“Unscrupulous appraisers played a key role, manipulating value estimates …” The typical appraiser did not cause the real estate bubble. Appraisers use recent sales to determine market value. Strong demand causes higher prices. Appraisers do not set value, the market does.
Several statements in the editorial are not accurate. There is no government-mandated pool of appraisers. No requirement exists for a rotating selection of appraisers. If you get a Phoenix appraiser who does not know the area, report him. You cannot “contract” for a report from a pool that does not exist. No, you probably cannot get the middle man guy to offer the order to the same guy. The government has not created a cartel of appraisers.
Here is what happened. May 1, 2009; the HVCC (Home Valuation Code of Conduct) became effective. This agreement applies to Fannie Mae and Freddie Mac loans. HVCC does not apply to FHA. It had little effect on what appraisers do, but had considerable effect on lenders (especially mortgage brokers). The HVCC attempts to restrict an interested party (buyer, seller, real estate agent, loan officer) from selecting or influencing the appraiser. Why? Because each has a vested interest in the deal closing.
Other parties wanted to guarantee that the appraiser is “independent” in analysis and conclusions and not under undue pressure. The way to accomplish this was to separate the appraisal ordering and appraiser selection from interested parties.
Mortgage brokers now have two options: have the lender order the appraisal; or, place the order through an Appraisal Management Company (AMC). They each have a list of approved appraisers they use.
As to appraisal fees, each appraiser sets his own fees. I am not aware of appraisers raising fees due to the HVCC. When a lender orders an appraisal, they ask the appraiser what the fee will be. AMCs have negotiated fee schedules with appraisers or set fee schedules for geographic areas. In most cases, appraisers accept a lower fee from an AMC. There is no fee structure in legislation.
So, if appraisers have not raised fees due to the HVCC and they accept lower fees from AMCs, why are borrowers being charged more for appraisals? Because more of the orders are going through AMCs. They charge their client more than a typical appraisal fee and pay the appraiser less than a typical fee. They keep the difference as profit. These higher fees are passed on to the borrower. This is an unintended consequence of the HVCC.