Real estate column: New rules cause uproar
| Monday, Nov 09 2009 02:19 PM
Last Updated Monday, Nov 09 2009 02:19 PM
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Courtenay Edelhart
New appraisal process rules haven’t caused much of a stir among consumers, but they’ve sparked quite an uproar among real estate professionals, and still more changes are on the way.
You should know about these rules if you plan to buy property any time soon, because they will affect how much you pay for an appraisal, and who you pay.
The Home Valuation Code of Conduct is the result of a joint agreement among Fannie Mae, Freddie Mac, the Federal Housing Finance Agency and the New York State Attorney General.
Under the code, mortgage brokers can no longer order appraisals. Instead, either they hire appraisal management companies (called AMCs in real estate circles) who in turn hire appraisers, or banks hire appraisers directly. The idea is to remove from the hiring process anyone with a financial interest in the appraisal’s outcome, such as someone whose commission depends on a loan closing.
Fannie and Freddie — which together own, guarantee and/or securitise about half of American mortgages — mostly no longer purchase loans from sellers that do not adopt the code.
The agreement has been in effect since May 1 for conventional loans, and will apply to Federal Housing Administration loans effective Jan. 1.
There has been no little amount of grumbling about this code by appraisers who have seen middlemen eat up half or more of the total appraisal fee.
That fee is usually paid by the homebuyer. Since May, you may have noticed it’s gone up.
Then there’s the issue of accuracy.
Lenders traditionally were charged with ensuring the competency and reliability of the appraisals they used for credit decisions, but now that function is outsourced to third party vendors who may or may not have the expertise to do that, according to the Appraisal Institute, an appraiser trade group.
Gary Crabtree, producer of the closely watched Crabtree Report on Bakersfield area home sales, has repeatedly complained prices in town are influenced by AMCs edging out veteran appraisers in favor of less experienced people who will work cheap.
Appraisers also contend big AMCs that cover wide areas are more likely to hire people from out of town who don’t know the local market.
The AMC industry disputes both criticisms.
The average appraiser hired by an AMC drives no more than nine to 20 miles to work sites, said Jeff Schurman, executive director of the Title/Appraisal Vendor Management Association.
“It’s more efficient for us to operate that way,” Schurman said. “And the appraisers are responsible for accepting work in areas that they know they are competent to work in.”
Moreover, the average tenure of appraisers who work for AMCs is 13 years, Schurman said.
“We use the same appraisers everybody else does,” he said.
Let’s hope so, because starting next year, it will be awfully hard to buy property without dealing with an AMC.
That’s one reason why last month Gov. Schwarzenegger signed SB 237 putting the previously unregulated companies under the jurisdiction of the state’s Office of Real Estate Appraisers.
California joins four other states regulating the industry, along with Arkansas, Mississippi, New Mexico and Utah.
AMCs say they don’t object to being governed, but prefer a uniform federal standard to ease the logistics of compliance.
In any case, beginning Jan. 1, all AMCs in California will have to register with the state and be subject to the provisions of the Real Estate Appraisers’ Licensing and Certification Law.
The law outlaws improperly influencing or attempting to improperly influence “through coercion, extortion, or bribery, the development, reporting, result, or review of a real estate appraisal sought in connection with a mortgage loan.”
Violators could be fined up to $10,000 for each offense and face further sanctions from the state.
Also, people who have a history of serious disciplinary problems with the state would be prohibited from owning or operating AMCs.
“That was a big loophole that needed closing, because before an appraiser who lost his license would just open an AMC and keep on working,” said Skip Ogle, president of the central California chapter of Appraisal Institute.
The law also calls for AMCs to pay appraisers reasonable and customary fees for their area, which is critical to protecting the quality of reports, Ogle said.
“I’m not sure yet how they’re going to enforce that, but we’ll be watching,” he said.
So will the California Association of Realtors, which supported SB 237 and says if anything, the new law isn’t strong enough.
“Does the grant of authority in 237 go far enough? That remains to be seen,” said Alex Creel, the association’s senior vice president of government affairs. “We’re not sure that it does, and we’re ready to push additional legislation if we find that the Office of Real Estate Appraisers doesn’t have everything it needs to have solid regulatory control.”
The state says it’s still in the process of formulating the registration application and drafting the regulations the new law mandates, but details will be posted on the Office of Real Estate Appraisers Web site before New Year’s Day.
Check out www.orea.ca.gov to learn more.
