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A battle line is being drawn between the nation's realtors and its' appraisers, who are shoving back with the support of the large bank political lobbyists.
The average driving distance for an independent appraiser retained by the nation's largest appraisal management companies is 13 miles in urban and suburban areas this year, according to a just-released survey conducted by the Title/Appraisal Vendor Management Association.
Appraisal management companies, or AMC's, currently provide approximately 60 percent of all residential appraisals used in the mortgage industry, the trade organization says. It conducted the survey to dispute the contention that "AMC's routinely use out-of-town appraisers who don't know the territory," said Jeff Schurman, executive director of the organization.
Despite that news the appraisal system imposed by Fannie Mae and Freddie Mac last May, known as the 'Home Valuation Code of Conduct,' is under attack by the House Financial Services Committee and could be on its way out.
But Alfred Pollard, the general counsel for the Federal Housing Finance Agency (FHFA), told a packed room of REALTORS® last week at the 2009 NAR Conference & Expo in San Diego that the HVCC was released at a time when the economy was in a massive contraction—what he called a systemic event—and that this broader picture has to be taken into consideration when talking about valuation trends. "Concerns [over valuations] might not be 100-percent tied to this code," Pollard said.
The FHFA oversees Fannie Mae and Freddie Mac, which earlier this year adopted HVCC and applied it nationwide in an agreement with the New York attorney general. At that time, many questioned why the entire nation should be subservient to New York guidelines. The HVCC expires in late 2010 but the two secondary-mortgage-market companies can retain all or parts of HVCC going forward.
However, the HVCC could also be terminated before that by the proposed Consumer Financial Protection Agency under a bipartisan amendment approved by the House committee.
This amendment would require the new agency's director to replace the code with a set of rules developed through regular administrative procedures and public comment periods used by all federal agencies.
"It isn't fair to criticize all appraisal management companies (AMC's--new appraisal firms set up and now controlled by the nation's largest banks) for handing out valuation assignments to inexperienced or out-of-market appraisers who are willing to work for reduced fees," said Mark Johnson, chief operating officer of LSI, one of those large AMC's. "Any AMC that lets appraisers work outside their area of geographic competency is violating appraisal standards under USPAP and they should be reported. "I do believe there have been some bad actors," Johnson said.
The average travel distance of the 20,000 appraisers in his company's database is eight to 12 miles, he said. Any appraiser who wants to travel more than 25 miles under his company's policy must explain why and get an OK. "We don't want guys driving 50 miles," he said.
But critics among real estate people still insist that the code created more problems than it solved and has encouraged lenders to use inexperienced appraisers who don't know the areas where they are doing the work, which is resulting in lowball valuations as well as higher fees. The bank-controlled AMC's now also regulate fees paid to the individual appraisers and many contend that they are paying them less while pocketing more of the profit themselves.
Steve White of Keller Williams Realty in Santa Clarita, Calif., and chair of NAR's Risk Management Committee, said real estate professionals are losing deals because valuations are coming in far below the price agreed upon by the buyer and seller and that the process for getting valuations reconsidered doesn't work. Valuations are taking so long that there is no time to get them reconsidered before the deal collapses. And when real estate professionals try to share comparables or familiarize out-of area appraisers with unique market issues, appraisers say they can't talk to them.
Pollard and Johnson insist there's nothing in HVCC that prohibits real estate professionals from sharing comparable or other information with appraisers. "You can talk; you just can't drive them to a value," said Pollard.
The legislation under which this code would be scrapped is likely to pass the full House, but may have a tough road in the Senate.
source: Title/Appraisal Vendor Management Association,
The Washington Post Writers Group, REALTOR® Magazine
Disclaimer: The views and opinions expressed in this blog are those of the author and do not necessarily reflect the official policy or position of the Houston Association of REALTORS®
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