New appraisal code

CHICAGO — New rules aimed at making home appraisals more accurate are raising costs and prompting longer waits to get to the closing table, some in the mortgage industry say.

The new regulations— known as the Home Valuation Code of Conduct and in effect less than three months — have driven up the cost of home appraisals, said Keith Stewart, a mortgage consultant with NorthPoint Lending Group in Chicago.

An appraisal that once cost $275 to $300 now runs $375 to $500, Stewart said. That’s because under the new rules a third party, often an appraisal management company, must serve as middleman between a mortgage broker and the appraiser, said Drew Kessler, director of sales for Rand Mortgage in New City, N.Y.

A bill in the U.S. House of Representatives proposes a moratorium on the new rules, as some in the industry are concerned the code will slow a housing-market recovery.

But the Federal Housing Finance Agency disputes those claims and maintains that the new code is necessary to make sure homes are appraised correctly and fairly. The code was announced by Fannie Mae and Freddie Mac last year, went into effect in May and applies to conforming mortgages, which are those that are able to be sold to Fannie Mae and Freddie Mac, the troubled government-backed mortgage agencies.

"Unfortunately, during the 2005-to-2007 period, mortgage lending was much too aggressive and placed pressure on the appraisal process,” the FHFA said in a recent statement. "In some cases, that resulted in unrealistically high appraisals, hurting home buyers as well as investors. The HVCC is designed to promote professional appraisals free from inappropriate pressure from lenders, borrowers or brokers.”


What was at issue?
In short, the rules aim to address a serious problem faced by many appraisers: the pressure to produce a desired value on a property, said Bill Garber, director of government and external relations for the Appraisal Institute, an association of professional real-estate appraisers.
In some cases, appraisers were motivated to comply with the request because they didn’t want to risk losing business.

"Mortgage-broker pressure on appraisers was real during the past 10 to 20 years,” Garber said. "They are no longer able to order, select or compensate appraisers, and as such, some of that pressure has subsided.”

Added Jim Amorin, president of the Appraisal Institute: "Consumers were maybe paying more for a home than it was really worth because of undue pressure being applied” to the appraiser.

The FHFA also said that rising costs are not due to the new code, but instead can be attributed to lenders’ tightened underwriting standards and mortgage-security investors’ desire to reduce fraud. They’re increasingly requiring additional information or second appraisals, according to the agency.


Other costs increase
But the new rules cause other indirect costs, too, Kessler said. Under the new code, the appraisals are not "portable,” meaning a consumer’s mortgage broker can no longer use the same appraisal to apply for loans at different lenders. An appraisal done for a Bank of America loan, for example, can’t be easily used to apply for a Wells Fargo mortgage, he said.
"Previously, the broker owned (the appraisal). That has changed. Now, it’s in the name of the actual lender,” Kessler said.

If a borrower decides to pursue a mortgage with another lender — after an appraisal has already been procured through a different lender — the borrower may need to pay for a second appraisal. Even though the borrower typically pays for the appraisal, it is held by the person or firm that orders the appraisal, he said.

The FHFA disputes this complaint, too, saying that appraisals are transferable between lenders under the new rules, although — and this is key — whether a lender decides to make a transfer or accept another lender’s appraisal is up to that lender.

Reports of time delays are also common among mortgage brokers, and the FHFA acknowledges that the implementation of the code may have slowed the mortgage process a bit. But the agency also said there are other reasons for delays, including the efficiency of an underwriting staff or increased demands by lenders.


by the associated press