New Appraisal Rule Fallout

The Home Valuation Code of Conduct passed in May of 2009 with the goal of ensuring appraiser independence. But the rule has also produced low-ball appraisals that can shatter deals, and appraisers say it has harmed appraisal quality. It seems the only group happy about the law are the mortgage lenders, who have seen their business spike because of the rule. The mortgage-broker and real-estate industries want a measure included in new financial regulation legislation to end that rule.

Are new appraisal rules hurting Manhattan home values?

The rule is based on the idea that inflated appraisals helped run-up home prices over the last ten years. Loan officers and mortgage brokers typically worked regularly with the same appraisers, and lenders felt that the partnerships led to rising home values. Now much of the business goes to vendors that specialize in “farming out” appraisal requests to their networks, which some say leads to pushing appraisers to do more work in less time, driving fees down industry-wide and damaging appraisal quality. Some of these “middle-man” firms are owned by large mortgage companies like JP Morgan or Citigroup.

Fannie Mae and Freddie Mac adopted a Code of Conduct last Spring as part of a settlement in the New York state attorney general’s probe of their existing appraisal standards. In that case, realtors and mortgage brokers were successful in inserting language in the House-passed financial-regulation bill to put an end to the new protocols and push federal regulators to create a new set of rules. The rub is that the language has not been included in the most recent draft in Congressional negotiations.

Bill Garber, chief federal lobbyist for the Appraisal Institute, told the Wall Street Journal that appraiser fees have dropped by up to 60%. He believes that new broker licensing laws and other state laws do enough to keep brokers and appraisers from creating questionable partnerships.

National Association of Mortgage Brokers CEO Roy DeLoach adds that out-of-town appraisers are not credible and degrade home value. “It’s basically hollowing out the equity in communities whether you intend to sell or not,” he says.

Photo Credit: caruba

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