Mortgage industry, appraisers chafe at new rules
Many real estate professionals are still trying to catch their breath from the ever-changing pace of the nation’s housing industry, but they don’t have long because on May 1 the industry will change big time – and not all for the better, according to some local professionals.
Effective May 1, mortgage brokers can no longer order appraisals. Instead, they must use a designated pool of appraisers instead of those with whom they have worked with for several years – and that has some local industry leaders scrambling for a game plan.
“It doesn’t make a lot of sense,” said Kenneth Jones of Kenneth Jones Realty and current president of the Greater Fort Worth Association of Realtors. “It’s an over-reaction to the housing market’s problems and it will be interesting how everything plays out.”
Originally announced in March 2008, the new code was established in reaction to the mounting accusations of inflated appraisals. The New Home Valuation Protection Code creates requirements governing appraisal selection, solicitation, compensation, conflicts of interest and corporate independence. The nationÂ’s two largest purchasers of home loans, Fannie Mae and Freddie Mac, agreed to only buy loans from banks that meet these new requirements.
The new code mandates:
• mortgage brokers are prohibited from selecting appraisers
• lenders are prohibited from using in-house staff appraisers to conduct initial appraisals
• lenders are prohibited from using appraisal management that they own or control
The new code will be implemented and monitored by the newly formed Independent Valuation Protection Institute, which will be funded with $24 million from Fannie Mae and Freddie Mac.
Under the new code, appraisers will sign up with management companies, which will place the appraisers on a rotation list. When a mortgage broker needs an appraisal, they will contact the lender, which will contact the management company to call in one of the appraisers from its pool.
Jones, a Realtor as well as a 16-year veteran appraiser, said his options are limited if he wants to continue to work: join a pool.
“What’s so funny is that bad appraisers have been joining pools for years because they can’t get enough business to make it as an independent appraiser,” Jones said. “But now they’ll be on the same playing field as the good appraisers.”
Management companies also typically charge appraisers to be included in pools and Jones said that cost will hurt many appraisers.
Though the new code will not be enacted until May 1, some larger lenders such as Wells Fargo Bank, already have started requiring mortgage brokers to use outside appraisal pools. Joanne Tucker, current president of Dallas Fort Worth Association of Mortgage Brokers and lender at GrapevineÂ’s Clarion Mortgage, said she has worked on a few deals with Wells Fargo under the new code and has seen a few hiccups in the system.
“From what I’ve seen so far, it looks like this is going to end up costing the consumers,” Tucker said. “Every day I’m getting another e-mail about things getting pricier and pricier for consumers to get loans. The management company charges more. It’s been a frustrating year for our industry and I certainly hate to see when consumers are taking the brunt when they shouldn’t be, but nobody’s giving me a vote.”
Jones added the code also might draw out the timeframe for closing a loan, because an extra step was essentially added to the purchase process.
“I have always been big on communication during the loan process,” Jones said. “But under the new code we’re not allowed to communicate with anybody. We’re not even supposed to know who the loan officer is. So if there’s a problem or a question, the appraiser contacts the management company, which contacts the loan officer and so forth. And that will obviously cause some time delays.”
Tucker said a problem her organization of mortgage brokers is facing is equality. The code mandates that mortgage brokers adhere to the rules of using a management companyÂ’s pool of appraisers, but mortgage bankers are not held to the same standards, she said.
“Mortgage bankers are not included in this code and we just want it to be fair. Either apply this to all originators or no originators,” she said. “We’re all on the same side in that we all want to get rid of mortgage fraud, but we want all originators to be on an even playing field or else this could have major repercussions to the mortgage broker industry.”
Jones agreed, adding only time would tell how much the code will shake up the appraisal industry.
“I know some really good appraisers who have gotten out the business because of all of this,” Jones said. “The local impact, just like the national impact, could be huge. And I’m not sure if that will be in a good way or not.”
