The Comprehensive, Bipartisan Proposal Updates Appraisal and Servicing Laws to Better Protect Consumers and Enhance Industry Responsibility

WASHINGTON - Congressman Paul E. Kanjorski (D-PA), the Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, today announced that his comprehensive amendment to improve mortgage lending standards passed the Financial Services Committee.  Congresswoman Judy Biggert (R-IL) joined Chairman Kanjorski in sponsoring the amendment to strengthen appraisal regulation and improve mortgage servicing rules so that homebuyers have greater protections from unscrupulous participants in the mortgage market.  The House Financial Services incorporated their bipartisan plan into H.R. 1728, the Mortgage Reform and Anti-Predatory Lending Act of 2009, by a voice vote.

"The current crisis has made it abundantly clear that we must establish appropriate oversight for everyone in the financial system.  As such, my amendment will establish new safeguards for unregulated elements of the appraisal industry," said Chairman Kanjorski.  "This industry can no longer duck effective regulation."

"Long before the financial crisis that we face today existed, Chairman Kanjorski was aware of the potential problems that existed in the mortgage industry, highlighted by the foreclosure pandemic he was seeing in his own Congressional District," said Maureen McGrath, who lives in Monroe County and represents the National Advocacy Against Mortgage Servicing Fraud. "Chairman Kanjorski has fought long and hard to protect the rights of his constituents not only in the Poconos, but nationwide, and has fought equally hard to protect the rights of investors in the mortgage securitization market."  Mrs. McGrath testified at Chairman Kanjorski's 2004 congressional hearing at East Stroudsburg University on mortgage lending abuses.

"I am pleased to support Chairman Kanjorski's sensible amendment," said New York Attorney General Andrew M. Cuomo.  "Through our investigations we have seen the very problems with appraisal management companies that the amendment seeks to prevent.  The prudent regulatory requirements of the amendment - such as requiring minimum qualifications for appraisal management companies that include ensuring that appraisals are conducted independently - will go a long way to eliminating this type of misconduct."

After working on his appraisal and servicing reforms in response to the mortgage lending problems that occurred in the Poconos earlier in the decade, Chairman Kanjorski passed on the House floor in 2007 his legislation to reform escrow, mortgage servicing, and appraisal practices.  The Kanjorski amendment approved by the House Financial Services Committee builds on his earlier legislative efforts by taking bolder steps to provide greater protections for consumers, improve industry responsibility regarding appraisals, and address deceptive mortgage servicing practices.  Among other things, the amendment will:

• Provide all subprime borrowers with access to on-site appraisal inspections;
• Improve independence standards so appraisers can operate as honest referees, free of interference, when determining a home's true value;
• Enhance confidence in the results produced by automated valuation models;
• Further augment the powers of the Appraisal Subcommittee to monitor and assist State appraiser regulatory agencies; and
• Establish real oversight for the appraisal management companies that now touch 64 percent of written appraisals, but which are now subject to little, if any, supervision.

Many have cited the fact that inflated appraisals have been one of the key factors that triggered the current economic crisis.  According to a recent study, 90 percent of appraisers reported feeling pressure to inflate property values.[1] 

"For too long, those operating within our financial system have unfortunately sought to undermine the independence of appraisers," observed Chairman Kanjorski.  "My plan fixes this situation by imposing greater scrutiny on appraisers, appraisal management companies, appraiser regulators, and other market participants.  These reforms are a necessary part of a complete overhaul of the mortgage finance system designed to attack abusive lending and ensure fairness going forward."

Chairman Kanjorski has also been recognized as leading advocate in the House to fix this problem.  In a report from April 14, the Center for Public Integrity observed that Chairman Kanjorski "has been the most vocal proponent for stronger regulation, proposing legislation in 2007 that would have set stiffer appraisal independence standards.  The legislation, which would have prohibited lender coercion of appraisers and established penalties for it, was folded into the 2007 Mortgage Reform and Anti-Predatory Lending Act."

Chairman Kanjorski's amendment additionally codifies in federal law a number of reforms put in place by regulators and legal authorities since late 2007.  For example, the Federal Reserve has issued new rules on escrowing, crediting payments, payoff statements, and appraisal independence that closely mirror the reforms first proposed by Chairman Kanjorski.  New York Attorney General Cuomo has also developed the Home Valuation Code of Conduct with Fannie Mae and Freddie Mac to better appraisal practices, and this landmark agreement incorporates the appraisal independence language first advocated by Chairman Kanjorski.

Today, the Financial Services Committee passed H.R. 1728 by a vote of 49-21.  The House is also expected to consider the legislation, which now includes the Kanjorski amendment, in early May.

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[1] "National Appraisal Survey", October Research Corporation, December 2006, www.octoberresearch.com