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Wednesday, August 19, 2009

Law - More on: "New appraisal rules raise many concerns"

"New appraisal rules raise many concerns" was the headline to a story by Nicole Blake of the Indianapolis Star, dated July 21st.

Yesterday the New York Times and the Wall Street Journal both had major stories on the same topic.

The Times story, by David Streitfeld, begins:

Mike Kennedy, a real estate appraiser in Monroe, N.Y., was examining a suburban house a few years ago when he discovered five feet of water in the basement. The mortgage broker arranging the owner’s refinancing asked him to pretend it was not there.

Brokers, real estate agents and banks asked appraisers to do a lot of pretending during the housing boom, pumping up values while ignoring defects. While Mr. Kennedy says he never complied, many appraisers did, some of them thinking they had no choice if they wanted work. A profession that should have been a brake on the spiral in home prices instead became a big contributor.

On May 1, a sweeping change took effect that was meant to reduce the conflicts of interest in home appraisals while safeguarding the independence of the people who do them.

Brokers and real estate agents can no longer order appraisals. Lenders now control the entire process.

The Home Valuation Code of Conduct is setting off a bitter battle. Mortgage brokers, lenders, real estate agents, regulators and appraisers are all arguing over whether an effort to fix one problem has created many new ones.

The agents, maintaining that the changes are effectively blocking home sales by encouraging the use of inexperienced appraisers, are asking Washington to suspend the code until 2011. For their part, appraisers acknowledge that the change may have been well intentioned but contend that it has no teeth and is undermining the economics of their profession.

“We’ve been begging for years for enforcement of existing state and federal laws regulating appraising,” said Mr. Kennedy, a leader in the appraisal community. “We thought we were finally going to get that. But the code is doing nothing except putting ethical appraisers out of business.”

In the WSJ story, here are some quotes fromJames H. Hagerty's lengthy report:
Appraisers are required to follow a set of national rules known as the Uniform Standards of Professional Appraisal Practice. Among other things, those rules require that "an appraiser preparing an appraisal in an unfamiliar location must spend sufficient time to understand the nuances of the local market."

Yet some appraisers who travel long distances to find work may be hard-pressed to spend "sufficient time" in an unfamiliar market. LaRon Hall did an appraisal in early June on a home being sold in Palm Desert, Calif., about 86 miles from his office in Rancho Cucamonga, Calif. He says he needs to accept jobs within a broad swath of Southern California to earn a living. Under the new appraisal code, Mr. Hall says, "you're getting less money and you're having to do more. ... It's definitely a sticky situation."

Mr. Hall appraised the three-bedroom home at $186,000, far above the $138,000 for which it sold in late June. Concerned about accuracy, the mortgage lender that financed the purchase rejected Mr. Hall's appraisal and ordered one from another party before making the loan, according to a person involved in the transaction.

A spokesman for Equifax Inc., whose AMC unit ordered the appraisal in Palm Desert, says Mr. Hall has an excellent record on appraisals and that Equifax has a "rigorous quality-control process."

Though consumers can't choose their own appraiser—unless they're paying cash for a home—they should request a copy of the appraisal and examine it to see whether it contains any errors in the description of the property and whether the nearby homes, or "comps," used to gauge its value are truly comparable. If they aren't, the consumer should present any evidence of flaws to the banks and insist that the appraisal be reviewed and redone if necessary.

Posted by Marcia Oddi on August 19, 2009 12:22 PM
Posted to General Law Related