Cold enough for you, folks! Here in Chicago, it's been below zero for nealy 17 hours. Currently, FIVE BELOW!
Too cold for even THINKING! Yes?
Today, when you buy a new home or condo and secure a mortgage for it, lenders or loan originating brokers chose a real estate appraiser from a list of local professionals the bank had a relationship with. The appraiser is informed as to the purchase price and contract terms, and submitted the completed appraisal back to the lender.
Appraisers are licensed professionals, independent of the negotiating involved in the buy and sell process. Their charge is to come up with an independent estimate as to the value of the property, using, for residential properties, comparable sales data for similar homes nearby, which have sold recently.
Kenneth R. Harney, in a syndicated article for the Chicago Tribune published last Friday, January 9th, provides the following details.
According to a lawsuit recently settled in the State of New York, and New York Attorney General Andrew Cuomo, some appraisers seemed pressured to "hit" an inflated property price in order to get the loan to close, thereby appeasing the lender who hired them.
Many experts feel that rampant over-appraisals are at the heart of today's skyrocketing home mortgage default and home foreclosure rates.
As part of the settlement, giant U.S. Loan Guarantors and Investors Fannie Mae and Freddie Mac have developed new standards for real estate appraisers - their new "Home Valuation Code of Conduct," passed last year, and going into effect on May 1st.
Among other requirements, the new Code will bar lenders, as well as independent loan originators, from the appraiser selection process. Real Estate Agents and Brokers, as well as buyers, sellers, or others directly involved in the transaction, will have no say in the selection or valuation process as well.
Instead of selecting from local independent appraisers, lenders will now have to select appraisers from a pool at an area Appraisal Management Company, These companies will take a considerable portion of the appraiser's fee in return for management services, and require their affiliated appraisers to turn around their appraisal reports within 48 hours.
In essence, the appraisers will now have less control of who they work with, and will be earning far less for each appraisal they complete. The time frames for completion will also be compressed somewhat, requiring a larger pool of appraisers to get the job done during busy times, and perhaps a longer lead time for final appraisal reports should the Management Company's Appraisal Staff be overtaxed,
There are also a variety of other appraisal requirements - neighborhood proximity and closed-date guidelines, for example - that are geared to make the appraisals more fair and accurate, but could add considerable prep time for each completed report.
Despite the aim of the new rules to make appraisals fairer, several key trade groups, including the Appraisal Institute and the American Society of Appraisers, have issued a joint statement that the new rules place undue pressure on their affiliated professionals, and may actually result in poorer quality, too-low appraisals. They are also concerned that the lower fees individual appraisers will earn under the new code could cause many of the experienced appraisers to leave the business.
Further, the borrowing consumer is charged the full appraisal fee, including the substantial portion that goes to the Appraisal Management Company. The trade groups contend the consumer may actually be getting a poorer-quality appraisal, done by less-experienced, lower-paid appraisers, for the same price.
In addition, contesting undervalued appraisals may be more difficult than under the old system.
Of course, the trade group to represent potential Appraisal Management Companies, the Appraisal Vendor Management Association, disagrees.
The dispute is likely to be be resolved by the next U.S. Congress, just sworn in. The National Association of Mortgage Brokers plans to lobby to reverse the new code portion which bans loan broker selection of appraisers. It is also considering challenging the code as a whole.
The potential impact to consumers?
Inaccurate appraisals written low can unnecessarily kill potential refinance loans, and require buyers of new and resale homes to come up with higher down payments, perhaps at the 11th hour. Those written too high will cause valuation problems if the buyer defaults, or when he sells to buy another home several years down the line.
Please also see our post today via BlogChicagoHomes.com.
DEAN & DEAN'S TEAM CHICAGO
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