Davemuti’s Weblog

New Appraisal Standards, are they good?

The short answer NO! The legislature passed a bill last year (effective May 1, 2009) that will requires all loans to be purchased by Fannie Mae and Freddie Mac must go through these newly established (still in process) appraisal clearing houses. These Appraisal Management Service Companies (AMSC) that the legislature has required will benefit the banks and hurt the consumers. The bill is supposed to ensure quality control (accuracy of appraisals) so we don’t get inflated values that contributed to the bubble. Unfortunately, the “we” is the government and the banks as they are the only ones getting protection. This new process will add a week to ten days to the mortgage process and cost the consumer more for the appraisal.

When a new application is taken the person originating the loan has to order the appraisal through one of these newly established AMSC’s. The appraisers being used generally are not as qualified since they will only be getting about $150/appraisal. The small appraisal companies around the country with a half a dozen or so employees will lose out because they are accustomed to getting roughly $300 for a standard appraisal. The consumer will be paying upwards of $400 for these new appraisals because the bureaucracy of the clearing house needs to have money to manage the process and of course make a profit. Furthermore, this will push housing prices lower because the appraiser will not have any contact with the loan originator and will not know the specifics of the deal. Say a $300,000 value is needed for the LTV to work for the purchase or refinance. The appraiser is supposed to come back with the “real value” (this has always been a subjective opinion based on standards of the industry) of the home and it might now come in at $294,000. Now that does not seem like a big deal but this will cause purchase transactions to fall apart and refinance transactions not to happen. Had the appraiser known the value needed they may have been able to write the appraisal for the value to get the deal done. Now some may be thinking that this is steering but as indicated above, the valuation arrived at always has some wiggle room because of the subjective nature and the art of appraising when you do not have DEAD ON comps to work from. So adding a few thousand will not pump up prices but rather help to form a floor. This new process will in turn cause more sales to fall through which will apply further downward pressure on prices. In addition, the homeowner that needed to refinance to consolidate debt to get their head above water will not be able to and they may become a default/foreclosure statistic

I’m a real estate appraiser and have seen appraisal management companies like Landsafe operate since I started 17 years ago. They are like vultures and they typically charge borrowers $375 to $475 for an appraisal. They then turn around and find an appraiser who will work for the least money, typically an inexperienced appraiser is the patsy, and pays them $150 to $175. The management company pockets typically $200+ for doing nothing more than ordering an appraisal. Landsafe appraisal management is a subsidiary of Countrywide. So basically Countrywide the lender makes more money from the appraisal fee than the appraiser! Unbelievable, a new law goes into effect in 5/2009 which will now require an appraisal used in a loan sold to fannie mae to be ordered through a third party like Landsafe. The politicians have now effectively taken 50%+ of the appraisal fee and mandated that it be given to third party management companies like Landsafe.

Comment by Mike Regan - Deerfield Beach Appraisers January 28, 2009 @ 6:01 pm

Reply

It’s just another transfer of wealth to the rich.

Comment by dolphinstryker March 2, 2009 @ 2:17 pm

Reply

Here is a recent article in the LA Times that details just how disastrous this new legislative change has become: http://www.latimes.com/classified/realestate/news/la-fi-harney17-2009may17,0,5903005.story

Comment by Dave Muti May 28, 2009 @ 7:59 am

Reply