Friday, September 9, 2011

MORTGAGE & FINANCE: Appraisers say new rules will cause confusion

Abbreviations, ratings intended to add consistency

New guidelines aimed at standardizing the way home appraisals are conducted will result in confusion, delays, and higher costs in an already vulnerable housing market, according to many home-appraisal professionals.

The changes, which take effect today, are being required by mortgage giants Fannie Mae and Freddie Mac. Under the new rules, appraisers must use a set of abbreviations to describe homes, and rate conditions through a system of numbers and letters. Some appraisers say the new format will be difficult for home buyers and sellers to understand.

Real estate agents also must provide more information to appraisers, including whether kitchens and bathrooms have been remodeled, and when the work was done.

Because most lenders eventually sell their mortgages to quasi-government mortgage agencies, primarily Fannie Mae and Freddie Mac, the new requirements will affect the majority of housing sales.

Stephen E. Sousa, executive vice president of the Dedham-based Massachusetts Board of Real Estate Appraisers, praised the effort to standardize the way appraisals are written, saying they are too often subjective and inconsistent. But Sousa said he is worried that there is too little public awareness about the changes as well as problems with computer software set up to collect the reports, which could cause havoc in the housing industry.

“The whole real estate profession is ill prepared for this,’’ said Sousa. “It is going to create a lot more confusion.’’

The Massachusetts association joined the National Association of Independent Fee Appraisers in Illinois in urging the Federal Housing Finance Agency - which regulates Fannie Mae and Freddie Mac - to postpone the implementation of the new guidelines until later this year. The Federal Housing Administration also is incorporating the changes, but won’t implement them until Jan. 1.

A Federal Housing Finance Agency official said yesterday that there were no plans to delay the new system, but that the agency would continue to offer assistance to anyone with questions about the changes.

Officials from Fannie Mae and Freddie Mac declined to comment.

The new rules will largely change appraisals from a narrative form to a list of codes. For instance, appraisers will be required to use abbreviations such as “AdjPrk’’ for “adjacent to park ’’ or “Wtr’’ for “water view.’’

Property conditions will be rated on a scale of 1 to 6, from new construction to buildings with “substantial damage’’ and defects. Quality also will be ranked from 1 to 6, with the top rating usually including architect-designed properties and the lowest level reserved for those lacking even plumbing or electrical outlets.

Anthony Federico, a Haverhill appraiser who has been holding training sessions on the new rules, said many in his profession are unhappy simply because they are averse to change.

But Federico said there should have been more time to educate homeowners, real estate agents, and lenders to avoid confusion that could delay sales and increase costs. “There are many appraisers who believe this deadline should have been postponed,’’ he said.

The changes come as many appraisers and lenders are scrambling to meet the demands of an increasing number of homeowners seeking to refinance their loans to take advantage of low interest rates. At the same time, the damage caused by Tropical Storm Irene also has increased the workload for appraisers because of insurance claims and property inspections.

Monica Trotter, president of the National Association of Independent Fee Appraisers, said that appraisers who have started using the new software have encountered technical problems, including lost data and error messages. In a letter to federal regulators dated Tuesday, Trotter said many appraisers and real estate agents are still unaware of the changes, which could create “a hardship and delay in loan production.’’

Indeed, officials from the Massachusetts Association of Realtors said they did not know enough about the changes to comment.

“We have to wait and see if this new system will be a plus or a minus,’’ said Eric Berman, communications director for the association, based in Waltham.

Berman said real estate agents are currently more concerned with appraisers undervaluing properties or, if they are not familiar with the area, comparing homes with properties in less desirable neighborhoods.

Amy Tierce, regional vice president for Fairway Independent Mortgage in Needham, said the new guidelines will not change the fact that appraisals are still essentially subjective reports. But she hopes the changes will make it easier for lenders to gauge the condition of a home. “It may be a little clearer once people understand,’’ Tierce said. “It is really about getting data that will all fit into a grid nice and neatly.’’

Jenifer B. McKim Boston Globe September 1, 2011

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