During the housing boom too many homes appraised based on "What number do you need?" Now it seems that the pendulum has swung back into more conservative territory:
New rules to safeguard the integrity of home appraisals are complicating the deals they’re supposed to protect.
Real estate agents, mortgage brokers and buyers, as well as homeowners who want to refinance their loans, are feeling the effects of rules designed to prevent inflationary appraisals that helped fuel the housing boom.
"The intentions were good, but the execution was very poor," said Louis Spagnuolo, vice president of mortgage banking for WCS Lending in Boca Raton.
Since May 1, home appraisals must be ordered at arm’s length, often through a national management company. Gone are the days when a mortgage broker or lender could hire a familiar appraiser to close a deal. Now, communication between the appraiser and real estate agents is discouraged.
These rules do not apply to all mortgage loans, but a large percentage of them:
The new rules were proposed by New York Attorney General Andrew Cuomo, who pushed for the standards after spending more than a year investigating industry appraisal practices. They govern only loans that will be sold to Fannie Mae and Freddie Mac, government-run mortgage companies that buy most of the nation’s home loans, and not loans guaranteed by the FHA or VA.
So what is the problem with requiring independent appraisals?
One problem, real estate agents and mortgage brokers say, is that the management companies assign appraisers who don’t know the area and lose experienced appraisers by taking a large percentage of the fees.
Another common complaint: appraisers value properties on the low end to appease lenders, which are scrutinizing appraisals now after suffering large loan losses in recent years.
Not everyone agrees that the problem lies with the new rules:
[A]ppraisers and the management companies blame the flood of foreclosures and short sales for skewing the value estimates downward.
So where are our industry people? What do you think- Is it the rules, the markets, or both that keeps prices in a death spiral?
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Weak article in the Sun-Sentinel. It gives the impression that the banks are happy with the use of AMCs (appraisal management companies). No one likes this format, not the lenders, not the appraisers, and not even the various regulators. The HVCC has had detrimental unintended consequences. The HVCC will likely be revamped as part of a comprehensive federal banking bill. In the mean time many banks are in the process of dumping this AMC model and going to the old-school approved appraiser lists. Approved appraiser lists are HVCC compliant as long as they have a firewall between the appraiser and loan officer. The quality of appraisals, never mind the values, from these AMCs is horrendous. There was some respite from the effect of the HVCC (May 1) as loan applications soared in April and May due to low interest rates, and lenders were busy. Give a call to your local lender and ask them offhand what the new application fees are now for loans. You will be stunned. Banks have been using these app fees as a profit center.
Loan applications in the last few weeks are way down as is the pull-through (apps that close). Overhead is skyrocketing, and a good chunk of that is from ordering reviews and second appraisals on the low quality AMC work. Yeah, there are exceptions, but the fact is that most seasoned appraisers will not work for half a fee leaving the appraisal work to the newbies, often from a distant geographic region.
Here’s a real live scenario of where this bites the customer. Someone I know who has super excellent credit and will never lose an excellent job, locked in at a great rate not so long ago. The home is a condo, bought at the end of 2006 with 10 or 15% down, and paid about 170k, well, the appraiser guy appraised it at 150k, and the LTV is not 75% which is some kind of rule, and so condo owner has to come up with 10k or forfeit costs associated with refinancing.
If applications are down it’s because
Nobody will insure a “attached” property, condo, town home, etc. to boot.
So 25% down in declining markets is normal.
I have many loans that will not close because the appraisal did not support the bidding purchase. ? #!
You heard of bidding wars? No problem; pay the difference in your over bid in cash or NO CLOSE!
Appraisal prices up, service and quality down.
A Flagstaff appraiser assigned to do a Phoenix property. You are not allowed to comunicate with the appraiser. Repeat appraisals sometimes required. So many deals falling apart sue to un adequate value. You have heard of the bidding wars on Bank owned? The Buyer will need the cash to pay for the difference. This is a perverted force to keep and force prices lower in a time when bidding wars are occuring.
Watch the video:
https://www.thinkbigworksmall.com/public/showArchiveVideo/1/4909