Appraisers hope rule changes ease burdens

By Dennis J. Carroll | For The New Mexican

10/24/2009

If a first-time buyer's home loan isn't approved, if a refinance package hits the skids or a builder's solar water-heating system fails to boost the value of a remodeled house, there is one person who seems to catch the blame — the appraiser.

In recent months, prodded by the federal government, the industry has adopted systemic changes in an effort to eliminate the blame game and reduce lenders' pressure on appraisal companies to inflate appraisal estimates in a moribund housing market.

"The appraiser is sometimes viewed as the bad guy," said Susan Long of Long and Co. Appraisers of Santa Fe.

Builders have complained that appraisers have perpetuated declining home prices, making it cost more to build homes than they are worth. They also have charged that appraisers have failed to consider the value added to a home by the addition of energy conservation measures.

Meanwhile some lenders have been known to pressure appraisers to artificially boost an appraisal to increase loan approval rates, said Kay Sutt of Hippauf and Associates Real Estate Appraisals of Santa Fe.

The Federal Housing Finance Agency, in a July notice, charged that "unfortunately, during the 2005 to 2007 period, mortgage lending was much too aggressive and placed pressure on the appraisal process. In some cases, that resulted in unrealistically high appraisals, hurting home buyers as well as investors."

One of the major reforms has been the adoption of the Home Valuation Code of Conduct which, among other changes, requires lenders to have someone on staff who is "not tied to (loan) production," Sutt said. "Appraisers have been complaining for years about the pressure."

She said the purpose of the code is to build a fire wall between lenders and loan appraisers by imposing strict restrictions on communications between them.

Since May, both Fannie Mae and Freddie Mac have stopped working with lenders who do not adopt the code.

The code also has increased the influence of appraisal management companies — AMCs — which serve as another barrier between lenders and individual appraisers.

The Appraisal Institute, an association of real estate appraisers, has termed this a victory for its efforts to promote more professional appraisals.

Whether the code and AMC changes prove to be effective over the long run remains to be seen. Critics in the industry contend that the reforms will raise the cost of appraisals and, despite good intentions, result in out-of-area appraisers making less than well-informed guesses about the value of residential properties.

The New Mexico Legislature this year approved measures that require AMCs that operate in the state to be licensed by a new appraisal board in the Regulation and Licensing Department.

The city of Santa Fe's new green building code also has imposed challenges on appraisers.

Builders are pushing appraisers to boost home values based on energy conservation measures incorporated into the home. But appraisers say those additions, such as solar water heaters, have yet to prove their value in the market.

"There is no evidence right now that there is added value (with energy conservation additions)," Long said. "We just need the data ... . Green building is a Catch 22. We can't give it value without the data."

Long and Sutt suggested that only time will tell how much more a homebuyer is willing to spend for the green additions.

"It's hard to appraise things you can't see," Long said.