New Appraisal Requirements

HOME VALUATION CODE OF CONDUCT (HVCC)

As of May 1, 2009 there will be significant changes in the way real estate appraisals will ordered and handled by the lenders for conventional loans.
Banks and mortgage companies will now be required to utilize appraisal management companies who in turn will expedite the appraisal order. There will be several appraisal management companies on the lists of the different lenders. The appraisal management firms will act as a clearing house and select the appraiser or appraisal company on a rotational basis.
The loan officer will have no input with the appraisal management company in the selection of the appraisal company selected and will not be allowed to contact the appraisal company or the actual appraiser of the property. There many appraisal management companies and there are numerous new ones entering the field as a result of this legislation.

The idea here is that by using a rotational system with no contact with the loan officer who originated the loan there will be no pressure on the appraiser to "hit" the number.
That sounds good in theory but there is a significant potential downside.

First of all lenders are already being much, much tougher on appraisals. I do not see a need at this time for this legislation.

Now consider this, an appraisal is nothing more than an opinion of value, an estimate. There is no appraiser alive that can tell EXACTLY how much any home will sell for. Instead of having the possibility of over appraising a home, there is a likelihood appraisers will now become overly conservative and UNDER appraise properties. I have never heard of an appraiser getting scrutinized for appraising a home too low, only for appraising it too high.
It would therefore be in the best interest of the appraiser to utilize conservative adjustments and place a value in the low end of the range. There is nothing for him/her to be gained for being truly objective in the final value estimate.

This can have an enormous impact on the real estate and housing market. It could result in fewer homeowners being able to refinance to a lower rate and payment which in turn could affect insurance companies, mortgage lenders/brokers, real estate agents, builders etc.

Having previously been an appraiser for 12 years and prior owner of an appraisal company with 8 employees, I know of what I speak.

I hope I am just being overly pessimistic here. We shall see.
Once again this only affects conventional loans........... FOR NOW!!