Fannie Mae, Freddie Mac and now a number of local Las Vegas based banks have failed in recent days. Sure the Treasury Department is taking care of it all, those intaglio presses are working overtime, and I'm sure there will be lots of pain to go around because of it. If you followed the press you may have noted, however, that many of the principal bank players got their multi-million dollar golden parachute payments.
I'm sure that the public can expect finger pointing, name calling and the rash of legal indictments that always follow a full blown banking crisis. The last "blame" game resulted in the Financial Institutions Reform Recovery and Enforcement Act (FIRREA) of 1989. Clearly that law did not put in place reforms that would avert future banking disasters in the right places.
FIRREA changed the real estate appraisal business completely. There are now considerably higher standards for appraisers that have been developed and refined over the years by the Appraisal Foundation. The Appraisal Foundation is a private, not for profit corporation charged by Title XI of FIRREA with establishing, improving and promoting minimum uniform appraisal standards and qualifications.
Mario Cuomo, the New York Attorney General, has taken a shot at real estate appraisers by getting Freddie Mac and Fannie Mae, just prior to their government takeover, to accept a requirement that appraisers adopt a new "code of conduct." The appraisal profession was doing just fine without new government intervention, but it appears that appraisers are already in the sights of the government and banking reformers and those looking for a banking failure scapegoat.
Appraisers resisted the forced implementation of a new code and they launched a vigorous protest against it during the government's response period. Many appraisers who have long-standing relationships with lending institutions stood to lose big if the code forced them to sever their business relationships with banks and mortgage companies. The creation of a new proposed "code of conduct" appears to have been a staged, political move to divert attention away from those parties responsible for it, banks and lending institutions.
Now a Senate Bill (S. 2452) has been introduced that would require appraisers to post a 1% bond based on the aggregate value of their appraisals. For most appraisers this would mean that their entire life's savings would have to be diverted to a guarantee regarding their work. It appears that Congress is losing touch with reality, appraisals are subjective opinions of value, its not rocket science, and there are already strong penalties for those who intentionally bias appraisal results.
It is important to note at this juncture that the mortgage and banking crisis that we are dealing with in today's "recession of 2008" was not caused by appraisers, but by poor lending practices. The oversupply of easily procured mortgage money created an inflated demand, and appraised values reflected the ever increasing sales prices that were established by buyers and seller and then recorded by county assessors.
