Appraising the Appraisal - New Guidelines for Home Appraisals

There is plenty of blame to go around when it comes to the housing crisis - lenders, Realtors, mortgage brokers, and borrowers. Even the appraiser has been derided for overstating values. But appraisers have been placed in a very difficult position.

Many banks and savings and loans have their own "in-house" appraisal departments. The appraiser, a bank employee, is told that the loan department wants to make a loan on a particular home. In order to do so, the appraisal needs to come in at or above a certain home value. The appraiser knows that if he does not come in at that amount, the loan will not go through and he'll have the loan department breathing down his neck. Enough of these complaints and he might lose his job. So he manipulates the numbers to make sure his appraisal comes in at the required value.

This problem exists even for independant appraisers (those who do not work directly for a lending institution). Most appraisal companies are on a lenders "approved appraiser" list. This means that, with each new loan, the lender will turn to this list to hire an appraiser. For many appraisal companies, this is how they get the majority of their business. And if they are thrown off the list, the appraisal company may go under.

Either way, the in-house appraiser or the approved appraiser has every reason to manipulate the appraisal to meet the lender's required loan amount. But this is about to end.

Starting in 2009, Fannie Mae and Freddie Mac, two of the biggest players in the secondary mortgage market, have announced that they will no longer buy loans from lenders who do not use independent appraisers. Lenders who want to sell loans to Fannie Mae or Freddie Mac will not be allowed to use in-house appraisers, or appraisals done by a subsidiary or an affiliated company. Also, mortgage brokers and real estate agents may no longer choose the appraiser. And finally, Fannie Mae and Freddie Mac will create the Independent Valuation Protection Institute, a group that will accept complaints from consumers who feel their appraisals are unfair, and appraisers who feel that they are being pressured to provide inacurate appraisals.

Will this make it harder to get a loan? Yes, but at least you will know that your homes appraised is a realistic estimate of it's true worth.