New guidelines that became effective last Friday are causing controversy within the mortgage industry, and protests have been launched by both mortgage brokers and appraisers calling for immediate amendments.
The new rules affect all conventional loans to be sold to Fannie or Freddie. The most troublesome issues revolve around the new requirement that only lenders, not mortgage brokers or loan officers, may order appraisals.
In addition, the skill and availability of appraisers is in question because the new guidelines require the creation of a middle-man, the Appraisal Management Company, to farm out the work.
Specifically, the appraisal guidelines now require:
only lenders can order appraisals
the borrower must pay (credit card pre-authorization)
brokers or loan officers cannot pay for or order appraisals
only the lender can communicate with the appraiser
The intent of the new guidelines, dubbed the Home Valuation Code of Conduct, is to lower the incidence of fraudulent and largely inflated values that were a factor in the mortgage debacle. But professional associations and experts in the mortgage industry are concerned that the new rules will have the opposite affect.
For instance, there are no guarantees that the appraiser assigned will be familiar with the particular neighborhood surrounding the property. Appraisers are allowed to choose the geographic area they wish to cover, but it is unclear how much experience in each of those areas they must possess.
Because the Appraisal Management Company can charge for its services, the borrower may have to pay increased costs. Alternatively, the appraisers may make less money, driving out the more skilled and experienced in favor of those who may offer less accurate appraisals.
The process may cause a longer turnaround, which can directly affect the pending sale.
The National Association of Mortgage Brokers has raised concerns that the rules may make it difficult, if not impossible to shop mortgages. The new restrictions mean that a loan officer or mortgage broker can’t speak with an appraiser informally to ball park whether the property owner appears to have enough equity for a refinance, for example.
Many mortgage brokers fear that the new rules will result in inexperienced appraisers offering overly conservative or inaccurate appraisals, and that will drive down home values, particularly in neighborhoods that have traditionally maintained higher than normal values due to high appeal.