New Appraisal Law Hurting Real Estate Sales / Possible Federal Bill to Suspend New Appraisal Law

Housing prices are down, the economy is in recession, and according to a many in the real estate industry, not many americans are willing to invest in residential mortgages so home sales ran into another snag earlier this year. Fannie Mae, Freddie Mac, and the Federal Housing Finance Agency (FHFA) entered into a settlement with New York Attorney General Andrew Cuomo to regulate the selection of appraisers by mortgage brokers beginning May 1. The goal of these new rules was to stop the collusion between brokers and appraisers that resulted in inflated appraisals, perpetuating the housing crisis in this country. However, industry leaders say that instead of stabilizing appraisal results, the new agreement is causing delays, increasing costs, and producing inaccurate appraisals that kill sales and cause the housing market to further stagnate.

One of the consequences of this new agreement is that lenders are now forced to use appraisal management companies. In turn, they assign jobs to the lowest bidders, which may or may not be the most qualified. In fact, in the first weeks of this new regulation, many appraisers were not even from the state where the property was located. Critics charge that because these appraisers did not know the market, many appraisals were coming in at less than it cost to build the house in the first place. Both Fannie Mae and Freddie Mac have recently ordered lenders to use qualified appraisers licensed or certified in the state in which the property is located, hoping to ensure more accurate comparisons, or comps, and resulting in appraisals that are more precise. Real estate industry leaders are still not satisfied. Many are seeking legislation to put an 18-month moratorium on the agreement, claiming the new rules limit competition and further slow the much-anticipated economic recovery.

Supporters maintain that delays, increased costs, and appraisal errors are due to deflated home prices resulting from a housing market in crisis. They claim the new regulations under residential real estate law, dubbed the Home Valuation Code of Conduct, are necessary to prevent the fraud that helped cause the housing decline in the first place. Since Fannie Mae and Freddie Mac handle 70% of all home loans in this country, as they go, so goes the lending market. The question is, how many home sales have to fall through over low appraisals before someone figures out how to stabilize this aspect of the real estate market.