Order Code RS22953
September 17, 2008
Regulation of Real Estate Appraisers and the
“Cuomo Agreements”
Edward Vincent Murphy
Analyst in Financial Economics
Government and Finance Division
Summary
Falling house prices and rising foreclosures in the subprime and Alt-A mortgage
markets have led some to question the effectiveness of the current regulation of real
estate appraisers. The Appraisal Subcommittee (ASC) of the Federal Financial
Institutions Examinations Council (FFIEC) oversees the state licensing and certification
of real estate appraisers. The ASC also oversees the issuance of the Uniform Standards
of Professional Appraisal Practice (USPAP) by the Appraisal Foundation. The ASC has
limited enforcement powers over state boards that do not comply. The recently passed
housing bill (H.R. 3221, P.L. 110-289) included language similar to an appraisal reform
bill, H.R. 3837, that makes it unlawful to improperly influence real estate appraisals.
The government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac,
signed agreements in March 2008 with the state attorney general of New York, the
“Cuomo Agreements,” in which the GSEs agreed not to purchase loans from banks that
conducted appraisals in-house. The agreement also established a Home Valuation Code
of Conduct (HVCC).
Because the GSEs provide a large share of mortgage funding to banks, the federal
banking regulators of the FFIEC have objected to the Cuomo Agreements. The GSE
conservatorship orchestrated in September 2008 places the agreements in further doubt.
This report will be updated as conditions warrant.
Context
Appraisers provide an estimate of the value of real estate prior to the completion of
a mortgage transaction. Lenders typically rely on real estate appraisers because the
property serves as collateral for the loan, and the lender might seize and sell the property
if the borrower defaults.
The regulation of both commercial and residential real estate appraisers was altered
following the savings and loan crisis of the late 1980s and early 1990s, during which

CRS-2
defaults on commercial real estate rose significantly. Title XI of the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989 (FIRREA)1 established a federal
Appraisal Subcommittee (ASC) within the Federal Financial Institutions Examinations
Council (FFIEC),2 but the licensing and certifying of appraisers was left to the states.
FIRREA required the states to establish licensing and certification requirements and
coordinate through the ASC and a nongovernmental organization, the Appraisal
Foundation, which establishes the Uniform Standards of Professional Appraisal Practice
(USPAP). Federal banking regulators established the threshold for requiring an appraisal
for federally related loans, and all 50 states created appraisal boards to license and certify
appraisers. Currently, the ASC of FFIEC provides the federal lead for the regulation of
appraisers, the various state appraisal boards certify and license individual appraisers, and
the independent Appraisal Foundation helps coordinate industry standards of practice.
The subprime mortgage crisis has drawn renewed attention to the regulation of
appraisers. With house prices falling, some have questioned the integrity of appraisals
that had estimated values higher than current prices. Representative Kanjorski introduced
the Escrow, Appraisal, and Mortgage Servicing Improvements Act (H.R. 3837), which
would prohibit interested parties in a real estate transaction from improperly influencing
a real estate appraisal. H.R. 3837 would provide other consumer protections as well.
Similar language was included in the recently passed Housing and Economic Recovery
Act of 2008 (H.R. 3221, P.L. 110-289), which contains section (g)(1):
No mortgage lender, mortgage broker, mortgage banker, real estate broker, appraisal
management company, employee of an appraisal management company, nor any other
person with an interest in a real estate transaction involving an appraisal in connection
with a mortgage insured under this section shall improperly influence, or attempt to
improperly influence, through coercion, extortion, collusion, compensation,
instruction, inducement, intimidation, nonpayment for services rendered, or bribery,
the development, reporting, result, or review of a real estate appraisal sought in
connection with the mortgage.
The Appraisal Subcommittee (ASC)
The ASC is part of the FFIEC, which establishes regulations for appraisals for
federally related transactions. Such regulation governs when appraisals are required, who
must perform the appraisals, and the manner in which appraisals shall be performed. The
FFIEC appoints the members of the ASC, and the chairperson of the ASC serves a two-
year term.3 The ASC reviews and monitors the procedures and activities of the Appraisal
Foundation, which issues the USPAP.4 The ASC monitors the requirements established
by the state boards for the certification and licensing of appraisers, including a code of
1 Sponsored by Henry B. Gonzales, H.R. 1278, P.L. 101-73, became law August 9, 1989. The
appraisal subcommittee of the FFIEC can be found at 12 U.S.C. 3301 et. seq.
2 The FFIEC includes the Federal Reserve Board (FRB), The Office of the Comptroller of the
Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the Office of Thrift
Supervision (OTS), and the National Credit Union Administration (NCUA).
3 Sections 1103-1107 of FIRREA describe the composition and duties of the Appraisal
Subcommittee.
4 Rules promulgated by the ASC must follow notice and comment procedures (Sec. 1107).

CRS-3
professional responsibility. The ASC determines the level of required appraisal (licensed
or the more stringent certified) for federally related transactions. The ASC maintains a
national registry of state certified and licensed appraisers.
To fund its activities, the ASC collects fees from registered appraisers. For the fiscal
year ending September 30, 2007, the ASC had expenses of $2.6 million, including $1.2
million in grants to the Appraisal Foundation.5 There were more than 100,000 appraisers
in the registry generating $3.2 million in fees for the ASC. The ASC reviewed 35 state
appraisal agencies. Table 1 presents the results of the ASC field reviews; violations
included failing to document records properly and approving unacceptable continuing
education courses, among other concerns.
Table 1. Appraisal Subcommittee Reviews of State Agencies
Problem Area
No. of States
Examples of Descriptions
— Accepted insufficient number of hours
Education
4
— Did not accept ABQ changes
— Approved unacceptable courses
— No reliable means to verify
experience
Experience
8
— Failed to maintain documentation of
claims of experience
— Approved unacceptable courses
— Failed to require the appropriate
Continuing Education
16
continuing education hours when
reactiviting a credential
— Failed to issue temporary practice
Temporary Practice
9
permits within 5 days
— Failed to investigate/resolve
Enforcement
19
complaints in a timely manner
— Insufficient file documentation
— Provided insufficient data
National Registry
— Failed to provide timely National
8
Submissions
Registry fee payments
— Failed to submit disciplinary actions
Source: ASC Annual Report, 2007, p. 72.
Threshold for Federally Related Transactions
Depending on size and complexity, a real estate transaction might require a certified
appraiser, a licensed appraiser, or no appraiser at all. In general, residential appraisals are
considered less complex than commercial real estate transactions. Under Title XI, “each
5 ASC Annual Report, 2007, available at [http://www.asc.gov/html/frameSet.aspx?assetPath=/
uploads/Annual %20Reports\AnnualReport2007.pdf].

CRS-4
Federal financial institution’s regulatory agency and the Resolution Trust Corporation
may establish a threshold level at or below which a certified or licensed appraiser is not
required to perform appraisals in connection with federally related transactions, if such
agency determines in writing that such threshold level does not represent a threat to the
safety and soundness of financial institutions.”6 The current base for residential
transactions is $250,000. All transactions more than $1 million require a certified
appraiser, as opposed to a licensed appraiser.
The “Cuomo Agreements”
On March 3, 2008, Fannie Mae announced an agreement with the attorney general
of the State of New York that would establish rules for home appraisals that would take
effect on January 1, 2009.7 In the agreement, the attorney general agreed to cease state
investigations of Fannie Mae if Fannie Mae agreed to purchase mortgages only from
banks that did not conduct home appraisals in-house.8 A similar agreement was reached
with Freddie Mac, the other secondary mortgage market GSE. Because the GSEs
purchase a high percentage of prime mortgages originated by banks, it could be argued
that the agreement is a de facto banking regulation because any bank that conducted in-
house appraisals would lose access to the largest source of funds for prime mortgages.
Although the agreement was negotiated with the knowledge of the federal regulator of the
GSEs, the Office of Federal Housing Enterprise Oversight (OFHEO),9 the FFIEC and its
member federal financial regulators have challenged both the substance of the agreement
and the authority of a state official to establish rules for federally chartered banks.10 The
status of the agreements is further complicated by the transformation of OFHEO into the
Federal Housing Finance Agency (FHFA) and the GSE conservatorship. It remains to be
seen if the agreement between New York and Fannie Mae will survive the challenge of
these federal banking regulators.
The Home Valuation Code of Conduct
The Cuomo Agreement would establish a new set of rules for appraising the value
of homes, referred to as the Home Valuation Code of Conduct (HVCC). The expressed
intent of the agreement is “...to ensure appraisal independence and valuation protection...”
and to establish “...requirements governing appraisal selection, solicitation, compensation,
conflicts of interest and corporate independence, among other things.”11 The HVCC calls
6 12 U.S.C. 3341.
7 Fannie Mae, “Fannie Mae Reaches Agreement with New York Attorney General, OFHEO,
Regarding Home Appraisals; Investigation Terminated,” Press Release, March 3, 2008, available
at [http://www.fanniemae.com/newsreleases/2008/4291.jhtml?p=Media&s=News+Releases].
8 The agreement can be found at [http://www.fanniemae.com/media/pdf/030308_agreement.pdf].
9 OFHEO was merged into the new Federal Housing Finance Agency by the recently passed
housing bill, PL 110-289.
10 See joint letter from the agencies to the director of OFHEO, James B. Lockhart, dated June 19,
2008, at [http://www.tavma.org/images/HVCC_Comments/regulators_jointletter_hvcc.pdf].
11 The agreement, section I (1), can be found at [http://www.fanniemae.com/media/pdf/
030308_agreement.pdf].

CRS-5
for the creation of an Independent Valuation Institute, which is intended to be independent
despite the agreement’s provision for (1) funding by Fannie Mae and (2) potential
affiliation with an existing industry group. The institute would propose amendments to
the code, establish a consumer hotline, and provide appraisers a contact if they believed
they were being pressured in any way.
Automated Valuation Models and
Appraisal Management Companies

Some may be concerned about the impact of the HVCC on Automated Valuation
Models. Automated Valuation Models are computerized valuations based on available
information. As the name implies, it is often possible to get an estimated appraisal from
these models without a person visiting the interior of the home being valued. As a rough
analogy, consider information to assist car-buying, such as reports by Carfax and similar
services. As long as the vehicle’s maintenance and accident information is publicly
available, a computer model may provide a rough estimate of the car’s value. However,
a prudent car buyer might still prefer a mechanic to personally inspect the car because
important information may not be in the public domain. Similarly, automated valuation
models attempt to provide a rough home valuation based on public information of the
home and nearby comparable properties. Examples of similar home valuations can be
found on real estate service websites. Like the auto mechanic in the car example, prudent
home buyers and mortgage lenders might obtain an inspection of the home by a qualified
professional. The HVCC expressly rejects a preference for Automated Valuation Models.
Section XI states, “Nothing in this Code shall be construed to establish new requirements
or obligations that (1) require a lender to obtain a property valuation, or to use any
particular method for property valuation (such as appraisal or automated valuation
model)....”
Some have expressed concern that the HVCC provides a preference for Appraisal
Management Companies. As the name implies, these firms specialize in providing real
estate appraisals. In some cases, the HVCC does provide a preference for Appraisal
Management Companies compared with some other professionals. Section III, for
example, states that Appraisal Management Companies may be designated to arrange
compensation for appraisers but that mortgage bankers and real estate brokers may not.
Similarly, Section V expressly allows for employees of Appraisal Management
Companies to select appraisers but does not include real estate brokers.