The Home Valuation Code of Conduct (Appraisal Standards)

Since May 1, 2009, we've been having problems with appraisals like never before. It's an interesting case study how the attorney general of one state used threats to blackmail a nationwide industry, installed personal controls and opportunities for graft into that industry, added a layer of overhead and administration increasing costs to consumers, decreasing compensation for appraisers, and many other things. Everybody in the industry - appraisers, loan officers, etcetera - agrees that this is one of the most misbegotten abominations to come down the pike in the political "let's pretend to do something to fix the problems without goring the ox of any major campaign contributors" response to the lending meltdown. The only people who don't hate it are the appraisal management companies.

To help enhance the integrity of the home appraisal process in the mortgage finance industry, in March 2008, Fannie Mae entered into an agreement with our regulator - the Federal Housing Finance Agency (FHFA) (then the Office of Federal Housing Enterprise Oversight) - and the New York Attorney General's office to adopt certain policies relating to appraisals for loans delivered to us. Following a public comment period, the Home Valuation Code of Conduct has been modified and will be effective for single-family mortgage loans (except government-insured loans) that are originated on or after May 1, 2009, and delivered to Fannie Mae.

The final rule is here.

I'm going to quote large chunks of it and comment

B. No employee, director, officer, or agent of the lender, or any other third party acting as joint venture partner, independent contractor, appraisal company, appraisal management company, or partner on behalf of the lender, shall influence or attempt to influence the development, reporting, result, or review of an appraisal through coercion, extortion, collusion, compensation, inducement, intimidation, bribery, or in any other manner including but not limited to:

(1) withholding or threatening to withhold timely payment or partial payment for an appraisal report;

(2) withholding or threatening to withhold future business for an appraiser, or demoting or terminating or threatening to demote or terminate an appraiser;

(3) expressly or impliedly promising future business, promotions, or increased compensation for an appraiser;

(4) conditioning the ordering of an appraisal report or the payment of an appraisal fee or salary or bonus on the opinion, conclusion, or valuation to be reached, or on a preliminary value estimate requested from an appraiser;

(5) requesting that an appraiser provide an estimated, predetermined, or desired valuation in an appraisal report prior to the completion of the appraisal report, or requesting that an appraiser provide estimated values or comparable sales at any time prior to the appraiser's completion of an appraisal report;

(6) providing to an appraiser an anticipated, estimated, encouraged, or desired value for a subject property or a proposed or target amount to be loaned to the borrower, except that a copy of the sales contract for purchase transactions may be provided;

(7) providing to an appraiser, appraisal company, appraisal management company, or any entity or person related to the appraiser, appraisal company, or appraisal management company, stock or other financial or non-financial benefits;

(8) allowing the removal of an appraiser from a list of qualified appraisers, or the addition of an appraiser to an exclusionary list of disapproved appraisers, used by any entity, without prompt written notice to such appraiser, which notice shall include written evidence of the appraiser's illegal conduct, a violation of the Uniform Standards of Professional Appraisal Practice (USPAP) or state licensing standards, substandard performance, improper or unprofessional behavior or other substantive reason for removal (except that this prohibition will not preclude the management of appraiser lists for bona fide administrative reasons based on written, management-approved policies);

(9) ordering, obtaining, using, or paying for a second or subsequent appraisal or automated valuation model (AVM) in connection with a mortgage financing transaction unless: (i) there is a reasonable basis to believe that the initial appraisal was flawed or tainted and such basis is clearly and appropriately noted in the loan file, or (ii) unless such appraisal or automated valuation model is done pursuant to written, pre-established bona fide pre- or post-funding appraisal review or quality control process or underwriting guidelines, and so long as the lender adheres to a policy of selecting the most reliable appraisal, rather than the appraisal that states the highest value; or

(10) any other act or practice that impairs or attempts to impair an appraiser's independence, objectivity, or impartiality or violates law or regulation, including, but not limited to, the Truth in Lending Act (TILA) and Regulation Z, or the USPAP.

Most of this section is actually pretty reasonable, and I agree with the majority. But subparagraph 2 removes the ability of anyone - loan officer or otherwise - the ability to stop using a bad appraiser short of an actual provable violation. Anybody else see a problem here? This has, of course, been a long term goal of appraisers. But just because I can't get them convicted of actual malfeasance doesn't mean they're any good. In conjunction with subparagraph 8, once they're approved, we no longer have the right to stop using them. Waste the money of every client they get by coming in with a low appraisal? Set me up for fraud by coming in with a high one? I am completely helpless to simply stop using them.

Subparagraph 5 is another one I have issues with: I can't ask them not to waste my client's money if the value obviously is not there. A good loan officer wants an appraiser who will return an honest value no matter what, but when 5 minutes checking says the transaction isn't going to fly, this is a waste of client money.

What they are doing is called "rent seeking behavior". Look that up. And everything else about this section was already present.

III. Appraiser Engagement
A. The lender or any third party specifically authorized by the lender (including, but not limited to, appraisal companies, appraisal management companies, and correspondent lenders) shall be responsible for selecting, retaining, and providing for payment of all compensation to the appraiser. The lender will not accept any appraisal report completed by an appraiser selected, retained, or compensated in any manner by any other third party (including mortgage brokers and real estate agents). The lender may accept an appraisal prepared by an appraiser for a different lender, including where a mortgage broker has facilitated the mortgage application (but not ordered the appraisal), provided the lender: (1) obtains written assurances that such other lender follows this Code of Conduct in connection with the loan being originated; and (2) determines that such appraisal conforms to its requirements for appraisals and is otherwise acceptable.
B. All members of the lender's loan production staff, as well as any person (i) who is compensated on a commission basis upon the successful completion of a loan or (ii) who reports, ultimately, to any officer of the lender not independent of the loan production staff and process, shall be forbidden from (1) selecting, retaining, recommending, or influencing the selection of any appraiser for a particular appraisal assignment or for inclusion on a list or panel of appraisers approved to perform appraisals for the lender or forbidden from performing such work; and (2) having any substantive communications with an appraiser or appraisal management company relating to or having an impact on valuation, including ordering or managing an appraisal assignment. If absolute lines of independence cannot be achieved as a result of the lender's small size and limited staff, the lender must be able to clearly demonstrate that it has prudent safeguards to isolate its collateral evaluation process from influence or interference from its loan production process.
C. Any employee of the lender (or if the lender retains an appraisal company or appraisal management company, any employee of that company) tasked with selecting appraisers for an approved panel or substantive appraisal review must be (1) appropriately trained and qualified in the area of real estate appraisals, and (2) in the case of an employee of the lender, wholly independent of the loan production staff and process.

So mortgage brokers as well as real estate agents are now completely cut out of ordering an appraisal. Actually, all loan officers are, apparently. So no more calling Appraiser A to find out how fast he can get me the appraisal. I have to use an appraisal management company, or delegate the ordering of an appraisal to an individual "appropriately trained and qualified in the area of real estate appraisals". In other words, appraisers decide who gets appraisal work. More specifically, senior appraisers decide who gets appraisal work. Not the hardworking young appraiser who's still trying to make friends. Not the independent appraiser who's willing to call other appraisers on what they're doing wrong or should be doing better. This reduces to "The old boys network decides who gets work". I thought we were trying to get away from that sort of thing - particularly when they owe no benefit of loyalty to anyone aside from each other.

Question: Would you like to have a real estate agent assigned by the old boys network without input from you? A loan officer?

This is going to have far reaching consequences for consumers, and they're not going to like it. One person, the identity of whom is not in any way controllable by them or anyone else with whom they have any contact, is going to control the outcome of their loan. Because The Mortgage Loan Market Controls the Real Estate Market, this is going to have the potential to break every single real estate transaction, randomly and arbitrarily resulting in unhappy buyers and sellers, lost deposits, and all other sorts of problems. If they take a disliking to you, all they have to do to spike the loan and the transaction is to come in just a little bit low on the appraisal.

IV. Prevention of Improper Influences on Appraisers A. In underwriting a loan, the lender shall not utilize any appraisal report: (1) prepared by an appraiser employed by: (a) the lender; (b) an affiliate of the lender; (c) an entity that is owned, in whole or in part, by the lender; or (d) an entity that owns, in whole or in part, the lender. (2) prepared by an appraiser (a) employed, (b) engaged as an independent contractor, or (c) otherwise retained by any appraisal company or any appraisal management company affiliated with, or that owns or is owned, in whole or in part by, the lender or an affiliate of the lender.

B. Section IV.A. shall apply unless: (emphasis mine)
(1) the appraiser or, if an affiliate, the company for which the appraiser works, reports to a function of the lender independent of sales or loan production;
(2) employees in the sales or loan production functions of the lender have no involvement in the operations of the appraisal functions and play no role in selecting, retaining, recommending, or influencing the selection of any appraiser for any particular appraisal assignment or for inclusion on a list or panel of appraisers approved to perform appraisals for the lender or forbidden from performing such work;
(3) employees in the sales or loan production functions of the lender are not allowed to have any substantive communications with an appraiser, appraisal company, or appraisal management company relating to or having an impact on valuation or to be provided information about which appraiser has been given a particular appraisal assignment before completion of that assignment;
(4) the lender, or its agents, and any appraisal company or appraisal management company providing the appraisal to the lender do not provide the appraiser any estimated or target value of the property or the loan amount applied for (except that a copy of the sales contract for purchase transactions may be provided);
(5) the appraiser's compensation does not depend in any way on the value arrived at in any appraisal or upon the closing of the loan for which the appraisal was completed;
(6) the lender and any appraisal company or any appraisal management company providing the appraisal to the lender has adopted written policies and procedures implementing this Code of Conduct, including, but not limited to, adequate training and disciplinary rules on appraiser independence (including the principles detailed in Part I of this Code of Conduct) and has mechanisms in place to report and discipline anyone who violates these policies and procedures;
(7) the lender's appraisal functions are either annually audited by an external auditor or are subject to federal or state regulatory examination, and, unless prohibited by law, the lender promptly provides to Fannie Mae or Freddie Mac the results of any adverse, negative, or irregular findings of such audits and examinations indicating non-compliance with any provision of this Code of Conduct, whether or not the examination was conducted for the purpose of determining compliance with this Code of Conduct; and
(8) the lender and any entity described in section IV.A. providing the appraisal to the lender recognize that, once the Independent Valuation Protection Institute is established, the Institute will receive complaints for review and referral regarding non-compliance with the Code of Conduct. Referrals and reports shall be made to Fannie Mae and/or Freddie Mac regarding such complaints and the Institute will provide information on the results of complaint reviews to Fannie Mae and/or Freddie Mac and make them available to the other parties to the Home Value Protection Program and Cooperation Agreement

This isn't independence. This is unaccountability.

An Independent Valuation Protection Institute (Institute) shall be created as approved by the parties. Subject to section IX, when the Institute is established, the lender will provide information to appraisers and borrowers regarding the availability of the Institute's services, which are expected to include: (1) a telephone hotline and email address to receive any complaints of Code of Conduct non-compliance, including complaints from appraisers, individuals, or other entities concerning the improper influencing or attempted improper influencing of appraisers or the appraisal process, which the Institute will review and report as provided in IV.B(8) and IV.C(2) of this Code of Conduct; and (2) the publication and promotion of best practices for independent valuation. The lender shall not retaliate, in any manner or method, against the person or entity that makes a complaint to the Institute.

So we can't complain about lazy worthless appraisers for anything less than an obvious violation of code - but appraisers can complain about anyone else. And we can't stop using them when they libel us. Even if the accusation is baseless. As I said above, this isn't independence. This is unaccountability.

The lender agrees that it shall quality control test, by use of retroactive or additional appraisal reports or other appropriate method, a randomly selected 10 percent (or other bona fide statistically significant percentage) of the appraisals or valuations that are used by the lender, including the results of automated valuation models, broker's price opinions, or "desktop" evaluations. The lender shall provide to Fannie Mae or Freddie Mac a report of any adverse, negative, or irregular findings of such quality control testing, and any findings indicating non-compliance with any provision of this Code of Conduct, with respect to loans sold to Fannie Mae and Freddie Mac respectively, and the Enterprise may enforce all applicable rights and remedies, including requiring the lender to repurchase mortgages or the Enterprise's participation interest in mortgages.

Here's the translation: Appraisers can't get in trouble for coming up with a value that's too low. Lenders don't lose money in the accounting sense when the appraisal is too low. All that happens is that they don't make money they could have made from doing that loan, an item that does not show up on financial statements. Appraisers can, however, get in trouble for coming in too high. Does anyone thing this means anything other than "They're going to come up with the lowest value they can justify?" That's where the incentives run. Result: Consumers get hosed (along with everyone else except the appraisers)

VIII. Representations and Warranties A lender shall certify, warrant, and represent that the appraisal report was obtained in a manner in compliance with this Code of Conduct. If the Enterprise determines, on its own or from a referral made by the Institute, that a lender is in breach of a material aspect of this Code of Conduct or in violation of a provision of the Code by a complaint referred from the Institute, the Enterprise will enforce all applicable rights and remedies, including suspension or termination of the lender's eligibility to sell loans to the Enterprise, if the lender fails to remediate.

Sounds reasonable, doesn't it? What this means is that a single appraiser making an accusation has the power to threaten a lender's ability to sell loans to Fannie and Freddie. Since those are far and away the most popular loans with the best rates, this means that lender loses most of their business - especially as VA and FHA can be expected to follow suit.

Fannie Mae put out a set of FAQ's to lenders a week or so ago

Scope of Coverage Q1. What loans are affected by the new Home Valuation Code of Conduct?

Fannie Mae has agreed to adopt the Home Valuation Code of Conduct ("the Code") for all conventional, single-family loans originated on or after May 1, 2009, that are delivered to Fannie Mae. For purposes of the Code, origination date means the date of the application. The Code will not apply to multifamily loans, or to loans insured or guaranteed by a federal agency; the Code only applies to 1- to 4-unit single-family loans sold to Fannie Mae. The Code will not apply to loans sold to Fannie Mae on or after May 1, 2009 that were originated prior to May 1, 2009.

This means every Fannie Mae loan since May 1, 2009. The same applies to Freddie Mac.

Q3. Does the Code allow an appraiser to update an appraisal for another lender?

Yes. The Code does not prevent an appraiser from performing an update of an appraisal for another lender.

That's nice. It still doesn't force a lender to release the appraisal, something that would have made a positive difference to the public. I order an appraisal and I can't perform the loan on the terms indicated, I should release it to someone else who can.

Q6. After May 1, 2009, is it permissible for Fannie Mae to purchase private label securities backed by mortgage loans that do not meet the requirement of the Code?

Yes. The Code applies only to 1- to 4-unit single-family loans sold to Fannie Mae by mortgage originators. It does not extend to Fannie Mae's investments in mortgage-related securities.

So it doesn't apply to what caused Fannie and Freddie to melt down. This whole code is a distraction from really fixing what went wrong.

Q7. Does the Code require lenders to obtain appraisals where they were under no such requirement pursuant to the Fannie Mae Selling Guide?

No, nothing in the Code requires a lender to obtain a property valuation, or to use any particular method for property valuation. Nor does the Code affect the acceptable scope of work for an appraiser in connection with a particular assignment.

Meanwhile, back on planet Earth, lenders are required by the Federal Reserve and SEC to use all due diligence. Every loan that goes south without a full appraisal is grounds for getting somebody fired. What do you think is going to happen? How often do you think lenders go without full appraisals now?

Q9. Does Section I.B.(9) specifically prohibit a lender from ordering a second appraisal?

No. Section I.B.(9) only prohibits a lender from ordering a second appraisal when they are attempting to influence the outcome of the first appraisal and are now "value-shopping." As a risk control measure for certain loan products, it may be common for a lender to order more than one appraisal, and this subsection does not prohibit that practice.

In other words, yes it does prohibit getting a second opinion if the first appraisal is a piece of garbage. The only exception is if the lender makes a practice of ordering a second appraisal for that particular loan product. More money for appraisers, and the second appraiser isn't accountable either.

I'm going to take these next ones together:

Q11. Does Section II of the Code require the lender to provide the appraisal free of charge?

No. The Code requires the lender to provide, free of charge, a "copy" of any appraisal report completed in association with a specific loan. The lender may require the borrower to reimburse the lender for the cost of the appraisal.

Q13. Does the Code prohibit an appraiser from collecting payment for the appraisal directly from the borrower?

Yes, for loans to be delivered to Fannie Mae. The Code requires the lender or any third party specifically authorized by the lender to select, retain, and provide for all compensation to the appraiser.

If you think this isn't going to cause problems, welcome to Earth and I hope we can be friends. This places the burden for payment upon the lender, who remember has no ability to control which appraisers they use. Paying through escrow might be a theoretical possibility, but it leaves open the possibility that the lender gets stiffed and has to pay out of their own pocket. Lenders are going to have a choice of 1) Requiring an upfront deposit for the appraisal or 2) Jacking up their margin so that clients who close pay for ones that don't. Either one of these is vile, and bad business. My company (and every other lender and loan officer out there) had to figure out which of them is the lesser of two evils. This is going to have implications for escrow accounting, as well - the number one reason that brokers and lenders lose their licenses (and 99% for completely stupid technical reasons having nothing to do with consumer benefit). From a benefit to the consumer standpoint, requiring the lender to release the appraisal to a new lender would be far superior. But that doesn't give appraisers power, see that they get paid, etcetera.

Q18. When selecting an appraiser, may lenders use a pre-approved appraiser list or panel? Yes. Lenders may use a pre-approved list or panel to select a residential appraiser, provided that (1) any employees of the lender tasked with selecting appraisers for the list are independent of the loan production staff; and (2) the loan production staff is not involved in selecting appraisers off the list for particular appraisal assignments.

Confirming and emphasizing what I said earlier. There is no way I or any other loan officer can keep from using a bad appraiser, no matter how bad they are.

Q19. May a servicer use an affiliate company to order appraisals for borrower-initiated private mortgage insurance cancellation based on current value?

Yes. The Code does not apply to appraisals for cancelling mortgage insurance based on current value. The Code is specific to "a mortgage financing transaction," and cancellation of mortgage insurance is not "a mortgage financing transaction." The Fannie Mae Servicing Guide states that "To determine the current appraised value of the property, the servicer must select an appraiser, order a new appraisal (which must be based on an inspection of both the interior and exterior of the property and be prepared in accordance with our appraisal standards for new mortgage originations)."

So feel free to value play games with the appraisal when you're trying to remove PMI. Why this would be such a straightjacket for new loans, and completely inapplicable for leaving lenders uncovered by mortgage insurance, contradicts all reason - but not politics.

In-House Appraisers Q21. May in-house appraisers prepare appraisal reports? Yes, in-house appraisers may prepare appraisal reports if the conditions of Section IVB. are met.

Q23. May a correspondent lender use in-house appraisers? Yes, a correspondent lender may use in-house appraisers if they meet the criteria in Section IV.B. of the Code.

In other words, so long as the appraisers are completely unaccountable. They can't even be fired for consistently producing bad valuations, so long as they don't go over the line into actual legal misconduct.

Appraisal Management Companies Q25. Is a lender required to use an appraisal management company for ordering appraisals?

No. A lender may order appraisals directly from an individual appraiser.

So long as it isn't any dirty filthy loan officer, anyone accountable to any loan officer, or in fact, anyone other than another appraiser doing the ordering. See above.

Q27. When a lender uses an appraisal management company, the appraisal management company is responsible for retaining and paying the appraiser. Is it likewise permissible for a mortgage broker to use an appraisal management company, since the mortgage broker does not technically retain or pay the appraiser?

No. The Code prohibits lenders from relying on an appraisal where the broker had a role in selecting, retaining, or compensating the appraiser.

Q28. May a mortgage broker provide the lender with an approved appraiser list for the lender to use when ordering appraisals for that particular broker?
No.

Q32. May a lender accept an appraisal prepared by an appraiser that was ordered by a mortgage broker?
No. The Code does not allow a lender to accept an appraisal prepared by an appraiser that was ordered by a mortgage broker as noted in Section IIIA. of the Code.

Q33. May a mortgage broker order an appraisal directly from an appraisal management company that was specifically authorized by the lender?

No. The Code prohibits brokers from ordering appraisal services.
Q34. Does the Code permit a mortgage broker to select an appraiser from the lender's list of approved appraisers, if the lender is responsible for the relationship with the appraiser, including compensation?

No. The Code prohibits lenders from relying on an appraisal where the broker had a role in selecting, retaining, or compensating the appraiser.

Once again, I'm mostly a correspondent. The restrictions on brokers don't mean that much to me, per se - just covering the fact that it applies to brokers too. This is just more emphasis that appraisers are no longer accountable in any way, shape or form. But they do seem punitive.

Portability of the Appraisal Q29. May an appraisal be transferred to a lender from a correspondent lender and, if so, under what circumstances? Yes, a lender may accept an appraisal from a correspondent lender that complies with the Code. Q30.A mortgage broker submits a loan to lender A, which orders an appraisal. The broker later decides to submit the loan to lender B because it is offering better terms, or for another reason. May the appraisal obtained by lender A be used by lender B (assuming the mortgage broker has no control over or involvement in the assignment)? Yes, a lender may accept an appraisal from a different lender that complies with the requirements of the Code and in particular Section III.A. in connection with the loan being originated. Lender A must be named as client on the appraisal report.

Note that there is still no requirement to release the appraisal - meaning the appraisers get paid again when the lender won't.

Furthermore, this means the lender's name is on the appraisal - not the broker who paid for it (if there is one), not the loan officer. You think a lender is going to release an appraisal when someone wants to take potential business away from them? I don't.

Now, my comments on the entire thing. There were abuses of the appraisal process. They need to be fixed. This is not the way to do it. This does absolutely nothing to stop collusion between an appraiser and another party, which was the largest problem that has not yet been fixed. Properties were selling for those amounts. It was not the fault of loan officers, whether lender, broker, or correspondent, that the values got so high. By far the largest root cause was the fault of the loan programs the lenders were offering, or rather, very aggressively pushing. If you offer a loan program specifically designed to make it look like someone making minimum wage can afford a $500,000 property, you can expect problems when people take you up on it. Yes, there were loan officers colluding with appraisers. There were also sellers, buyers, agents (Realtor or not), and everybody else under the sun colluding with appraisers. Collusion, problem though it was, was not the largest problem by an order of magnitude - that was loans that set the borrowers up to fail, and the lenders themselves with them. This solves neither of those problems. The largest one has already solved itself as lenders stopped lending money on a Make Believe basis. The lesser although still major problem of collusion this does nothing to stop. In fact, it explicitly states that communication between an agent and an appraiser is not prohibited, nor is communication between a buyer or seller and the appraiser, or for that matter, between a loan officer and an appraiser. It's when the appraiser takes exception that such becomes a problem - there is no new control on collusion anywhere in the process. All it does is prohibit responsiveness to the needs of the consumer.

All of the incentives in place are for appraisers to come up with a value that is too low. They no longer can lose business for bringing out appraisals so low as to constitute nonsense - they can't be pulled off the eligible list, and the lender has no power to direct future work away from them. The only real way they're going to get in trouble is by coming up with a value that's too high, and that's going to be rare, both because the system isn't set up to catch it until after the fact and because that's the only thing about an appraisal that can cause lenders lose money in a traceable, accounting sense.

I don't know how many self righteous appraisers have told me "We are the only representative for the house." This is nonsense (to be polite). The house is neither living or sentient. It's a thing. It has no interests. The legal responsibility of the appraisers is entirely to the lender, not to the consumer. Comparatively few appraisers understand how it damages a lender to have the value come in lower than it should - a loan does not get made where it should have been made, and the lender does not make money when they should have. Comparatively few appraisers care about the consequences to consumers of appraisals that are too low, who put money in the appraisers pocket only to be denied the benefit they paid that money for and that they should have gotten. What they have told me time and time again is important (by their actions, and more often than not, by their words) is putting money in their own pockets whether or not it benefits the consumer, whom they have no legal responsibility towards.

There will be no more developing a good working relationship between appraisers and anybody. I used to have a couple of appraisers I had learned to trust - they're honest enough that I don't have to worry about them returning a fraudulently high appraisal, they're responsive enough that I know when they tell me the value isn't there, it isn't. They've helped me to learn what to look for so that I know ahead of time whether the value is going to be there or not. I have never asked an appraiser to give me a higher value. All I have ever done is not used them again if they ripped off my clients, and comparatively few times at that (about 5, in over 1000 loans in every county in California, and quite a few in Florida and Nevada, so it's not like I've been limited to one or two appraisers in San Diego County). That ability to stop using problem appraisers is no longer something I'm going to have. I've had to get used to clients being ripped off, and there being absolutely nothing I can do. The only way to protect myself and my company from false accusations of manipulating the appraiser (and thereby losing the ability to do loans with Fannie and Freddie) is not to discuss anything with them verbally. I have stopped meeting appraisers, and am only communicate a bare minimum of information through things like email and facsimile, and I'm advising my clients not to be there either. I have a combo lockbox for the keys, so the appraisers can let themselves in.

So don't get mad at your loan officer. If the appraisal doesn't come in for a needed value, it won't be because of anything they could have done or not have done. Nor can we complain. Loan officers are very exposed to reprisal; the appraiser is almost completely insulated from any consequences. Appraisers can potentially kill our loan business with a single accusation - justified or not. We can't do a damned thing to them unless we can prove an actual violation - a much higher standard of action, especially as appraisal standards use a lot of words like "reasonable". In other words, judgment.

I would not presume to argue that appraisal standards did not need reform. They did, very badly. They still do, as this was not what they needed.

The appraisers organization, or actually, appraisal management companies, have somehow gotten themselves into a position like tenured college professors, and without any of the (debateable) reasons for that. But there are a lot of bad appraisers out there who waste appraisal money with absolutely no understanding of the damage they are doing. It's going to get a lot worse until public outrage puts a stop to it. Appraisers own the problem - there is absolutely no way to blame any future problems on anyone except appraisers. Unless the appraisers who have been creating all of the problems, and their organization, change their way of thinking and police their own problems, I firmly believe they're going to learn to appreciate the virtues of the old aphorism, "Be careful what you ask for. You might get it."

Like it or not, however, it's the de facto law of the land. Every loan officer has to have to live by it. The only way to stop it is for consumers to start expressing the outrage that they will soon be feeling every time an appraiser returns a garbage value that wastes their money. Express it loudly, express it repeatedly, express it to all of your congressional representatives and senators. Make them understand they have to actually fix the problem, which means taking the time to actually understand it and think, not finding one scapegoat and declaring someone else to be sainted by virtue of having obtained an appraiser's license. You don't fix problems by giving one person absolute power over a transaction with no real accountability to anyone else.

The appraisers were pushing for this, but appraisers didn't come out all that well by it. The execution is hurting them a lot precisely because they wanted to remove the ability of loan officers to choose an appraiser. This means good, ethical appraisers who earn business by doing high quality appraisals are not able to attract business any more. It's all lenders ordering from appraisal management companies, who charge as much as the market will bear and pay the appraiser as little as they can get away with. There being fewer appraisal management companies than appraisers, there is less competition and therefore prices are rising - I heard $700 for an appraisal quoted yesterday - while the appraisers are getting paid less (one company is only paying them $150. As my source said, if that's the way things shake out he will go get a job at Starbucks because he'll make more money and have health care paid too). The only real way lenders can order appraisals is through an appraisal management company, and working for an appraisal management company is the only way appraiser can get work. This bottlenecks the process, and puts appraisal management companies in a position where nobody has any choice but to deal with them. Upshot: The appraisal management companies are making money hand over fist, but everybody else loses. I strongly urge everyone with a stake in the real estate loan process (in other words, everyone who might like a loan someday) to write your congressional representatives and senators and get this abomination repealed now, before appraisal management companies become any more of an entrenched special interest.

The appraisers, for their part, have already discovered the gotcha! in what they pushed for. They already know that what they thought they were asking for is different from the reality.

Caveat Emptor

Original article here