Effective the first of May, there are new appraisal guidelines coming down and a code of conduct that affects both appraisers and the lenders who employ them. “The Home Valuation Code of Conduct is the result of a joint agreement between Freddie Mac, the Federal Housing Finance Agency and the New York Attorney General to enhance the independence and accuracy of the appraisal process, and to provide added protections for homebuyers, mortgage investors and the housing market.”

 

Starting May 1^st, Freddie Mac will no longer purchase loans from lenders who do not conform to and adopt the new standards. Time will tell if the new code becomes an industry standard.

 

Among the things that are now codified in the code is that an appraiser must be licensed or certified to practice in the state where the property to be appraised is located. Now there is a concept!

 

There is a large section of the code that deals with how mortgage brokers can not improperly influence appraisers by withholding appraisal fees, future business encouraging them to appraise to a specific amount. It also prohibits lenders or buyers from hiring an appraiser for a specific loan, then shopping the loan to multiple lenders.

 

One of the interesting provisions of the new code is that it prohibits lenders from removing appraisers from an approved list of qualified appraisers “without prompt written notice to such an appraiser, which shall include written evidence of the appraisers illegal conduce…” In other words, a bank or other lender can not just drop an appraiser from their approved list because their loans are not high enough or too low.

 

A few years ago lenders dropped appraisers who did not come with high enough prices. Right now I know of at least one case where a major bank has dropped an appraiser because the review appraiser said they came in high. Appraisers need to be accurate without pressure to skew their appraisal one way or the other. 

 

I wonder if the now code means that banks “review appraisers” need to be “licensed in the state where the property is located” also? Some of them are reviewing from out of state using a computer program with no knowledge of the local market.

 

All of this is heading in the right direction. The secondary markets will start buying loans when they have confidence that the lending system has integrity and is not being manipulates. Right now there is tremendous pressure from the lenders to keep appraisal values down, just as there was pressure to raise values a few years ago. What we really need is fair, honest appraisals without undue influence.

 

 

If I can show you how to have an easier, smoother transaction, would you work with me?

 

Chris Morris

Broker Associate

Alain Pinel Realtors

408.357.8783 direct

Brokers License 00780130