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    Washington Report and State News Dec 18, 2023

    Regulators Struggle to Address GSE ‘Tips’ on Alleged Appraisal Irregularities

    The Appraisal Institute on Dec. 13 reported that through the first three quarters of this year Fannie Mae sent appraiser regulators 1,083 “tips” alleging that some appraisals submitted in conjunction with loans purchased by the government-sponsored enterprises contain “severe deficiencies.”

    As a result, some appraiser regulatory agencies are struggling with how to handle these unorthodox allegations that don’t conform to typical complaint procedures. And some appraisers feel as if they’re being used as pawns by the GSEs seeking to offload risky loans that were made during the COVID-19 pandemic when appraisal and other underwriting standards were relaxed. Fannie Mae says it simply wants to “give states actionable information to help improve the quality of appraisers and appraisals.”

    The process of submitting a tip begins when Fannie Mae’s Loan Quality Center, or LQC, completes a full-file review of a loan either as part of a random sample or because abnormalities were detected by Collateral Underwriter. The LQC analysts validate the appraisal results in context of a comprehensive database of property characteristics and market transactions by considering such questions as “Do the comparable sale selections make sense? Is the data accurate? Did the appraiser make appropriate adjustments? Are we getting the most probable value?

    If anomalies are found, the selling lender is notified and given an opportunity to provide additional evidence in support of the appraisal. If the lender is unable to resolve the concern, they are required to repurchase the loan. This is the point at which Fannie Mae sends a tip to state appraiser regulators about the alleged defect in an appraisal.

    A tip is often in the form of a computer-generated, unsigned letter outlining the alleged deficiencies in an appraisal. It is typically (but not always) accompanied by the appraisal in question and often contains broad allegations about the appraiser’s work, including their selection of comparable properties or their adjustments. The letter provides a generic email that investigators and regulators can use to communicate about the allegation. However, email requests for additional information regarding the investigation often go unanswered.

    This procedure runs counter to established practice. Most appraiser regulatory agencies have a formal complaint process that is established in statute or regulation whereby complaints are typically initiated when a person completes and submits a standardized complaint form that outlines the allegation and identifies an appraiser and a property. The complaint form must be signed and often notarized and executed under the penalty of perjury. Many appraiser regulatory agencies do not accept anonymous complaints or those filed by an entity in place of an individual.

    While every allegation against an appraiser must be reviewed and investigated, GSE tips are often dismissed because they are unsigned and were not made in accordance with an established complaint process. Additionally, GSE tips are often dismissed after an investigator is unable to obtain additional information to substantiate the allegations.

    For example, the Texas Appraiser Licensing and Certification Board reported that 55% of the complaints it received so far in Fiscal Year 2024 came from a GSE and that 100% of them were dismissed. And in Rhode Island, the state’s Real Estate Appraiser Board recently stated that “institutional computer-generated complaints” are closed with no action after they are administratively reviewed and when they receive no response to their standard letter asking for more information.

    The Appraisal Institute affirms its belief that allegations against appraisers that are dismissed because the complaint process doesn’t conform to a jurisdiction’s typical process and procedure and cannot be substantiated because investigators have difficulty following up with the complainant are a poor use of an appraiser regulatory agency’s limited time and resources.