Mortgage Professional America forum is the place for positive industry interaction and welcomes your professional and informed opinion.

The Top Myths and Misconceptions in the Appraisal Process Dispelled for Clients

Notify me of new replies via email
Mortgage Professional America | 13 Jan 2013, 02:38 PM Agree 0
As a mortgage broker, chances are you are intimately knowledgeable about the Appraisal Independence Requirement (AIR) as part of sound underwriting for financial institutions.
  • Marc Savitt | | 13 Jan 2013, 04:37 PM Agree 0
    Although, I agree with some of the basic information contained in your article, respectfully, much of it consists of AMC propaganda. Below are some well known “realities” about the interim final rule on appraiser independence and its destructive effects on appraisers, consumers and the overall housing market.

    Myth: Appraisers have been appraising properties at lower than market rates because of AIR.

    Reality: For you to say under "reality," lower appraisal values had nothing to do with appraiser independence rules is incorrect. Under the current system of hiring the least expensive appraiser, including those unfamiliar with a subject property’s geographic area, quality and accuracy are often
    absent.

    In addition to valuation fraud increasing at alarming rates, appraiser independence (AIR) has also caused thousands of appraisers to go out of business. Local small business appraisers have lost their “independence” to unregulated AMCs. Appraisers can no longer set their fees. Fees are dictated by the AMCs and often end up between 40%-60% less than what is customary and reasonable for a specific geographic area. Sometimes, appraisal assignments are put up for bid. It is important to understand consumer costs have not been reduced along with appraiser compensation. In fact, the cost of an appraisal has increased on average $200.00. The increase, along with the “haircut” taken by appraisers, has gone into the pockets of AMCs and/or their partners, the big banks.

    The long term outlook for the appraisal industry is even worse. Because appraiser
    compensation has been drastically reduced; they can no longer afford to hire an apprentice. An
    apprentice needs a minimum of 2000 hours working under a licensed appraiser before they can
    be licensed. The average age of an appraiser is 56, which means within 8-10 years the appraisal
    industry will be a fraction of what it is today.

    Since HVCC went into effect on May 1, 2009, (now AIR), consumers have incurred substantial additional expenses when purchasing or refinancing residential properties. It is conservatively estimated those costs exceed 2.8 Billion dollars a year. This estimate is based on higher appraisal costs enacted by AMCs and extended interest rate lock-ins, necessary due to extensive delays caused by AMC middlemen. Most importantly, HVCC and/or AIR have done nothing to reduce fraud and/or conflicts of interest.

    Myth: AIR requires lenders to use Appraisal Management Companies.

    Reality: Use of appraisal management companies is not required under AIR. Lenders may engage appraisers directly without the use of third parties.

    FACT: Neither HVCC, the Dodd-Frank Act and/or Appraiser Independence rules require the use of AMCs. However, because most banks and lenders participate in joint venture relationships with AMCs, if not own them outright, third party originators wishing to conduct business with these lenders, are required to use their AMCs. Therefore, AMC use is required.
  • Time4change | | 14 Jan 2013, 06:47 AM Agree 0
    Marc, as a veteran of the industry, how you explain it is pretty much how I explain the appraisal process to my borrowers. Unfortunately the process does make it a hit or miss project, not only on value, but I also have to explain I don't control this part of the process. We may draw an appraiser with little experience, little knowledge of the neighborhood, and most certainly the lowest paid. The process can take up to one week or as much as three weeks. In short it is no myth the borrower is paying more for less.
  • Marc Savitt | | 15 Jan 2013, 12:18 PM Agree 0
    Until the current process is changed, we need to explain how the process works. My objection to the article centered on causes for lower values. Specifically, their claim the appraisal rule had nothing to do with lower values.

    NAIHP is getting closer to fixing this problem. With the exception of those who are profiting from this rule, everyone understands the consumer harm it creates. Thanks
  • Truett Neathery | | 16 Jan 2013, 08:00 PM Agree 0
    All these points are certainly valid. The last point is particularly apt. There are those who believe license and license level automatically insure competence. Many higlly competent appraisers who operate at the highest levels do not have or need state-issued licenses, since they do not do appraisals for mortgages to be sold to Fannie or Freddie. On the othe rhand, I have seen Senior Residential Appraisers, even Designated Appraisers with very little time in the business, and may have never seen a downturn in the market.
  • Bryan Buck | | 18 Jan 2013, 04:08 PM Agree 0
    Cuomo, Mozillo, HVCC destroyed the appraisal process and damaged countless appraisers (which I am not one of). The industry just rolled over and let the govt. violate it, and now professes that these incursions into our freedoms and liberties "aren't so bad." Healthcare industry, lending industry, auto industry, etc. etc. The only thing certain is that the temperature of the water that the frog once known as the american economy is close to boiling.
Post a reply