Friday, January 22, 2010

BUYING: Do New Home Appraisal Rules Help?

Home buyers who take out federally insured home loans will soon find their mortgage brokers can’t select appraisers, part of an effort to ensure appraisers aren’t pressured to inflate home values.

Starting Feb. 15, mortgage brokers will no longer be able to order appraisals on loans insured by the Federal Housing Administration (FHA). For consumers, that is supposed to mean home appraisals will more closely reflect a home’s value. The reason: Brokers who may profit from a loan being approved won’t also be choosing appraisers, who may feel pressured to declare a higher value.

But organizations such as the National Association of Realtors® (NAR) and the Appraisal Institute say the change, along with other efforts to reform the appraisal industry, is hurting consumers and appraisers.

They say new rules that swept through the appraisal industry in 2009—rules designed to ensure appraisals are impartial—are resulting in excessively low home values, because chosen appraisers aren’t as experienced or as familiar with local markets. They also say the appraisers take more time, causing delays in getting appraisals done.

“The appraisal must be completely independent of the lending side, but there are extensive time delays,” says Joe Ventrone, vice president for regulatory and industry affairs with NAR. “The values that come back are lower. A $300,000 house might come back (appraised) at $200,000.”

A changed business
The changes began in May when Freddie Mac and Fannie Mae adopted a code designed to separate loan officers from the hiring of appraisers. Since Freddie and Fannie account for nine-tenths of new home loan originations, it reshaped the business.

The code means brokers, real estate salespeople and loan-production staff—anyone who stands to earn a commission based on the value of the transaction—can’t hire an appraiser. Instead, lenders are turning to third-party appraisal management companies that typically hire appraisers on contract to do the job.

The Title/Appraisal Vendor Management Association (TAVMA), the trade association of the real estate settlement services industry, says the third-party firms have well-qualified appraisers to do the job. They also say if appraisal values come in low, it’s only because home prices have fallen due to the market.

“It is mistaken to say appraisal management companies are the cause of these values. It’s the market,” says Don Blanchard, former president of TAVMA and general counsel of Lender Processing Services, which provides appraisal services.

But some trade groups say that appraisal management companies are providing appraisers—often from outside the market where the house is located—who are less qualified than independent appraisers that brokers and Realtors might choose.

The National Association of Realtors® says a member survey found almost 70% saying appraisal times had risen by more than eight days under the new rules.

“The banks chose to go to third parties to completely take over tasks. They tend to find the cheapest appraisers they can find,” says Leslie Miller, president of the Appraisal Institute, which is calling on regulators to require higher competency standards in the current code. “They’re often the least qualified.”

The management companies also are providing appraisers who take jobs at such low fees that independent appraisers who have been in the business for decades are being driven from the field, Miller says.

Rob Oryl, an independent appraiser in Collingswood, N.J., says he is seeing it happen.

“I know a great appraiser with a staff who had been in the business for years who now just works out of his home,” Oryl says. “It’s driving people out.”

Diann Patton, broker and owner of Coldwell Banker Grass Roots Realty in Grass Valley, Calif., says the new rules are making it tougher for her industry.

“It’s absolutely changed the whole process, and now it will be the same with FHA (loans),” Patton says. “The problem is, we’re getting appraisers who are out of this area. They’re gung-ho, but don’t know the area.”

By Stephanie Armour(c) Copyright 2010 USA TODAY, a division of Gannett Co. Inc.

No comments: