Following claims that appraisers rubber-stamped inflated home prices, new rules are coming that will attempt to make them more independent
The appraisal industry has justifiably come under fire for its role in the great housing bust. Property appraisals, required by lenders before a loan is made, are supposed to provide an independent assessment of the home’s value.
But during the boom, appraisers routinely signed off on a doubling or tripling of home values, sometimes racked up in just a matter of months. Investment properties were appraised at prices that made no investment sense. And homeowners were charged a pretty penny for what often amounted to rubber-stamp service.
Now the industry is about to undergo a shakeup. On Jan. 9, Fannie Mae (FNM) and Freddie Mac (FRE) announced revisions to their Home Valuation Code of Conduct. Starting on May 1, lenders that want to sell their loans to the two industry behemoths must follow the new guidelines.
Mortgage brokers and Realtors are no longer able to choose appraisers. They will be selected by lenders, which are not allowed to influence appraisers by withholding payments or promising future work. If lenders have in-house appraisers, the bank’s loan-origination department is not allowed to influence their valuation decisions or supervise their work.
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