Effective January of next year, Lenders and Loan Originators will not be allowed to have contract with appraisers for their loan transactions. Appraisers on the payroll or under contract to specifc Loan Originators or Banks will not be able to provide appraisals for their loans in process.
All of this according to a new "Home Valuation Code of Conduct" that U.S. Loan Guarantors Fannie Mae and Freddie Mac plan to implement the beginning of next year.
The change can be traced back to an out-of-court settlement between Freddie Mac and Fannie May with New York State Attorney General Andrew Cuomo. Under the threat of a thorough, and probably very public scrutiny of the company's home valuation processes, Fannie and Freddie proposed this compartmentalization of home appraisals, and the Attorney General agreed.
The reason for the concern, of course - the spike in mortgage defaults and home foreclosures brought on, in part, many feel, for too-easy-to-get, often-high property valuations by appraisers. Some regulators and consumers have voiced concern that appraisers are often pressured to "hit a certain minimum value" so the loan goes through.
This new Code would ensure more impartial appraisals, Mr. Cuomo and others feel.
As you may assume, however, lenders and mortgage brokers are up in arms over the changes.
They fear many more properties will under-appraise, as ultra-cautious appraisers err on the side of appraising low. The ability to "appeal" an unnecessarily-low appraisals would be severly curtailed.
Loan Brokers looking for the best loan deal for their clients may have to order multiple appraisals on behalf of their clients - one for each lender. (Brokers currently originate an estimated 60% of all home loans and re-finances, according to Fannie Mae Survey Data).
Some fear Fannie and Freddie's proposal to establish an "Independent Valuation Protection Institute" would politicize the appraisal process, and put many appraisers employed by or under contract with loan originators out of business. The Institue would also establish a special "Complaince Hotline" for consumers and appraisers who feel their home valuation was pressured or inappropriate.
Most lenders propose the current system be continued, with increased underwriting standards as necessary. These more detailed appraisal guidelines are already in place as a result of the current downturn in the housing market.
Today, most appraisals analyze local market trends more closely, to identify earmarks of a declining market. They now include pending and active sales comps, in addition to closed comparables historically used. Geographic distance to comparable properties, as well as recency of comparable sales, have been tightened as well.
Also, opponents of the new code complain it is not proper for any state to override or influence lending standards set up by federally-sponsored entities.
For more details, including a link to Kenneth R. Harney's article in last Sunday's Chicago Tribune, visit our Dean's Team Chicago Blog Center for our post today, at BlogChicagoHomes.com.
DEAN & DEAN'S TEAM CHICAGO
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