinary action: 
Other: N: [A]; Type of disciplinary action: Warnings: N: 1; Type of 
disciplinary action: Additional education: N: [A]; Type of disciplinary 
action: Fine: N: [A]; Type of disciplinary action: Probation: N: [A]; 
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary 
action: Suspen-sion: N: [A]; Type of disciplinary action: Revoca-tion: 
N: 1; Type of disciplinary action: Voluntary surrender: N: [A]; Type of 
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of 
actions: 2.

Issuing states
and U.S. territories: Idaho; [Empty]; Type of disciplinary action: 
Other: N: [A]; Type of disciplinary action: Warnings: N: 4; Type of 
disciplinary action: Additional education: N: 8; Type of disciplinary 
action: Fine: N: 13; Type of disciplinary action: Probation: N: 9; Type 
of disciplinary action: Down-grade: N: [A]; Type of disciplinary 
action: Suspen-sion: N: 2; Type of disciplinary action: Revoca-tion: N: 
[A]; Type of disciplinary action: Voluntary surrender: N: 2; Type of 
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of 
actions: 38.

Issuing states
and U.S. territories: Illinois; [Empty]; Type of disciplinary action: 
Other: N: 4; Type of disciplinary action: Warnings: N: 116; Type of 
disciplinary action: Additional education: N: [A]; Type of disciplinary 
action: Fine: N: 21; Type of disciplinary action: Probation: N: 8; Type 
of disciplinary action: Down-grade: N: 2; Type of disciplinary action: 
Suspen-sion: N: 12; Type of disciplinary action: Revoca-tion: N: 36; 
Type of disciplinary action: Voluntary surrender: N: 7; Type of 
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of 
actions: 206.

Issuing states
and U.S. territories: Indiana; [Empty]; Type of disciplinary action: 
Other: N: [A]; Type of disciplinary action: Warnings: N: [A]; Type of 
disciplinary action: Additional education: N: [A]; Type of disciplinary 
action: Fine: N: [A]; Type of disciplinary action: Probation: N: 3; 
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary 
action: Suspen-sion: N: 4; Type of disciplinary action: Revoca-tion: N: 
1; Type of disciplinary action: Voluntary surrender: N: [A]; Type of 
disciplinary action: Official reprimand: N: 2; [Empty]; All: No. of 
actions: 10.

Issuing states
and U.S. territories: Iowa; [Empty]; Type of disciplinary action: 
Other: N: 2; Type of disciplinary action: Warnings: N: 1; Type of 
disciplinary action: Additional education: N: 62; Type of disciplinary 
action: Fine: N: 10; Type of disciplinary action: Probation: N: [A]; 
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary 
action: Suspen-sion: N: 3; Type of disciplinary action: Revoca-tion: N: 
7; Type of disciplinary action: Voluntary surrender: N: 3; Type of 
disciplinary action: Official reprimand: N: 1; [Empty]; All: No. of 
actions: 89.

Issuing states
and U.S. territories: Kansas; [Empty]; Type of disciplinary action: 
Other: N: 1; Type of disciplinary action: Warnings: N: 9; Type of 
disciplinary action: Additional education: N: 24; Type of disciplinary 
action: Fine: N: 25; Type of disciplinary action: Probation: N: 12; 
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary 
action: Suspen-sion: N: 5; Type of disciplinary action: Revoca-tion: N: 
9; Type of disciplinary action: Voluntary surrender: N: a; Type of 
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of 
actions: 85.

Issuing states
and U.S. territories: Kentucky; [Empty]; Type of disciplinary action: 
Other: N: [A]; Type of disciplinary action: Warnings: N: 2; Type of 
disciplinary action: Additional education: N: 11; Type of disciplinary 
action: Fine: N: 59; Type of disciplinary action: Probation: N: 1; Type 
of disciplinary action: Down-grade: N: [A]; Type of disciplinary 
action: Suspen-sion: N: 14; Type of disciplinary action: Revoca-tion: 
N: 3; Type of disciplinary action: Voluntary surrender: N: 2; Type of 
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of 
actions: 92.

Issuing states
and U.S. territories: Louisiana; [Empty]; Type of disciplinary action: 
Other: N: [A]; Type of disciplinary action: Warnings: N: 14; Type of 
disciplinary action: Additional education: N: [A]; Type of disciplinary 
action: Fine: N: 2; Type of disciplinary action: Probation: N: [A]; 
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary 
action: Suspen-sion: N: 4; Type of disciplinary action: Revoca-tion: N: 
[A]; Type of disciplinary action: Voluntary surrender: N: [A]; Type of 
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of 
actions: 20.

Issuing states
and U.S. territories: Maine; [Empty]; Type of disciplinary action: 
Other: N: 2; Type of disciplinary action: Warnings: N: [A]; Type of 
disciplinary action: Additional education: N: 1; Type of disciplinary 
action: Fine: N: 13; Type of disciplinary action: Probation: N: 2; Type 
of disciplinary action: Down-grade: N: [A]; Type of disciplinary 
action: Suspen-sion: N: [A]; Type of disciplinary action: Revoca-tion: 
N: 1; Type of disciplinary action: Voluntary surrender: N: 1; Type of 
disciplinary action: Official reprimand: N: 3; [Empty]; All: No. of 
actions: 23.

Issuing states
and U.S. territories: Maryland; [Empty]; Type of disciplinary action: 
Other: N: 1; Type of disciplinary action: Warnings: N: [A]; Type of 
disciplinary action: Additional education: N: 2; Type of disciplinary 
action: Fine: N: 4; Type of disciplinary action: Probation: N: [A]; 
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary 
action: Suspen-sion: N: 8; Type of disciplinary action: Revoca-tion: N: 
2; Type of disciplinary action: Voluntary surrender: N: [A]; Type of 
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of 
actions: 17.

Issuing states
and U.S. territories: Massachusetts; [Empty]; Type of disciplinary 
action: Other: N: [A]; Type of disciplinary action: Warnings: N: [A]; 
Type of disciplinary action: Additional education: N: 1; Type of 
disciplinary action: Fine: N: [A]; Type of disciplinary action: 
Probation: N: 8; Type of disciplinary action: Down-grade: N: [A]; Type 
of disciplinary action: Suspen-sion: N: [A]; Type of disciplinary 
action: Revoca-tion: N: 2; Type of disciplinary action: Voluntary 
surrender: N: 3; Type of disciplinary action: Official reprimand: N: 
[A]; [Empty]; All: No. of actions: 14.

Issuing states
and U.S. territories: Michigan; [Empty]; Type of disciplinary action: 
Other: N: [A]; Type of disciplinary action: Warnings: N: [A]; Type of 
disciplinary action: Additional education: N: [A]; Type of disciplinary 
action: Fine: N: 17; Type of disciplinary action: Probation: N: 16; 
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary 
action: Suspen-sion: N: 6; Type of disciplinary action: Revoca-tion: N: 
5; Type of disciplinary action: Voluntary surrender: N: 1; Type of 
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of 
actions: 45.

Issuing states
and U.S. territories: Minnesota; [Empty]; Type of disciplinary action: 
Other: N: 13; Type of disciplinary action: Warnings: N: [A]; Type of 
disciplinary action: Additional education: N: [A]; Type of disciplinary 
action: Fine: N: 14; Type of disciplinary action: Probation: N: [A]; 
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary 
action: Suspen-sion: N: 28; Type of disciplinary action: Revoca-tion: 
N: 4; Type of disciplinary action: Voluntary surrender: N: a; Type of 
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of 
actions: 59.

Issuing states
and U.S. territories: Mississippi; [Empty]; Type of disciplinary 
action: Other: N: 132; Type of disciplinary action: Warnings: N: [A]; 
Type of disciplinary action: Additional education: N: 29; Type of 
disciplinary action: Fine: N: [A]; Type of disciplinary action: 
Probation: N: 4; Type of disciplinary action: Down-grade: N: [A]; Type 
of disciplinary action: Suspen-sion: N: 5; Type of disciplinary action: 
Revoca-tion: N: 1; Type of disciplinary action: Voluntary surrender: N: 
48; Type of disciplinary action: Official reprimand: N: [A]; [Empty]; 
All: No. of actions: 219.

Issuing states
and U.S. territories: Missouri; [Empty]; Type of disciplinary action: 
Other: N: 1; Type of disciplinary action: Warnings: N: 1; Type of 
disciplinary action: Additional education: N: [A]; Type of disciplinary 
action: Fine: N: [A]; Type of disciplinary action: Probation: N: 27; 
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary 
action: Suspen-sion: N: 3; Type of disciplinary action: Revoca-tion: N: 
7; Type of disciplinary action: Voluntary surrender: N: 5; Type of 
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of 
actions: 44.

Issuing states
and U.S. territories: Montana; [Empty]; Type of disciplinary action: 
Other: N: [A]; Type of disciplinary action: Warnings: N: [A]; Type of 
disciplinary action: Additional education: N: [A]; Type of disciplinary 
action: Fine: N: [A]; Type of disciplinary action: Probation: N: 5; 
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary 
action: Suspen-sion: N: [A]; Type of disciplinary action: Revoca-tion: 
N: [A]; Type of disciplinary action: Voluntary surrender: N: 1; Type of 
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of 
actions: 6.

Issuing states
and U.S. territories: Nebraska; [Empty]; Type of disciplinary action: 
Other: N: [A]; Type of disciplinary action: Warnings: N: [A]; Type of 
disciplinary action: Additional education: N: 9; Type of disciplinary 
action: Fine: N: [A]; Type of disciplinary action: Probation: N: 4; 
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary 
action: Suspen-sion: N: [A]; Type of disciplinary action: Revoca-tion: 
N: [A]; Type of disciplinary action: Voluntary surrender: N: 7; Type of 
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of 
actions: 20.

Issuing states
and U.S. territories: Nevada; [Empty]; Type of disciplinary action: 
Other: N: [A]; Type of disciplinary action: Warnings: N: [A]; Type of 
disciplinary action: Additional education: N: 27; Type of disciplinary 
action: Fine: N: 20; Type of disciplinary action: Probation: N: [A]; 
Type of disciplinary action: Down-grade: N: 8; Type of disciplinary 
action: Suspen-sion: N: 6; Type of disciplinary action: Revoca-tion: N: 
8; Type of disciplinary action: Voluntary surrender: N: [A]; Type of 
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of 
actions: 69.

Issuing states
and U.S. territories: New Hampshire; [Empty]; Type of disciplinary 
action: Other: N: [A]; Type of disciplinary action: Warnings: N: [A]; 
Type of disciplinary action: Additional education: N: [A]; Type of 
disciplinary action: Fine: N: [A]; Type of disciplinary action: 
Probation: N: [A]; Type of disciplinary action: Down-grade: N: [A]; 
Type of disciplinary action: Suspen-sion: N: 2; Type of disciplinary 
action: Revoca-tion: N: 1; Type of disciplinary action: Voluntary 
surrender: N: 1; Type of disciplinary action: Official reprimand: N: 
[A]; [Empty]; All: No. of actions: 4.

Issuing states
and U.S. territories: New Jersey; [Empty]; Type of disciplinary action: 
Other: N: [A]; Type of disciplinary action: Warnings: N: [A]; Type of 
disciplinary action: Additional education: N: [A]; Type of disciplinary 
action: Fine: N: 6; Type of disciplinary action: Probation: N: 4; Type 
of disciplinary action: Down-grade: N: 2; Type of disciplinary action: 
Suspen-sion: N: 9; Type of disciplinary action: Revoca-tion: N: 1; Type 
of disciplinary action: Voluntary surrender: N: 2; Type of disciplinary 
action: Official reprimand: N: 4; [Empty]; All: No. of actions: 28.

Issuing states
and U.S. territories: New Mexico; [Empty]; Type of disciplinary action: 
Other: N: [A]; Type of disciplinary action: Warnings: N: 4; Type of 
disciplinary action: Additional education: N: 5; Type of disciplinary 
action: Fine: N: 1; Type of disciplinary action: Probation: N: [A]; 
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary 
action: Suspen-sion: N: [A]; Type of disciplinary action: Revoca-tion: 
N: 1; Type of disciplinary action: Voluntary surrender: N: [A]; Type of 
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of 
actions: 11.

Issuing states
and U.S. territories: New York; [Empty]; Type of disciplinary action: 
Other: N: [A]; Type of disciplinary action: Warnings: N: [A]; Type of 
disciplinary action: Additional education: N: [A]; Type of disciplinary 
action: Fine: N: [A]; Type of disciplinary action: Probation: N: [A]; 
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary 
action: Suspen-sion: N: [A]; Type of disciplinary action: Revoca-tion: 
N: 2; Type of disciplinary action: Voluntary surrender: N: 1; Type of 
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of 
actions: 3.

Issuing states
and U.S. territories: North Carolina; [Empty]; Type of disciplinary 
action: Other: N: 1; Type of disciplinary action: Warnings: N: [A]; 
Type of disciplinary action: Additional education: N: 45; Type of 
disciplinary action: Fine: N: [A]; Type of disciplinary action: 
Probation: N: [A]; Type of disciplinary action: Down-grade: N: [A]; 
Type of disciplinary action: Suspen-sion: N: 38; Type of disciplinary 
action: Revoca-tion: N: 3; Type of disciplinary action: Voluntary 
surrender: N: 5; Type of disciplinary action: Official reprimand: N: 
43; [Empty]; All: No. of actions: 135.

Issuing states
and U.S. territories: North Dakota; [Empty]; Type of disciplinary 
action: Other: N: [A]; Type of disciplinary action: Warnings: N: [A]; 
Type of disciplinary action: Additional education: N: 7; Type of 
disciplinary action: Fine: N: [A]; Type of disciplinary action: 
Probation: N: [A]; Type of disciplinary action: Down-grade: N: 2; Type 
of disciplinary action: Suspen-sion: N: 1; Type of disciplinary action: 
Revoca-tion: N: 2; Type of disciplinary action: Voluntary surrender: N: 
1; Type of disciplinary action: Official reprimand: N: [A]; [Empty]; 
All: No. of actions: 13.

Issuing states
and U.S. territories: Ohio; [Empty]; Type of disciplinary action: 
Other: N: [A]; Type of disciplinary action: Warnings: N: 26; Type of 
disciplinary action: Additional education: N: 11; Type of disciplinary 
action: Fine: N: [A]; Type of disciplinary action: Probation: N: [A]; 
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary 
action: Suspen-sion: N: 17; Type of disciplinary action: Revoca-tion: 
N: 1; Type of disciplinary action: Voluntary surrender: N: [A]; Type of 
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of 
actions: 55.

Issuing states
and U.S. territories: Oklahoma; [Empty]; Type of disciplinary action: 
Other: N: 371; Type of disciplinary action: Warnings: N: [A]; Type of 
disciplinary action: Additional education: N: 2; Type of disciplinary 
action: Fine: N: [A]; Type of disciplinary action: Probation: N: [A]; 
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary 
action: Suspen-sion: N: 1; Type of disciplinary action: Revoca-tion: N: 
293; Type of disciplinary action: Voluntary surrender: N: [A]; Type of 
disciplinary action: Official reprimand: N: 1; [Empty]; All: No. of 
actions: 668.

Issuing states
and U.S. territories: Oregon; [Empty]; Type of disciplinary action: 
Other: N: 1; Type of disciplinary action: Warnings: N: 5; Type of 
disciplinary action: Additional education: N: 3; Type of disciplinary 
action: Fine: N: 158; Type of disciplinary action: Probation: N: [A]; 
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary 
action: Suspen-sion: N: 15; Type of disciplinary action: Revoca-tion: 
N: 5; Type of disciplinary action: Voluntary surrender: N: 7; Type of 
disciplinary action: Official reprimand: N: 4; [Empty]; All: No. of 
actions: 198.

Issuing states
and U.S. territories: Pennsylvania; [Empty]; Type of disciplinary 
action: Other: N: [A]; Type of disciplinary action: Warnings: N: [A]; 
Type of disciplinary action: Additional education: N: 49; Type of 
disciplinary action: Fine: N: 40; Type of disciplinary action: 
Probation: N: 4; Type of disciplinary action: Down-grade: N: [A]; Type 
of disciplinary action: Suspen-sion: N: 5; Type of disciplinary action: 
Revoca-tion: N: 3; Type of disciplinary action: Voluntary surrender: N: 
3; Type of disciplinary action: Official reprimand: N: 3; [Empty]; All: 
No. of actions: 107.

Issuing states
and U.S. territories: Rhode Island; [Empty]; Type of disciplinary 
action: Other: N: [A]; Type of disciplinary action: Warnings: N: [A]; 
Type of disciplinary action: Additional education: N: [A]; Type of 
disciplinary action: Fine: N: [A]; Type of disciplinary action: 
Probation: N: [A]; Type of disciplinary action: Down-grade: N: [A]; 
Type of disciplinary action: Suspen-sion: N: 4; Type of disciplinary 
action: Revoca-tion: N: 4; Type of disciplinary action: Voluntary 
surrender: N: [A]; Type of disciplinary action: Official reprimand: N: 
[A]; [Empty]; All: No. of actions: 8.

Issuing states
and U.S. territories: South Carolina; [Empty]; Type of disciplinary 
action: Other: N: [A]; Type of disciplinary action: Warnings: N: [A]; 
Type of disciplinary action: Additional education: N: [A]; Type of 
disciplinary action: Fine: N: 33; Type of disciplinary action: 
Probation: N: 16; Type of disciplinary action: Down-grade: N: 7; Type 
of disciplinary action: Suspen-sion: N: 4; Type of disciplinary action: 
Revoca-tion: N: 5; Type of disciplinary action: Voluntary surrender: N: 
[A]; Type of disciplinary action: Official reprimand: N: [A]; [Empty]; 
All: No. of actions: 65.

Issuing states
and U.S. territories: South Dakota; [Empty]; Type of disciplinary 
action: Other: N: 4; Type of disciplinary action: Warnings: N: [A]; 
Type of disciplinary action: Additional education: N: [A]; Type of 
disciplinary action: Fine: N: [A]; Type of disciplinary action: 
Probation: N: [A]; Type of disciplinary action: Down-grade: N: [A]; 
Type of disciplinary action: Suspen-sion: N: 3; Type of disciplinary 
action: Revoca-tion: N: [A]; Type of disciplinary action: Voluntary 
surrender: N: [A]; Type of disciplinary action: Official reprimand: N: 
11; [Empty]; All: No. of actions: 18.

Issuing states
and U.S. territories: Tennessee; [Empty]; Type of disciplinary action: 
Other: N: 24; Type of disciplinary action: Warnings: N: 46; Type of 
disciplinary action: Additional education: N: 69; Type of disciplinary 
action: Fine: N: 13; Type of disciplinary action: Probation: N: 3; Type 
of disciplinary action: Down-grade: N: 3; Type of disciplinary action: 
Suspen-sion: N: 1; Type of disciplinary action: Revoca-tion: N: 5; Type 
of disciplinary action: Voluntary surrender: N: 5; Type of disciplinary 
action: Official reprimand: N: [A]; [Empty]; All: No. of actions: 169.

Issuing states
and U.S. territories: Texas; [Empty]; Type of disciplinary action: 
Other: N: 1; Type of disciplinary action: Warnings: N: 3; Type of 
disciplinary action: Additional education: N: 42; Type of disciplinary 
action: Fine: N: 12; Type of disciplinary action: Probation: N: 5; Type 
of disciplinary action: Down-grade: N: [A]; Type of disciplinary 
action: Suspen-sion: N: 4; Type of disciplinary action: Revoca-tion: N: 
6; Type of disciplinary action: Voluntary surrender: N: 1; Type of 
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of 
actions: 74.

Issuing states
and U.S. territories: Utah; [Empty]; Type of disciplinary action: 
Other: N: 4; Type of disciplinary action: Warnings: N: [A]; Type of 
disciplinary action: Additional education: N: 7; Type of disciplinary 
action: Fine: N: 28; Type of disciplinary action: Probation: N: 7; Type 
of disciplinary action: Down-grade: N: 1; Type of disciplinary action: 
Suspen-sion: N: [A]; Type of disciplinary action: Revoca-tion: N: 2; 
Type of disciplinary action: Voluntary surrender: N: 13; Type of 
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of 
actions: 62.

Issuing states
and U.S. territories: Vermont; [Empty]; Type of disciplinary action: 
Other: N: [A]; Type of disciplinary action: Warnings: N: [A]; Type of 
disciplinary action: Additional education: N: 1; Type of disciplinary 
action: Fine: N: [A]; Type of disciplinary action: Probation: N: [A]; 
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary 
action: Suspen-sion: N: [A]; Type of disciplinary action: Revoca-tion: 
N: [A]; Type of disciplinary action: Voluntary surrender: N: [A]; Type 
of disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. 
of actions: 1.

Issuing states
and U.S. territories: Virginia; [Empty]; Type of disciplinary action: 
Other: N: 295; Type of disciplinary action: Warnings: N: 6; Type of 
disciplinary action: Additional education: N: [A]; Type of disciplinary 
action: Fine: N: 43; Type of disciplinary action: Probation: N: [A]; 
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary 
action: Suspen-sion: N: 6; Type of disciplinary action: Revoca-tion: N: 
11; Type of disciplinary action: Voluntary surrender: N: [A]; Type of 
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of 
actions: 361.

Issuing states
and U.S. territories: Washington; [Empty]; Type of disciplinary action: 
Other: N: [A]; Type of disciplinary action: Warnings: N: 34; Type of 
disciplinary action: Additional education: N: a; Type of disciplinary 
action: Fine: N: 3; Type of disciplinary action: Probation: N: 19; Type 
of disciplinary action: Down-grade: N: [A]; Type of disciplinary 
action: Suspen-sion: N: 9; Type of disciplinary action: Revoca-tion: N: 
15; Type of disciplinary action: Voluntary surrender: N: 3; Type of 
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of 
actions: 83.

Issuing states
and U.S. territories: West Virginia; [Empty]; Type of disciplinary 
action: Other: N: [A]; Type of disciplinary action: Warnings: N: [A]; 
Type of disciplinary action: Additional education: N: [A]; Type of 
disciplinary action: Fine: N: [A]; Type of disciplinary action: 
Probation: N: [A]; Type of disciplinary action: Down-grade: N: [A]; 
Type of disciplinary action: Suspen-sion: N: 5; Type of disciplinary 
action: Revoca-tion: N: [A]; Type of disciplinary action: Voluntary 
surrender: N: [A]; Type of disciplinary action: Official reprimand: N: 
[A]; [Empty]; All: No. of actions: 5.

Issuing states
and U.S. territories: Wisconsin; [Empty]; Type of disciplinary action: 
Other: N: 1; Type of disciplinary action: Warnings: N: [A]; Type of 
disciplinary action: Additional education: N: 20; Type of disciplinary 
action: Fine: N: 1; Type of disciplinary action: Probation: N: [A]; 
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary 
action: Suspen-sion: N: [A]; Type of disciplinary action: Revoca-tion: 
N: 2; Type of disciplinary action: Voluntary surrender: N: 1; Type of 
disciplinary action: Official reprimand: N: 3; [Empty]; All: No. of 
actions: 28.

Issuing states
and U.S. territories: Wyoming; [Empty]; Type of disciplinary action: 
Other: N: [A]; Type of disciplinary action: Warnings: N: [A]; Type of 
disciplinary action: Additional education: N: [A]; Type of disciplinary 
action: Fine: N: [A]; Type of disciplinary action: Probation: N: [A]; 
Type of disciplinary action: Down-grade: N: [A]; Type of disciplinary 
action: Suspen-sion: N: 2; Type of disciplinary action: Revoca-tion: N: 
[A]; Type of disciplinary action: Voluntary surrender: N: 2; Type of 
disciplinary action: Official reprimand: N: [A]; [Empty]; All: No. of 
actions: 4.

Issuing states
and U.S. territories: All; [Empty]; Type of disciplinary action: Other: 
N: 1,088; Type of disciplinary action: Warnings: N: 395; Type of 
disciplinary action: Additional education: N: 462; Type of disciplinary 
action: Fine: N: 788; Type of disciplinary action: Probation: N: 263; 
Type of disciplinary action: Down-grade: N: 33; Type of disciplinary 
action: Suspen-sion: N: 398; Type of disciplinary action: Revoca-tion: 
N: 644; Type of disciplinary action: Voluntary surrender: N: 212; Type 
of disciplinary action: Official reprimand: N: 77; [Empty]; All: No. of 
actions: 4,360.

Source: GAO Analysis of Appraisal Subcommittee National Registry of 
Appraisers database as of 10/31/2002.

[A] Not applicable.

[End of table]

[End of section]

Appendix V: Evolution and Use of Automated Valuation Models:

Automated valuation model (AVM) is a broad term used to describe a 
range of computerized econometric models that are designed to provide 
estimates of residential real estate property values. AVMs may use 
regression, adaptive estimation, neural networking, expert reasoning, 
and artificial intelligence to estimate the market value of a 
residence. The earliest users of computer-assisted property valuations 
appear to have been government assessors who needed to value large 
volumes of property for tax purposes. However, early efforts to develop 
computer-assisted appraisal models were hampered by the lack of large 
data sets and the costs of computing.

Since the early 1990s, AVMs have become commercially viable, for 
several reasons. First, computerized real property data sets have 
become available at the metropolitan and state levels. Second, the cost 
of computers has declined. Third, the Internet has improved 
distribution capabilities and further increased the availability of 
needed data. Finally, the growth of the secondary mortgage market has 
helped fuel the demand for AVMs as a faster and more economical 
alternative to traditional appraisals. According to Standard & Poor's, 
AVMs were expected to play a role in 10 percent of all new loan 
originations in the residential mortgage market in 2002 and will be put 
to a variety of uses, from acting as checking appraised values to being 
the sole determinant of a property's value.

Three Types of AVM Models Are Currently Used:

There are many different types of AVMs available. However, three types 
of AVM models are most commonly used: hedonic, repeat sales, and 
hybrids.

* Hedonic models use a sales comparison (or market) approach, which is 
the most commonly used approach for appraising single-family houses. 
Estimates are based in part on recent sales of comparable homes in the 
local market. These models require information about specific 
characteristics, including the living area and lot sizes, age of the 
property, and other physical attributes, to determine value. Recent 
market sales of comparable homes in the local market are used to 
estimate the price of the subject property. In effect, hedonic models 
use a sales comparison (or market) approach, which is the most common 
used approach for most appraisals of single-family houses for lending 
purposes.

* Repeat sales models calculate and apply geographic-specific indexes 
to update a property's last known sales price. Price trends are 
constructed at the zip code and county levels using matched-pair 
analysis. Indexes are generally developed with several price tiers 
within each zip code and assume that the subject property behaves much 
like other properties in the zip code and price tier. Unlike the 
hedonic model, the repeat sales model does not require information on 
property characteristic, only the prices and sale dates for properties 
within a specific geographic area.

* Hybrid models are typically a combination of hedonic and repeat sales 
models, although all hybrids do not give the same weight given to each. 
Another form of hybrid models combines an AVM with involvement or input 
from the appraiser. For example, an appraiser may use the results of an 
AVM as a tool to develop a standard appraisal.

Data Sources for AVMs Vary in Completeness and Reliability:

Regardless of the model used, the quality of the underlying data 
determines the AVM's accuracy and usefulness. The data that are the 
core of any model's results must be accurate, current, and complete. 
Data sources for AVMs include public records, multiple listing 
services, and traditional real estate records. Sources of public data 
include tax records and information kept by country recorders, but both 
these sources have limitations. Tax assessment data are often part of 
the database mix, but AVMs do not rely solely on the assessed value of 
a home. For example, Freddie Mac uses tax assessments along with other 
factors to determine property values in its models. It has found that 
the tax assessment alone is not sufficient to provide accurate value 
estimation. Information at the county level is not available for 
properties that are located in "nondisclosure states."[Footnote 39] 
Further, counties use different methods of collecting data, so that the 
information available in some counties is more complete and consistent 
than it is in others.

Multiple listing service data are considered by some to be the best 
available for determining trends in specific geographic markets and 
changes in the overall market. But this data can also be as fragmented 
and nonstandardized as county data. According to one of the AVM 
developer and vendor that we contacted, his company is increasingly 
relying on data from appraisers because they are usually more accurate 
and in-depth than publicly available data. In addition, he stated that 
some AVM developers and vendors might be physically collecting their 
own data, especially in areas where public data are sparse.

Because of the problems obtaining reliable data and the fact that 
properties are not physically inspected, AVMs are generally not 
considered a viable replacement for traditional appraisals. AVMs work 
best in markets that have an abundance of recent sales data and 
homogenous neighborhoods. In rural areas, they may be less useful, 
either because of a shortage of comparable sales or because rural 
properties are often unique. Without a physical appraisal, AVMs may not 
take into account excess depreciation, wear and tear, and upgrades that 
are not contained in the public records. In addition, the proprietary 
nature of commercial AVMs has raised concerns about the "black box" 
technology these models use. AVM vendors are not required to make their 
AVM methodologies available to the public. As a result, some groups 
have raised concerns that AVM models may be including factors that 
could unintentionally introduce bias into their analysis.

AVMs Have Both Advantages and Disadvantages:

AVMs offer a number of advantages over traditional appraisals. First, 
AVMs are generally much faster and cheaper to use in estimating the 
value of a property. For example, traditional appraisals for single-
family residences typically cost several hundred dollars and can take 
days or even weeks, depending on market conditions and the availability 
of the appraiser. AVMs, however, cost less than $100 and take just a 
few minutes. Second, proponents of AVMs argue that this technology 
delivers more objective and consistent appraisal values than human 
appraisers, who often value properties differently and may be subject 
to pressure from lenders to assess a property at a specific value. 
Third, AVMs can be used to validate traditional appraisals, especially 
in valuing high-risk loans.

As has been pointed out, AVMs also have a number of disadvantages. 
Because data may not be available or may not be complete and reliable, 
the models are sometimes unworkable. The lack of a physical inspection 
could mean that some important factors are not taken into account. And 
AVM technology is proprietary, so that vendors do not have to disclose 
their methodologies to the public. Despite these disadvantages, AVMs 
provide a fast, inexpensive means of valuing properties in active 
markets.

Guidance and Regulations on Using AVMs Are Relatively New:

As of January 2003, federal financial institutions regulators have not 
issued specific regulations or policies governing a federally insured 
depository institution's use of AVMs. According to representatives of 
the federal financial institutions regulators, federally insured 
depository institutions are free to use AVMs for transactions not 
considered to be federally related transactions, such as mortgage loans 
falling below the $250,000 threshold for appraisals. The regulators 
stated that their examiners are being introduced to AVMs through 
various training programs.

The Appraisal Standards Board has issued an advisory opinion, stating 
that the output of an AVM by itself does not constitute an 
appraisal.[Footnote 40] However, the advisory opinion states that 
appraisers can use AVMs as a tool in developing an appraisal, appraisal 
review, or appraisal consulting opinions and conclusions. The opinion 
lists five critical questions that an appraiser must answer before 
deciding to use an AVM:

* Does the appraiser have a basic understanding of how the AVM works?

* Can the appraiser use the AVM properly?

* Are the AVM and the date it is used appropriate?

* Is the AVM output credible?

* Is the AVM output sufficiently reliable for use in the assignment?

The advisory opinion also identifies the steps appraisers should take 
to ensure that the output of an AVM is communicated in a way that is 
not misleading.

Fannie Mae and Freddie Mac, the two government-sponsored enterprises 
(GSE) that control a significant portion of the secondary market for 
conventional single-family mortgage loans, include AVMs within their 
automated loan underwriting systems. According to representatives of 
the two GSEs, their automated loan underwriting systems use various 
factors to determine the appraiser-related services that need to be 
performed. In some cases, the two GSEs allow lenders to use an AVM 
rather than requiring an appraisal because the automated loan 
underwriting system has sufficient information. Both Fannie Mae and 
Freddie Mac reportedly use their proprietary AVMs as part of their 
quality control systems and their own risk and portfolio management. 
Freddie Mac has also made its proprietary stand-alone AVM available to 
other public and private entities.

[End of section]

Appendix VI: The Appraiser Qualifications Board's Process and Fees for 
Approving Appraiser Education Courses and Certifying Instructors:

Some providers of education courses for appraisers have expressed 
concerns about the fees the Appraiser Qualifications Board (AQB) 
charges to approve courses and certify instructors. This appendix 
contains information on (1) the AQB's course approval program, (2) the 
AQB's instructor certification program, (3) options the AQB has offered 
education providers for approving distance education courses, and (4) 
fees charged by other entities offering similar course approval and 
instructor certification programs.

AQB's Course Approval Program:

According to the AQB, it established its course approval program at the 
request of state regulators and education providers associated with the 
real estate appraisal industry. AQB officials told us that many state 
regulators had notified the AQB that Uniform Standards of Professional 
Appraisal Practice (USPAP) courses were deficient and that appraisers 
were facing disciplinary action as a result of not fully understanding 
the standards. Participation in the course approval program is entirely 
voluntary for course providers, and the AQB encourages but does not 
require states to accept approved courses for appraiser education 
requirements. Moreover, a state may set its own requirements, which all 
education providers operating in the state--even those offering AQB-
approved courses--must meet.

Education providers that choose to participate in the AQB's course 
approval program must submit course materials and policies for review 
by a member of the AQB Review Panel. Appraisal Foundation officials 
told us that AQB review panelists are college professors from Virginia 
Commonwealth University, the University of Hawaii, and Texas A&M 
University with experience in real estate appraising. According to the 
AQB, the chief reviewer also performs a summary review to assure 
objectivity and quality control. The chief reviewer then recommends 
whether the AQB should approve the course. According to Appraisal 
Foundation officials, education providers may be asked to fix 
identified deficiencies prior to receiving approval for the course. 
Approval is valid for 3 years, except for courses involving the USPAP, 
which must be approved annually.

The AQB offers education providers content review services for all 
courses--qualifying courses for trainees as well as continuing 
education courses for practicing appraisers--including distance 
education courses. Courses that are approved for qualifying education 
will automatically be approved for continuing education. Distance 
education providers must have their delivery methods certified by the 
International Distance Education Certification Center (IDECC). AQB 
officials noted that IDECC certification is essential, since distance 
education courses are held to a different standard than traditional 
classroom setting courses because students do not have direct in-person 
interaction with instructors.

The AQB's fees for approving courses vary based on the length and type 
of course. For example, the initial fee for approving a 15 to 29 hour 
qualifying education course is $1,200, while the fee for a course of 30 
or more hours is $1,400. The renewal fee is $125. For continuing 
education courses, AQB charges $800 to approve a 2 to 8 hour course, 
$900 to approve a 9 to 16 hour course, and $1,000 to approve a course 
of more than 16 hours. The renewal fee for these courses is $100. AQB 
charges distance education providers the same fees, but distance 
education providers must also pay service fees to IDECC. IDECC charges 
$750 to review the first course and $400 to review each additional 
course. Distance education courses with IDECC certification are 
approved for 3 years, with a recertification fee of $270.

AQB's USPAP Instructor Certification Program:

AQB's USPAP instructor certification program was implemented in 
February 2002 as part of the revisions to the Real Property Appraiser 
Qualification Criteria. According to the AQB, the instructor 
certification program, like the approval process for USPAP courses, was 
adopted in an effort to improve the overall quality of USPAP training. 
Although participation in the program is voluntary, as of January 1, 
2003, only AQB-certified USPAP instructors were permitted to teach the 
national USPAP courses.[Footnote 41] The AQB certifies instructors at 
the national level, but some states have their own requirements that 
instructors must also meet.

The prerequisites for AQB's USPAP instructor certification program 
include at least 7 years of appraisal experience in any discipline and 
at least 35 classroom hours of appraisal teaching experience within the 
last 5 years. Individuals who complete the USPAP instructor 
certification courses and pass the examination must take a USPAP update 
course and examination every 2 years in order to remain certified.

Appraisal Foundation officials reported that past and present Appraisal 
Standards Board members develop, maintain, and teach the USPAP 
instructor certification program course with guidance from the AQB and 
the Education Council of Appraisal Foundation Sponsors 
(ECAFS).[Footnote 42] For example, an Appraisal Foundation official 
told us that members of the ASB had developed the course content and 
that the AQB had contracted with a psychometrician experienced in the 
science of examinations to develop the examination structure. The AQB 
also contracts with a firm specializing in psychometrics--Gainesville 
Independent Testing Services, LLC--to review the examinations after 
every course. Gainesville scores each student's exam and summarizes its 
strengths and weaknesses. Students who fail the course receive both 
their results and a summary of their strengths and weaknesses for each 
component of the examination.

The AQB instructor certification program includes a 2 1/2 day course, 
followed by a half-day 120 multiple-choice question examination. The 
course and exam cost $425. Individuals who participate in the program 
and fail the examination may exercise one of the following options 
within 12 months:

* retake the 2 1/2 day instructor certification course and examination 
for $225, or:

* retake the examination only for $95.

If an individual retaking the examination only fails to pass it the 
second time and still desires to become certified, he or she must 
retake both the course and the examination for $225.

Some education providers are concerned that AQB's mandatory USPAP 
instructor certification program is intended simply to generate revenue 
for the Appraisal Foundation. According to the Appraisal Foundation, 
the program yielded approximately $165,000 in revenues for calendar 
year 2002, while expenses for the program were almost $230,000, 
resulting in a deficit of $63,000. The AQB Instructor Certification 
Program is unique to the AQB, and the AQB has not approved any 
alternative methods of certification for individuals who teach the 
National USPAP courses at the national level.

Options Provided by AQB for Approving Distance Education Courses:

State regulatory agencies also offer course approval programs for 
education providers offering training for appraisers. In some states, 
this approval is mandatory even if the state participates in AQB's 
approval program. For distance education, the AQB offers four options, 
including:

* having an accredited college or university present the course, in 
which case the AQB would approve both the content and delivery method;

* submitting the course to the American Council on Education (ACE) 
College Credit Recommendation Service for content and delivery method 
approval;

* submitting the course to IDECC to have the delivery method approved 
and then submitting the course to the AQB to have the content approved; 
and:

* submitting the course to IDECC to have the delivery method approved 
and then submitting the course to the state regulatory agency for 
appraisers (in the state where the course will be offered) for 
additional approval.

Relative Costs of AQB Course Approval and Instructor Certification 
Programs:

To compare the AQB's fees with those of other entities offering similar 
services, we obtained information from the ACE College Credit Approval 
Service, the Accrediting Council for Continuing Education and Training, 
the National Association for Practical Nurse Education and Service 
Inc., the Distance Education and Training Council, and the 
International Distance Education Certification Center. The course 
approval programs these entities offer vary in scope but in general 
provide services similar to those of the AQB. For example, the National 
Association for Practical Nurse Education and Service offers an 
approval program for continuing and vocational education courses. The 
Accrediting Council for Continuing Education provides both course 
approval services for continuing education and accreditation services 
for entire institutions.

Directly comparing the fees charged by these organizations is difficult 
because they do not all offer exactly the same services; moreover, in 
some cases the fees are not the only cost to the education provider. 
Fees for services from the National Association for Practical Nurse 
Education and Service can range from $60 for a one-time course offering 
by an association member to $600 for more than 60 repeat course 
offerings by a nonmember. Fees for accreditation services by the 
Accrediting Council for Continuing Education and Training are a minimum 
of $6,300, which includes a preapplication evaluation, an application 
for initial accreditation, a mandatory accreditation workshop for 
education provider representatives, and a site visit. Table 5 provides 
an overview of the fees charged for course approval services.

Table 5: Approval Service Fees, by Service Provider as of February 
2003:

Type of approval service: Qualifying education course; Service 
provider: AQB: $1,200-$1,400; Service provider: ACE[A]: $700; Service 
provider: ACCET[B]: n/a; Service provider: NAPES: n/a; Service 
provider: DETC[C]: n/a; Service provider: IDECC: n/a.

Type of approval service: Continuing education course; Service 
provider: AQB: $800-$1,000; Service provider: ACE[A]: n/a; Service 
provider: ACCET[B]: $6,300; Service provider: NAPES: $60-$600; Service 
provider: DETC[C]: n/a; Service provider: IDECC: n/a.

Type of approval service: Distance education course content; 
Service provider: AQB: $800-$1,000; Service provider: ACE[A]: $700; 
Service provider: ACCET[B]: $6,300; Service provider: NAPES: n/a; 
Service provider: DETC[C]: $300; Service provider: IDECC: n/a.

Type of approval service: Distance education delivery method; 
Service provider: AQB: n/a; Service provider: ACE[A]: $700; Service 
provider: ACCET[B]: $6,300; Service provider: NAPES: n/a; Service 
provider: DETC[C]: $300; Service provider: IDECC: $225-$750.

Source: GAO analysis of data obtained from the service providers.

n/a = not available or applicable.

Note: ACCET= Accrediting Council for Continuing Education and Training; 
NAPES= National Association for Practical Nurse Education and Service 
Inc.; DETC = Distance Education and Training Council; IDECC = 
International Distance Education Certification Center.

[A] Fees do not include variable costs, which the education provider 
pays (for example, on-site review, data entry, and staff travel, hotel, 
and per diem).

[B] Fees for the accreditation of an institution and the current 
courses it offers.

[C] Application fee for accreditation of a distance education 
institution. Other fees may apply for services such as on-site visits, 
subject specialist review, and annual fees.

[End of table]

No other entity offers a program similar to AQB's USPAP instructor 
certification program, although the Appraisal Institute--an 
international membership association of professional real estate 
appraisers--has a program with similar examination requirements. Among 
a number of other requirements, individuals seeking to be certified to 
teach Appraisal Institute courses must successfully complete its 
Instructor Leadership and Development Conference and subsequent 
examination requirements. The fee for taking the Appraisal Institute's 
last Instructor Leadership and Development Conference--held in February 
to March 2002--was $350. In contrast, the AQB charges $425 for USPAP 
instructor certification.

State Fees for Course and Instructor Approval:

In addition to the fees charged by the AQB for its course and 
instructor approval programs, education providers in certain states may 
also have to pay fees to state appraiser regulatory agencies for course 
approval and instructor certification. Information obtained from the 
Internet sites of 47 of the 55 state regulatory agencies and, in some 
cases, directly from the state regulatory agency indicated that fees 
ranged significantly between individual states. For example, fees 
charged by individual states ranged from:

* zero to $500 for course approval of qualifying education courses,

* zero to $250 for course approval of continuing education courses,

* zero to $500 for approval of distance education courses, and:

* zero to $300 for instructor certification.[Footnote 43]

Eight of the states did not charge a fee for course approval and 
instructor certification.

[End of section]

Appendix VII: Federal Financial Institutions Examination Council's Legal 
Advisory Group Opinion:

Federal Financial Institutions Examination Council 
Legal Advisory Group:

June 11, 2002:

Mr. Jesse G. Snyder, Chairman Appraisal Subcommittee:

Federal Financial Institutions Examination Council 2000 K Street, N. W. 
- Suite 310:

Washington, D.C. 20006:

Dear Mr. Snyder:

The Legal Advisory Group ("LAG") of the Federal Financial Institutions 
Examination Council ("FFIEC") has been requested to provide a legal 
opinion regarding: (1) the scope of authority of the Appraisal 
Foundation's Appraiser Qualification Board ("AQB") to adopt education-
related standards for certified real estate appraisers; (2) the scope 
of the responsibility of the Appraisal Subcommittee of the FFIEC 
("ASC") to monitor the AQB; and (3) the ASC's authority to oversee 
state appraiser regulatory agency implementation of those AQB 
standards, pursuant to Title XI of the Financial Institutions Reform, 
Recovery, and Enforcement Act of 1989 ("FIRREA"), as amended ("Title 
XI").[Note 1] The LAG consists of the General Counsel of the Federal 
Deposit Insurance Corporation, the General Counsel of the Board of 
Governors of the Federal Reserve System, the Chief Counsel of the 
Office of the Comptroller of the Currency, the Chief Counsel of the 
Office of Thrift Supervision and the General Counsel of the National 
Credit Union Administration, the constituent agencies of the FFIEC.

Because of challenges by an appraisal education provider, we were asked 
for a legal opinion on these specific issues:

* Does Title XI authorize the AQB to adopt minimum education 
requirements for certified real estate appraisers, including those 
relating to continuing education and distance education?

* Is the ASC's interpretation of its duties to monitor and review AQB 
activities appropriate and consistent with Title XI and other 
applicable law?

* Was the ASC acting improperly or in any manner inconsistent with 
Title XI or other law when it instructed States to rescind their 
approvals of continuing education courses for certified real property 
appraisers that did not conform to AQB criteria?

Regulatory Framework:

The certification of real estate appraisers is subject to a unique 
regulatory framework created by Title XI. The appraisal regulatory 
structure includes State or U.S. territory appraiser certifying and 
licensing agencies ("state agencies"), a private corporation, and 
federal agencies. Under Title
XI, the states, through the state agencies, are responsible for 
certifying and licensing real estate appraisers to participate in 
federally related transactions and for supervising their appraisal-
related activities.[NOTE 2] Under Title XI, the state agencies must 
adopt criteria for real estate appraiser certification that currently 
meet the minimum criteria established by the AQB of the Appraisal 
Foundation, a private non-profit organization.[Note 3] Title XI 
charges the 
ASC with oversight of the real estate appraiser regulatory framework 
through monitoring (i) the requirements of the states for certifying 
and licensing appraisers and (ii) the activities and operations of the 
Appraisal Foundation, including the AQB.[NOTE 4] 

Issues and Discussion:

Issue 1: Does Title XI authorize the AQB to adopt minimum education 
requirements for certified real estate appraisers, including those 
relating to continuing education and distance education?

Section 1116(a) of Title XI defines a "State certified real estate 
appraiser" as an "individual who has satisfied the requirements for 
State certification in a State or territory whose criteria for 
certification currently meets the minimum criteria for certification 
issued by the [AQB]."[Note 5] The statute requires states to adopt 
criteria for appraiser certification that are at least as stringent as 
the AQB's minimum certification criteria. The states, of course, can 
adopt appraiser certification requirements that are stricter than 
those of the AQB.[Note 6] Accordingly, to qualify as a state certified 
real estate appraiser under Title XI, an individual must at least 
satisfy the minimum criteria for
certification issued by the AQB.[Note 7] Therefore, the terms of 
Title XI clearly authorize the AQB to establish minimum criteria for 
state certification of real estate appraisers.

Although Title XI does not specifically address "education" or 
"continuing education" as criteria for appraiser certification, the 
structure, purpose, and legislative history of the statute indicate 
that education requirements for appraisers are within the scope of 
minimum certification criteria that Congress authorized the AQB to 
establish. By not limiting the scope of the criteria, the statute 
appears to vest the AQB with broad discretion in determining what 
minimum criteria are appropriate for appraiser certification. Including 
education requirements among the minimum criteria is a reasonable 
measure to help ensure that certified appraisers perform their duties 
properly as Congress intended. Such requirements are consistent with 
the statutory mandate that appraisers must pass an examination that is 
consistent with and equivalent to the Uniform State Certification 
Examination issued or endorsed by the AQB, as both measures are 
calculated to result in a uniform body of knowledge possessed by 
certified appraisers nationwide.[NOTE 8] In addition, the education 
requirements complement the AQB's minimum experience criteria for 
appraiser certification.[Note 9]

The legislative history indicates that Congress intended Title XI to 
help solve the appraisal-related problems that had contributed to the 
widespread insolvency of financial institutions and deposit fund losses 
by, in part, creating appraisal certification standards that were 
consistent nationwide.[Note 10] Rather than dictating particular 
criteria in the statute, Congress looked to the Appraisal Foundation 
and its AQB as the source of the minimum appraiser certification 
criteria. The Conference Committee Report on FIRREA provides that 
"State certified appraisers must meet the requirements for 
certification issued by the Appraisal Foundation, including a passing 
grade on a uniform examination." [Note 11]

At the time of the passage of Title XI, the AQB had established both 
education and continuing education requirements. The AQB's appraiser 
certification criteria in existence at the time of these Congressional 
reports included a requirement that an appraiser successfully complete 
a specified number of classroom hours of AQB-approved courses in 
subjects related to real estate
appraisal from a nationally recognized appraisal organization, college, 
or university. The AQB's criteria also included a limit on the term of 
certification (i.e., two to four years) and continuing education 
requirements as part of the criteria for certification renewals. The 
AQB's continuing education requirements included a specified number of 
hours of instruction in courses or seminars approved by the AQB.

The legislative history confirms that Congress was aware of the AQB's 
education and continuing education requirements for appraisers at the 
time of passage and intended the AQB to maintain and expand on its 
minimum criteria after the statute's enactment, including its education 
and continuing education requirements. In its report on FIRREA, the 
House Committee on Banking, Finance and Urban Affairs ("House 
Committee") stated, "[t]he Committee has knowledge of and approves the 
qualification standards established by the Appraisal Foundation for 
those individuals who seek to become certified appraisers."[Note 12] 
The following statements from the Senate Committee's report on FIRREA 
also confirm that Congress knew of the Appraisal Foundation's 
certification qualifications, including its education-related 
requirements, and approved them:

The Committee, in addressing the problem, decided to build upon work 
already being done by responsible elements of the appraisal industry. 
The non-profit Appraisal Foundation, established in 1987, represents 
the major elements of the U.S. appraisal industry .... Under its 
auspices ... an independent qualifications board has recommended 
minimum requirements for education, experience, continuing education, a 
code of ethics and tests for use in certifying appraisers.

[Appraisal] rules would, at a minimum, have to meet generally accepted 
real estate appraisal and certification standards as evidenced by those 
promulgated by the Appraisal Foundation.[Note 13]:

The recognition in section I 116(a) of Title XI that a state's 
standards for appraiser certification must "currently" meet the AQB's 
minimum criteria for certification indicates that Congress expected 
that the AQB periodically would revise its criteria.[Note 14]
Section 1116(a) 
represents a marked departure from the approach found in precursor 
legislation to FIRREA, including the Real Estate Appraisal Reform Act 
of 1988.[Note 15] This bill provided for the formation of an 
Interagency Appraisal Committee, in part, to prescribe permanent 
appraiser certification requirements that conformed to the Appraisal 
Foundation's appraiser certification criteria. 16 Given the decision 
by Congress to eschew
"permanent" certification requirements for state agencies in favor of 
requirements that "currently" meet the AQB's minimum criteria, it 
appears that Congress foresaw that the AQB's minimum criteria would 
change over time and planned for such change accordingly. The decision 
to define a "State certified real estate appraiser" as an individual 
certified by a state with certification requirements that "currently" 
meet the AQB's minimum criteria, therefore, indicates that Congress 
intended to provide for the on-going development and refinement of the 
AQB's criteria, which were less than one year old at the time of 
FIRREA's enactment.

The AQB's authority to establish minimum education criteria for 
appraiser certification reasonably encompasses the methods of appraiser 
education, including "distance education." At the time FIRREA was 
enacted, the AQB's minimum education criteria contemplated only 
classroom education. Since the passage of FIRREA, the AQB has amended 
its minimum criteria to address the needs of appraisers for alternative 
methods to meet their education requirements. In 1991, the AQB 
recognized that correspondence courses could be a valid method for 
certified appraisers to meet their continuing education requirements, 
but concluded that additional criteria were needed to ensure that the 
quality of the courses would be consistent with the traditional 
classroom education criteria and consistent nationwide. The AQB further 
amended its criteria in 1997 to expand the concept of correspondent 
education to include computer-based education courses. It included 
"distance education" as a valid method for appraisers to meet their 
education and continuing education requirements. The AQB defined 
"distance education" to include "any educational process based on 
geographical separation between instructor and learner (e.g., CD-ROM, 
on-line learning, correspondence courses, video teleconferencing, 
etc.)." As earlier with the authorization of correspondence courses, 
the AQB promulgated additional criteria for distance education courses 
to ensure that the quality of the distance courses would be on par with 
the classroom courses and consistent nationwide.

Therefore, the terms, structure, and legislative history of Title XI 
all support the conclusion that Title XI authorizes the AQB to adopt 
minimum education requirements for certified real estate appraisers, 
including those relating to continuing education and distance 
education.

Issue 2: Is the ASC's interpretation of its duties to monitor and 
review AQB activities appropriate and consistent with Title XI and 
other applicable laws?

Section 1103 (b) of Title XI expressly requires the ASC to "monitor and 
review the practices, procedures, activities, and organizational 
structure of the Appraisal Foundation."[Note 17] 
Title XI does not specify 
how the ASC is to perform this oversight or prescribe limits on its 
oversight function. Therefore, the statute appears to vest the ASC with 
broad discretion in determining how to monitor and review the Appraisal 
Foundation, including the AQB. Under the ASC's interpretation of its 
oversight responsibilities, it monitors and reviews the AQB's 
activities in the following manner: (1) ASC staff attends AQB and other 
Appraisal Foundation meetings and work sessions; (2) the ASC
staff and sometimes the ASC, as a body, review and comment on AQB 
proposals; (3) through the grant process, the ASC reviews prospective 
and existing AQB projects and reimburses the Appraisal Foundation for 
expenses relating to the AQB's Title XI-related activities;[Note 18]
(4) the ASC retains a certified public accounting firm to review the 
Appraisal Foundation's financial operations annually; and (5) ASC 
staff maintains regular, informal professional communications with 
AQB members and Appraisal Foundation staff.

Consistent with this interpretation, the ASC generally reviews and 
comments on the AQB's proposals related to minimum criteria for 
appraiser certification and informally discusses the proposals with the 
AQB. In light of the AQB's broad authority to establish minimum 
appraiser certification criteria, discussed above, the ASC generally 
monitors whether the AQB's proposals are reasonable, not arbitrary or 
capricious, and otherwise consistent with law. The ASC reviewed the 
AQB's proposals related to minimum education and continuing education 
criteria, including distance education requirements, and determined 
that the AQB was not acting in a manner that was unreasonable, 
arbitrary, or capricious, or otherwise inconsistent with law.

The ASC's approach to overseeing the AQB appears to be consistent with 
the Title XI provisions. Title XI does not authorize the ASC to 
establish the minimum criteria for state certification of appraisers 
and, therefore, it should not substitute its judgment for that of the 
AQB in establishing the criteria. Although Title XI does mandate that 
the ASC "monitor and review the practices, procedures, activities, and 
organizational structure of the Appraisal Foundation" and the AQB,[Note 
19] Congress did not provide the ASC with the authority or the power to 
direct or overrule the operations or structure of these private 
entities. The only enforcement power that Title XI provides to the ASC 
relates to the state agencies rather than to the Appraisal Foundation 
or the AQB-i.e., the extreme measure of refusing to recognize any 
appraiser certifications and licenses issued by a state agency if one 
of three refusal standards are met.[Note 20] Therefore, it appears 
that, to the extent it considered this point, Congress intended that 
the ASC informally influence the policies and practices of the 
Appraisal Foundation and the AQB when necessary to uphold the purposes 
and provisions of Title XI. As discussed above, the ASC already 
has established and implemented steps to provide effective 
informal oversight of the Appraisal Foundation and AQB.

Issue 3: Did the ASC act improperly or in any manner inconsistent with 
Title XI or other law when it instructed states to rescind their 
approvals of distance education courses for certified real property 
appraisers that did not conform to AQB criteria?

Pursuant to section 1103 (a) of Title XI, one of the ASC's primary 
functions is to "monitor the requirements established by States for the 
certification ... of individuals who are qualified to perform 
appraisals in connection with federally related transactions."[Note 21] 
From 
time to time the ASC; through effective monitoring of state agencies, 
has identified state agencies that approved distance courses that did 
not conform to AQB criteria. The ASC has represented that, in almost 
all cases, these approvals occurred because the staffs of the state 
agencies were unaware of the AQB's requirements. The ASC generally has 
responded to this situation by writing the state agency to instruct it 
to rescind its approval of the nonconforming distance courses and to 
remind the state agency that it must comply with AQB course approval 
criteria. The issue presented is whether the ASC has acted in 
accordance with Title XI in doing so.[Note 22]:

As noted above, the AQB's distance education requirements were 
established in 1997 and incorporated the correspondence course approval 
criteria already in place. The AQB further conditioned approval of 
distance education courses on their being: (1) offered by an accredited 
college or university; (2) accepted for college credit through the 
American Council on Education's College Credit Recommendation Service 
(formerly the ACE/PONSI program); or (3) approved through the AQB 
Course Approval Program ("CAP ,).[Note 23] The AQB amended its distance 
education course criteria in 2001 to allow state agencies alternatively 
to approve the content of distance courses and for the International 
Distance Education Certification Center to approve course-delivery 
methodology.

Section 1118 establishes a statutory framework that charges the ASC 
with the responsibility for ensuring that the state agencies comply 
with their responsibilities under Title XI, including by complying with 
the AQB criteria. However, Title XI provides the ASC with only limited 
enforcement powers. As noted above, the ASC's only enforcement power 
under Title XI is to refuse to recognize any appraiser certifications 
and licenses issued by a state agency that the ASC has deemed to have 
met one of the three refusal standards established in 
section I 118(b).[Note 24] Section 
1118 requires that, before refusing to recognize a state's 
certifications and licenses, the ASC must provide the state with 
written notice of its intention not to recognize these certifications 
and licenses, and an "ample" opportunity to provide rebuttal 
information and to correct the conditions causing the refusal.[Note 25]

The legislative history of FIRREA suggests that Congress did not intend 
to leave the ASC powerless in remedying violations of Title XI that did 
not meet the standards in section 1118(b). The House Committee, in a 
discussion of the ASC's role in monitoring state agencies in its report 
on FIRREA, noted that a goal in providing the ASC with monitoring 
responsibilities was a "nationwide system of state certified ... 
appraisers. "[Note 26] To meet this Congressional expectation of 
uniformity among the appraisal certification requirements employed by 
the states, the ASC regularly reviews the policies, practices, and 
procedures of the state agencies and provides them with written 
assessments of their compliance with Title XI. In its correspondence 
with the state agencies, the ASC highlights specific areas where the 
practices of a state agency do not comply with the requirements of 
Title XI, and notes the remedial actions the state agency must take to 
restore its status as Title XI-compliant.

As noted above, when the ASC has found that state certification 
programs do not conform to the AQB continuing education criteria, the 
ASC has provided a written notice to the relevant state agency 
instructing the agency of the need to conform its program to the 
criteria. Such notice has included, when relevant, instruction to the 
state agency to rescind its approval of certain distance education 
courses that do not comply with the AQB's minimum criteria. These 
instructions are not unlawful, provided they represent a finding that 
the relevant state's certification or licensing policies, practices, or 
procedures are not consistent with the requirements of Title XI.
[Note 27] 
However, the ASC ultimately may enforce these instructions only by 
following the procedures established in section 1118 for refusal of 
state certifications and licenses, which require the ASC to provide the 
non-compliant state agency with written notice that a refusal standard 
has been met and an opportunity to provide rebuttal information or to 
correct the condition.

For the foregoing reasons, the ASC's actions with respect to its 
correspondence with state agencies concerning compliance with Title XI 
and the AQB's minimum certification criteria appear to be consistent 
with Title XI and its legislative history.

Sincerely,

Legal Advisory Group:

Federal Financial Institutions Examination Council:

Signed By: William F. Kroener, III, Chairman for Legal Advisory Group

Notes:


[1] Pub. L. No. 101-73, 103 Stat. 183 (1989) (codified as amended at 
12 U.S.C. §§ 3331-3352).

[2] Title XI defines the term "federally related transaction" as "any 
real estate-related financial transaction which--(A) a federal 
financial institutions regulatory agency or the Resolution Trust 
Corporation engages in, contracts for, or regulates; and (B) requires 
the services of an appraiser." 12 U.S.C. § 3350(4). The federal 
financial institutions regulatory agencies have issued regulations 
identifying which transactions require the services of a certified or 
licensed appraiser. See, e.g., 12 C.F.R. § 323.3.

[3] See 12 U.S.C. § 3345(a). FIRREA does not provide minimum 
requirements for the licensing of real estate appraisers by state 
agencies. See 12 U.S.C. § 3345(c).

[4] See 12 U.S.C. §§ 3332(a), 3347. 

[5] 12 U.S.C. § 3345(a).

[6] The statute also requires the individual to pass a suitable 
examination administered by the state that is consistent with
and equivalent to the Uniform State Certification Examination issued or 
endorsed by the AQB. 12 U.S.C. § 3345(b).

[7] See id. 

[8] Id.

[9] Section 1116(e) states that the ASC "shall not set qualifications 
or experience requirements for the states
in licensing real estate appraisers, including a de minimus standard." 
12 U.S.C. § 3345(e) (emphasis added). This provision clarifies that, 
although Congress intended the AQB to establish the minimum 
requirements for the certification of appraisers, Congress intended the 
authority to establish the minimum requirements for the licensing of 
appraisers to remain with the states, and did not intend to ASC to set 
those standards. Title XI and the implementing regulations make 
distinctions between appraisers that are certified and those that are 
only licensed. This provision also indicates that Congress considered 
requirements other than experience to be suitable criteria for 
appraisers.

[10] H. Rep. No. 101-54, 101St Cong., 1St Sess., pt. l, at 481 (1989).

[11] H.R. Conf. Rep. No. 101-222, 101 st Cong., 1 StSess., at 455 
(1989).

[12] H.R. Rep. No. 101-54, pt. 1, at 481.

[13] S. Rep. No. 19, 101st Cong., 15t Sess., at 35-36 (1989). 

[14] 12 U.S.C. § 3345(a).

[15] H.R. 3675, 100th Cong. (1988).

[16] See id. at §§ 500-01; H. Rep. No. 100-1001, 1 00Th Cong., 2nd 
Sess, pt. 1, at 33, 42 (1989).

[17] 12 U.S.C. § 3332(b).

[18] Section 1109(6)(4) of Title XI requires the ASC "to make grants 
in such amounts as it deems appropriate to the Appraisal Foundation, 
to help defray those costs of the foundation relating to the 
activities of its Appraisal Standards and Appraiser Qualifications 
Boards." 12 U.S.C. § 3338(6)(4).

[19] 12 U.S.C. § 3332(6).

[20] 12 U.S.C. § 3347(6).

[21] 12 U.S.C. § 3332(a).

[22] Lee & Grant Company ("L&G"), a provider of appraisal education 
courses, has challenged the ASC's statutory authority to instruct state 
agencies that they must rescind their approval of distance courses that 
do not comply with AQB criteria. L&G argues that section 1118 of 
FIRREA, while providing for ASC oversight of state agencies, does not 
grant the ASC the authority to provide state agencies with orders or 
ultimatums to comply with AQB criteria.

[23] The ASC has represented that the CAP was established at the request 
of State agencies and providers of appraisal education. Under this 
voluntary program, the AQB contracts with education experts to review 
submitted courses. The first internet-based distance education courses 
were approved by the AQB under the distance education course criteria 
in 1998. As previously noted, the AQB's minimum criteria for continuing 
education at the time of Title XI's passage, included the requirement 
that the courses or seminars attended by appraisers be approved by the 
AQB.

[24] Section 1118, in relevant part, reads as follows:

(b) Disapproval by Appraisal Subcommittee. The Federal financial 
institutions, regulatory agencies, the Federal National Mortgage 
Association, the Federal Home Loan Mortgage Corporation, and the 
Resolution Trust Corporation shall accept certifications and licenses 
awarded by a State appraiser certifying the licensing agency unless the 
Appraisal Subcommittee issues a written finding that - (1) the State 
agency fails to recognize and enforce the standards,
requirements, and procedures prescribed pursuant to this chapter; (2) 
the State agency is not granted authority by the State which is 
adequate to permit the agency to carry out its functions under this 
chapter; or (3) decisions concerning appraisal standards, appraiser 
qualifications and supervision of appraiser practices are not made in a 
manner that carries out the purposes of this chapter. 12 USC § 3347(b).

[25] 12 USC § 3347(c); see 12 C.F.R. 1102.20-1102.35.

[26] H. Rep. No. 101-54, pt. l, at 482.

[27] Although the ASC, in some instances, has informed state agencies 
that it "must" take certain actions without qualifying this instruction 
with the phrase "in order to comply with Title XI," such a directive by 
the ASC does not constitute an improper act. The ASC's instruction to 
the state agencies may constitute threats by the ASC to utilize its 
enforcement power, but not an attempt by the ASC to utilize powers that 
were not granted by Congress.

[End of section]

Appendix VIII: Comments from the Appraisal Subcommittee:

Appraisal Subcommittee Federal Financial Institutions Examination 
Council:

April 23, 2003:

David G. Wood, Director:

Financial Markets and Community Investments General Accounting Office:

Washington, DC 20548:

Dear Mr. Wood:

Thank you for the opportunity to review your draft report titled, 
Regulatory Programs - Opportunities to Enhance Oversight of the Real 
Estate Appraisal Industry (GAO-03-404). In general, we find that the 
report presents an appropriate synopsis of the appraiser/appraisal 
regulatory environment as envisioned by Title XI of the Financial 
Institutions Reform, Recovery, and Enforcement Act of 1989, as amended, 
("Title XI") and implemented by various Federal, State, and private 
entities. We were pleased to note that, based on information reported 
to you, real estate appraisals have not been a major factor in the 
failure of depository institutions since the passage of Title XI. As 
you know, this was Congress' primary focus in passing Title XI.

Following are our comments regarding specific items of the report:

* Page 17 - You comment that in reviewing the Appraisal Subcommittee's 
("ASC") field review reports, you found few or no formal and 
transparent criteria for determining and reporting States' compliance 
levels; that reports were sometimes inconclusive about whether the 
State was in compliance; and that the rationale for determining 
compliance was not given. You state that it would be beneficial for the 
ASC to develop and apply consistent criteria to assess States' 
compliance with Title XI.

ASC staff follow the ASC's Field Review Manual for State Appraiser 
Licensing and Certification Regulatory Programs when conducting field 
reviews. This manual helps insure consistent review and policy 
application from State to State. While you are correct that we do not 
have a formalized rating system under which we apply an overall rating 
to each State ("how one state measures against other states"), we do 
employ an informal rating system (i.e., Tier 1 and Tier 2) based on a 
State's overall compliance with Title XI. We review each State's 
compliance and consider each State on an individual basis, not in 
comparison with other States. Generally speaking, compliance with Title 
XI is not an all or nothing situation. We review a State's compliance 
with Title XI provisions and consider a number of factors in evaluating 
the State's overall level of compliance (e.g., whether a weakness was 
part of a pattern and practice or an isolated incident; whether the 
State was aware of the Title XI provision; whether the State exhibits 
willingness to address the weakness; and, whether the weakness had been 
noted in previous reviews of that State). We work with each State to 
address any identified weaknesses and to bring the State into 
compliance with Title XI.

In the past, the ASC considered developing a rating system that would 
provide a measure of one State against another, and concluded that such 
a rating system would not assist our Title XI enforcement efforts. 
However, based on your recommendations, we will review this issue 
again.

* Pages 18-20 - You report that the Appraisal Standards Board ("ASB") 
and Appraiser Qualifications Board ("AQB") commented that the ASC's 
failure to fund all Appraisal Foundation grant requests has limited 
activities the two boards believe enhance the quality, timeliness, and 
usefulness of standards and qualifications.

We do not believe this to be an accurate representation.

During several years, the Foundation did not use all of the funds 
authorized in the ASC grant. For example, in 1998, the Foundation used 
only $582,000 of $666,000 authorized; in 1999, the Foundation used only 
$646,000 of $800,000; and in 2000, the Foundation used only $697,000 of 
$750,000;

Title XI does not state that we must provide funding for "all" of the 
Foundation's Title XI-related expenses. Title XI authorizes the ASC to 
provide grants to "help defray" the Foundation's Title XI-related 
expenses;

Over the years, several Foundation grant requests included funding for 
non-Title XI-related activities. The ASC lacks legal authority under 
Title XI to fund those activities; The Foundation has funding sources 
other than the ASC grant; and:

We are unaware of any initiative that the ASB or AQB has failed to 
pursue because of grant funding limitations. For example, the 
Foundation has not requested funding for the "body of knowledge" 
project mentioned in your report.

* Page 38 - Your third bullet contains a recommendation that the ASC 
draw on its surplus to provide grants, if necessary, to the Foundation 
and its boards.

The ASC has discussed projected ASC budgets for the next ten years, 
including projected grant requests. This initial assessment of ASC 
financial resources indicated that funding Foundation grant requests 
might prove problematic in the future as funds from annual net income 
decline. The ASC is evaluating methods of funding future Foundation 
grant requests. Using part of existing reserves is one of several 
available options. However, it is not a long-term solution.

Existing ASC reserves serve two purposes: providing working capital 
necessary for the ASC to operate; and providing reserves against 
unanticipated expenses or uncertain future income. The ASC is 
evaluating the appropriate amount of reserves to ensure that we can 
carry out our mission given these uncertainties; and:

Using ASC reserves to fund Foundation grant requests would be a short-
term solution to a long-term need. Depending on the amount of future 
Foundation grant requests, ASC reserves in excess of those needed to 
maintain financial viability and responsibility could be exhausted 
within a short time. Any evaluation of Foundation grant funding needs 
to consider the long-term financial resources of the ASC. In developing 
our long-term funding plans and establishing an appropriate reserve 
level, the ASC will continue its current policy to evaluate and approve 
Foundation grant requests that fund activities that promote the purpose 
and intent of Title XI.

* Pages 22-23 - You report that a lack of rulemaking authority and 
limited enforcement powers hinder ASC efforts to ensure compliance with 
Title XI.

We agree that general rulemaking authority might facilitate our Title 
XI enforcement. However, the lack of additional authority has not been 
an impediment to achieving compliance. We have adopted ten Policy 
Statements that provide guidance regarding Title XI compliance. ASC 
Policy Statements are grounded in Title XI provisions and legally are 
the ASC's formal interpretations of Title XI. As such, the Policy 
Statements should be given deference in a court of law.

In February 2000, GAO issued a decision (File B-279866.3) that is 
pertinent to the legal effect of our Policy Statements. In that 
situation, the ASC and a State disagreed over an interpretation of 
Title XI and an ASC Policy Statement regarding National Registry fees. 
GAO concluded that, "ASC's interpretation of section 1109 of FIRREA 
reflects a reasonable exercise of its discretion in administering 
section 1109 of FIRREA." GAO based its determination on a U.S. Supreme 
Court decision stating, "If Congress has explicitly left a gap for the 
agency administering the statute to fill, there is in effect a 
delegation of authority to the agency to adopt a regulation or a policy 
to elucidate the statute. So long as the interpretation comports with 
the statutory objectives and is not arbitrary or capricious, the 
administering agency's reasonable policy choices are entitled to 
deference." [Citations omitted.] Having found such a gap, GAO decided 
that, "As the entity responsible for administering this legislation, 
ASC's interpretation of the statute is entitled to great weight and 
should ordinarily be followed unless there are strong indications from 
the legislative history or otherwise that its interpretation is 
arbitrary or inconsistent with the statutory purpose.":

You report that the ASC noted that its Policy Statements are nonbinding 
recommendations. As discussed above, the Policy Statements are grounded 
in Title XI provisions and are the ASC's formal interpretations of that 
statute. Moreover, some Title XI provisions require the ASC to make 
binding statements. For example, § 1122(a)(2) of Title XI, 12 U.S.C. 
3351(a)(2), provides that, "A State appraiser certifying or licensing 
agency shall not impose excessive fees or burdensome requirements, as 
determined by the Appraisal Subcommittee, for temporary practice under 
this subsection." ASC Policy Statement 5, which was adopted after 
public notice and comment pursuant to 5 U.S.C. 552, specifically 
identifies situations that are "excessive fees or burdensome 
requirements." Failure by a State to conform to Policy Statement 5 
would constitute a direct violation of § 1122(a)(2) of Title XI.

Regarding enforcement powers, while we agree that the ASC's options are 
limited in number, we have been unable to identify other powers that 
would effectively improve our enforcement authority. In fact, during 
your exit conference with the ASC, it was stated that we had always 
been able to achieve State compliance within the supervisory and 
enforcement structure that currently exists.

* Page 30-32 - In this section, among other issues, you report that one 
State and one education provider asserted that both the AQB and the ASC 
exceeded their authorities regarding education criteria.

As noted in your report, the ASC obtained a formal legal opinion from 
the Federal Financial Institutions Examination Council's Legal Advisory 
Group ("LAG") regarding this issue. The ASC requested such an opinion 
to address the State's and education provider's persistent objections 
to changes in the AQB's criteria for appraiser certification and the 
ASC's actions to enforce those criteria. LAG concluded that the AQB and 
ASC actions appeared to be consistent
with, and authorized by, Title XI. The opinion stated that Title XI 
gives the AQB wide authority in setting education, experience, and 
examination criteria for certified appraisers, and that it was not 
within the ASC's authority to substitute its judgment for that of the 
AQB in establishing its criteria. The ASC's responsibility was to 
monitor the AQB decisions to ensure that they were reasonable, and not 
arbitrary, capricious, or otherwise inconsistent with law.

We emphasize that both the LAG opinion, regarding certified appraisers, 
and the GAO decision, regarding certified and licensed appraisers, 
discussed the same considerations (i.e., reasonable, arbitrary, 
capricious, and consistent with law) and determined that the ASC's 
actions met those standards when interpreting and enforcing Title XI.

* Page 38 - In your second bullet, you recommend that the ASC explore 
options for funding or otherwise assisting States in carrying out their 
Title XI activities.

While we believe that overall State compliance with Title XI would be 
improved if States had more funding, we do not see the ASC as the 
answer to that issue. As noted in your report, the ASC's general 
counsel does not find statutory authority for the ASC to provide 
funding to the States. Legal issues aside, however, the ASC's only 
method of obtaining funds to provide funding to States would be to 
increase the National Registry fee assessed each appraiser. That seems 
to be an unnecessary and inappropriate action given that each State 
already has authority to increase the fees that it charges appraisers. 
Each State is much better positioned to identify its needs and to 
address fee/income issues to resolve those needs. As you learned during 
the study, if State appraiser regulatory agencies were allowed to use 
the fees they collect from appraisers, most States would have adequate 
funding. Instead, many States send those fees to the general revenue 
fund and provide only a portion for the State's Title XI-related 
activities.

Once again, we appreciate the opportunity to review your draft report 
and provide comments.

Sincerely:

Steven D. Fritts 
Chairman:

Signed by Steven D. Fritts:

[End of section]

Appendix IX: Comments from the Appraisal Foundation:

THE APPRAISAL FOUNDATION 

Authorized by Congress as the Source 
ofAppraisal Standards and Appraiser Qualifications:

April 17, 2003:

Board of Trustees 2003 Officers:

Mr. David G. Wood Director:

Financial Markets and Community Investment U.S. General Accounting 
Office:

441 G Street, NW Washington, DC 20548:

Thank you for allowing The Appraisal Foundation to provide comments on 
your report entitlEd "Opportunities to Enhance Oversight of the Real 
Estate Appraisal Industry.":

While some concerns are expressed in your report by industry 
participants and state regulators, it is important to reiterate the 
point that the focus of the Foundation's role in the real estate 
appraiser regulatory system is to set minimum thresholds. This ensures 
a baseline of competence for appraisers and greater public trust in the 
profession. At the same time, by establishing minimum thresholds that 
can be exceeded, the appropriate latitude can be exercised by the 56 
states and territories regulating real estate appraisers.

Examples of this concept include:

Appraisal Standards:

The Foundation, through its Appraisal Standards Board, establishes the 
generally recognized performance standards of the profession, the 
Uniform Standards of Professional Appraisal Practice (USPAP). Federal 
agencies and state appraiser regulators have the latitude to issue 
supplemental standards.

Appraiser Qualifications:

The Foundation, through its Appraiser Qualifications Board, establishes 
the minimum education, experience and examination criteria used for the 
state licensing and certification of real estate appraisers. Federal 
agencies and state appraiser regulators may establish requirements that 
exceed any or all of these criteria.

USPAP Instructor Certification:

The AQB Certified USPAP Instructor Program was implemented because the 
vast majority of states do not review and approve the credentials of 
instructors of USPAP. Our two-day course and comprehensive examination 
ensure that USPAP instructors have demonstrated their knowledge level 
of the subject matter. If they so choose, states can establish 
additional criteria for USPAP instructors to operate in their state.

AQB Course Approval Program:

The AQB Course Approval Program was developed to assist states and 
appraisal educational providers with the course approval process. The 
program is voluntary for both the states and educational providers. We 
view this program not as an administrative burden, but rather as a tool 
that may be used by regulators and educators if they so choose.

National USPAP Courses:

The National USPAP Courses were developed to establish a minimum 
threshold in USPAP course content. Other course providers may develop 
USPAP courses that can be taken for state credit, as long as the 
courses meet this minimum threshold. Since January 1, 2003, four USPAP 
courses have been determined to be equivalent to the National USPAP 
Courses through the AQB Course Approval Program.

The above examples demonstrate our ongoing efforts to develop a 
baseline of minimum competency in all aspects of appraising. We are not 
encroaching into the arenas of others, but are rather simply taking 
action to fill an existing void. Promoting professionalism in 
appraising has been a goal of The Appraisal Foundation since before the 
enactment of Title XI of FIRREA.

We appreciate the opportunity to provide you with these comments and 
look forward to reviewing your final report.

Sincerely,

David S. Bunton 
Executive Vice President:

Signed by David S. Bunton:

[End of section]

Appendix X: Comments from Fannie Mae:

Fannie Mae:

Arne Christenson:

Senior Vice President Regulatory Policy:

3900 Wisconsin Avenue, NW Washington, DC 200162892 202 752 3160:

202 752 4011 (fax):

arne christenson@fanniemae.com:

April 22, 2003:

Mr. David G. Wood:

Director, Financial Markets and Community Investments United States 
General Accounting Office:

Washington, DC 20548:

Dear Mr. Wood:

Fannie Mae submits these comments to the draft you provided us of the 
General Accounting Office's report titled "Opportunities to Enhance 
Oversight of the Real Estate Appraisal Industry.":

Background:

Fannie Mae strongly supported the enactment of Title XI of FIRREA and 
the steps taken to implement the intent of the Appraisal Reform 
Amendments specifically, the acknowledgement of the Uniform Standards 
of Professional Appraisal Practice (USPAP) as the minimum uniform 
appraisal standards as well as the establishment of minimum 
qualification criteria for appraisers. We believed that the 
implementation of the regulatory scheme through federal and state 
regulations could increase appraisal quality. Fannie Mae also viewed 
the implementation of Title XI as an important step in the evolution of 
professionalism within the appraisal community.

Fannie Mae considers an accurate property valuation to be one of the 
key elements that assure prudent underwriting of a mortgage loan. The 
appraised value is part of the lender's calculation of the loan-to-
value ratio, and thereby assists the lender in determining its exposure 
to loss in the unfortunate event of default and foreclosure. Therefore, 
we believe that accurate valuations are an essential element in 
originating a mortgage for subsequent delivery to any investor in the 
secondary mortgage market.

When an appraisal is required for a mortgage that a lender delivers to 
Fannie Mae, we require our lenders (and any third-party originators 
they rely on) to use appraisers that are state-licensed or -certified 
in accordance with Title XI. In addition, we require our lenders (and 
any third-party originators they rely on) to be aware of, and in full 
compliance with, state laws for licensing and certification of real 
estate appraisers.

Fannie Mae holds its lenders solely and fully responsible for the 
selection of appraisers and for the quality of the appraisal. Fannie 
Mae requires its lenders to take appropriate steps to ensure that an 
appraiser is qualified to perform appraisals for the particular types 
of property that the lender intends to refer to that appraiser. The 
appraiser must be experienced in appraising the types of properties for 
which the lender intends to use his or her services, and have access to 
the necessary data sources. The requirement to use appraisers that are 
state-licensed or -certified is viewed as a minimum standard.

Our appraisal report forms recognize the USPAP as the minimum appraisal 
standards of the industry. Fannie Mae has supplemental appraisal 
requirements, which exceed the minimum requirements of the USPAP. Our 
appraisal report forms are designed in a way to allow an appraiser to 
be able to be in full compliance with Fannie Mae's requirements if he 
or she addresses all the specific information on the form, presenting 
the applicable data accurately and completely. Fannie Mae guides the 
extent or scope of the appraisal process and implements its appraisal 
policy through its appraisal report forms.

Observations:

Our experience with the implementation of the appraisal regulatory 
scheme has identified several deficiencies:

* First, we have observed a significant lack of uniformity among the 
states in the quality of their processes and procedures for accepting, 
reviewing and investigating unacceptable appraisal reports. Although 
Fannie Mae assumes no supervisory responsibility or oversight authority 
over appraisers, from time to time we refer unacceptable appraisal 
reports to the appropriate state appraiser licensing or regulatory 
boards for investigation and action based on the appraisal field review 
reports that we obtain as part of our standard quality assurance 
process.

Our objectives in referring appraisal reports are to (a) emphasize our 
continuing efforts to maintain the quality of appraisals, (b) protect 
our interests and improve the quality of mortgages delivered to Fannie 
Mae by identifying appraisers who have performed appraisals of a 
sufficiently poor quality to impair our security interests, and (c) 
help the industry enhance the quality of appraisals by identifying and 
referring individual appraisers who appear to be unethical and/or 
incompetent to the state appraiser licensing or regulatory boards for 
review and, if appropriate, enforcement under their professional 
standards.

* Second, we have observed a lack of consistent and effective 
enforcement actions by the state appraiser licensing or regulatory 
boards.

* Third, we have also observed a lack of consistent and effective 
oversight of the state's activities by the Appraisal Subcommittee.

Recommendations:

The report makes two types of recommendations.

First, it recommends that the Chairman of the Appraisal Subcommittee 
take various actions, as follows:

* develop and apply consistent criteria for determining and reporting 
states' compliance levels with Title XI requirements;

* explore potential options for funding or otherwise assisting states 
in carrying out their Title XI activities, particularly the 
investigation of complaints against appraisers. We suggest that you 
add to this a reference to identifying best practices and approaches 
by the states; 
and:

* draw on its surplus to provide grants, if necessary, to the Appraisal 
Foundation and its two boards in support of their Title XI activities.

We suggest that you add to this list a recommendation by the Appraisal 
Subcommittee to the states that they accept the One-Unit Residential 
Appraisal Field Review Report (Fannie Mae Form 2000 and Freddie Mac 
Form 1032, dated 12/2002) as sufficient documentation for referred 
appraisals. This form provides all the information a state agency is 
likely to need to conduct an effective investigation. This is because 
in development of this form, we considered comments we had received 
from many state appraiser licensing or regulatory boards about the type 
of information that would help them in their investigations, and the 
finalized form reflects those comments. (See Announcement 02-09 dated 
7/31/02, especially second paragraph, and Announcement 02-13 dated 12/
17/02.):

Second, the report recommends that the Chairman of the Appraisal 
Subcommittee work with the Chairmen of Fannie Mae and Freddie Mac, plus 
the Secretary of HUD, to "ensure that referrals of problem appraisers 
are provided in a format that is useful to the state appraisal agencies 
and that suitable follow-up is taken to ensure that the states have 
taken appropriate enforcement actions." We have two concerns about this 
recommendation:

* First and most importantly, in the scheme of Title XI, it is not the 
responsibility of Fannie Mae to ensure that the states take appropriate 
enforcement action in response to referrals of problem appraisals. This 
recommendation assumes a regulatory role that we do not have.

* Second, based on our extensive experience in referring unacceptable 
appraisals to state agencies, we believe that issues of format have not 
impeded the states from taking effective action. Therefore, it would 
not be productive to focus on matters of format as a strategy for 
improving the quality of state enforcement action. Further, insofar as 
the process might be improved by improvement of format, acceptance of 
the One-Unit Residential Appraisal Field Review Report, as we suggested 
above, would serve that objective.

Sincerely,

Arne L. Christenson:

Senior Vice President for Regulatory Policy:

Signed by Arne L. Christenson:

[End of section]

Appendix XI: Comments from Freddie Mac:

April 23, 2003:

Clarke Dryden Camper Vice President, Congressional Relations (202) 434-
8620 * Fax (202) 434-8626 401 9th Street NW, Suite 600 * Washington, DC 
* 20004:

David G. Wood:

Director, Financial Markets and Community Investments U.S. General 
Accounting Office:

Washington, DC 20548:

Dear Mr. Wood:

The Federal Home Loan Mortgage Corporation ("Freddie Mac") appreciates 
this opportunity to review and comment on GAO's draft report, 
Regulatory Programs: Opportunities to Enhance Oversight of the Real 
Estate Appraisal Industry (GAO-03-404) ("the draft report").

Freddie Mac is a shareholder-owned and publicly traded business 
corporation created by Congress to support homeownership and rental 
housing. We operate as a secondary market purchaser of and investor in 
mortgages originated by lenders throughout the country. Freddie Mac 
relies upon real estate appraisers to provide sound valuations of 
properties, and, as the draft report notes, we set appraisal standards 
for mortgages we purchase.

However, on pages 6-7 of the draft report Freddie Mac and Fannie Mae 
are described as "quasi-federal entities that have roles with respect 
to oversight of the real estate appraisal industry," and on page 55 
both companies are described as "quasi-federal agencies." These 
characterizations are incorrect. Neither company is an agency of the 
United States government, nor do we have any regulatory oversight role 
with respect to the appraisal industry. Our standards for the use and 
content of appraisals in mortgages we purchase are those of mortgage 
investors, not governmental entities with regulatory powers.

Accordingly, the recommendation that the Appraisal Subcommittee work 
with Freddie Mac and Fannie Mae "to ensure that referrals of problem 
appraisals are provided in a format that is useful to the state 
appraisal agencies and that suitable follow-up is taken to ensure that 
the states have taken appropriate enforcement actions" (page 38) would 
place both companies in an inappropriate role. Freddie Mac and Fannie 
Mae lack the legal authority and the ability to "ensure" either 
outcome.

In addition, it also is unclear how the Appraisal Subcommittee can 
effectively achieve these outcomes. Because the states have the 
authority to set their own formatting requirements for referrals, they, 
not the Appraisal Subcommittee, are in the best position to ensure 
compliance with them. The only action the Appraisal Subcommittee can 
take against a state that fails to take enforcement actions is 
decertification. However, as the
draft report itself observes, the Appraisal Subcommittee has not used 
this tool because it would inflict significant harm on the state's real 
estate market.

An alternative approach that may be worthwhile to consider is for the 
Appraisal Subcommittee to work collaboratively with all stakeholders on 
this issue - state and federal regulators, mortgage lenders, 
appraisers, and consumer groups - to increase the effectiveness of the 
referral and enforcement processes.

Thank you again for the opportunity to comment on the draft report. 
Please contact us if we can be of further assistance.

Sincerely,

Clarke Camper

Signed by Clarke Camper:

[End of section]

Appendix XII: Comments from Department of Housing and Urban Development:

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, D.C. 
20410-8000:

April 15, 2003:

OFFICE OF THE ASSISTANT SECRETARY:

FOR HOUSING-FEDERAL HOUSING COMMISSIONER:

Mr. David G. Wood Director:

Financial Markets and Community Investments General Accounting Office:

Washington, DC 20548:

Dear Mr. Wood:

The Department has reviewed the draft report entitled, Regulatory 
Programs-Opportunities to Enhance Oversight of the Real Estate 
Appraisal Industry (GAO-03-404) and is submitting the comments below. 
At the outset, we wish to express our agreement with the overall 
conclusion of the report. Specifically, we concur with your 
recommendation that better coordination between the state appraisal 
oversight agencies, the Appraisal Subcommittee, and HUD is needed. 
Staff request one change to a recommendation and other minor changes to 
the report. The changes are listed below:

Page 38 - Recommendations:

To improve the process for referring problem appraisals by entities 
that oversee or use real estate appraisals to the state appraiser 
agencies for possible enforcement actions, you recommend that the 
Chairman of the Appraisal Subcommittee work with the Chairman of Fannie 
Mae, the Chairman of Freddie Mac and the Secretary of the Department of 
Housing and Urban Development to ensure that referrals or problem 
appraisals are provided in a format that is useful to the state 
appraisal agencies and that suitable follow-up is taken to ensure that 
the states have taken appropriate enforcement actions.

Proposed Recommendation:

FHA Requested Change: FHA requests that the recommendation be written 
to exclude the Secretary of Housing and Urban Development or to 
acknowledge that HUD is already involved in the work of the Appraisal 
Subcommittee. As you are aware, a HUD representative serves as one of 6 
members of the Appraisal Subcommittee. Consequently, HUD is well 
positioned to work to enact any recommendation proposed by the 
Appraisal Subcommittee.

Miscellaneous Edits and Corrections:

Page 4 --In the first line, "praisal" should be "Appraisal.":

Page 15- - In the last paragraph, the ASC has seven staff members, not 
six.

Page 70 - First line of second full paragraph "AQB" should be "ASB.":

Once again, we appreciate the opportunity to review your draft report 
and provide comments. We look forward to working with GAO in the future 
and welcome the feedback and guidance we receive from your agency and 
staff.

Sincerely,

John C. Weicher:

Assistant Secretary for Housing-Federal Housing Commissioner:

Signed by John C. Weicher:

[End of section]

Appendix XIII GAO Contacts and Acknowledgments:

GAO Contacts:

David Wood (202) 512-8678 
Harry Medina (415) 904-2000:

Acknowledgments:

In addition to those named above, Susan Baker, Emily Chalmers, Erika 
Cruz, Edda Emmanuelli-Perez, Joel Grossman, Tracy Guerrero, Jennifer 
Lai, Alexandra Martin-Arseneau, Marc Molino, David Noguera, Jerome 
Sandau, and Paul Thompson made key contributions to this report.

(250079):

:

FOOTNOTES

[1] As defined in Title XI, federally related transactions are real 
estate transactions involving financial institutions regulated by the 
federal government. These include banks, thrifts, and credit unions. 
Real estate transactions of mortgage bankers, brokers, pension funds, 
and insurance companies are not included.

[2] The territories included in our survey are Guam, Northern Mariana 
Islands, Puerto Rico, and the Virgin Islands. The only other U.S. 
territory--American Samoa--does not have a regulatory oversight 
structure for appraisers because real estate there can only be 
inherited. In this report, the term "states and territories" refers to 
the 50 states, the District of Columbia, and the 4 territories.

[3] Impact of Appraisal Problems on Real Estate Lending, Mortgage 
Insurance, and Investment in the Secondary Market, H.Rep. 99-891 at 4-
6 (Sept. 25, 1986), House Committee on Government Operations, 99th 
Congress, 2ND session.

[4] Both Fannie Mae and Freddie Mac allow lenders the options to use an 
inspection or evaluation instead of a traditional appraisal, on loans 
that they determine to be low-risk based on their automated loan 
underwriting systems. In the case of Freddie Mac, certain low risk 
loans may be eligible for delivery to Freddie Mac with no appraisal or 
inspection.

[5] The 2002 sponsors of the Appraisal Foundation consisted of eight 
appraisal organizations, four affiliate organizations (representing 
primarily the users of appraisal services), and one international 
appraisal organization. In addition, over 80 organizations, 
corporations, and government agencies are affiliated with the Appraisal 
Foundation.

[6] We did not receive a response to our survey from the Virgin 
Islands.

[7] The state of Wisconsin had a hybrid organizational structure 
composed of an independent board that handled the complaint process 
(including taking disciplinary action) and a state agency reporting to 
the Department of Regulation and Licensing that issued appraiser 
licenses.

[8] California and Guam reported that they did not use boards or 
commissions for appraiser oversight.

[9] Reciprocity allows appraisers to use a license from their home 
state to obtain a license in another state without taking examinations 
or meeting additional requirements.

[10] 12 U.S.C. § 3347(a), (b) (2000).

[11] 12 U.S.C. § 3339 (2000).

[12] The $1,000,000 threshold does not apply to 1-4 unit, single family 
residential appraisals unless the size and complexity of the 
transaction requires a State certified appraiser. Also, under Title Xl 
the federal financial institution regulators are responsible for 
determining whether other types of transactions warrant the use of a 
certified appraiser. See 12 U.S.C. § 3342 (2000).

[13] Although the States are responsible for establishing and 
administering licensing qualifications, Title XI authorizes the federal 
financial institution regulators to establish additional qualification 
criteria. 

[14] The threshold amount is contained in regulations of the respective 
agencies that set forth the circumstances under which an appraisal by a 
state certified or licensed appraiser is required or not required. See 
12 C.F.R. § 34.43 (2002)(OCC), 12 C.F.R. § 225.63 (2002)(FRS), 12 
C.F.R. § 323.3 (2002)(FDIC), 12 C.F.R. § 564.3 (2002)(OTS), and 12 
C.F.R. § 722.3 (2002)(NCUA).

[15] 12 U.S.C. § 1813(q) (2000).

[16] See 12 U.S.C. § 3332(a) (2000).

[17] Title XI authorizes the Appraisal Subcommittee to charge an annual 
registry fee of not more than $25. However, the Federal Financial 
Institutions Examination Council may approve fees up to $50 per year. 
As of March 31, 2003, the annual registry fee was $25.

[18] Illegal real estate flipping is a scheme where a real estate 
speculator buys a house, usually in a poor neighborhood, and obtains an 
inflated appraisal and other fraudulent financial documents to trick a 
lender into making a loan that exceeds the fair market value. The house 
is sold again at an inflated price to a second buyer. The seller has 
then made a large profit on the inflated value of the property. If the 
second buyer defaults on the loan, the mortgage lender may not be able 
to recoup the amount of the loan and will therefore absorb a loss. 

[19] 12 U.S.C. §3332(a)(3).

[20] Appraisal Subcommittee, Policy Statements Regarding State 
Certification and Licensing of Real Estate Appraisers (Washington, D.C: 
Sept. 22, 1997, as amended).

[21] See 12 U.S.C. § 3347(b),(c) (2000).

[22] 12 U.S.C. § 3345(c) (2000).

[23] 12 U.S.C. § 3345(a) (2000).

[24] 12 U.S.C. § 3345(e) (2000).

[25] 12 U.S.C. § 3345(d) (2000).

[26] Form of Real Estate Fraud Known As Flipping: Hearing before a 
Subcommittee of the Senate Committee on Appropriations, March 27, 2000, 
Baltimore, Maryland.

[27] Fannie Mae officials noted that when an appraisal is required for 
a mortgage that will be delivered for sale to the GSE, mortgage brokers 
must use appraisers that are state-licensed or certified in accordance 
with Title XI.

[28] An evaluation is generally performed by an individual who does not 
need a license or certification. For more information on real estate 
evaluations, see U.S. General Accounting Office, Bank and Thrift 
Regulation: Better Guidance Is Needed for Real Estate Evaluations, GAO/
GGD-94-144 (Washington, D.C.: May 23, 1994). In addition, the federal 
financial institutions regulators issued Interagency Appraisal and 
Evaluation Guidelines on October 27, 1994. 

[29] 12 U.S.C. § 3351(a),(b) (2000).

[30] The remaining state's program charged a certified general 
appraiser $45 in even-numbered years and $90 in odd-numbered years. 

[31] Distance education does not require that the student be physically 
present in the same location as the instructor. Common delivery systems 
used in distance education involve technology such as video, computer-
based training, and the Internet to bridge the instructional gap.

[32] The Legal Advisory Group consists of the general or chief counsels 
of the FDIC, FRS, OCC, OTS, and NCUA.

[33] 12 U.S.C. § 3348(c). 

[34] Fannie Mae Form 2000 and Freddie Mac Form 1032, dated December 
2002.

[35] See appendix IV.

[36] See appendix I, question 21.

[37] According to an Appraisal Subcommittee official, results from 
their on-site state review conducted in the mid-1990s found that the 
number of appraisers many states reported to the Appraisal Subcommittee 
did not correspond to the number of appraisers in the state's records. 
In response, the Appraisal Subcommittee made two changes to the 
National Registry database to ensure that states were submitting the 
names of and collecting fees on behalf of all eligible appraisers. 
First, the Appraisal Subcommittee required states to submit records for 
all real property appraisers and determined whether any fees were 
outstanding. Second, the Appraisal Subcommittee redesigned the database 
to calculate the fees owed by each state, including for creating and 
mailing invoices. According to the official, revenues for the registry 
increased significantly as a result of the changes. 

[38] According to an Appraisal Subcommittee official, "other" 
disciplinary actions can include warning letters, monetary penalties, 
probations, and educational requirements. In general, only the 
Appraisal Subcommittee and state regulatory agency have access to the 
details of disciplinary actions classified as other. 

[39] Nondisclosure states are those states in which the price and terms 
of real estate transactions, such as the amount paid for the property, 
are not subject to public disclosure.

[40] Appraisal Standards Board, Use of Automated Valuation Model 
(Advisory Opinion 18)(July 9, 1997).

[41] The AQB's minimum qualification criteria for those seeking to 
become appraisers require the course or its equivalent. AQB has also 
established a continuing education requirement for appraisers of 7 
hours of similar training every 2 years. 

[42] ECAFS is an advisory committee to the Appraisal Foundation made up 
of representatives from the Appraisal Foundation sponsoring 
organizations.

[43] One state charged a single certification fee of $1,000 to 
education providers for all instructors.

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