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New Appraisal Protection Code of Conduct

By  |  Sheri Bell Hack 

Fannie Mae and Freddie Mac recently entered into an agreement with New York Attorney General Andrew Cuomo to adopt a new real estate appraisal protection code of conduct, which is expected to be implemented January 1, 2009.

It’s not a surprise, with all the news and attention government agencies are devoting to investigating fraud and inflated real estate appraisals in the mortgage finance industry. Guidelines under the new code will soon be shaking up the real estate appraiser selection process. It just might set the standards for the entire industry.

The purpose of the new code is to prevent lenders from putting undue pressure on real estate appraisers to produce inflated appraisals. Mortgage lenders will no longer be able to choose real estate appraisers on loans that they are involved with. Bank owned and controlled affiliated real estate appraisal companies will not be allowed to conduct real estate appraisals on any property where the bank is involved with financing the loan. Independent appraisers will be the designated choice.

Highlights of the New Real Estate Appraisal Code

Listed below is additional information and highlights from the new real estate appraisal code:

1. Bank employees involved in the loan making process will not be allowed to choose appraisers.

2. Lenders will not be able to make loans on the basis of real estate appraisals from their own employees or from affiliated appraisal companies under their control.

3. Lenders will be barred from using real estate appraisals ordered by mortgage brokers.

4. Fannie Mae and Freddie Mac will fund an institute to enforce the real estate appraisal code and establish a national hotline for real estate appraisers to call in and report undue pressure.

Real Estate Appraisal Process Change Long Over Due

Change in the real estate appraisal process selection is long over due. From the prospective of a California Realtor during the years 2000-2004, I can tell you there certainly was a lot of pressure from buyers and sellers to get the properties appraised and the deals closed. Sellers had multiple backup offers waiting in the wings if buyers did not perform their contractual obligations. Buyers were asked to pay additional costs to sellers for late closings, as a result of lenders not meeting closing deadlines. Home values were appreciating so quickly it was difficult for lenders and real estate appraisers to find comparable sales to substantiate the property appraised values. It truly was the wild wild West.

The rest of the industry should conform with the new code standards and guidelines as it benefits all parties to the transaction. Regulations of this sort will certainly help to eliminate mortgage fraud and undue pressures.

Keep in mind though that in the majority of real estate loan transactions appraisals are conducted ethically and fairly. Of course, it is always best to deal with a reputable mortgage broker and/or lending institution in the first place.

Certified Appraisers

The new code will not affect real estate appraisers’ education and other qualifications. Real estate appraisers still must be certified and licensed. The Uniform Standards of Professional Appraisal Practice (USPAP), developed in the 1980’s, and The Appraisal Foundation (TAF), in charge of administrating USPAP will not be affected by the new code. Nor will TAF’s two divisions, the Appraisal Standards Board (ASB) and the Appraisal Qualifications Board (AQB), be affected. The AQB is responsible for setting forth minimum qualifications for appraisers that have been adopted by all states and U.S. territories. The ASB is responsible for maintaining and updating information for USPAP.

Sources

http://www.behindthemortgage.com/behind_the_mortgage/appraisals/index.html

This article is presented for informational purposes only, and should not be used as a basis for real estate transaction, management, financial or investment decisions. First American CoreLogic shall not be responsible for any loss resulting from reliance on the contents of this article.