umbrella agency that handles all occupational licensing of the state. they often use pool investigators and assign legal counsel on a per case basis. others are stand-alone agencies that handle appraising and/or real estate. they may have staff investigators and full-time or part-time legal assistants. finally there are states such as north carolina that have an autonomous board set up by state statute. they do not receive state funding and typically hire their own staff. programs that share staff may lack sufficient resources and may not be able to comply with federal requirements. state officials do not understand why this program must be given priority when the backlog for other agencies is just as great. on the issue of appraisal fraud, an appraisal is an opinion of value which makes it difficult to show that the appraiser intended to deceive someone. for this reason, law enforcement officials often shy away from bringing fraud charges against appraisers, although state and federal law enforcement have joined task forces with state regulators, they are often not able to share information due to concerns that their investigations could be compromised. appraisers are not usually the originator of fraud schemes, but are brought into it with the promise of future assignments. instead of large payments which would provide the smoking gun tying them to the fraud. appraisal management companies. amcs have existed for many years. as a result of the home valuation code of conduct, many more amcs were established. there were, however, no regulations in place defining amcs or controlling who could own or operate an amc. often appraisers are prohibited from speaking with brokers, builders or borrowers. this creates consumer frustration directed toward appraisers as consumers are not aware of the role of the amc in the appraisal process. appraisers have their own issues with amcs, including numerous assignment conditions, requests to go outside of their market and delays in receiving payment. a frequent problem for regulators is that they must license two entities whose interests are often at odds. each group may attempt to change laws and rules that impact the other's ability to function. as complaints increase against amcs, states may lack the resources to investigate out of state companies who have substantial legal resources. alternate valuation services. broker price opinions and other evaluation products are generally not regulated by appraiser licensing boards. consumers do not realize the difference and may think they are receiving an appraisal when an appraiser was not involved in the process. there is limited authority to discipline brokers for errors in the development of these valuations and they are not sufficiently regulated. evaluation of the appraiser regulatory system. some of the cooperative efforts between state boards, the asc and the appraisal foundation are an investigator training program provided at no cost to the states, task forces on trainee supervision and consistent enforcement, the foundation issues exposure drafts and request comments when there are proposed changes or the appraisal qualification criteria and schedules meetings to coincide with their own conferences. the staff provides foundation meetings and assists the states in drafting rules and legislation. there continue to be areas that show the need for improvement. state regulators should be represented on the appraisal subcommittee as well as the foundation's boards. there should be a national repository for appraiser and amc records, either through expansion of the national registry or a system similar to the national mortgage licensing system. current asc meeting procedures discourage the public from attending. universal application and complaint forms have been discussed but are difficult to achieve absent a federal requirement. the asc has been in the process of changing its policy statements for several months but states have not had the opportunity to see a draft or to comment. the lack of enforcement sanctions was a serious omission and created a situation where derecognition was the only penalty available to the asc for violations. the dodd-frank act has given the asc broader enforcement options, the ability to make grants to the states and oversight of the amc registration process. it remains to be seen what effects these new tools will have on the oversight of the state appraiser programs. thank you for the opportunity to testify before you today. i will be glad to answer any questions. >> thank you. mr. park, you are recognized for five minutes. >> good morning, chairman biggart, ranking member gutierrez and members of the subcommittee. thank you for the opportunity to update you on the work of the appraisal subcommittee, also known at the asc. title 11 created the asc as an independent agency within the federal financial institutions examination council. title 11 was passed following the savings and loan crisis of the 1980s to address weaknesses regarding real property appraisals used in connection with federally related transactions. title 11 called for the establishment of state programs to credential and supervise appraisers and created a unique regulatory framework that involves federal, state and private entities. at the federal level, we have the asc. at the state level, the state appraiser regulatory agencies and on the private side, the appraisal foundation. the asc is made up of seven members designated by the heads of the federal financial institutions regulatory agencies as well as hud, fhfa and the cfpb. this last january, the cfpb appointed its first representative to the asc. effective april 1st, the ffic appointed the hud representative as the new chairman who is also a certified appraiser and the first appraiser to chair the asc. the member agencies remain committed to fulfilling the asc's statutory responsibilities. as part of its core responsibilities, the asc monitors the state appraiser regulatory programs for compliance with title 11. the asc completed 27 reviews in 2011 and 31 are planned for 2012. the asc also maintains the national registry, comprised of appraisers eligible to perform appraisals for federally related transactions. the registry contains just fewer than 105,000 credentials, down almost 14% from its peak in 2007. with the registry fee being the asc's sole source of revenue, the reduction in the number of credentials comes at a particularly challenging time as the scope of responsibility is increasing due to the dodd-frank act. in monitoring the foundation, asc staff attends all public and private meetings of the foundation boards. for fiscal year 2012, the asc approved a grant of approximately $900,000 to the foundation. the grant includes funds for the state investigator training program, which has been beneficial to the states. through our monitoring, the asc is aware that the foundation is currently working on a new strategic plan. the asc played no role in the development of this strategic plan, however, when made public, the asc will review and possibly comment on matters related to asc responsibilities. the asc continues to make progressn addressing the dodd-frank act requirements. last fall, the asc approved a plan to establish the appraisal complaint national hotline and a great deal of work has been completed towards its implementation. asc member agencies are currently working to finalize the details for internal complaint intake and disposition. launch of the hotline is anticipated before the end of 2012. the dodd-frank act also required the gao to conduct a study of the asc. in its report issued last january, the gao made three recommendations. first, gao recommended that the asc clarify definitions used to categorize states' compliance with title 11. in response, the asc has clarified the definitions which are now incorporated into all appropriate documents. the asc also drafted revised policy statements that have been approved for publication in the federal register to solicit public comment. the revisions including new findings and definitions to further address this gao recommendation. second, gao recommended the asc develop specific policy for monitoring appraisal requirements developed by the federal financial institutions regulators. finally, gao recommended that the asc develop specific policies for determining whether the foundation's grant activities are related to title 11. staff is drafting policies for asc approval to address these last two recommendations. other asc priorities include fulfilling the authority and responsibilities conferred by the dodd-frank act in such areas as state grants and rule making. regarding state grants, many state appraisal programs do not control their funds. therefore, the asc will focus on ensuring grant funds are used to support the program. while the asc has not yet formally addressed rule making, the proposed policy statements would implement the interim sanctioning authority given to the asc by the dodd-frank act to remove appraisers from the national registry for up to 90 days. use of any additional interim sanctioning authority would require rule making. in conclusion, i again appreciate the opportunity to appear before the subcommittee and look forward to addressing your questions. thank you. >> thank you, mr. park. this is the time where the members of the committee will ask questions and since i'm here, i will start. i yield myself five minutes to start. mr. shear, do you think that the asc has made efforts to reform its policies and procedures for determining whether the activities of the appraisal foundation are title 11 related? >> as mr. park said, we followed up and we are -- we know that they've made progress in this area. as far as coming up with a definition that would be how do you define title 11, you know, activities. so we know they are making progress in this area. >> so you think they're moving ahead enough for -- >> yeah, we're very glad that they agree with our recommendation and that they're putting things down, you know, in a formal way to address these issues. >> okay. according to your testimony, based on your july 2011 report, the appraisal subcommittee has not clearly defined the criteria it uses to assess states' overall compliance with title 11. could you expand on this assertion? >> i would be glad to. one thing that we have observed over the years is that the compliance, the oversight of state compliance with requirements has been enhanced over the years, so we see that and we see the establishment of many policies and procedures that are clearly stated, but from an internal control standpoint, we just felt with the three different categories that it would bring greater clarity and it would provide for more kind of robust oversight if these three categories or whatever categories they had were more clearly stated and defined and we understand that they're making progress in this area. >> okay. thank you. then mr. rodgers, you provide some suggestions on how the appraisal regulatory structure can be improved at the state and national level. can you describe and explain some of those suggestions for this committee? in a little more depth? >> yes, ma'am. i would be glad to. in looking at the areas of improvement, as mr. park said in his testimony, the policy statements which are given to the states to follow to show compliance with title 11 are in the process of being revised. we have not at this point understand that process has been going on for several months and have yet to have any exposure to the states or have the states comment. when the appraisal foundation makes changes to their -- the standards or the criteria, there's a very robust exposure and vetting process and it allows a lot of unintended consequences to get out there. so i would encourage the subcommittee to get those to the states for comment as soon as possible. also, we believe that the states should be -- have representation both on the subcommittee as either a member or through some sort of liaison and they also should have the same representation on the standards and qualifications boards. these boards directly affect policies, rules for each of the states and for them to understand what impact or what unintended consequences might come by the result of changes to rules or regulations is essential. so we think that is a very essential point. with regard to the public meetings of the appraisal subcommittee, the process is very rigorous to try to attend. you have to register in advance, have a photo i.d. you go through a security process that's more extensive than getting in this building, and you have to be escorted to and from the meeting site. this is largely because they are held in the offices of the financial federal institutions so it is understandable the level of security needed in those buildings. we would suggest they should be held somewhere that the public could come without preregistration or identification. in our state, you come to a public meeting, you have to -- you can walk right in. so we would suggest that as well. that's just some of my suggestions. >> thank you. i would yield myself such time as i may consume for additional questions. then mr. rodgers, there seem to be a great number of the appraisal industry participants who claim that real estate appraisal fraud is significantly increasing as the state regulator. does your appraisal fraud data reflect or dispute this claim? >> just speaking for my individual state, we have not seen a large increase in appraisal fraud. i think a lot of the flipping schemes that were taking place in the early part of this last decade, they are just difficult to perpetrate given the financial climate we are in now, the rapidly inflated markets made it easier to perpetrate, where now that certainly doesn't take place. we have heard of issues of what is now called flopping schemes where it is misrepresented to the lending institution what the property is worth, they short-sell for a low amount and then some of the real estate professionals in turn sell the property at a large profit. so kind of a reverse of the flipping scheme. we have seen some cases in our state which were right in the middle of the transition to the economy falling where there were subdivisions where a lot of promises were made, no money down type investments, a lot of people bought lots for investment type properties and then the market crashed in the middle of it. so some of these were fraud in the fact that they were trying to entice people into making poor investment choices, the actual market fell out from under them which was not part of a fraud scheme. >> thank you. then mr. park, it's my understanding that the appraisal subcommittee was created in response to the savings and loan crisis in the late 1980s and early 1990s. in light of significant changes over the past 20 years, what is the relevance of the asc in today's market? >> the relevance of the asc is the federal oversight -- >> could you pull -- thank you. >> the relevance of the asc is the federal oversight that we provide for the states as well as the monitoring of the appraisal foundation and the grants that are provided to the appraisal foundation for the work of the appraisal standards board and the appraiser qualifications board. >> the question is, is the model outdated or do you think you're in the 21st century as far as the federal oversight? >> title 11 is originally enacted, had some flaws in it. the dodd-frank act attempted to correct some of those flaws providing more authority and responsibility to the appraisal subcommittee and while those -- many of those provisions of the dodd-frank act are still being put into place, they should assist the subcommittee in providing greater regulatory oversight for the appraisal system, for the appraisal regulatory system. >> mr. shear, do you think that there should be a complete overhaul of that to make sure there it is in the 21st century? >> while we didn't look at various options for restructuring so i can't answer your question directly, we did look at how dodd-frank changes the role of the appraisal subcommittee and the new authorities and responsibilities, and we think the appraisal subcommittee has some huge challenges ahead as they move forward in implementing or recommendations and taking other actions. i would expect that this committee and others will be taking a very close look to see whether the appraisal subcommittee has the resources and the right type of structure to carry out these additional responsibilities, especially pertaining to monitoring the federal financial regulators. >> mr. park, you know, obviously the asc failed to detect a significant amount of appraisal fraud during the financial crisis. a lot of other people made a lot of mistakes, too. do you think because of that, that the states could assume some of the role of the asc? >> the role of the asc is not to detect appraisal fraud. that's really the realm of the states. they're the enforcement mechanism of the system. the asc's role is to create an environment where fraud can be easily detected and then the states have the ability to enforce disciplinary actions for fraud or lesser offenses, misleading appraisals, incompetent appraisals and so forth. >> was there a problem with the environment, then, that the asc created at the time of the financial crisis? >> well, the asc has to work within the confines of title 11, within the authority that it's given. one of the problems, one of the inherent problems with title 11 that dodd-frank tried to correct is the fact that the only authority, the only disciplinary authority that the appraisal subcommittee had to use against states that were out of compliance was nonrecognition of the state program. nonrecognition of the state appraisal program would in effect shut down mortgage lending in the state. so while it's been addressed with many states or several states and states know that that is a potential outcome of compliance reviews, they also know that it's a very draconian measure. >> well, the asc oversees the states and you said that you don't detect the fraud but has asc put out any information about fraud trends and worked with the states to better address fraud? >> during the compliance review process our policy managers who actually conduct the compliance review talked to the states, gather information about whether -- what they're doing related to fraud, more and more states we found are getting involved in various mortgage fraud committees and working with the fbi, federal government and state government officials to address the problem of mortgage fraud and appraisal fraud. >> okay. mr. rodgers, do you think that this -- has this happened in your state? has this been a help? >> well, i do agree that there's been efforts both on the level of subcommittee review that issues that occur in other states are certainly made available and aware of other states. again, the joint investigator training that has been alluded to allowed three regulators from each state to attend at no cost and to focus on some of these issues that you may see. as i pointed out in my testimony in dealing with law enforcement officials, one thing is they have to have a fairly substantial threshold of financial harm before they can become interested in a fraud perpetration and when they have participated in task force which i think has been useful in helping identify players in some of these mortgage frauds, it is sometimes difficult for the information to be shared both ways, because they are in a criminal investigation and sometimes they fear that the advancement of a licensing investigation may compromise their criminal investigation. >> thank you. i have exceeded my time. and so there be some leeway for mr. gutierrez, you are recognized. >> thank you so much. you are so kind. well, i'm very generous mood. my prescriptions are ready at the drugstore. i want to let the panelists know, if you have an appointment, you can keep it. pre-existing conditions will not be counted against you. you got your kids on health care, it's okay. i guess it's the law of the land now. so i feel pretty good about that. sorry for that little aside but i thought you might want to know what the supreme court has just decided, especially since you were all i know not on your blackberrys. note i am not talking to the rest of you who i know are very well informed of what happened but not the three, our three very distinguished and welcomed witnesses here this morning. so mr. shear, as we continue to look at comprehensive housing finance reform, a key element missing from the debate is comprehensive appraisal reform. i think our goal should be to establish an appraisal system that produces accurate values through all phases of the housing cycle, all phases of the housing cycle, and the interagency guidelines that became effective december 2010 were a vast improvement over 2004 guidance but the scope was limited. as we confront the major systemic hurdles to appraisal reform, specifically the fragmented and what we consider some of us consider dysfunctional nature of the appraisal system and regulatory oversight, the question is who has the authority and more importantly, the ability to coordinate and implement the changes we need to accomplish? >> the work -- you raise really good questions and our work can address some of those questions. there is room for improvement with the appraisal subcommittee and in particular, the new authorities and responsibilities provided by dodd-frank allow the appraisal subcommittee to do a better job of trying to oversee the state regulators. we also think it's very important and also, a huge challenge for the appraisal subcommittee to try to come up with a way of monitoring the federal financial regulators, given their structure and their small size. so there's an awful lot that seems to be riding on what the appraisal subcommittee is capable of doing, but i think the types of questions you ask are very good questions, because even if the appraisal subcommittee does successfully implement new procedures, implements new authorities and takes on new responsibilities, there still is the question as far as how comprehensive a system we have and you know, based on our work, i can say those are very good questions that become very much part of the whole fabric of mortgage reform under dodd-frank. >> mr. rodgers? could you help us a little more? >> yes. i think there are two questions with regard to what happens on the state level. the question has been raised about dealing with appraisal fraud and joint work with law enforcement. largely, the complaints and the comments i've heard from the members here today have to do more, though, with the accuracy of valuation helping to recover from the housing crisis and situations like that. unfortunately, on the state level, you're dealing with a complaint system that -- where the board receives a complaint, then it falls under a due process system. for example, in our state, immediately the respondent has 30 days to respond to the complaint before we even initiate the investigation. what you're hearing a lot from participants in the marketplace is they need somebody that once an appraisal does not meet their needs, they need some sort of ability to appeal or to get it revisited or reviewed. i think that will have to be handled largely in the lending community. >> mr. park? >> could i ask you to restate your question? >> well, we have the effectiveness of the system to change and to improve and to have new effective standards across the country, we've changed them. how do you see those standards changing? are they changing quickly enough, are they being adopted quickly enough? >> the changes to the appraisal regulatory system have occurred very slowly. the dodd-frank act were the first significant changes since it was enacted back in 1989. so there has been -- but the dodd-frank act did install quite a few significant changes that we've talked about earlier in terms of the subcommittee's hearing -- >> you think they are actually being carried out effectively? >> yes. we are in the process of