FAIRER, MORE IMPARTIAL APPRAISALS? Many Contend Plan by Fannie Mae, Freddie Mac is Off The Mark!
NEW CODE, EFFECTIVE JANUARY 1, 2009, WOULD PROHIBIT LOAN ORIGINATORS FROM HAVING CONTACT WITH APPRAISERS!
Inflated appraisals!
Here in Chicago, and elsewhere across the country, many think home appraisal reports, made by professional appraisers, were often grossly inflated during the recent housing boom.
Now, with market values tumbling, some regulators want to separate the appraisal process from the lending process. When lenders order, compensate, or directly control appraisers, many felt, the appraisals could be "tainted" with too-high a value, with appraisers feeling pressure to deliver an acceptably-priced report to curry future business.
Last March, New York Attorney General Andrew M. Cuomo negotiated an out-of-court settlement with U.S. Loan Guarantors Fannie Mae and Freddie Mac. Cuomo threatened to thoroughly investigate appraisal practices for New York State Real Estate Transactions. To avoid possible legal exposure here, both Fannie and Freddie agreed to develop a "Home Valuation Code of Conduct" to ensure future appraisals would be independently-generated, impartial, and free from pressure of lenders and mortgage brokers.
Scheduled to take effect on January 1, 2009, the code would prohibit Independent Mortgage Brokers, who originate approximately 60% of all new mortgage loans, from selecting appraisers.
Lenders would not be able to use the appraisals done by appraisal professionals working with firms in which they have a financial stake. Appraisers would not be able to accept work from lenders who employ or directly compensate them.
Under the terms of the New York State settlement, Fannie Mae and Freddie Mac would create and fund an "Independent Valuation Protection Institute" to monitor and enforce standards for property appraisal. They would also provide a special hotline for appraisers feeling pressure to inflate their appraisals, or consumers who think they have become victims of inflated appraisals.
As you might imagine, lenders are outraged by the proposal!
The loan originators feel the State of New York, or any state, cannot order a federally-sponsored entity to change its underwriting practices. They also fear the new plan could drive up the cost of appraisals to consumers, and put many appraisers out of work. It would allow for no "appeal" process in the case of improperly-low appraised valuations.
Lenders feel the current system, in which they can select appraisals to verify value, can be strengthened by more stringent underwriting standards. This would be coupled with a more detailed appraisal process, involving the analysis of market trends in a specific area, and including active and pending sales comparables, in addition to sold and closed comp properties. These more stringent standards are already in place as a result of the current housing market downturn.
See Kenneth R. Harney's article in last Sunday's Chicago Tribune for more information.
DEAN MOSS & DEAN'S TEAM CHICAGO
