Another Regulatory Proposal For Appraisal Rules
After last week’s proposal by a democratic representative of a moratorium on the new appraisal rules imposed on residential mortgage lenders, this week republican congressman is on board. More on this below from San Francisco Chronicle.
Even if this does go through, lenders won’t back off their implementation of new appraisal rules, because they have too much invested in it. Click the HVCC or Appraisal tags at bottom of this story for detailed coverage of this issue.
Major real estate groups are pushing for a moratorium on new appraisal standards that they say are scuttling sales, hampering refinancings and depressing prices at a time when the sector desperately needs a boost.
Rep. Gary Miller, R-Diamond Bar (Los Angeles County), has taken up the cause pushed by the National Association of Realtors, National Association of Mortgage Brokers and other organizations, co-introducing legislation that would halt the changes for 18 months.
The Home Valuation Code of Conduct, in effect since May 1, bars lenders from directly picking appraisers for Fannie Mae and Freddie Mac secured mortgages, a move designed to eliminate conflicts of interest that many believe inflated home values during the real estate boom. In most cases, lenders are now required to contract with third parties known as appraisal management companies (AMCs) to select appraisers on their behalf.
It’s unclear how much the new rules, designed to prevent consumer abuses, are actually disrupting the market, as transactions continued to rise after the policy was put into place.
But many appraisers complain the switch effectively commoditized their services overnight, undermining the value of specialization, experience and reputation. Theirs is now one name on a long list that receives seemingly random assignments, often in regions they don’t focus on and for less money than they used to earn, said Curtis Thor, owner of North Bay Real Estate Appraisals in Novato.
“All the bread and butter is gone,” he said. “And the (AMCs are) making this market worse than it already was.”
Realtors and mortgage brokers say the new procedures tend to produce below-market valuations that can delay or kill pending deals. Consumers are paying for the changes in higher fees and subsequent appraisals when the property doesn’t price right initially, they claim.
Such complaints are a “gross mischaracterization” that merely parrot talking points circulated by industry trade groups, said Jeff Schurman, executive director of the Title Appraisal Vendor Management Association, itself a professional organization representing AMCs.
“The way they tell the story, it sounds like we’re a bunch of cowboys who have come on the scene to take advantage of the situation,” he said. “We’ve been around since the 1960s.”
He said established AMCs would never send appraisers to areas where they weren’t qualified to do the job and took issue with the claim that the companies use unqualified appraisers, because more than 60 percent of the sector regularly works with such firms.
It’s difficult to substantiate negative impacts from the changes. For one, the “true” value of a property is a subjective matter, one upon which sellers, buyers and appraisers often disagree.
In addition, among 10 local brokers and appraisers contacted by The Chronicle, none could point to a verifiable deal that fell apart, only ones that were delayed. In fact, recent data indicate housing sales are actually rising, by 4.3 percent month-over-month in May, according to San Diego research firm MDA DataQuick.
The new code stemmed from a legal settlement between Fannie and Freddie, which buy and back the majority of U.S. home loans, and New York Attorney General Andrew Cuomo. He alleged the mortgage giants didn’t adequately protect consumers from pressures placed on appraisers to overstate values in exchange for future business.
Sharon Brighenti of Bradley Real Estate thinks the decision has swung the pendulum too far in the other direction. The Realtor said she received three offers ranging from $560,000 to $570,000 for the Novato home she was recently representing, a two-bedroom property on a 3/4-acre lot. But, she said, an appraiser from Marin, who used price comparisons from older homes on smaller lots, put the value at $498,000. The deal fell apart.
It wasn’t until the third attempt, after Brighenti inserted a clause requiring the work to be performed by an in-town appraiser, that the price came in at $570,000 and a sale closed. It’s unclear, though, if such a stipulation is enforceable under the new code, said Thor, who consulted on the deal.
Such stories are why the National Association of Realtors is pushing for a moratorium on the new rules, spokeswoman Mary Trupo said. She said the statistical proof of a problem is that closed existing home sales nationwide aren’t rising as quickly as would be expected based on pending sales trends.
“We just want time to … ensure that it doesn’t cause any more ripples in an already tumultuous housing market,” she said.