Destin appraisers says federal rule will raise costs, cut quality

A new federal rule may raise the price of home appraisals while cutting the quality, Destin appraisers say — and the agency to oversee the new policy doesn’t exist yet.

“As far as I’m concerned, they don’t have anything in place right now to be able to implement it in an effective way,” Barbara Phillips, a certified appraiser and the owner of Tristate Appraisers, told The Log. “When mortgage bankers call me and I ask what they’re going to do, every single one of them has said they don’t know.”

The regulation at issue is the Home Valuation Code of Conduct, which forbids mortgage brokers from communicating directly with home appraisers on loans backed by the federally chartered Fannie Mae and Freddie Mac. Instead, brokers  have to go through an appraisal management company to hire appraisers.

The changes stem from an investigation by New York Attorney General Andrew Cuomo into lenders collaborating with or pressuring appraisers to push appraised values higher, which results in bigger mortgage loans.

“These companies were driving the business to appraisers who would do whatever they were told,” Lee Dillon of Destin Appraisals said. “The appraisal companies were almost in collusion with the lenders in trying to inflate appraisals.”

HVCC is supposed to fix that by walling off appraisers and brokers and forbidding brokers from “appraiser shopping” to get a value that they like. The “appraisal insight” blog, however, argues that management companies have pressured appraisers on behalf of lenders before, and could still do so.

HVCC calls for the creation of an Independent Valuation Protection Institute to serve as a watchdog, but the institute doesn’t exist yet, one reason appraisers, Realtors and others have said HVCC shouldn’t take effect until next year.

Another problem, Dillon said, is that management companies hire appraisers based on price, not ability: “It doesn’t matter how good you are as an appraiser or how well you know the area, the orders are driven to the cheapest. You’re going to get a lot worse appraisals out of a system like that.”

Dillon said the national management companies have shaped the rule to benefit themselves: Out of a $400 appraisal fee, the management company might pocket $250, even though it adds nothing to the transaction.

“They are essentially, for lack of a better term, acting as a pimp,” Dillon said, and the best independents will probably walk away from the low fees, leaving the field to the unqualified and inexperienced.

Phillips said she recently agreed to do two Federal Housing Administration appraisals for a lender — the FHA isn’t covered by the new code — at $350 each.  When the lender decided to go with a different loan for one unit, HVCC kicked in, and the appraisal assignment had to go through a management company which set Tristate’s fee at $200.

“We are being paid $150 less for the same job for which we would normally have been paid $350,” Phillips said. “Ouch!”

Phillips said not only will the management companies take a larger share of the fees, it won’t be broken down on the loan documents, so buyers will have no idea how much of the appraiser’s fee is going to the management company.

“It’s going to make it much more expensive for consumers,” Phillips said. “And if they decide they want to go to another lender — say, because something happens with the loan — they have to pay for another appraisal.”

Phillips said it will be simpler for lenders to start over with a fresh appraisal than to meet the requirements for proving the old appraisal conforms to HVCC. Appraisaltoday.com says this will also hurt brokers’ ability to submit loan packages and appraisals to multiple lenders at once.

Another problem, Phillips said, is that appraisers will have to bill the mortgage company or the lender for their fee, instead of the buyer, and it may take 60 to 90 days to collect.

Independent appraisers are looking at a variety of solutions to the challenges of HVCC, such as forming their own management companies. Web sites such as appraisalfirewall.com offer to serve as middleman for a fee, so that appraisers don’t have to deal with management companies.

“All in all, I think it’s just a pretty useless piece of regulation,” Dillon said. “We’ll have to see how it all turns out.”