Recently there have been many changes and rules enacted to better regulate the mortgage industry. The Federal Housing Administration (FHA) is now changing how appraisals are done for federally insured home-loans. They have recently made it tougher to qualify for an FHA home loan by adding stricter standards and higher down payments in some cases and as of February 15, mortgage brokers will no longer be allowed to select their own appraisers for home loans insured by the FHA.
This is being done in an effort to ensure that home appraisers are not pressured to inflate home values in order to bring in more money for brokers. This is supposed to mean that home values will more closely reflect their actual market value.
However, there are critics that suggest that changes such as these are hurting more than helping.
According to organizations such as the National Association of Realtors and the appraised institutes the new rules that were enacted throughout the appraisal industry in 2009 are doing nothing but resulting in excessively low home values. These rules that are designed to make sure that appraisals are impartial are hurting home values. The main reason behind this is that now inexperienced appraisers are being chosen by appraisal management companies and they are not familiar with the local markets. These inexperienced appraisers also take more time completing the appraisal which causes delays in the cost of the loan process.
These changes began when Freddie Mac and Fannie Mac adapted a code that was designed to prevent loan officers from hiring appraisers. This happened in May of 2009. Being that Freddie Mac and Fannie Mac combined account for nearly 90% of new home loan origination’s, the appraisal business was completely reshaped by this change.
The adapted use of this new code means that brokers, Realtors and loan production staff – basically anyone who makes commission based on the value of the home – can not hire an appraiser. Now lenders will typically turn to a third-party appraisal management company.
The problem comes in when these big appraisal management companies provide appraisers from outside the market from which the house is located.
These appraisers are also often less qualified than independent appraisers that are usually chosen by brokers and Realtors that choose appraisers familiar with the local market. These changes reshaped the way the appraisal process was done and now FHA is looking to do the something.
See also:
Home Appraisals in Today’s Market
Appraisal Management Companies Ready for New Rules
New FHA Appraisal Guidelines Take Effect
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The rule changes will make life somewhat easier for the independent home appraiser as well as the homebuyer. I have heard of some some individuals only accepting appraisers from their people and now I know why. So they can mark up the price… Thanks for the sharing.
When I went through my attempted home purchase last year, I had an appraiser who had had trouble finding properties comparable to mine. And the end result was her providing comparable properties that were 15-20 miles away…. which were located in areas where the values were lower. I guess there is no perfect system, but this one is flawed too.
I enjoyed reading this post about What Will The FHA's New Appraisal Rules Do To The Appraisal …. Really interesting. I will come back to visit this blog again.
This was a good idea but not thought out well. I sell Manufactured homes North of Houston. The appraisal management companies here are hiring appraisers who are not qualified to do this type of appraisal. Not just anyone with a license should be trusted to do their job well, but what else can we do. A good appraiser won’t work for the little bit of money that the appraisal management companies will pay. I know several appraisers who said the heck with it and closed down.
This new appraisal rule is killing new construction. I am trying to build a new custom home on a 10 acre lot and 1st appraiser did not do any homework-just sat at a computer and looked at MLS. New homes built do not show up on MLS. My credit is perfect- my construction will keep people working!!!! HELP Me.
Since HVCC was implemented there have been some instances of inexperienced and underpaid appraisers being hired to appraise in areas where they do not have intimate knowledge. But the real reason that appraised values seem low is because appraiser’s are no longer threatened with losing work if “the deal” doesn’t work. Now that the conflict of interest that has plagued the appraisal profession for decades has been somewhat aleviated, appraisers can give their honest opinion about the value of the property. Sleazy loan officers, mortgage brokers and loan processors can no longer damage an appraiser’s income if they don’t play ball. Removing the commissioned people from the appraisal hiring and firing process is the best thing that’s ever happened to the appraisal profession. Now a lot of appraiser’s will disagree with me on that because they like “playing ball”. They’ve spent years developing relationships with lenders and brokers built around their efforts to get the appraisal up high enough to make the deal work. It is not the appraiser’s job to make the deal work. The appraiser’s only job is to accurately estimate a property’s market value and honestly report those findings. Appraiser’s are required to be objective and unbiased. They should be able to do their job with complete independence and autonomy and should be free of any pressure or coercion by any party. There are plenty of people who really don’t like it but that’s ok, no one said they had to like it, just accept it.
Ben, You must be one of the good appraisers, but allot of them out there are not. They take no pride in their work because they will get the next appraisal on the list when it’s their turn. It doesn’t matter if they know what the heck they are doing or not. In the past if an appraiser felt pressure from the loan officer he should have just walked away from the deal. He is suppose to be a professional and carry himself as such. I think the socializing of the process where any moron who takes the class and passes the test get’s the job is ridiculous. In this country you work hard to build your reputation and hopefully prosper. Oh and I don’t have to “just accept it.” I’m having appraisals kicked out regularly now, and that trend is growing.
It’s amazing what government regs can change in an industry. The more legislation we see passed the more we’re going to see changes in the real estate market for sure.