New Appraisal Rules Need To Be Reviewed

 Proposed home appraisal rules will drive up costs for homeowners and limit their choices

Ann Arbor, MI, April 24, 2008 – The CMPS Institute has just sent regulators a detailed commentary on how their new home appraisal rules will adversely affect consumers. “While most of the proposed rules are good and necessary, a few of them will have adverse consequences for homeowners,” said Gibran Nicholas, Chairman of the CMPS Institute, an organization that certifies mortgage bankers and brokers.

This proposal to change the home appraisal rules originated as part of a settlement agreement between the Attorney General of New York, Fannie Mae and Fannie Mae’s regulator, the Office of Federal Housing Enterprise Oversight (OFHEO).  “Although the rules are not considered a federal law or regulation, they will have virtually the same affect,” said Nicholas.  Over 60% of US home mortgages are securitized, meaning that they are owned by investors like Fannie Mae and Freddie Mac who issue bonds on the bond market using these mortgages as collateral.  For this reason, when Fannie Mae and Freddie Mac change their policies and procedures, it has a wide-spread effect on how the rest of the industry operates.

The rules were initially proposed on March 3, and the period for public comments ends on April 30. Unless the rules are amended based on the public comments, they will go into effect on January 1, 2009.  However, many lenders have already started adopting some of these changes.

Under the new rules, lenders, mortgage brokers and real estate agents are prohibited from pressuring appraisers to overvalue the homes that they appraise.  “It’s about time the industry got serious about tackling this very real problem,” Nicholas said.  “However, a few of the policy changes go overboard, and these should be modified to better protect homeowners.”  For example, lenders and brokers won’t be able to give appraisers any old appraisals, helpful data, or any other estimate of what a home is anticipated to be worth at the time the appraisal is ordered or at any other time prior to the completion of the appraisal.  “This would drive up consumer costs as appraisers would be forced to redundantly analyze data that may have already been paid for by the consumer or analyzed by another appraiser in the past,” said Nicholas.

Additionally, mortgage brokers and real estate agents would be completely prohibited from communicating with appraisers during the appraisal process. This would frustrate consumers, drive up costs and unnecessarily drag out the appraisal process, especially under the following circumstances:

• Properties with limited or no recent comparable sales data
• Properties with limited or no publicly available comparable sales data
• New construction or home improvement projects
• Unique properties where brokers or lenders may have valuable information based on prior dealings with the homeowner or subject property

Finally, consumers would be prohibited from requesting a new appraisal from their lender if they disagree with the appraiser’s opinion.  “Homeowners would effectively be stuck with the results even though another appraiser may have an equally qualified, but different opinion of value,” said Nicholas.