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For centuries, property ownership has played a foundational role in human society. In the U.S., homeownership has come to symbolize financial stability and economic opportunity. Real estate is both a tangible asset and a vehicle for wealth creation. Following the Savings & Loan Crisis of the 1980s, Congress recognized the systemic risk posed by flawed property valuations and enacted the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) in 1989. Title XI of FIRREA established a regulatory framework for appraisers to ensure credible and independent valuations in federally related transactions (FRTs).
A crisis-driven regulatory legacy
Despite FIRREA’s implementation, the 2008 financial crisis underscored persistent issues within the appraisal industry. Fraudulent or inaccurate valuations deepened the crisis, revealing systemic weaknesses including regulatory gaps and conflicts of interest. Congress responded by passing the Dodd-Frank Act, which added new responsibilities, such as requiring state regulation of Appraisal Management Companies (AMCs)—but without sufficient funding.
Similarly, the 2008 Housing and Economic Recovery Act (HERA) removed Licensed Appraisers from eligibility for HUD/FHA appraisals, reducing appraiser availability, particularly in rural areas. These measures, reactive rather than strategic, highlight the ad hoc nature of appraisal regulation.
Current regulatory structure
The U.S. appraisal regulatory framework is complex and multi-tiered:
• The Appraisal Subcommittee (ASC): The federal agency that oversees state and AMC programs, monitors and reviews The Appraisal Foundation (TAF), and allocates funding via the National Registries.
• The Appraisal Foundation (TAF): A private nonprofit, sets national appraisal standards (USPAP) and qualifications through the Appraiser Qualifications Board (AQB). • State Regulatory agencies: License and supervise appraisers, and AMCs.
While the system aimed for collaborative governance, it has evolved into a fragmented, inefficient, and outdated structure.
Key institutional challenges
The Appraisal Subcommittee (ASC)
• Governance inefficiency: Composed of seven federal agencies, the ASC board is bureaucratic, slow, and ineffective.
• Eroded authority: Its jurisdiction has shrunk from 90% of transactions in 1990 to 5–10% today.
• No enforcement power: The ASC cannot compel compliance from TAF and state enforcement is limited and minimally effective.
• Political misuse: Some board members have used the ASC for political objectives, damaging credibility.
• Resource mismanagement: Despite holding $30 million in reserves, the ASC lacks a plan to use those funds.
• ASC has lost key staff leadership over the past year who have not been replaced. Given the current restrictions on new hires, the agency could cease to function effectively or altogether.
The Appraisal Foundation (TAF)
• Revenue model concerns: USPAP updates were seen as revenue-driven rather than necessary, leading to criticism and a halt in revisions post-2020. TAF now has no clear revenue stream.
• Lack of accountability: Though monitored by the ASC, TAF operates without meaningful oversight.
• Barriers to entry: AQB’s experience requirements remain a significant hurdle for aspiring appraisers, with limited success from initiatives like PAREA.
• Recent accusations of fraud and improprieties at the Appraisal Institute. As the only current PAREA provider, these allegations could further erode confidence in PAREA. • Governance issues: Concerns over conflicts of interest and constitutional challenges have emerged regarding a private nonprofit wielding such significant and unchecked federal authority.
State regulatory programs
• Underfunded: Many states lack the resources needed for effective appraisal and AMC oversight.
• Burdened by AMC mandates: State appraisal regulatory agencies often struggle to regulate corporate entities.
• Impacted by USPAP revisions: Frequent changes made enforcement and compliance difficult, though this has stabilized in recent years.
A path forward: Three potential options
1. Enhance the existing system
• Strengthen ASC’s enforcement capabilities.
• Reform board structure and governance.
• Remove ASC from the Federal Financial Institutions Examination Council (FFIEC). • Create a strategic plan for ASC reserves.
• Provide sustainable funding for TAF and state programs.
• Simplify overlapping regulations.
2. Reduce federal involvement
• Create a self-regulatory organization (SRO), modeled after FINRA or PCAOB. • Shift federal oversight to the Treasury or SEC.
• Establish a multi-stakeholder advisory group.
• Reduce inefficiencies and align incentives.
• The ASC’s $30 million in unused funds could be used to fund the start up.
3. Transition to state control
• Eliminate federal oversight entirely.
• Allow states full regulatory authority, including the option to privatize. • This approach matches international models but risks inconsistent standards and challenges for nationwide lenders.
Conclusion
What was once a pioneering regulatory structure has become outdated and ineffective. Only a small fraction of transactions now fall under federal oversight, weakening the system’s relevance. Legislative efforts have historically followed crises rather than leading with proactive vision, resulting in a disjointed regulatory environment.
The time for reform is now. Whether through targeted enhancements, a shift toward a new appraisal regulatory model, or a decentralized state-based system, the goal must be a modern, efficient, and accountable framework that protects our nation’s financial system. A well functioning appraisal regulatory system is critical not just for the profession, but for the stability and integrity of U.S. real estate and international financial markets.
James R. Park is the president of Collateral Risk Network.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
To contact the editor responsible for this piece: zeb@hwmedia.com.
