My New Blog

I know you’ve heard me and others talking about the Home Valuation Protection Code to be adopted by Fannie Mae and Freddie Mac January 1, 2009. They’ve invited comments from any interested parties, and I’ve been mulling this over for weeks. For today’s blog, I’m simply going to review the Code as I read it and point out the major shortcomings. In my next blog I will tell you how I would solve them.

The purpose of the code is to make appraisers truly independent. It lays out a very specific plan for keeping the party ordering the appraisal at arms’ length from the appraiser himself. It also makes sure than anyone with any stake in the outcome of the appraisal has no say in who does it.

As proposed, these guidelines (though with honorable intent) will hurt the entire system, from appraisers, to mortgage professionals and ultimately home borrowers. First, it derails the entire existing system. While solving some of the transparency and independence issues, it does not eliminate them. Influencing an appraiser can still happen under the HVPC as it is currently written. As it stands now, the majority of appraisal orders will have to go through one of several AMC’s very similar to those accused of fraud in the past. Eliminating the good will and business relationships between honest appraisers and honest mortgage brokers/lenders does not eliminate the independence issues that the HVPC attempts to solve.

Secondly, dissolving the relationships between appraisers and lenders may help keep appraisers independent, but fewer quality appraisers will be available. The proposed system where appraisers take orders only through AMCs, will lead to the financial collapse of most current appraisers, who will find their fees cannibalized by the management companies (sometimes by as much as 60% of the fee goes to the AMC.) Utilizing less experienced, price cutting appraisers will lead to poor quality appraisal reports.

We all agree something needs to be done. Appraisals should be requested without coercion or threats and they should be performed by well trained, skilled and fairly compensated appraisers.

Here is my suggestion. Enforce the Existing Laws!

Next week—how to do it.

As much as the current mortgage crisis put a fire under Fannie Mae and Freddie Mac to tighten standards, it’s put stress on everyone involved with valuing homes and structuring loans. Cuomo’s Home Valuation Code of Conduct attempts to solve the problem of independent appraisals, but the fine tuning still needs serious attention. Appraisal Scoop, a blog on appraising, addresses some of the issues, if you’re interested in our side of the issue. But the 90-day comment period has been cut to 45 days! Our deadline for comments is now April 30.

Next week I’ll discuss my thoughts on this code and will encourage everyone to respond. Between now and then, if you have any ideas or comments, email me or fire your ideas directly to the review board. Until next week…

A story I’ve been following finally came to a close last week, and it’s got me thinking. Our industry is in store for an overhaul. No one is quite sure what it’s going to look like this time next year.

As some of you may know, New York Attorney General Andrew M. Cuomo laid out a plan last week to keep the current mortgage crisis from recurring. It is an agreement between his office and Fannie Mae and Freddie Mac; beginning January 1, 2009, the two largest purchasers of home loans will buy home mortgages only from those lenders who meet new standards. These standards are set in the Home Valuation Protection Code.

Under the new code, mortgage brokers will be prohibited from selecting appraisers and lenders prohibited from using "in-house" staff appraisers to conduct initial appraisals. In addition, a new Independent Valuation Protection Institute will be formed to insure these standards are followed.

Over the next 90 days, Cuomo’s office is accepting comments in an attempt to tweak this code so that its main purpose of insuring appraisal independence will not cause undue hardship or chaos. If you have a chance, I encourage you to read the new code and think about its implications, and send your comments to Cuomo if anything strikes you.

You can download it from the bottom of our website’s home page, or simply click on the following link:

http://www.capitalappraisals.com/xSites/Appraisers/capitalappraisals/Content/UploadedFiles/Homevaluationcodeofconduct.pdf

With the movement and fluctuations in today's market, Capital Appraisal Services is working to keep our clients informed and connected to the latest in real estate information. As part of our efforts, we are launching a new blog on appraisal and real estate news. Our blog will offer a relaxed, personable view of real estate appraising and current market conditions. About once a week, we'll answer questions, discuss the latest trends and occasionally pass along a funny anecdote.

Check out our website, www.capitalappraisals.com, or give us a call if you have any questions. We are the appraisers you can depend on with great service, solid reports and competitive rates. We look forward to hearing from you!

J.R. (Jay) Cabai