Mortgage Info for Homes and Small Business Financing

The World of Appraisals is Due to Change

The appraisal process is scheduled to change May 1 and it could affect the appraisal values for your neighborhood!  An accurate appraisal should bring peace of mind for the borrower.  It’s purpose is to validate the arm’s length sale price that the buyer and seller have agreed to in a contract.  For a refinance the appraisal should confirm the value relative to other properties of the same size and features.

In our Washington, DC, metropolitan market appraisers currently charge around $350 for a full appraisal on Fannie Mae’s Form 1004 or Freddie Mac’s Form 70.  For certain higher valued property appraisers will charge a higher fee due to a number of factors including difficulty.

Most appraisers will tell you that they have felt outside pressures “to hit values”.  Ann O’Rourke, publisher of Appraisal Today, and an appraiser in Alameda, CA, said that when you’re an appraiser, there’s always a sense of pressure.  You learn to live with that.

“Right now when the appraiser doesn’t give the number they want, then they don’t use the appraisal and go somewhere else,” she said.

“The kind of pressure that I have dealt with involved loan officers who were looking for a specific amount to make a refi work.  Although there was never any direct threat, the pressure was don’t take this assignment if the value isn’t there.  The problem that this creates for the appraiser is that we don’t know the specific value until we complete the appraisal process,” says Jim McGraw of McGraw Appraisals in Centreville, Virginia.

Small business owners and entrepreneurs make up the majority of appraisers.  And in this market, the scramble for assignments can be intense.  Appraisers who cave into pressure usually do so not for the $350 opportunity but, for the promise and understanding of future business.

In March, 2008, an agreement was reached by the the Federal Housing Finance Agency and the New York Attorney General’s office to adopt certain policies relating to appraisals for loans delivered to Fannie and Freddie.  Loan production personnel, including mortgage brokers, will no longer be able to order the appraisal or influence the choice of appraiser.

On May 1, appraisal management companies (AMCs) will take many of the orders from lenders and find appraisers.  The loan production staff will be unable to contact the appraisers.  An AMC will use its own selection process that might be based on specific metrics or be more random.

How will this affect you, the homeowner and/or borrower?  Many mortgage brokers worry that an AMC won’t have knowledge of an appraisers credentials outside of basic “resume bullet points,” and the accuracy of the value might be skewed.  The potential for the biggest problem arises when the appraiser has no knowledge of the immediate market in which the subject property is located.

“If I was going to get an appraisal, I’d like someone that is well seasoned, has been through a couple of cycles, and knows what the area is like,” said Bill Larson, a mortgage broker with Windsor Capital Mortgage Corp., in Walnut Creek.  “Someone who has knowledge of a city and has done appraisals before has an advantage of someone being selected randomly to walk into it for the first time.”

McGraw states that the, “HVCC has become the symbol of good intentions but bad execution by the government in the mortgage/appraisal paradigm.  The concept of appraiser independence is positive and important. However, the process has become contorted within this regulation.  The fact that lenders who own appraisal management companies  may continue to use them is kind of like the fox being put in charge of the hen house.  But, then independent fee appraisers are not allowed to have direct contact with loan officers who they have built up professional relationships over the years.  Removing that kind of appropriate, professional collaboration makes the whole valuation process more difficult.”

O’Rourke gets the sense that most mortgage brokers don’t know how HVCC will impact how appraisals will be ordered after May 1, she said.  She believes mortgage brokers to be the scapegoats for the real estate mess.

“The other problems with HVCC are the numerous loopholes.  FHA and FHLB loans are not included.  Lenders with under 250 million in assets are not included. Correspondent lenders are allowed to order appraisals.  New loopholes are being discovered everyday.  There is also a pending class action lawsuit for restraint of trade that has been filed in New York against the HVCC.  The end of the story is far from over,” relates Jim McGraw.  The National Association of Mortgage Brokers filed a lawsuit against the HVCC, but most experts expect it unlikely to be successful.

Many appraisers are now scrambling to get on the lists of the AMCs, sometimes for a sign-up fee.  Appraisers are fretting that the amount they make on each assignment might be greatly reduced.  “Right now if the average fee is $350, I get the whole $350, but now the AMC is going to keep some of that money so I might end up with just $200 or $250,” a local appraiser said.  “That’s where the appraisers are screaming bloody murder.”  Should the price of gas go back up it will make it very difficult for the best appraisers to stay in the business to drive 45 minutes to collect $250 for several more hours of work.

Should you be considering a refinance or move in the near future you may want to get that appraisal done soon while your loan counselor still has the ability to select an appraiser who is familiar with your area and speak to them about any specific issues and how they may affect your property’s value.

As one appraiser wondered, “If the government can’t stop somebody like Bernie Madoff, how are they going to enforce this?”  As always, we welcome feedback of any and all kinds.



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