Two Congressmen Want a Moratorium Imposed on the New Appraisal Rules

Just to keep any of you who might have an interest in the ongoing controversy over the appraisal reforms, here is an update from HousingWire on new legislation.

Two lawmakers serving on the House Financial Services Committee introduced HR 3044 late last week in an effort to temporarily lift new requirements from valuations and the way appraisals are ordered.

The bill would impose an 18-month moratorium on the Home Valuation Code of Conduct, which took effect May 1.

Both sponsors of the legislation bring a history in housing. Rep. Travis Childers (D-Miss.), who introduced the bill, bears a background in real estate while cosponsor Rep. Gary Miller (R-Calif.) sports a background in community development and single-family and custom home building.

It appears as if the line of attack is going to center on out-of-market appraisers valuing properties with which they are unfamiliar. At this point in time most of the arguments I’ve seen along these lines have been purely anecdotal but that probably plays into the hands of the opponents of the HVCC reforms. It will be a hard argument to refute and has a certain element of emotion. I expect that we’ll be back to the old system sooner rather than later.

Comments

[Graham and Dodd Investor]

I'd rather have an honest "out of town" appraiser than a dishonest "local" appraiser.

2009 Jun 29 02:21 PM

[htex]

What is it tonight with spam? Can't ya'll kill cetin? Again, I feel like I am on the first floor of a two story outhouse and I can clearly see the a$$ above me.

Appraisers need to have their E&O carriers called with claims. That'll clean up the problem.

2009 Jun 29 08:39 PM

[Cold Reality]

Another example of vested interests--real estate agents and builders--feathering their own nests. You can be sure that if you check the disclosure reports that these two ringers received a lot of money from the real estate agents and home builders SIGs.

2009 Jun 30 12:37 PM

[simpleguy]

The author is right. Here's why...(please note I am not a guy that is a fan of bureaucracy).

Loan Officers/Lenders now order appraisals through the end Investor(big bank). That bank hires an AMC(Appraisal Management Company), who in turn hire a local appraiser.

In short, we have put the end investor and an AMC into the appraisal process, adding two tiers of “management” to solve the problem/reach the goal of not having the Loan Officer/Lender influence the property value.

The result has been this:
1. Borrower's are losing their flexibility, appraisal costs are going up and turn around times are long(means longer rate lock-in times which cost more). Plus here’s another gem….once an appraisal has been ordered through an investor, the appraisal, though theoretically "portable" to a new investor, is usually not accepted if you switch investors.
2. Appraisers are getting screwed, they get paid less because they have deals “dished” to them and the AMCs(appraisal management companies) are charging $100 or more to be an order fullfillment center. And if you have ever used one(even before this), it is a fiasco at best.
3. Appraisal costs are going ballistic.

Before these rules went into effect appraisers were picked by the Loan Officer/Lender.
Sure they had a relationship, but........
1. The appraiser had to be approved by the investor(usually with 5yrs. of experience).
2. Appraisers are licensed just like real estate agents and loan officers.
3. Appraisers are required pledge allegiance so to speak to an ethics standard.
4. Appraisers must carry E&O insurance(errors and omissions).
5. If the appraisers made gross errors, they would get "blackballed", lenders would put them on their "no fly" list.
6. Appraisal turn around time about 5days, now 2-4weeks.

I have to ask
A. Why would an appraiser risk his or her livelihood with all the stops above in place?
B. Appraisals are subjective....both before and after this new "policy" I have personally seen homes with 2 appraisals. These homes had values in the $600k range and the appraisals were over $70k apart.
C. Regardless of this new policy, lenders and investors are using neat new tools called AVM's(automated valuation models) to "double check" appraisers. They are actually coming back to the appraiser and saying........"there is a home that sold closer to the property in question.......why didn't you use this in your appraisal?" Nevermind that it may be a manufactured home and the subject property is a 3 story McMansion.
D. Why not just put a “bounty” on bad appraisals and let the state that licenses them do what they are there to do?

2009 Jun 30 07:11 PM

[Cold Reality]

What good are appraisals if they are but an element of a self-fulfilling process of selling? Isn't this exactly what got us into this financial mess? (i.e., concupiscent real estate agents, bogus prices, rapacious lenders, compliant appraisers.)

With agents, lenders and appraisers all in bed together, the result is a foregone conclusion. Why bother with the expense--and pretense--of an appraisal?

2009 Jun 30 07:43 PM

[Northstar10000]

Moratorium on sanity. Just what we need.

2009 Jun 30 08:02 PM