The appraisal industry and process have been targets for those looking for reasons the collapse of numerous banks. This target grew as a result of a recent Appraisal Institute study. The study concludes that two-thirds of failed banks were previously cited by federal bank examiners or had ongoing appraisal administration problems.

22 of the 35 Federal Deposit Insurance Corporation Inspector General Material Loss Reviews of failed banks contained concerns or recommendations ignored from previous reviews regarding the appraisal practices of the banks. According to the Appraisal Institute, examples include: “Failure to obtain current appraisals or perform adequate appraisal reviews”; “Bank frequently relied on stale appraisals”; “Inadequate control of the lending function, including appraisals”; and “Poorly explained upward adjustments to the appraisal values.”

“The findings of the Material Loss Reviews illustrate that many institutions have not adequately invested in critical risk management functions like appraisal administration and oversight,” said Bill Garber, director of government and external relations of the Appraisal Institute. “Moving forward, if we are going to have any success in stabilizing mortgage markets, preventing mortgage fraud and kick-starting the secondary markets, bank examiners must place more emphasis on risk management, mitigation, meaningful oversight and enforcement of these critical issues.”