Just what determines a home's worth?
Original post made on Apr 12, 2013
Read the full story here Web Link posted Friday, April 12, 2013, 4:12 PM
on Apr 12, 2013 at 8:48 pm
I'm an appraiser with 12+ years experience. I have witnessed first hand the HVCC and the new Dodd-Frank law. I've gone through the explosive upturn and the devastating crash. The article, for the most part is an accurate portrayal of what appraisers do and what they must contend with. But this part of the article is factually incorrect:
"After the real-estate bubble collapse and the passing of the Housing Valuation Code of Conduct in 2008, mortgage lenders were mandated to hire appraisers through a third party called Appraisal Management Companies (AMCs), enabling appraisers to evaluate homes free from the lenders' influence."
First, the HVCC was not 'passed' ... it was mandated by a single person - Mario Cuomo - who was then the Attorney General of NY State. Because virtually all banking activity flows in many ways through NY, the attorney general is responsible for enforcing the banking laws and regulations enacted in NY. When it became obvious that FannieMae and FreddieMac were playing fast and loose with mortgage loans (a sub-set of banking) in violation of law, Mr. Cuomo sued them. In order to keep their dirty linen out of the public eye in a court setting, Fannie and Freddie agreed to implement the HVCC - a required code of conduct that never had been in existance before, but frankly should have been. The HVCC was a negotiated settlement much like other criminals can obtain under certain circumstances.
Unfortunately, the HVCC also caused a major upheaval in the appraising profession, because it immediately eliminated the personal relationships lenders and appraisers had built up over years. No longer then, and now, can a mortgage sales person or broker contract directly with an appraiser to provide a value report on a mortgaged property. As a result, many appraisers left the business when their businesses began to suffer the effects of diminished income. Some appraisers decided to work with AMC's, others did not and only do private party or local bank appraisals.
The second error is Appraisal Management Companies (AMC's) did not and are not 'mandated' to be used by lenders. That never was, and still is not, part of the HVCC agreement - which has since evolved into the Dodd Frank law Appraisal Independence Requirements (AIR).
However, many major banks did eliminate their former appraisal departments and did then, and still do, choose to work with their owned subsidiary or independent AMC companies. But this was never 'required.'
The original HVCC said that 'production' - the sales people - could not directly engage appraisers for any mortgage valuation assignment. Production had to be separated from 'placement' - the people ordering the appraisals. Lenders could still operate with their own appraisal placement departments. This was done to avoid possibility of influence and coercion of appraisers by the sales people who wanted a loan to have a certain value. This provision has carried over to current practice with the AIR.
As mentioned, quite a few lenders chose to work with AMC's, believing that the AMC could do a better job managing the appraisal process. Lenders also wanted to jettison a business department that was a cost center rather than a revenue generator. But over the years, it has become evident that the magic elixer sold by AMC's to lenders may not be totally factual or more efficient. Many lenders are actually re-establishing their in-house appraisal placement departments. Some have found other ways to place appraisal orders without using an AMC by using specialized order placement software developed for this purpose. And a number of AMC's have left the business, owing millions of dollars in unpaid fees to appraisers.
Final point: appraisers are the gatekeepers of the mortgage lending process. Unlike the sales people or the homeowner/prospective buyer, the appraiser is not an advocate for any party with a financial interest in the property - meaning the sales person, buyer or borrower.
The appraiser is (or should be) the watchdog for the lender. As such, appraisers are scorned when the mortgage loan is not awarded at the level to the satisfaction of the sales people or others, or it may be turned down totally based on the information in the appraisal report. When everything turns out well, appraisers are the best buddy to everyone ... until the next assignment turns sour.
We hear all to often about 'low appraisals' which means the calculated market value based on similar property sales is less than the sale price agreed by the seller and buyer. But we never hear about how the 'too high listing and sale price' affects the so-called low appraisal. It's only the appraisal report done by the independent, non-advocate appraiser, that is imagined to be at fault.
on Apr 14, 2013 at 1:50 pm
Mario Cuomo ... or Andrew Cuomo?
on Apr 14, 2013 at 1:53 pm
> Dave the Appraiser, a member of the Palo Alto High School community
> the appraiser is not an advocate for any party with a financial interest in the property - meaning the sales person, buyer or borrower.
Remind me .... who hires the appraiser ? Working or not working seems like a financial interest to me?