As published in Scotsman Guide's Residential Edition, January 2009.
When we last spoke with the Appraisal Institute's Jim Amorin (sctsm.in/3005), the Home Valuation Code of Conduct (HVCC) was 10 months from implementation. In his words, "the outcome will be lower-quality appraisals" when appraisal-ordering skews toward appraisal-management companies (AMCs). Given the many changes to the appraisal world since then, including the Federal Housing Administration's (FHA) appraisal-ordering changes effective Jan. 1, we caught up with Amorin to gauge his take.
Your primary concern last summer was making sure Appraisal Institute members could develop credible appraisals. But the National Association of Realtors and others since have said unreliable appraisals are weighing down housing prices. Have poor appraisals dragged down the market? Is it more difficult to develop credible appraisals now than it was a year ago? I think the comments from the National Association of Realtors and others miss the mark to some extent. Having said that, it is undeniable that the fallout from the HVCC has created an environment where AMCs and others who hire an appraiser pay more attention to the fee and turnaround time than they do to the quality and competency of the appraiser.
The most-experienced and -qualified appraisers have been shut out as a result of the race to the bottom on fees. I am certainly hopeful that the direction the FHA has taken in its recent mortgagee letters will be a direction adopted by [Fannie Mae and Freddie Mac] and the focus will return to quality and competency.
The HVCC eliminated mortgage brokers from ordering appraisals on homes used as collateral on loans to be sold to Fannie and Freddie. The FHA will prohibit broker-ordered appraisals beginning Jan. 1. Should brokers be able to order appraisals? As long as there are safeguards in place and rules and regulations that are enforced, we think there is room for mortgage brokers in the process. They certainly have been the pariah of the home-lending industry of late.
FHA also will require clear representation of fees paid to appraisers versus fees paid to appraisal-management companies — which more lenders now use to order appraisals — on FHA loans beginning Jan. 1. What else would you like to see? The most important thing for appraisers was that FHA indicated that appraisers shall be compensated at a rate that's "customary and reasonable." Fannie Mae and Freddie Mac have not adopted this type of language yet, but I'm hopeful that they will. We'd also like to see either a federal licensing requirement or widespread state-licensing requirements of appraisal-management companies.
Are there any drawbacks to recent FHA changes? Consumers may end up paying more. Banks that continue to pay appraisal-management companies to order appraisals will probably find a way to pass the appraiser's fee on to consumers.
Previously, you said this was probably the most transformative time for appraisers in at least two decades. Has that played out? I will stick by that.
Darrick Meneken is an associate editor at Scotsman Guide. Reach him at (800) 297-6061 or email@example.com.