Bill to curb client pressure doesn’t have enough teeth

Client pressure is arguably the biggest issue residential appraisers face. The recent Responsible Lending Act, bill H.R.1295, introduced in the House of Representatives last month (see our March 29 item), includes some marginal steps to curb it. We are enthused that a predatory lending and mortgage fraud bill covers client pressure on appraisers at all, and advocates deserve praise for getting a foot in the door.

But it's more of the same. The Responsible Lending Act's appraiser sections won't stop the often subtle pressure to hit the number on behalf of unscrupulous originators and their agents, because subtle pressure isn't covered. Tougher language and more effective actions are necessary.

Coverage of client pressure issues has relied on surveys tending to show that a majority of appraisers have felt pressure to hit a number. That's deplorable. But the problem is more prevalent than that, by far. And what's worse, the extent of the problem is unreachable by the Responsible Lending Act. Let us explain.

The bill doesn't just say "client pressure is forbidden," because laws have to be written in, well, legalese. The bill prohibits improperly influencing "through coercion, extortion, or bribery, the development, reporting, result, or review of a real estate appraisal."

Pete Mills, a senior vice president for legislative and regulatory affairs for Countrywide Financial Corp., told American Banker his company insisted on the addition of the words "coercion, extortion, or bribery," explaining to the publication that doing so would stave off "frivolous litigation."

This is a smart and predictable move by the largest mortgage originator in the country. Those three things should be outlawed, and those whose interest is in making sure their people comply with the anti-pressure measure should be expected to try to narrow the definition of pressure.

But we, and you, know that most pressure isn't outright coercion or bribery. The issue has been framed that way because the mortgage origination market is huge and the universe of appraisers comparatively tiny. And appraisers don't have an effective national advocate, at least compared to million-strong trade groups such as real estate agents have, or a Fortune 200 company in an area that's propped up the national economy in recent years.

Trouble getting paid, losing future business, and blacklisting probably do not amount to "coercion, extortion or bribery." Certainly, asking beforehand whether you can hit a number, and your not getting the assignment if you refuse, isn't those things. And therein lies the problem with the bill.

The only effective curb on client pressure would be forbidding a party with a commission or other stake in the closing of the loan from ordering the appraisal. But as Steve O'Connor, a Vice President of government affairs with the Mortgage Bankers Association, told American Banker, the question for lenders is "Do you need that if you have strong enforcement and a competent appraiser, or does it create additional burdens affecting the mechanics of transactions?"

With the more numerous and powerful bloc between appraisers and lenders having an incentive to narrow any bar on client pressure, the Responsible Lending Act is what you get. It remains to the appraiser to stand up to the more prevalent, subtle pressure – something you do every day. This new law won't change that, unfortunately.