CHICAGO (May 12, 2010) – In order to regain investors’ trust, America must end the “wild west” attitude that has plagued its real estate financing, Appraisal Institute President Leslie Sellers, MAI, SRA, told a Congressional subcommittee today.
“Based on my discussions with government officials, investors and borrowers throughout the world, there is a striking concern that we conduct real estate financing with a ‘wild west’ attitude,” Sellers said. “The United States has lost credibility as the financial leader of the world. Clearly, if we are going to retain and attract new investment, we must earn back the trust of investors.”
Sellers made his remarks at a field hearing of the U.S. House Financial Services Committee’s Subcommittee on Oversight and Investigations at the Dirksen U.S. Courthouse. The hearing’s topic was “Commercial Real Estate: A Chicago Perspective on Current Market Challenges and Possible Responses.”
“We firmly believe that competent collateral risk assessment must be resurrected and enforced,” Sellers said, adding that real estate appraisers stand prepared to play a key role. “As we look to win back the confidence of investors worldwide, we believe enhanced collateral risk assessment is one of the building blocks necessary to chart this path.”
Based in Chicago, the Appraisal Institute is the nation’s largest professional organization of real estate appraisers. Sellers spokes on behalf of the Appraisal Institute, the American Society of Appraisers, the American Society of Farm Managers and Rural Appraisers, and the National Association of Independent Fee Appraisers.
In his remarks to the subcommittee, Sellers made four specific recommendations.
“First, to help with CRE workouts, lenders should engage competent appraisers to provide multi-value appraisals, providing as-is market value, liquidation value and fair value. These represent the most likely, most pessimistic and most optimistic measurements of collateral risk.
“Second, financial institutions should engage independent valuation experts in the periodic monitoring of CRE assets much like pension funds and institutional investors are required to do now.
“Third, we need to strengthen the Interagency Appraisal and Evaluation Guidelines to demand competency, quality and accountability.
“Finally, we need to strengthen the institutional capacity of collateral risk within financial institutions and the bank regulatory agencies for better oversight and enforcement.”
Generally, Sellers said, lenders should be rely not on credit risk alone but also must account for collateral risk. Sellers further noted that the quality and competency of real estate appraisals should be promoted over speed and volume, and that there should be consistent and enforceable lending regulations and guidelines. He also said that risk management should be elevated so that it is on par with loan production.
To view the full text of Sellers’ oral testimony, go to http://www.appraisalinstitute.org/newsadvocacy/downloads/ltrs_tstmny/2010/OralTestimonySellers_FINAL.pdf.
For his complete written testimony, go to http://www.appraisalinstitute.org/newsadvocacy/downloads/ltrs_tstmny/2010/FieldHearingTestimonyFINAL.pdf.
The Appraisal Institute is a global membership association of professional real estate appraisers, with more than 25,000 members and 91 chapters throughout the world. Its mission is to advance professionalism and ethics, global standards, methodologies, and practices through the professional development of property economics worldwide. Organized in 1932, the Appraisal Institute advocates equal opportunity and nondiscrimination in the appraisal profession and conducts its activities in accordance with applicable federal, state and local laws. Members of the Appraisal Institute benefit from an array of professional education and advocacy programs, and may hold the prestigious MAI, SRPA and SRA designations. For more information regarding the Appraisal Institute, please visit www.appraisalinstitute.org.