Earlier this year Freddie Mac and Fannie Mae came out with a code of conduct for appraisers that had some unintended consequences. After the Home Valuation Code of Conduct went into effect on May 1, critics say lenders began relying more on appraisal management firms employing appraisers with little experience in their local markets. Some appraisers haven’t made the proper adjustments when using distressed properties as comparable sales for nondistressed properties, critics say.
These appraisal firms (most of which are owned by the banks, go figure) hire their appraisers based on how quickly they can turn the appraisal around and how cheaply they will do it. This has caused me more than a few headaches when some out of town appraiser with a whole month of experience shows up from Orange County and appraises a home with multiple offers about $30,000 below easy market value. He did not factor in amenities that make the property more valuable than some of the comps nor did he factor in the fact that some of the comps were distressed foreclosure sales (one had been stripped).
The new appraisal rules were the result of an agreement between New York Attorney General Andrew Cuomo and Fannie Mae, Freddie Mac and their federal regulator, the Federal Housing Finance Agency.
Cuomo had subpoenaed Fannie and Freddie as part of an investigation into the packaging of mortgage loans into investments, after filing a lawsuit against First American Corp. and its appraisal management subsidiary, eAppraiseIT.
The companies were accused of allowing Washington Mutual to pressure them into inflating property appraisals. WaMu was not named in the suit, which is ongoing, and the companies have denied wrongdoing.
Although the Home Valuation Code of Conduct applies only to loans to be purchased by Fannie Mae and Freddie Mac, the rules are also affecting valuations conducted for loans guaranteed by the Federal Housing Administration, trade groups representing appraisers say.
The code has resulted in “a significant transfer” of appraisals ordered by mortgage brokers to appraisal management companies, and many experienced appraisers don’t want to do FHA work for the companies because of limits on fees, the groups maintain.
