Appraising the Appraisal Industry
- Mar 04, 2008
Home appraisals have been a source of confusion and concern for the housing industry–they’re important, but they’re also fairly open to interpretation.
And lately, as the market continues to dip, accurate appraisals have become more important than ever. To sell, buy or refinance a home, you need to know its market value; but if the appraiser is employed by the company that’s giving you a loan, there is always a chance that appraiser may not make a completely impartial judgment.
Sound like a conspiracy theory? Not to some people, who are taking their concerns to court:
- In early Feb., two couples California sued home builder KB Home and its joint
venture with Countrywide Financial Corp, alleging they beefed up property appraisals after the local real estate market started to decline three years ago.
- An appraiser in California filed a lawsuit against Washington Mutual in
January because she claims to have been let go after refusing to
inflate area home prices, according to The Wall Street Journal.
Although a high home appraisal may make lenders suspicious, it won’t necessarily keep them from lending. Just this morning, a friend who is in the process of refinancing called to tell me her home had appraised for more than $70,000 above the amount she’d bought it for three years ago–despite the fact her mortgage broker told her not to expect an increase.
He was shocked to hear how much the appraisal was–but he’s still willing to move forward with the loan.
However, Fannie Mae and Freddie Mac are taking a stand to inspire new, tougher industry regulations. Both agencies said this week that they would only purchase mortgages from lenders that use independent appraisers, according to The New York Times. That includes any appraisal companies lenders own; mortgage brokers and real estate agents also can’t pick the appraiser.
The decision is huge. Not only are the government-backed agencies coming out and saying, hey, the industry does need some regulation, they’re putting up $24 million to do it by creating the Independent Valuation Protection Institute. And considering Fannie just announced fourth quarter losses of $3.56 billion, that’s a significant investment.
Plus it’s likely to be one that is felt throughout the industry. Many of the home loans issued now are being bought by Fannie Mae and Freddie Mac; that’s likely to increase when the new higher loan limits for both agencies and the FHA kick in sometime after March 14 (which is HUD’s deadline to establish median area home prices).
Because Fannie Mae and Freddie Mac are involved with so many of the mortgages being issued today, a change to their mortgage company and bank policy is likely to influence policies across the industry, according to the Times.
It won’t take effect until sometime in 2009; but it’s definitely a start. Do you think the new policy will have enough of an effect to curb unrealistic appraisals? Or will it hurt business in the lending, mortgage broker and real estate industries?