As the mortgage landscape continues to change, area appraisers might be waiting in vain for their former fee rates to return.
Cleanup efforts after the housing meltdown included the Home Valuation Code of Conduct, intended to prevent inflated appraisals. The code stemmed from a 2009 settlement between then-New York Attorney General Andrew Cuomo and Freddie Mac and Fannie Mae.
The settlement cut off contact between lenders and appraisers, inserting between them appraisal management companies, or AMCs. They became the industry standard.
AMCs choose among a pool of appraisers to do assessments and provide the information to the lenders. Banks also can arrange for appraisals if the appraiser and lender are in separate departments.
AMCs have been around for 45 years, but the new arrangement prompted their numbers to soar, said Jerome Nagy, senior regulatory policy representative for the National Association of Realtors.
AMCs saw an opportunity to boost revenue by cutting payments to appraisers while raising fees for consumers and keeping the difference. In some cases, payments to appraisers fell from between $350 and $500 to as low as $150, said Ken Chitester of the Appraisal Institute, based in Chicago.
Scads of appraisers left the business, leaving behind less-experienced appraisers willing to travel miles for any assignment that comes their way.
The code was replaced in October by the Dodd-Frank Act, a 2,300-page federal law that regulates financial institutions ranging from Wall Street to banks to mortgage lenders. It retained many of the rules in the code, but added that appraisers be paid “customary and reasonable” fees.
However, some AMCs consider the slashed fees “customary and reasonable,” said Daniel Bradley, a certified appraiser in western Pennsylvania. He also teaches appraiser certification classes for national trade school McKissock.
In areas with a lot of appraisers, the “downward pressure on fees is still in existence,” Bradley said. Where there are few appraisers, they can hold firm on their fees, he said.
The National Association of Realtors, which represents both real estate agents and appraisers, is staying on the sidelines.
“The market should dictate fees,” Nagy said.
Bradley laid out appraisers’ options: get out of the business, accept the new fees or elevate their skills.
“Do something about it rather than complain about it,” he said.
As for appraisers coming from farther away, Nagy deemed it “complicated and almost unsolvable.”
“The big issue for us going forward is the continued regulation of AMCs,” Nagy said. “We’ll be monitoring that over the next couple of years.”
There also is confusion over the definition of AMCs and who falls under the new law, Nagy said.
“There are a lot of rules out there, and there are more coming, perhaps for the next three years as Dodd-Frank is implemented,” Nagy said.
Another consequence of added regulations are gun-shy lenders who are afraid Freddie Mac or Fannie Mae will order them to buy back mortgages two or three years from now. Thus, they order more sales comparisons to make sure their mortgages are sound.
“Instead of three comps, they’re asking for eight or nine,” Nagy said. “Appraisers are starting to feel they aren’t getting paid for this extra work.”
In some cases, it’s a lot of extra work.
“In rural areas, I’ve spent a half day driving around looking at comparable sales,” Bradley said. “In an urban area, you can do that in 20 minutes.”
The new process also complicates communication, said Bob Hoobler, broker and owner of Exit Platinum Plus Realty in Camp Hill.
“I sell a lot of bank foreclosures, and I want appraisers out there when inspectors are there because all of the utilities are on,” Hoobler said.
If not, the appraiser has to return to the property, racking up a re-inspection fee. He said he wondered if they do that intentionally to prop up their declining income.
Hoobler finds it frustrating he can’t inform the appraiser of other comps they might have overlooked.
“You can’t say ‘boo’ to the appraiser,” Hoobler said.
As Nagy said, “every time you add a middle man, that’s not going to increase efficiency.”
Dodd-Frank also requires each state to bring AMCs under state regulation. In Pennsylvania, House Bill 398, sponsored by Butler County Republican Rep. Richard Stevenson, would require AMCs to pay a $1,000 biennial registration fee, carry a $20,000 bond and detail all of the fees included in their bill.
The Pennsylvania Association of Realtors says the bill protects consumers.
“Appraisers were regulated and had to register with the commonwealth, but AMCs didn’t,” said Greg Herb, past president of the association and chairman of its legislative committee.
The bill also would prohibit AMCs from dropping an appraiser from their pool without notice and justification. That would give appraisers a little more security since they were stripped of the personal relationships they had built with mortgage brokers, Bradley said.
The bill passed the House on May 2 and was referred to the Senate Committee on Consumer Protection and Professional Licensure.