By Kevin Chiu
Already under attack for inaccurate and sometimes fraudulent appraisals, a coalition of real estate industry related organizations is banding together to reform appraisal practices in an effort to fix part of the system that triggered the worst real estate crash since the Great Depression.
Appraisers have been named as defendants in a series of lawsuits brought by homeowners at the peak of the real estate boom.
Representatives from the National Home Builders Association, the National Association of Realtors, Mortgage Bankers Association and appraisal groups met with federal regulators in Washington, D.C. to come up with solutions to solve appraisal problems.
Chief among the groups concerns is a call to adopt regulatory guidelines on how to use distressed and foreclosed property values in appraisals. “An accurate appraisal is an important part of any real estate transaction, and reforming the appraisal process is critical to the nation’s housing recovery,” said NAR President Charles McMillan.
A consensus is growing that appraisal guidelines need to be changed to fix increasing problematic appraisals, which are blamed for the inability of many home buyers to obtain mortgages as housing values fall in the majority of the U.S. Some banks are even requiring two appraisals to determine whether they will issue a mortgage on a property. When homes are not appraised at a high enough value many real estate transactions fall through.
“Appraisers generally are only required to inspect the exterior of a property that is being used as a comparable because they are normally unable to enter these homes and examine their interiors,” said National Association of Homebuilders Chairman Joe Robson. “But all too often, properties that have been subject to foreclosure or distress sales have issues related to deferred maintenance or internal damage that an external inspection simply cannot detect. You can’t compare these properties to new homes that are in market-ready condition.”
New consumer protection laws adopted by appraisers earlier this year are being criticized by the group, including practices that include the use of appraisers from outside areas, who are not familiar with the local marketplace.
The new appraisal standards were imposed by Fannie Mae and Freddie Mac, which currently buy 9 out of 10 U.S. mortgages originated by bankers. The new code of conduct is expected to turn into a political football before Congress and may be tested in federal court.
It resulted from a court settlement involving New York Attorney General Andrew M. Cuomo, the Federal Housing Finance Agency and the two congressionally chartered mortgage companies the agency oversees.