"The Federal Housing Finance Agency's":http://www.fhfa.gov (FHFA) new home valuation code of conduct was created to promote transparency and put distance between lenders and appraisers to encourage more accurate property appraisals, but some question whether it will be effective.
The code, which will take effect May 1, regulates the relationship between lender and appraiser by:
— Prohibiting lenders from using appraisers with ties to the lender
— Prohibiting deals with pre-determined valuations
— Prohibiting lenders from offering promises of future business or incentives
— Prohibiting lender blacklists of appraisers
— Creates a hot line and e-mail support for complaints
But in a joint statement issued by four the country's largest appraisal trade groups - the "American Society of Appraisers":http://www.appraisers.org/, the "Appraisal Institute":http://www.appraisalinstitute.org/, the "American Society of Farm Managers and Rural Appraisers":http://www.asfmra.org, and the "National Association of Independent Fee Appraisers":http://www.naifa.com/ - the appraisal industry questioned the effectiveness of the new code.
"We have continuing concerns that certain elements are at odds with the goal of obtaining competently prepared appraisals, specifically, provisions that place increasing reliance on unregulated appraisal management companies," a portion of the statement reads.
The problem, they say, is that the code forces lenders to use unregulated third-party management companies that use low-cost appraisers with less experience and expertise, and take a significant percentage of appraisal fees, instead of doing business directly with local appraisers that lenders know they can trust.
The "Title Appraisal Vendor Management Association":http://www.tavma.org/, the trade group for the third-party managers, has recently denied the allegation in a "_Washington Post_":http://www.washingtonpost.com/wp-dyn/content/article/2009/01/09/AR2009010901920.html article.
The code will apply to lenders that sell single-family mortgage loans to "Fannie Mae":http://www.FannieMae.com and "Freddie Mac":http://www.FreddieMac.com. It is based on existing Fannie Mae and Freddie Mac guidelines set in place to ensure the accuracy of appraisals for loans sold to the two companies for their portfolios and securitization, and according to the FHFA, will help assure borrowers, home buyers, and secondary mortgage market investors receive fair property valuations.
As the issue continues to gain momentum, the "National Association of Mortgage Brokers":http://www.namb.org/ has said it will encourage Congress to reverse the code's ban on broker selection of appraisers, and may even file a lawsuit over the matter.
"This agreement will increase costs to consumers and remove thousands of small business competitors from the marketplace. This will create a severe disadvantage to small business mortgage brokers, and prevent them from engaging competitively in the mortgage marketplace," the association said in a release.