MediaMyopic

What does an investigation by the New York Attorney General have to do with my home appraisal in Atlanta? Well basically Andrew Cuomo was investigating the appraisal practices of the Government Sponsored Entities (GSEs), aka Fannie Mae and Freddie Mac. To get the Attorney General to stop the investigation, the Office of Federal Housing Oversight and Fannie Mae and Freddie Mac agreed to what is now called the Home Valuation Code of Conduct.

The HVCC is an effort to clean up the mortgage industry. Although there are many good initiatives in this new code, there are many unintended consequences adversely affecting home buyers, home sellers, mortgage brokers, agents and appraisers.

The HVCC affects those people in the loan process that are compensated on a commission basis. Once a loan closes, mortgage brokers, loan officers and real estate agents and brokers are paid their commissions. These people are no longer allowed to communicate in any way with the appraiser assigned to their property. The problem is that many loan officers, brokers, real estate agents and brokers have spent many years developing business relationships with certain appraisers because of their professionalism, timeliness and superior quality of work. Now, these relationships are no longer useful. Instead of choosing appraisers based on their depth of knowledge about certain market areas, appraisers must now be chosen from a preapproved list or from and Appraisal Management Company.

Home buyers are adversely affected because of the increased cost of appraisals. They may have longer rate locks or extend existing rate locks. If a home buyer is not satisfied with the service of a particular lender, there may be a hesitancy to change lenders because of added time and costs involved with a new appraisal. Appraisals are completed for the specific lender; therefore, if the lender is changed, a new appraisal must be ordered which increases time and costs.

The National Association of Realtors, The National Association of Home Builders and the National Federation of Mortgage Professionals are faulting the HVCC for new and existing home sales falling short of expectations in May. Unfortunately, low ball appraisals are forcing home sellers to either appeal the appraisal or reduce the agreed upon sales price for their home to the appraisal amount. Most sellers are not in a position to reduce the sales price and the contract falls apart.

Finally, the most adversely affected group of people is the appraisers. In many cases, independent appraisers pay 40% of their income to an Appraisal Management Company for the right to work in the appraisal industry. AMCs are not regulated which could cause even more problems. However, the most negative aspect of HVCC prohibits appraisers from communicating with their customers. Since mortgage brokers, loan officers and agents are paid on commission, the appraiser is restricted from all types of communication. No other industry has that type of restriction.

Stories about low ball appraisals and their deal killing impact on the real estate industry are snowballing. Buyers are not able to get loans on properties that do not appraise for the agreed-upon sales amount. The National Association of Realtors is asking for the suspension of the HVCC rules for 18 months because of the negative effects on real estate markets all across the country.

All these unintended consequences have me and others longing for days past. Back when there was no downward pressure from lenders and regulators on a hurting market. You know back when a house was worth what someone was willing to pay for it! Buyers and sellers want to get about the business of buying and selling, and agents are in their “amen” corner. Let the buying and selling begin.