- Brene Brown
In This Edition...
Rural Communities Continue to Struggle with Shortage of Appraisers
CSBS released this week a report highlighting the shortage of appraisers in rural communities, a challenge further exacerbated by a retiring appraiser workforce and limited waiver options for communities unable to hire and train enough appraisers for the area. CSBS and state regulators based their observations on CSBS survey data, reporting from examiners and regulators across the country, and data from the Appraisal Subcommittee of the FFIEC.
Every year, CSBS conducts annual outreach to the community banking industry as part of the annual CSBS-Federal Reserve Community Banking in the 21st Century Research and Policy Conference. As part of this initiative, in 2017 CSBS deployed its Five Questions for Five Bankers to industry stakeholders to understand the challenges and opportunities faced by community banks. These survey respondents consistently noted that regional shortages of qualified appraisers have led to significant delays in the home purchase process. Kentucky, New Mexico, and Utah all reported a shortage of appraisers. In addition, state regulators from Michigan, Montana, Nebraska, North Dakota, Tennessee, and Wisconsin similarly noted that federal appraisal rules cause significant burdens particularly in rural areas.
This is not the first time state regulators have expressed concern about the lack of appraisers in rural communities. In 2017 and earlier this year, CSBS sent letters supporting limited appraisal waivers for certain communities. And this August, North Dakota was the first state to request a real estate appraisal waiver that would allow local banks to make valuation assessments on their own.
Current Appraiser Shortages in Rural Communities
A CURRENT REVIEW OF APPRAISER SHORTAGES IN RURAL COMMUNITIES & APPRAISAL STANDARDS
State and federal bank regulatory agencies continue to evaluate the perceived shortage of state certified and licensed appraisers in certain areas across the country. Various industry stakeholders consistently note that appraiser shortages impact the timeliness of appraisals – extending rate locks, impeding credit availability and delaying closings for many borrowers. Recently, Congress also acknowledged with the passage of section 103 of S. 2155, the “Economic Growth, Regulatory Relief, and Consumer Protection Act” that appraiser availability in rural areas is an issue and that relief is needed. Our research and outreach sessions with state regulators and other industry members shows that while more options are available to remedy appraisal shortages in certain marketplaces, more can and still needs to be done.
Appraiser Shortages Exist in Certain Areas
Data collected from 2016 and 2017 suggests that there is an appraiser shortage in several areas of the country. As of December 31, 2016, the Appraisal Institute’s research department reported that the number of actual real estate appraisers in the U.S. stood at 73,731, a four percent decrease from 2015, which has been an ongoing trend year after year since the mortgage crisis.1
State regulators continue to observe a shortage of appraisers in regions across the country and are focused on finding avenues for relief. Every year, CSBS conducts annual outreach to the community banking industry as part of the annual CSBS-Federal Reserve Community Banking in the 21st Century Research and Policy Conference. As part of this initiative, in 2017 CSBS deployed its Five Questions for Five Bankers to industry stakeholders to understand the challenges and opportunities faced by community banks. These survey respondents consistently noted that regional shortages of qualified appraisers have led to significant delays in the home purchase process. Kentucky, New Mexico, and Utah all reported a shortage of appraisers. In addition, state regulators from Michigan, Montana, Nebraska, North Dakota, Tennessee, and Wisconsin similarly noted that federal appraisal rules cause significant burdens particularly in rural areas.
The Appraisal Institute analyzed the Appraisal Subcommittee’s National Registry data since 2006 and noted a long-term annual decline of nearly three percent in the number of licensed and certified real estate appraisers. In a broader analysis, the Appraisal Institute suggests that the number of appraisers could continue to decline at a higher annual rate over the next ten years due to more retiring appraisers and fewer new appraisers. Challenging and uncertain business conditions, wider use of alternate valuation technologies, and increased pressure all work to discourage appraisers and potential appraisers.2 One set of statistics from the Appraisal Institute seems to strongly indicate that the industry is now set to experience a further shortage of appraisers due to impending retirement and a shortage of new appraisers as 62 percent of appraisers are age 51 or older, while 24 percent are between 36 and 50, and only 13 percent are 35 or younger.3
In its annual report, the Appraisal Subcommittee of the Federal Financial Institutions Examinations Council (the ASC) reported that as of December 31, 2017, the Appraiser Registry contained 95,732 total appraiser credentials, down 21 percent from the peak in 2007. The chart below shows the number of appraiser credentials reported by the ASC since year-end 2008.4
|Year-End||Certified General||Certified Residential||Licensed||Transitional||Total Credentials|
Note: These statistics reflect the number of appraiser credentials, not the number of appraisers, listed on the National Registry. It is not uncommon for the same appraiser to hold multiple State credentials. Also, Transitional licensing enabled persons to become licensed when they passed the appropriate examination but lacked either the educational or the experience requirements adopted by the State. Effective July 1, 2013, transitional credentials were no longer eligible for listing on the Appraiser Registry.
The National Appraiser Registry maintained by the ASC is a valuable resource for assessing the general availability of appraisers. However, our outreach sessions with state regulators and industry members suggests that it does not accurately reflect the availability of appraisers in certain areas and fails to take into account that while an appraiser may appear as available on the registry it does not mean that appraiser is willing to accept the project. Having appraisers certified to do the work and having appraisers willing to do it are two separate things and the Appraiser Registry cannot display this distinction. Banks have noted that some appraisers are reluctant to take on certain appraisals due to time, location, and monetary constraints.5 Thus, we caution that the data provided by the ASC, while important and relevant, cannot be the only source of information when assessing appraiser shortages. Further context is needed, and additional statistics need to be reviewed in conjunction with the Registry data to evaluate local conditions.
Two Temporary Options for Relief That Are Unclear, Lengthy, and Underutilized
In response to growing concerns about appraiser availability made to the federal bank regulatory agencies6 (collectively, the agencies), a joint Interagency Advisory Notice on the Availability of Appraisers7 was issued on May 31, 2017. In this notice, the agencies provided two options to address appraiser shortages, particularly in rural areas – one option being temporary practice permits and the other option being a temporary waiver.
Below is a brief overview of each available option and the issues in utilizing these potential avenues of relief.
Option 1: Temporary Practice Permits
Section 1122(a) of Title XI of the FIRREA requires a state appraiser certifying or licensing agency to recognize the certification or license of an appraiser issued by another state on a temporary basis for federally related transactions (FRTs).8 Temporary practice permits could allow state certified or licensed appraisers to provide their services in state where they are not certified or licensed if the relevant state appraiser regulatory agency approves.
While this option may increase the number of appraisers available in a given geographic area, the concerns are that this temporary transfer of certifications across state lines is outside the authority of the agencies, presents limited relief, and assumes the incoming appraiser has sufficient familiarity with the specific market to make a reasonable determination of property value. Based on the experiences of state regulators, the greatest factor impacting the reliability of real estate market value estimates – whether in the form of an appraisal or an evaluation – is the preparer’s familiarity with the specific market.
Option 2: Temporary Waivers
Under the Section 1119 of Title XI of the FIRREA, subject to the approval of the FFIEC, the ASC may waive any requirement relating to certification or licensing of a person to perform appraisals if the ASC makes a written determination that there is a scarcity of certified or licensed appraisers to perform appraisals in connection with FRTs in a state, or in any geographical political subdivision of a state, leading to significant delays in the performance of such appraisals. The waiver terminates when the ASC determines that such significant delays have been eliminated.9 The ASC states that it will consider the following10:
- The requirement or requirements of State law from which relief is being sought;
- A description of all significant problems being encountered;
- The nature of the scarcity of certified or licensed appraisers;
- The extent of the delays anticipated or experienced in obtaining the services of certified or licensed appraisers; and
- The reasons why the requester believes that the requirements are causing the scarcity of certified licensed appraiser and the service delays.
While in theory this option could address the scarcity of appraisers in certain markets, it presents some practical challenges and not surprisingly has been largely untested. In fact, only one temporary waiver has been granted by the ASC in 1992. For smaller institutions in rural and underserved markets the lengthy process for requesting relief creates a major challenge. The requirements listed above are simply factors the ASC will consider. The ASC has provided very little guidance on the type and amount of data necessary to support a waiver request which further inhibits small institutions from requesting a waiver.
Overall, the temporary waiver option:
- Is an interim solution as it simply suspends the requirement that appraisals be performed by certified or licensed individuals; and
- The application process to obtain such waivers or permits places the burden of proof on the requesting entity, which requires time and resources to build the case.
Neither the temporary practice permit nor temporary waiver option is likely to materially improve the state of appraiser availability in affected markets as both are temporary, uncertain, and hence rarely utilized.
Recent Example: TriStar Bank’s Experience with the Temporary Waiver Request Proceedings
A recent example of a temporary waiver request further demonstrates the difficulties of utilizing the Title XI existing options. On April 23, 2018 the ASC convened for a hearing at the Federal Reserve Board regarding TriStar Bank’s (“TriStar”) application for a temporary one-year waiver from the Title XI appraiser credentialing requirements. This whole process started back in November of 2017.
The original request was for the entire Nashville MSA area. After discussion with the ASC, the bank amended the request to cover the four main counties that TriStar services – Dickson, Maury, Williamson and Davidson counties. TriStar claimed that the demand for appraisers is so great in the Nashville MSA area that they were having a difficult time receiving appraisals in a reasonable amount of time. The time delay and added cost was negatively impacting their clients.
The hearing was heavily attended by members of the appraisal industry who expressed their opposition to the waiver request through comment letter campaigns and industry blogs. Ultimately, the ASC did not find that the data presented by the bank was sufficient to prove that a scarcity of appraisers existed, or substantial delays were occurring. In coming to this decision, the ASC relied on data and comments provided by the Tennessee Real Estate Appraiser Commission, comments from other appraiser-associations and numbers from the National Registry. The Committee relied primarily on raw registry data to find that a scarcity did not in exist. The committee did not acknowledge that appraisers listed on the registry could be working exclusively on behalf of a large bank or non-bank and otherwise be unavailable to community banks. In concluding that appraisal turnaround times were not unduly delayed, the ASC found it was necessary to ignore certain outliers and essentially excluded the two appraisals with the longest completion time. The ASC did not consider a 21 to 26-day completion time to be a “substantial” delay. Finally, the ASC acknowledged that the waiver process was underutilized and an option of last resort.
Greg Gonzales, Commissioner of the Tennessee Department of Financial Institutions, who attended the hearing and has been a key figure in keeping the appraiser shortage issue in the spotlight, stated that:
“The temporary waiver application by TriStar was important to give us all a view of the process and the views of the ASC. While there may be some situations around the country that perhaps might qualify for this relief and I encourage those banks to consider the process, I do not believe that this temporary waiver is a means for a broad-based effort to deal with appraisal shortages. But there are other avenues we are pursuing along with the temporary waiver and we will continue to strongly raise these issues.
Nevertheless, it is important that more waiver applications be brought before the ASC because it could bring more attention to the appraisal shortage issue and eventually influence changes in public policy. States supervisors should continue to recommend that the Agencies release further guidance related to the waiver process – including details on how supporting documentation is to be generated, who it is to be sent to, and examples of past requests.
North Dakota – The First State to Make Use of the Temporary Waiver Request
North Dakota has accepted the challenge to make use of the temporary waiver process following the Tri-Star Bank proceedings. What is different about this case is that North Dakota is the first state to make use of the temporary waiver request.
On August 2, 2018 to help address the appraiser shortage in North Dakota, Governor Burgum, Commissioner Kruse, and the North Dakota Bankers Association submitted a temporary waiver request for certain real estate appraiser requirements from the ASC. Specifically, the request asks for an increase of the limit when an appraisal is required from $250,000 to $500,000 for residential real estate loans and from $500,000 to $1,000,000 for agriculture and business loans. The applicants note that this waiver could improve North Dakota citizens’ ability to obtain real estate mortgages in a timely and cost-efficient manner and will provide another option for consumers. In some parts of the state, appraisals are taking up to three months for residential and agricultural real estate loans. In some cases, these transactions have fallen through. While a decision has not been rendered in this matter, we anticipate that this will only increase the conversations about appraisal shortages experienced in certain communities and will continue to pressure federal regulators to further deliberate how best to resolve this issue.
Congress Acknowledged That Relief is Needed for Certain Rural Transactions
With the passage of the Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA” or the “Act”), Congress recognized that appraiser shortages exist. Specifically, section 10311 of the Act waives the general requirements for independent home appraisals for federally related mortgages in rural areas where the lender has contacted three state-licensed or state-certified appraisers who cannot complete an appraisal in “a reasonable amount of time.” This exemption was immediately effective upon EGRRCPA’s enactment, but the agencies are reviewing the statutory provisions to determine whether further action is necessary.
The new exemption presents certain implementation issues and until further guidance is issued by the FDIC, OCC, and the Federal Reserve Board it is unclear how this exemption will operate in practice. First, the Agencies will have to release guidance on what a “good faith effort” means in contacting appraisers. Second, the Agencies will need to determine documentation necessary to demonstrate compliance with the “three appraisers” requirement, the “five-day” limitations, and “customary timeliness standards.” Finally, the Agencies will have to determine the impact of taking advantage of the exemption on selling mortgage loans made without an appraisal. While this exemption may help certain rural communities, its implementations and effect remain to be seen. However, what this provision signals are that Congress acknowledges that appraisal shortages are in issue in certain areas of the country and that tailoring of regulations is needed to provide relief for impacted areas.
The Appraiser Qualification Requirements Are Creating Barriers to Entry
The Appraiser Qualifications Board (AQB) establishes minimum education, experience, and examination requirements for appraisers to obtain a certification under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) provisions.12 A bachelor’s degree requirement for Certified appraisers took effect in 2015, meaning that an appraiser cannot become certified without a college degree. With the onerous 2,000-hour experience requirement for trainees earning little to no pay and the 150 hours or so of additional appraisal education required for licensing, the odds seem stacked against replacing the supply of retiring appraisers with new recruits. This is a huge challenge for the profession.13
The heightened education requirements created a barrier to entry into the appraiser profession that will exacerbate the shortage if educational standards are not adjusted. In many instances, rural counties have only one appraiser, and unnecessary educational requirement only serve to discourage otherwise qualified individuals from pursuing a career in the industry. For example, a community banker in South Dakota noted that despite there being only one appraiser for all of Hughes County (which includes Pierre, the state capital),14 educational requirements barred otherwise qualified individuals from attaining the Certified General appraiser credential. The community banker went on to explain that an interested candidate with an associate degree related to agricultural studies was not able to attain proper credentialing to evaluate collateral associated with transactions secured by farmland despite having extensive knowledge in local land values. In another example, Illinois noted that real estate appraiser trainee applications went from 1,231 in 2005 to only 55 in 2015. That’s an over 95 percent decline. What this shows is that states are seeing reductions in new entrants.15
The requirement for potential appraisers to apprentice under a licensed appraiser discourages competition and creates a reluctance to train newcomers to the profession. In March of 2017, the National Association of Realtors (NAR) polled more than 2,000 appraisers and found16:
- Only sixteen percent of appraisers are willing to train new appraisers.
- Lack of compensation is cited as the number one reason for not wanting to train.
- Thirty-nine percent of lenders are unwilling to accept appraisals performed in part by a trainee.
- The FHA and VA are least likely to accept an appraisal when work has been performed by a trainee.
This sentiment from this survey demonstrates that the educational requirements should be amended, allowing for more appraisers to be credentialed, and ultimately easing the burden caused by appraiser shortages.
Outlook – What More Needs to Be Done?
The appraisal industry needs to be reevaluated in a holistic manner to balance the interests of all relevant stakeholders – the consumers, the state and federal regulators, and the appraisers. The shortage of appraisers in many parts of the country remains largely unaddressed by the options currently available. By acknowledging that a shortage of appraisers exists in certain markets Congress has signaled the need for and a demand for there to be viable options that effectively and efficiently work in practice. However, none of the solutions proposed or implemented to date truly solve the basic problems causing local appraiser shortages. As appraisers retire significant barriers prevent enough new appraisers from being trained to take their places. Until Congress addresses the licensing and certification issues the problem is likely to get worse. Any perceived shortage of appraisers may be location specific and dependent on whom you ask, but there is a large consensus that no one-size-fits all policy can work for the appraisal industry.
- The Appraisal Institute forecasts that the number of appraisers will decrease by about three percent during the next five years. See Patrick Barnard, “The Appraiser ‘Shortage’: What Can be Done?” (Feb. 24, 2016).
- See Appraisal Institute, U.S. Appraiser Population Estimates.
- See Patrick Barnard, “The Appraiser ‘Shortage’: What Can be Done?” (Feb. 24, 2016).
- See Appraisal Subcommittee, 2017 Annual Report.
- The National Registry is a database containing selected information about the Nation's State certified and licensed real estate appraisers. The National Registry does NOT contain information on ALL appraisers. It only contains information about appraisers who currently are, or have been, certified or licensed by a U.S. State, Territory or possession to perform appraisals in connection with Federally-related real estate transactions. Only State certified or licensed appraisers who are listed on this National Registry as having currently valid certifications or licenses are authorized under Federal law to perform appraisals in connection with federally related transactions. Note that expiration dates on actual certificates or licensing documents may differ from expiration dates listed in the National Registry. National Registry expiration dates specifically relate to the legal authority of certified or licensed appraisers to perform appraisals in connection with federally related transactions.
- The federal bank regulatory agencies include the Board of Governors of the Federal Reserve System (Board), the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC) and the National Credit Union Administration (NCUA).
- See Federal Reserve System, FDIC, NCUA, OCC, Interagency Advisory on the Availability of Appraisers (May 31, 2017).
- 12 U.S.C. 3351(a).
- 12 U.S.C. 3348(b).
- 12 CFR part 1102, subpart A.
- 12 U.S.C. 3331 et seq.
- 12 U.S.C. 3345
- See Isaac Peck, “The Decline of Appraisers."
- As of September 14, 2017, only one appraiser was listed in the National Registry for Hughes County, South Dakota which is the site of the state capital.
- See Isaac Peck, “The Decline of Appraisers."
- See National Association of Realtors, Appraiser Trends Study (March 2017).
News impacting state supervisors this week:
- The complete agenda for the CSBS-Federal Reserve Community Bank Research Conference is now available.
- The American Banker explores whether fintechs pose a systemic risk to the market [Subscription required].
- A top official that oversees student loans at the CFBP resigned over administration policies they said harmed students and families. CSBS is opposed to plans by Secretary DeVos and the Education Department to preempt state law on supervision of student loan servicers.
- The GAO reports that effects of regulation on small business lending seem minimal, but that lending data could be improved.
- The Federal Financial Agencies have extended the deadline for comments on a proposed rule to simplify and tailor compliance requirements for the "Volcker Rule."
Washington, D.C. – State bank supervisors have appointed Texas Department of Banking Commissioner Charles G. Cooper to serve as the state banking representative on the Financial Stability Oversight Council (FSOC). His two-year term is effective immediately.
North Carolina Bank Commissioner Ray Grace previously represented state banking supervisors on the FSOC.
Title I of the Dodd-Frank Wall Street Reform and Consumer Protection Act created the FSOC to monitor the safety and stability of the nation's financial system, identify risks to the system and coordinate responses to any threat. The Dodd-Frank Act requires one of the five non-voting members of the FSOC be a state banking supervisor, to be selected by state banking supervisors.
"Commissioner Cooper has been a leader on cybersecurity and other top issues impacting the state system. He has both state supervisory and industry experience that will make him a valuable contributor to the vital work of the FSOC," said CSBS CEO and President John W. Ryan. “Charles truly understands the nation’s banking system.”
“I am honored to be appointed to serve as a member of the FSOC and I look forward to working alongside the members of the Council on important matters of the U.S. financial system,” Cooper said.
Cooper’s career in the banking industry spans over 45 years, beginning as an examiner with the Federal Deposit Insurance Corporation and transitioning into to the private sector, serving as a banking executive, board member, educator and professional consultant to the industry. In 2008, he was appointed Texas Banking Commissioner. Cooper is Chair Emeritus of CSBS and is presently the Vice Chair of State Regulatory Registry LLC.
As Texas Banking Commissioner, Cooper’s responsibilities include the chartering, regulation, supervision, and examination of 237 Texas state-chartered banks (as of June 30, 2018), with aggregate assets of approximately $257.8 billion. The Department also supervises money service businesses, among other areas.
A native Texan, Mr. Cooper holds a BBA degree in Finance and Economics from Baylor University and is a graduate of the Southwestern Graduate School of Banking at SMU.