This week New York State’s Attorney General Andrew Cuomo signed what will probably become a model for other states. The Office of Federal Housing Enterprise Oversight (OFHEO) had a news release this week that a deal was struck with FANNIE & FREDDIE that may very well kill the small appraisal companies in New York and possibly across the nation. The concern is to protect the independence of the appraisal process.
In many areas where the loan officers or real estate agents have the ability to choose the appraisers there has been a real concern that undue influence could be put on appraisers that would artificially inflate the property value. How does that undue influence work. It could be done by a promise of future business, fear of being blackballed, with holding payment on unfavorable appraisal results or even bonus pricing on value achieved.
Being both a Real Estate and Mortgage Broker I have seen these methods used by many of our competitors. I believe something should be done to combat this. My fist suggestion is to penalize those companies that are involved in this type of action using the laws already on the books. Here would be a great idea. When found guilty instead of giving them a fine and letting them stay in business, pull their license.
If an appraiser remains a “victim” of these practices and continues to get “gain” from this practice, take their license too. New York State makes an incredible amount of money from fees generated by the real estate industry. Licensing fees and auditing fees paid annually are just a piece of the pie. The State receives 1% on every mortgage recorded as well as recording fees and transfer fees.
So know one wants to eliminate one of their cash cows. Instead they make a law that states we can not trust our “Licensed Professionals” to do the right thing so we will control the process by making it more expensive for the consumer to receive a potentially lower quality of service by developing clearing house appraisal services that will also control the appraiser while adding an additional layer of fees.
There is also an new overseer, Independent Valuation Protection Institute, to make sure the new rules are followed. Funded by FANNIE & FREDDIE to the tune of $12 MILLION (Volunteered not punitive?). My opinion is this new requirement will soon hit all FANNIE & FREDDIE relationships nationally in the near future.
The local guy who solicits for business will now be under pressure to make new relationships with the clearing house appraisal companies for less pay. Does this help the consumer? Does it solve the foreclosure problem? Does this kick start the real estate business? No. But it does give the investor (the guys that supply the $$$) security that future mortgage investments will be properly valued. Something that although not news worthy or politically correct could be done with enforcing existing laws.
Look at the agreements from Fannie Mae & Freddie Mac as well as the “New Home Value Code of Conduct”. Interesting side note is that directly below the “News Release” is OFHEO’s version of a home valuation calculator with a little disclaimer about “value”.
