Major Changes with Appraisals for Conforming Loans

This morning it was announced from OFHEO that Fannie Mae and Freddie Mac have agreed to some major changes with regards to how appraisals will be ordered for conforming mortgages:

“…including eliminating broker-ordered appraisals, prohibiting appraiser coercion, and reducing the use of appraisals prepared in-house or through captive appraisal management companies in underwriting mortgages. The agreements also enhance quality control in the appraisal process and establish a complaint hotline for consumers. The agreements include a Home Valuation Code of Conduct that the Enterprises will apply to lenders selling mortgages to Fannie Mae or Freddie Mac. The Code becomes effective on January 1, 2009.”

It’s ironic to me this is eliminating “broker-ordered” appraisals and “reducing the use of captive appraisal management companies” when it was Washington Mutual’s actions with eAppraisal that caused New York Attorney General Cuomo to investigate.

The appraiser I use has been doing his job for over 30 years. I trust him and respect his work. Last year, when he had an appraisal come in low on a property that was in a bidding war with zero down financing, I didn’t doubt him. The agents were furious…even the homebuyer wanted a new appraisal. They wound up buying the home for the appraised value instead of the bid-up price. I wonder if they realize what a favor he did for them by providing a true appraisal? (He’s come in low on some refi’s too). I have to admit, I’m less than happy realizing that I may not be able to rely on using his services for appraisals once the new guidelines go info effect.

I’m concerned that obtaining a conforming appraisal will be very similar to how VA appraisals are done: a crapshoot lottery. This is all well and good as long the appraisers in the pool are all competent and efficient. However when there is no competition for business, will it breed complacency?

I’m also wondering what will happen with the cost of appraisals. Presently, I have a rate sheet from my appraiser and I know how much the cost will be for each transaction after we have loan approval. Unless Fannie and Freddie decide to control what an appraiser will charge, the fees can vary. How will loan originators be able to provide accurate Good Faith Estimates without knowing who the appraisal will be through?

More questions than answers right now…and more changes with mortgages are on the horizon with HUD’s announcement of what the median home prices are due in about ten days.

Update: Fannie Mae is accepting comments until April 30, 2008.

67 thoughts on “Major Changes with Appraisals for Conforming Loans

  1. Rhonda:

    I had just received this alert and have asked some of my trusted appraisers for their feedback. I thought to myself, I wonder where there is more info….Rain City???

    You ROCK!

    I have been in an environment where I did not get to choose, nor communicate with the appraiser (appr. was selected by a large service employed by the large lender, like WAMU’s situation).

    The result was poorer quality, slower turn time, lack of communication, and no accountability.

    This is not good for anyone, save for that idiot grandstander in New York, Mario Cuomo, and the guys that get to profit handsomely by running the pool, and skimming the profits.

    Just like you said, I choose appraisers based on the quality of their work, their responsiveness, their willingness to educate my borrowers and me. I only wanted to work with professionals that would reflect well on my business.

    Now, I cannot control the quality of people that go into my clients homes.

    A little tinkering was all that was needed to fix this, and somebody decided to send the watch to be fixed by team of angry chimpanzees, instead of a watchmaker.

    Disgusting.

  2. WOW!

    My thoughts are that I have an offer out on a short sale for a client and there is NO WAY the lender had a good appraisal when they made that loan. It is difficult to buy a short sale at today’s fair market value when the appraisal they are looking at from when the owner took out the refi was so drastically inflated.

    I don’t blame them for cracking down. It had to be done. There is just too much abuse out there.

  3. I’m sure there has been abuse, in EVERY link of the real estate industry chain.
    However, if there was abuse in the Realtor part of the chain, would it make sense to require buyers and sellers to have to select realtors from a random pool of agents? Or for that matter, escrow agents, title companies, and lenders?

    What would that do to the level of service from those groups?

    There were other remedies available to solve the problem.

    Couldn’t they have tested the solution in New York for a year?

  4. Pingback: Major Changes with Appraisals for Conforming Loans | Loans

  5. “would it make sense to require buyers and sellers to have to select realtors from a random pool of agents…”

    Every state already does that, it’s called the pool of those that are licensed and complaints and other criminal records, etc are part of the licensing process. It should make it more difficult to contract with someone who is a con-artist under that process.

    Is it infallible? Of course not. But a bad apple will over time start to stink, so re-licensing requirements should sort out the pool even further. The longer someone is licensed, the less likely they are involved in criminal or borderline criminal activities.

  6. Hmmm.

    That’s introducing a separate argument.

    Appraisers are already licensed, regulated, and have a pretty strong professional association to ensure ethical conduct. I have known of appraisers turning in other appraisers for really bad work. Some lenders have lists of blackballed appraisers (thus throwing out obvious con-artists). I was taught long ago to look at those lists, before selecting an unknown appraiser.

    I have never known a dishonest appraiser.

    Life should go on, despite the change. But it will be much more difficult to get top-notch service from good, honest appraisers, if there is no differentiation for good or bad service.

    Let me draw another example.

    RE’s often hire photographers, right? Some photographers take pictures that only show the most flattering features, some don’t show up on time, some are rude, some are honest to goodness geniuses at their craft, and a credit to the human race. There is a wide variety of abilities and attributes among photographers.

    You prefer to hire the best, at a managable price, whose competence and integrity you trust.

    Now imagine that you cannot select the photographer, you can merely request a photographer from the government run pool of photographers.

    What if you get one of the poorest from the pool?

    What will that do to your business? Your reputation?

    Should we trust the government to ensure good service and quality results from appraisers?

    I think the free market, with adequate oversight, does a better job.

  7. Rhonda:

    Do you read this paragraph as correspondent lenders can still engage their own appraisers, but mortgage brokers cannot?

    That’s what I’m reading.

    “The lender or any third-party specifically authorized by the lender (including, but not limited to, appraisal management companies and correspondent lenders) shall be responsible for selecting, retaining, and providing for payment of all compensation to the appraiser. The lender will not accept any appraisal report completed by an appraiser selected, retained, or compensated in any manner by any other third-party (including mortgage brokers and real estate agents).”

    If, so, this will drive more mortgage brokers to become correspondent lenders.

    And is there mention of who is is going to pay for all of this?

  8. I think this seems like a knee jerk reaction. Before doing it they should determine where the problems occurred (e.g. new construction, resales, refinances), and how many of the losses were actually due to bad appraisals. And I suspect there could be other more well thought out solutions to whatever problems they find.

  9. Wow!

    The bank’s just exempted themselves from the regulations, that they inspired with their illegal pressuring of appraisers. It was already illegal to pressure appraisers, at least in Washington State.

    Whatever the banks are paying their lobbyists, they should be required by the government to double it immediately!

    The mortgage broker (but evidently NOT the correspondent lender/broker) just got thrown under the bus by the real theives, while the real thieves get the Good Citizen reward!

    The government will not rest until the innocent are justly punished!

  10. Roger,

    You bring up some interesting observations:

    “I choose appraisers based on the quality of their work.” (could you explain what you mean here?)

  11. Roger, I’m taking the word “lender” to mean source of funds. I don’t believe it to mean correspondent lender. And, I’m sorry to say I’ve encountered unethical appraisers…no industry is exempt. Just the other day, I had one approach me for business and at the end of our conversation, she said that “some things are better left not in email…like if you need a specific value”. I didn’t even ask or solicit this type of response. When I commented that sometimes my appraiser comes in low, I was told by this appraiser that I must be working with the wrong fella. NOT.

    I don’t want any transactions coming back to haunt me or the company I work for!

    Banks have amazing lobby power. That’s why I find this so amazing…I’m reading they will need to “reduce” their inhouse appraisals while brokers must “eliminate” ordering appraisals. This whole can of worms started from a BANK bullying appraisers.

  12. ARDELL, what if consumers were restricted to choosing their agent and loan originator by a lottery system? (I think that’s the point Roger is trying to make). Appraisers are licensed. If you picture the VA appraisal system, these guidelines will create a “welfare” system for all appraisers.

    ARDELL, I know you’ve stated in the past that you haven’t done a lot of VA (gov) loans…trust me…there are some appraisers that when you discover you wound up with him/her…you know your transaction is either going to take longer or they are going to pick it so far apart, the deal is probably going to be miserable if not dead.

    I’m all for fair competition. Take away competition and there is no incentive or reward for providing timely appraisals and just being dependable.

    My appraiser IS NOT the quickest. He’s probably 10 days…but I know his reports are solid. And, when I’ve had 10 day (or shorter) closings, he’ll get it done for me.

    He probably could charge more than he does for appraisals…he hasn’t changed his pricing in the 6-8 years I’ve sent business to him.

    Some lenders all ready have scrutiny in place. Appraisers from some lenders are blacklisted when they receive a transaction back via foreclosure/short sale.

  13. Tim:

    I consider quality work to mean appraisers that provide complete, accurate and timely appraisals that meet the approval of the lenders that have to underwrite the loan (including the appraisal review desk), and manage to make a professional and positive impression on the borrowers that have to pay for the appraisal.

    It’s actually very similar to the qualities that good LO’s look for in escrow/closing services.

    I think the choice of those two vendors are among the most important choices we LOs get to make. Both have face to face contact with nearly all of our borrowers, both work in highly technical and regulated areas of expertise, and both are required to make full explanations to the clients, including occasionally, not so welcome news!

    The choice of a title company does not usually greatly affect a borrower’s experience of the transaction, nor does the choice of a lender (since all loans can be subsequently sold to another servicer).

    I suppose that’s why I am so dismayed at this development. What if I cannot choose my escrow agent/closer next? I’m already steamed that a few lenders will not accept the E&O insurance in place of the Closing Protection Letter (that only title companies can provide).

  14. The lobbying power of banks is why I no longer practice bankruptcy law. How else can you explain auto lenders, who are typically the assignees of car dealers, becoming a privileged class in bankruptcy?

  15. Rhonda wrote: “Just the other day, I had one approach me for business and at the end of our conversation, she said that “some things are better left not in email…like if you need a specific value

  16. Rhonda:

    I’ve read that passage about 10 times now, and I think it actually means that if the lender “BANK” authorizes the correspondent lender to order appraisals, then the correspondent lender can order appraisals.

    The passage specifically prohibits mortgage brokers and real estate agents from ordering appraisals, and prohibits lenders from using those appraisals so ordered.

    It doesn’t actually state how mortgage brokers (that do not have correspondent lines) are supposed to order appraisals. By inference, it seems that mortgage brokers that do NOT have a correspondent relationship are out of business in 2009, unless some modification of this ruling comes into effect.

    It also puts those lenders (BANKS) that solely operate on a brokered basis (and do not offer correspondent lines) out of business as well.

    The document lacks the usual definitions that make these kinds of documents documents fat (and discourages casual reading), but I should think that the definitions of correspondent lender and mortgage broker are fairly well delineated within the industry, if not with the public.

    Now, what strings each bank will attach to this process, to make the correspondent lenders dance to their tune, no one knows yet, but it probably will not be in the consumer’s favor.

    Of course, I’m no lawyer, but that’s what I read.

    Jillayne…you love reading this stuff even more than I do….do you agree?

    Anyone?

  17. I’ll have to read it again… 🙁 If we did order our own appraisals (I work for a correspondent)…I’m sure the bank would do their own…just like how Countrywide will sometimes require their in house appraisal co, Landsafe, to do a second appraisal for a fee…of course!

  18. Roger, I’m reading the paragraph that you’re referencing as who’s responsible for payment.</p><br /><br />
    <p>Here’s the press release:</p><br /><br />
    <p>FOR IMMEDIATE RELEASE<br /><br /><br />
    March 03, 2008 </p><br /><br />
    <p> OFHEO, NY ATTORNEY GENERAL, FANNIE MAE AND FREDDIE MAC SIGN AGREEMENTS TO COMBAT APPRAISAL FRAUD </p><br /><br />
    <p>Washington, DC – OFHEO Director James B. Lockhart announced agreements with OFHEO, New York State Attorney General Andrew Cuomo, Fannie Mae and Freddie Mac (the Enterprises) to strengthen the independence of the appraisal process. For mortgages the Enterprises buy or guarantee, the agreements seek to enhance appraisal and evaluation services that are critical to the residential mortgage process. Flawed appraisals artificially inflate home prices and are often a sign of mortgage fraud and undue influence on appraisers. </p><br /><br />
    <p>”Accurate, independent appraisals are very important to ensuring the safety and soundness of Fannie Mae, Freddie Mac and the mortgage market,” said Director Lockhart. “These agreements build upon existing federal and state laws and regulations to further strengthen the single-family home appraisal process. The agreements should help restore confidence in the mortgage market by enhancing underwriting practices, reducing mortgage fraud and making home valuations more reliable. I thank the Attorney General, Fannie Mae and Freddie Mac for their strong roles in this important effort.”</p><br /><br />
    <p>There are many significant provisions in the agreements that are designed to strengthen the independence of appraisers, including eliminating broker-ordered appraisals, prohibiting appraiser coercion, and reducing the use of appraisals prepared in-house or through captive appraisal management companies in underwriting mortgages. The agreements also enhance quality control in the appraisal process and establish a complaint hotline for consumers. The agreements include a Home Valuation Code of Conduct that the Enterprises will apply to lenders selling mortgages to Fannie Mae or Freddie Mac. The Code becomes effective on January 1, 2009. </p><br /><br />
    <p>The parties also agreed to establish and the Enterprises fund an Independent Valuation Protection Institute designed to supplement current efforts to provide an appraisal complaint process, mediation of appraisal disputes, and mortgage fraud reporting. The agreement seeks the comments and concurrence of the federal banking agencies and solicits the comments of market participants that will be considered in making amendments to the Code during the implementation process. </p><br /><br />
    <p>“Attorney General Cuomo and I understand these are strong steps which will improve our mortgage finance system,

  19. I’m posting this again…arghhh! Sorry this is getting screwed up.

    FOR IMMEDIATE RELEASE
    March 03, 2008

    OFHEO, NY ATTORNEY GENERAL, FANNIE MAE AND FREDDIE MAC SIGN AGREEMENTS TO COMBAT APPRAISAL FRAUD

    Washington, DC – OFHEO Director James B. Lockhart announced agreements with OFHEO, New York State Attorney General Andrew Cuomo, Fannie Mae and Freddie Mac (the Enterprises) to strengthen the independence of the appraisal process. For mortgages the Enterprises buy or guarantee, the agreements seek to enhance appraisal and evaluation services that are critical to the residential mortgage process. Flawed appraisals artificially inflate home prices and are often a sign of mortgage fraud and undue influence on appraisers.

    “Accurate, independent appraisals are very important to ensuring the safety and soundness of Fannie Mae, Freddie Mac and the mortgage market,” said Director Lockhart. “These agreements build upon existing federal and state laws and regulations to further strengthen the single-family home appraisal process. The agreements should help restore confidence in the mortgage market by enhancing underwriting practices, reducing mortgage fraud and making home valuations more reliable. I thank the Attorney General, Fannie Mae and Freddie Mac for their strong roles in this important effort.”

    There are many significant provisions in the agreements that are designed to strengthen the independence of appraisers, including eliminating broker-ordered appraisals, prohibiting appraiser coercion, and reducing the use of appraisals prepared in-house or through captive appraisal management companies in underwriting mortgages. The agreements also enhance quality control in the appraisal process and establish a complaint hotline for consumers. The agreements include a Home Valuation Code of Conduct that the Enterprises will apply to lenders selling mortgages to Fannie Mae or Freddie Mac. The Code becomes effective on January 1, 2009.

    The parties also agreed to establish and the Enterprises fund an Independent Valuation Protection Institute designed to supplement current efforts to provide an appraisal complaint process, mediation of appraisal disputes, and mortgage fraud reporting. The agreement seeks the comments and concurrence of the federal banking agencies and solicits the comments of market participants that will be considered in making amendments to the Code during the implementation process.

    “Attorney General Cuomo and I understand these are strong steps which will improve our mortgage finance system,

  20. Well, it says “eliminating broker-ordered appraisals”….

    I suppose you could still broker the loan, select a lender based on best fit, rate and price, send the credit package to the lender you select, wait for the lender to order the appraisal, and hope for the best.

    What you could NOT do is order your own appraisal, then shop for the most competitive lender for your borrower once you know the appraised value. This change tilts the game in favor of the banks. Again.

    If you wanted to get to major the source of this problem, open up Ameriquest’s appraisals.

    And they were a bank. Their owner now represents the USA in the Netherlands.

    Thanks a lot, George. The Dutch are thrilled with your selection. 🙂

    BTW, has anyone heard of a definitive report/book/expose of the Ameriquest debacle?

    I would be very interested in reading that.

  21. Rhonda:

    You’d never know you or I had to do any actual work on loans, huh? 🙂

    Here’s NAMB’s response.

    NAMB Issues Statement on Mortgage Appraisal Agreement

    McLean, Va. – March 3, 2008 – In response to the agreements reached by the Office of Federal Housing Enterprise Oversight (OFHEO), the Government Sponsored Enterprises (GSEs), Freddie Mac and Fannie Mae and New York State Attorney General Andrew Cuomo with regard to mortgage appraisal fraud, the National Association of Mortgage Brokers (NAMB) today issued the following statement from NAMB Executive Vice President Roy DeLoach:

    “These agreements amount to a de facto regulatory action by OFHEO which avoids the appropriate process. The law provides for a process to implement regulatory and policy changes such as those contemplated and specified in these agreements. These agreements will increase costs to consumers by removing thousands of small business competitors from the marketplace. They will create a severe disadvantage to small business mortgage brokers, and prevent them from engaging competitively in the mortgage marketplace. NAMB is committed to serving the public and promoting the interests of consumers. As always, we are ready to work with these agencies to achieve the objective of eliminating appraisal fraud without disrupting the marketplace or hurting consumers. As it stands now, the National Association of Mortgage Brokers intends to consult with our legal advisors and to take appropriate legal action if necessary.

  22. Hmmm…Roger…I wonder if you could find the bankers response? 😉 I would but I’m baking pork chops while I’m submitting a loan. Multi-Tasking. I’ll be around more later.

  23. Roger, I think you’re right. This is from the Mortgage Bankers Association site:

    Industry News

    ——————————————————————————–
    Title: Fannie, Freddie To Buy Loans Only Under New Standards
    Source: OFHEO
    Date: 3/3/2008

    ——————————————————————————–

    New York Attorney General Cuomo Announces Agreement With Fannie Mae, Freddie Mac, and OFHEO
    Attorney General Andrew M. Cuomo and the nation’s two largest purchasers of home loans, Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), have entered into cooperation agreements requiring them to only buy loans from banks that meet new standards designed to ensure independent and reliable appraisals.

    The agreements, among the New York Attorney General, Fannie Mae, Freddie Mac and their federal regulator, the Office of Federal Housing Enterprise Oversight (OFHEO), also create an independent organization to implement and monitor the new appraisal standards. Senator Charles Schumer, Chair of the Senate Banking Committee’s Housing Subcommittee, praised the agreement and the reforms which he has supported.

    With this agreement, Fannie Mae and Freddie Mac have agreed to the following:

    Establishment of the “New Home Valuation Protection Code,” (the “Code”), which creates requirements governing appraisal selection, solicitation, compensation, conflicts of interest and corporate independence, among other reforms. (Full Code Attached). Under the new Code:

    Mortgage Brokers will be prohibited from selecting appraisers;

    Lenders will be prohibited from using “in-house” staff appraisers to conduct initial appraisals and

    Lenders will be prohibited from using appraisal management companies that they own or control

    .

    Banks will be required to adhere to Code. Beginning January 1, 2009, Fannie Mae and Freddie Mac will require that lenders represent and warrant that appraisals related to mortgage loans originated on or after January 1, 2009 conform to the code or they will not be purchased.

    Formation of the “Independent Valuation Protection Institute,” (the “Institute”), a new organization which will implement and monitor the Code. The Institute, which will be funded with $24 million from Fannie Mae and Freddie Mac, will also:

    Establish a complaint hotline for consumers nationwide to call if they believe the appraisal process has been tainted or if they have been harmed by appraisal fraud.

    Serve as a contact for appraisers themselves if they believe their independence has been compromised. These complaints will be handled confidentially to protect appraisers from retaliation. The Institute will mediate complaints, or can forward them to the appropriate federal or state law enforcement agency or regulator.

    Report publicly on its activities to the New York Attorney General and OFHEO on a bi-annual basis.

    Appoint a Board of Directors which must be approved by both the New York Attorney General and OFHEO.

  24. Just a quick note as a regular reader and sometimes commenter here on Rain City Guide I would like to state that this is a development that I am currently writing a post on and will be addressing with the company’s complete contacts.

    As an Appraisal Management Company it is viewed that this development has come at a rather fast pace with no openness in the development between the parties to the general populace. Due to the current over all quick acceptances by the bulk of the appraisal industry (heads), as a company, all are quickly trying to get a grasp on the impending changes. I can not state that I do not hold some concerns on the issue as supported by The New York Times item titled “In Deal With Cuomo, Mortgage Giants Accept Appraisal Standards

  25. Apella, I look forward to your post and hope you’ll come back and share a link to it here. I’ve heard rumblings about this but I really didn’t think that one Attorney General would yield so much power or influence.

  26. Apella

    It would be great to hear how this may play out from an Appraisal Management company perspective. And right there in New York, the home of the dirty deal!

    Send a line when you’ve updated, please.

    Loved the album cover, boy does that ever take me back!

  27. Rhonda,
    Thanks, please see Apella’s Vendor Voice Post – Special Announcement from Appraisal Management Company (AMC) on Cuomo Deal on Table Talk With Apella.

    Roger,
    Thanks, please note that the perspective is more closer to that of most appraisers then the AMC, but it was never said that as AMC’s go that we are normal. 🙂

    Thanks for the reply on the cover art will keep it in mind, was a fav of mom’s. 🙂

  28. What would some alternatives be for appraisers that are being pressured to give valuations that are higher or lower than what they see is fair market value?

    If an appraiser isn’t going to get called because he isn’t giving a value that the lender wants, what course of action can they take?

    Take a look at this website, it has over 10k signatures from appraisers that believe they are being forced to give inflated values. I am not an appraiser but I would be interested to hear their take on the situation and what they believe is the proper course of action.

    http://appraiserspetition.com/

  29. If I were an appraiser, I would not work with anyone who pressured me to produce a value for a property. period. There are thousands of LOs to work with…if an appraiser agrees to providing a higher value than a property is worth, they are enabling fraud. If they don’t feel they can stand up for themselves and to a lender, they should leave the business.

    I would not commit fraud for an agent, borrower…anyone. I know I’ve lost plenty of business because I would not provide a “owner occupied” mortgage for an investment property.

    What’s the difference? I can say “no” and so can the appraiser.

  30. Thanks for the link Matthew.

    It appears that there are approximately 90,000 appraisers nationwide. Roughly 11.59% signed the petition. Washington state was proportionally represented, although there did seem to be a higher percentage of appraisers than expected outside of King County on the 656 names I scanned (only 2 of the 19). Don’t know what to draw from that

    The Appraisal Institute applauds the decision.

    http://www.appraisalinstitute.org/ano/current.aspx?volume=9%20&numbr=3/4#4735

    Yet the appraisers I work with do not see this as a good thing for their business.

    So who IS it good for?

    Probably the largest appraisal organizations, that can run the Appraisal Management companies (sorry Apella, just trying to think out loud here).

    WAMU hasn’t really come out and said anything about the developments yet. I suspect they were not part of the closed door dealings. I wonder who was, and who benefitted?

    So, independent appraisers, if you are listening and reading, weigh in, speak up!

    Did this ruling get you what you wanted? Will it improve your situation and that of the nation’s borrowers?

    I believe the wholesale industry will adapt to the changes and survive; that is what it is VERY good at.

  31. I would love to hear from some independent appraisers, too. I’m guessing they may feel the same way about not being able to select who THEY work with just as much as we do about not being able to select who is on our “professional team”.

    I’m afraid this will actually bring down the quality of appraisals.

    Anyone who was considering retiring from being an appraiser is probably back in!

  32. You asked: “When there is no competition for business, will it breed complacency?”

    The competition for the appraisal work will be stronger than ever once access to appraisal orders has been completely turned over to Appraisal Management Companies. When this happens the lowest bidding appraisers get the jobs. The lowest bidders are inevitably new appraisers trying to establish their business and cut corner appraisers who do an inspection but provide absolutely no analysis. This has been happening since Appraisal Management Companies were first introduced. Because of the way the new system will be implimented you will be assured of receiving a low quality appraisal report. The basic idea behind the proposed change is good. It’s the bidding process and the fact that the management company will be paid out of the appraiser’s pocket that will undermine the entire idea.

  33. That’s what I experienced using an Appraisal Management Company in the past.

    And the fact that the AMC’s will skim the profits off.

    Does anyone still believe HMO’s give us better or more affordable health care…anyone….?

    Dreadful.

  34. Let’s not forget the current NY attorney general investigation into WAMU and First American’s appraisal management company.

    Not all brokers “pressured” appraisers.

    also, some banks clearly ignored bogus appraisals.

    I see this agreement as inevitable due to the current mortgage crisis that started out as “contained” and “subprime” and is now melting into a full-blown financial disaster.

    We should all expect more laws and changes just like this. Some will target brokers, others will target the entire industry.

  35. It been interesting reading ALL of the comments here! As you might imaging, the appraiser forums are BUZZING with comments on the Home Valuation Code of Conduct and the separate Fannie Mae and Freddie Mac signed agreements.

    The agreements, to go in to effect 1/1/2009 contain a seprate component that calls for the formation of an Independent Valuation Protection Institute.

    All of the major appraisal organizations initially applauded the NY AG’s efforts but as the smoke clears . . .many of the appraiser members are questioning their initial exhuberance!

    The http://www.AppraisalScoop.com blog has been collection a series of articles and ALTERNATIVE solutions to these agreements and has a petition for appraisers to enter their comments within the 90-day (now just over 30) comment period.

    The Home Valuation Code of Conduct category for the Appraisal Scoop blog is: http://appraisalnewsonline.typepad.com/appraisal_news_for_real_e/home_valuation_code_of_conduct/index.html

  36. The AMC’s will now be given control of the ordering process. My inside source at LSI, one of the worst (quality wise) is looking for new space for expansion! eAppraiseIT, who runs a close 2nd to LSI (any appriaser knows, these guys like to order appraisals on inappropriate forms for peanuts) are also charged up. Yup, the fox is now in charge of the henhouse. So, Fannie and Freddie might want to start planning on a 15% to 20% loan to value adjustment, instead of 5%. If they thought they had junk loans based on fraud appraisals, just wait till the low dollar AMC’s get their claws around the appraisal ordering biz. I worked as a staff appraiser for two banks who considered LSI, and both declined because of questionable quality issues. No kidding.

  37. Brian:

    Nice links..above #44.

    I have heard from local appraisers that this initiative may get choked in the cradle, so to speak. The head of OCC just came out against it, and nearly EVERYONE in the housing industry opposes the regulation as written (while agreeing there are some needed reforms).

    Hopefully, it will be modified so that we can continue to do good work for all of our clients.

  38. Dustin, I hope you don’t mind me adding today’s Roundtable conversation to my post. 🙂 Jonathan Miller was great!

    http://4realz.net/2008/07/10/4realz-roundtable-1pm-pst-how-appraisal-rule-changes-will-affect-real-estate-professionals/

  39. I listened in on the roundtable discussion mentioned on the link above. I heard alot of complaints but no suggestions that could resolve the problem. I think that both appraisers and lenders are finally catching on to the unintended consequences of the upcoming changes. Since March 1st I’ve been speaking with every lender and appraiser that I come in contact with regarding these changes. To date I’ve only met 2 that had a clue what I was speaking of. With live in the age of the internet yet collegues still appear to live in caves. If we (appraisers) are done in by these changes it was truly the result of one thing only. The lack of a national organization.

    Many of the proposed changes are excellent but two things were obviously flawed in my opinion:

    1. Banks should not have been excluded from the ordering changes.
    2. AMCs (with their current business model) are NOT the solution.

    I see two solutions to these problems.
    1. Either regulate ALL lenders equally or make banks abide by the same rules regarding appraisal orders. In short…create a level playing field for everyone.
    2. I have no problem with AMCs acting as clearing houses for appraisal orders. I do however have a SERIOUS PROBLEM with appraisers footing the bill for this clearing house. In a nutshell, AMCs were allowed to proliferate because they provided lenders with a way to cut costs by outsourcing the appraisal ordering process. In fact AMCs sell their services to lenders proclaiming to be a “value added service

  40. David, I think your last resort may be the best resort. We did complain a bit but I think we were also trying to explain what we feel is going to happen when/if this goes into effect. Your last resort may be the only solution to correct what may happen with conforming appraisals.

    AMCs will result in another “power house” controlling appraisals and appraisers. It will result in price fixing–which will harm the consumer and will create a lower quality appraisal.

    With regards to your comments about appraisals and their fees, I know we charge exactly what is billed by our appraiser. We have not used AMCs at our company….we do use Encompass and so eAppraisal is “promoted” with quick turn around times. However, I prefer to work with the appraiser I have for the past 8 years. He’s been around for over 30 years and takes longer than 48 hours to whip out an appraisal. He also sometimes comes in low and when he does, I TRUST him.

  41. Let me rephrase what I said (appraisers are unable to band together). To date, appraisers have never shown a willingness to band together. To my knowledge there is no national association of real estate appraisers (similar to the Realtors NAR). Sure there are many smaller groups that are the Appraisal Institute and many others which have optional memberships and outrageous fees. I might also add that their memberships have declined significantly in the recent past because with the onset of licensing lenders cared less and less about the designations that they offered. I suspect that the Appraisal Institute lost a few hundred or thousand memberships this year when the backed the Cuomo/AMC powerhouse agreement.

    If appraisers truly cared about their profession they would have created a National Association Of Appraisers with MANDITORY MEMBERSHIP and MANDITORY DUES. Unfortunately, it’s a little late now. I am a real estate appraiser with 16 years experience in the field. The best advice I have for other residential appraisers is advice that was given to me by a very intelligent guy. Diversify or die

  42. David:

    Good to hear your views.

    I was surprised at how many appraisers were unaware of the consequences of the proposal, but I suppose not everyone is interested in politics until it has a direct bearing on their paycheck.

    Your proposal of mandatory enrollment in a national professional association has merit, and is similar to the requirements for other professionals (doctors, lawyers). It will only happen if your profession is able to band together independently BEFORE an HMO-like apparatus (AMC) is superimposed on your industry. If the AMC structure is formed first, your profession will be relegated a lesser status.

    In many ways, the formal organization of the appraisal industry is several steps ahead of the other major players on the housing industry, particularly the loan origination group.

    Appraisers are required to apprentice under an experienced appraiser, thus limiting entry to the profession, but ensuring an overall higher level of practical education. I think that practice is wise, and should be emulated in the lending profession.

    Appraisers are required to complete formal education that seems to be equivalent to a trade school education course of at least a year. Loan originators have no such requirement, and no such requirements are presently proposed.

    There is a national licensing system in place for appraisers (how long I wonder), and one is on the way for loan originators. Also, a good development.

    What is missing is an enforcement system (funded by the members, not by government) to weed out the bad actors

    While there are bad actors in both appraisal and loan origination fields, I think your profession is well ahead of ours, and at present, in more danger of losing ground in the attainment of true professional status.

    The only way that I can see to regain the ground lost for appraisers is to to vociferously oppose the misguided Coumo proposal, and simultaneously increase the political awareness, activity and financial commitment from EVERY surviving appraiser to ensuring the survival of your profession.

    I wish you the best of luck!

  43. David, wouldn’t “mandetory membership” require government intervention? Or are you thinking something along the lines of how a real estate agent can belong to NAR and then be a “Realtor(r)”?

  44. I doubt that much government intervention would be required. A National Appraisers Association would be nothing more than an organization to keep appraisers abreast of the latest news. As you can see with the recent Cuomo fiasco…few appraisers (I’m guessing less than 20% based upon all that I’ve talked to) even realize what will hit them within the next 6 months. Best of all though it would provide us with both a voice and leverage on a national level. I believe there are around 70,000 appraisers in the U.S. today (not counting assessors). If all 70,000 were required to pay the N.A.A. $100 per year as part of their licensing renewal dues that would give us around $7,000,000 to work with (an amount that will definitely make sure you’re heard on a national level). I don’t mean to sound negative but it’s a little too late to help ourselves out a fine mess. We were lazy and we were foolish..and now we’ll pay a high price for it.

    I personally see a dead end road for residential appraisers who don’t have 3 or 4 BANKERS on their hip pocket. I appreciate your input Roger. I thought you words were right on target and very insightful.

  45. David:

    Thanks!

    Seriously, there is NOT a national association for appraisers already in existence?

    I’m sure there is a state one here in WA state.

    I signed up for our state organization (WAMB), and pay dues, even though I do not always agree with their positions. Same on the national level.

    In our system of government and business, there is simply no reasonable alternative to actively promoting your business model in the halls of civic government.

    If you do not, your competitors will, and they will take your lunch money in broad daylight.

    The attitude that we can let the others do the heavy lifting (politically) for the benefit of those who do not contribute must end, and free-loaders must be called out for what they are.

    Good luck with changing the culture in your profession!

    BTW, I disagree that there is little hope of changing the Coumo debacle. I think there is plenty of opposition, and only ONE strongly focused advocate in favor (the Appraisal Management Companies), and and even larger, but unfocused, groups opposed.

    Don’t accept bullying. If you lose hope, the battle is already lost before the first shot is fired.

  46. With January 1st, 2009 fast approaching, it’s about time to revisit this painful subject.

    1. Is it going into effect as is?

    2. Has anyone seen any evidence that lenders are requiring this? I have not yet.

  47. Whoo hoo!

    Christmas comes early for independent appraisers!

    There have been significant changes (and I think improvements) to the appraisers rule that was to go into effect in a few months.

    The original proposed rules would have eliminated independent appraisers entirely, forcing all to work under appraisal management companies.

    “it no longer looks to force lenders to use outside appraisal management firms,”…

    http://www.housingwire.com/2008/12/24/a-kindler-gentler-appraisal-reform/

    Read on!

    At last, a little good news, and common sense.

  48. I may have jumped the gun, relying on secondary sources.

    Here is the source directive.

    http://www.ofheo.gov/media/news%20releases/HVCCFinalCODE122308.pdf

    I am reading (and re-reading) the 6 page directive, and I am arriving at new conclusions.

    While it does not force lenders to use outside appraisal management companies, it DOES prohibit mortgage brokers and loan originators from using independent appraisers.

    1. It looks as if specifically mortgage brokers and loan originators cannot order appraisals directly, but correspondent lenders can. Mortgage brokers would have to order the appraisal THROUGH the lender selected.

    2. It has a means of allowing appraisals to be transferrable to new lenders.

    In both cases, it severely limits the interaction (such as selecting an appraiser) between an appraiser and any of the following entities:

    a loan originator, a loan processor, a mortgage broker, a lender, a correspondent lender, and employees or people working under the direction of any of the above.

    “…employees in the sales or loan production functions of the lender are not allowed to have any substantive communications with an appraiser, appraisal company, or appraisal management company relating to or having an impact on valuation or to be provided information about which appraiser has been given a particular appraisal assignment before completion of that assignment;…”

    It also specifically prohibits realtors from ordering appraisals (at least for the purpose of getting the loan).

    My thinking is that this spells the end of the independent appraiser, once again essentially forcing them all to work for Appraisal Management Companies.

    That is NOT good news for anyone, BUT APCs.

    I would love to hear your interpretation as well.

  49. Roger, you just put in the same link I did! Too funny. As I mentioned, I’m going to wait a week or two to hear it from Fannie and Freddie (see comment 59).

    I was going to write a post about this yesterday but I prefer to wait and have clear info. That memo I read (we both linked to) made my head hurt.

    Happy Holidays!

  50. I just received this press release from NAMB:

    McLean, V.A. – December 24, 2008 – The National Association of Mortgage Brokers (NAMB) today announced its disappointment with New York Attorney General Andrew Cuomo, Government Sponsored Enterprises Fannie Mae and Freddie Mac (GSEs) and the Federal Housing Finance Agency (FHFA) for issuing its revised Agreement on the Home Valuation Code of Conduct (HVCC) for appraisals. This agreement, in response to an initial investigation into business practices conducted between Washington Mutual and appraisal management company E-AppraiserIT, once again fails to address the appraiser fraud problem. NAMB today issued the following statement from NAMB President Marc Savitt:

    “This agreement amounts to a de facto regulatory action which avoids the appropriate process. The law provides for a process to implement regulatory and policy changes such as those contemplated and specified in this agreement.

    This agreement will increase costs to consumers and remove thousands of small business competitors from the marketplace. This will create a severe disadvantage to small business mortgage brokers, and prevent them from engaging competitively in the mortgage marketplace.

    The Attorney General and GSEs disregarded many letters submitted by industry associations citing numerous laws and regulations already in place and for failing to make the necessary revisions in the new agreement to accurately address the problem of appraiser fraud. The solution to appraiser fraud is to hold responsible those that commit the fraudulent acts: appraisers. Regulators have failed to reprimand appraisers committing similar acts to those committed during the Savings and Loan Crisis, and instead held small business mortgage brokers accountable.

    As always, we are ready to work with these agencies to achieve the objective of eliminating appraiser fraud without disrupting the marketplace or hurting consumers. As it stands now, the National Association of Mortgage Brokers intends to consult with our legal advisors and to take appropriate legal action if necessary.

  51. What strikes me as ironic is that this evolved from Coumo’s suit against Washington Mutual (a BANK); yet it’s the Mortgage Brokers who are paying the price. Banks appear to not be a part of this as far as I can tell.

    Must be nice to have all those lobby dollars.

  52. Pingback: It’s Official: New Conventional Guidelines for Ordering Appraisals | Rain City Guide

  53. Minor Correction To Kary’s Comment Above:
    Banks THINK they own the legislative branch of government.

    Take a look at this law firm’s webpage:

    http://www.hbsslaw.com:80/homeowners_release

    This is a major lawfirm; not a fly by night outfit.

    I believe this lawsuit may very well be the first crack in the HVCC eggshell.
    If Countrywide admits wrongdoing (racketeering) then the AMC business model (in it’s current format) is undeniably a racketeering model.

    I recommend you keep a close eye on this one.

  54. This morning I attended WAMP/WAMB’s meeting addressing HVCC — Roger Ingalls and other mortgage professionals were there too… I’ll be writing a post about this meeting soon here at RCG.

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