Imagine if the Consumer Financial Protection Bureau’s Board of Trustees was appointed by industry sponsors who paid a $7,500 fee. In this scenario, the majority of the board would be required to be industry creditors. The board would also appoint the agency’s rule-writing staff — and they would be creditors, too.

The staff wouldn’t have to give up their industry perches while they wrote rules, and the rules they wrote would not only set the standards for industry practices, but also the criteria for entering it. The rules would be adopted in all 50 states. That was the startling and totally hypothetical analogy made, based on the current structure of the Appraisal Foundation, in a scathing report released this week.

The report, commissioned by the Appraisal Subcommittee, and led by the National Fair Housing Alliance, found that the appraisal industry, in sharp contrast to the other sectors in housing finance, has been allowed to regulate itself. The report comes as a task force to root out bias in appraisals, led by the Department of Housing and Urban Development. Apart from questions of governance, the report found significant gaps in the Appraisal Foundation’s fair housing requirements and training. The report also called on the government-sponsored enterprises to release parts of their vast trove of appraisal data, and urged lenders, the government, the GSEs and the Appraisal Foundation to standardize the reconsideration of value process.

In response, the Appraisal Foundation said it is already implementing some of the recommendations the report made. It said it has a task force to promote board diversity, has launched a demographic survey of appraisers, and expanded outreach to Historically Black Colleges and Universities. The foundation declined to point out inaccuracies or specify where they disagreed with the authors and declined to make anyone available for an interview.

The authors also point out there is no one repository for appraisal complaint data. Appraisal complaints are most often made directly to the lender, when a borrower asks for a reconsideration of value. That process varies from lender to lender. Some lenders monitor and collect data on appraisal complaints, but no lenders contacted for this story agreed to share it.

It’s yet to be seen what changes will be coming to the appraisal industry in terms of governance, data review, and complaint monitoring. In aggregate, the news reports of appraisal bias, forthcoming action from policymakers, and changes ahead likely do alarm some appraisers. The hope is that the report itself will end up as a catalyst for change.

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by Andrew Augustyniak, Peoples Mortgage Co