New home appraisal rules: Good or bad for customers, appraisers?
BY COURTENAY EDELHART, Californian staff writer email@example.com Friday, May 22 2009 12:34 PM
A new rule intended to prevent fraudulent appraisals has many in the real estate industry fuming, and some complain it's boosting the cost of having an expert evaluate a home.
At the urging of the New York State Attorney General, as of May 1, McLean, Va.,-based Freddie Mac and Washington, D.C.,-based Fannie Mae will no longer purchase mortgages from loan originators that do not adopt the Home Valuation Code of Conduct.
That's no small thing, because together the Federal National Mortgage Association, otherwise known as Fannie Mae; and the Federal Home Loan Mortgage Corp., or Freddie Mac, own or guarantee about half of the nation's home loans, or $5 trillion in mortgages.
The new code attempts to curb inflated appraisals by refusing reports from people selected, retained or compensated by mortgage brokers and real estate agents.
It applies only to conventional loans, not to Federal Housing Administration loans.
The idea is that brokers and agents have a vested interest in higher valuations because their pay hinges on a home's sale price or the size of the loan. During the housing boom, some unscrupulous people pressured some appraisers to say homes were worth more than they were. After the housing market crashed, those inflated valuations helped fuel massive foreclosures.
So now, appraisal management companies are acting as middlemen by hiring appraisers on behalf of banks and other clients, and reviewing appraisal reports.
"The idea is to build a firewall between brokers, Realtors and other third parties," said Freddie Mac spokesman Brad German.
That would seem to be a good idea, but some in the industry say it hurts consumers because adding that extra layer boosts the appraisal fee, and instead of rolling it into the mortgage with other closing costs, it may have to be paid separately.
Freddie Mac's German says he's heard "anecdotal evidence" that appraisals are more expensive now, but hasn't seen hard data.
Either way, many appraisers are angry.
"We're working about four times as hard for about half the money," said Jeff Sorrell of Accurate Appraisal Service in Bakersfield.
That's because appraisal management companies pocket much of the fee for appraisals, which typically cost $300 to $500. In some cases, the appraiser is only getting about half that fee.
Then, too, long-time appraisers are outraged that they've spent decades cultivating clients only to have those relationships washed away with the stroke of a pen.
"We're the only industry I know of that is not allowed to have direct contact with our clients," Sorrell said.
To add insult to injury, appraisal management companies often have contracts over wide regions, so appraisers they hire could come from anywhere and work in unfamiliar areas, said Kim Ryder of Kim Ryder Appraisal in Bakersfield.
"You could have some random appraiser from L.A. County or something, and they don't know this market. Even from city to city within the county, there's huge variation," she said.
Ryder also worries that the people reviewing her reports may not be local, and more than likely aren't licensed appraisers, so they may lack expertise to know if her work is fair and accurate.
But not all appraisers are unhappy with the change.
"I think, after everything that's gone on the last two years, it's a good idea," said Matt Anzaldo of Anzaldo Real Estate Appraising. "Let's be honest; there was pressure before to say certain things, and that pressure's not there anymore."
Anzaldo said his business has actually grown since the change took effect.
"I'm getting a little bit less than I was receiving before for each appraisal, but my volume is higher," he said.
Appraisers have merely traded one type of pressure for another, Sorrell said. Appraisal management companies charge him late fees if he doesn't file reports quickly, he said, so he feels rushed.
"If you're doing an older housing tract with only four models, it's easy to crank that out," he said. "But if you're doing a 5,000-square-foot house out on the river on five acres of land, there aren't a lot of comps for that, so you have to do a lot of research to do it right, and that takes time."
Sorrell said the new system penalizes good appraisers along with bad ones.
"A few bad apples are ruining it for all of us," he said.