With the housing market in turmoil, and Law Suits flying in every which direction by people trying to make someone else responsible for their choices there is a new law coming which will treat some symptoms but it won't resolve the problem.

Normally I try to keep my profession (Residential Appraising) out of the blogs because so much of what I do deals with opinion. Before I go any further into this let me acknowledge that as in any Profession or Vocation there are bad apples. I am not one of them.  There is more then one way to arrive at a value and not everyone learns all of them, nor in the same way.  Competition is stiff in my field, our company has trained many an Appraiser who at the end of their training when they can go it alone end up taking some business and then becomes competition.  There are some in this industry who acheive increasing their own business by backstabbing others. 

 There are of course rules and laws, the Appraiser has their own little handbook handed down by the Appraisal Foundation called ("Uniform Standards of Professional Appraisal Practice and Advisory Opinions" ) USPAP for short.  We also have to deal with what Fannie Mae and Freddie Mac, HUD and VA will and will not tolerate. 

A couple of years ago the laws changed that now prevent a Certified/Licensed Appraiser from being able to supervise more then 3 trainees.  This is within the state of Florida, other states have their own rules. A Dr can employ as many people as they want, so can a lawyer and the list goes on.  It is only the Appraiser who is limited to how many people they can supervise.

Over a decade ago Appraisal Mgmt Companies came onto the scene putting themselves in the middle between the Lender and the Independent Fee Appraiser.  They are often located in other states, not geographically competent and most of them try to force very cheap fees on the Appraiser.  In the process of taking our Appraisal and sending it to their client they copy the information and create their own data bases and now we have AVMs (Automated Valuation Models) like Zillo for one, but there are many others.   Keep in mind that these AVMs if you use them are subject to be way off because they record ALL sales, foreclosures etc that are not allowed to be used when determining market value by a Certified/Licensed Real Estate Professional.  Yet there are people in the profession who use these informations systems to challenge the Appraiser.

Realize that when you purchase or refinance a home that if you don't pay the Appraiser at the door then what you see at the closing table may not be what the Appraiser was paid.  Someone other then the Appraiser makes a profit in a large percentage of transactions.

There is a new law coming as a result of the housing crisis and in my opinion will do little to resolve the issue.  Fannie Mae and Freddie Mac wants all in house Appraisers to go away, they also taking away the right of a private mortgage or lending institution and it's Loan Officers to order Appraisals.   At first glance this looks like a good thing.  In house Appraisers which many Banks and Credit Unions employ will put more business out on the open market.  Its intent is to eliminate unethical relationships within the industry.  It's the results that worry me. 

Besides the fact that this is Goverment stepping in to further micro manage the small business owner there is something else more vital being ignored.

There are TOO MANY in the Mortgage Industry who have no educational or licensing requirements. A Broker is Licensed, a Loan Officer isn't.  An underwriter in New Jersey can kill your loan when he's never stepped a foot in Florida, is geographically incompetent and will often use an Appraisal to kill a deal they don't want to do.  There are review Appraisers who also sit in some other state and could not practice Appraising in the State of Florida without a Florida License that are involved in the loan process. 

The conflict of interest that exists in this field is typical to what exists in other areas of Goverment. People from the Appraisal Foundation or Appraisal Institute are governoring us on one hand and as individuals move on to the private sector are profiting by the creation of middlemen feeding off the work of others to create something that drives the Independent Fee Appraiser out of business.  One other example is a past President of the Appraisal Foundation created the first software for AVM's, sold it to many lenders and as a result billions of dollars of foreclosures today are the direct result of those lenders using AVMs rather then Appraisals in a loan transaction.

Back to the new law.  It sounds really great until you consider that it will be some big Appraisal Mgmt Company that will wine and dine our Governor and offer him a quick resolution to deal with these new laws.  What is already a suffering market will suffer more because this rotation system they're going to develop can also be used by those same people who have been in this mess all along, in the end it resolves nothing.

The only real and true resolution is to require anyone and everyone who is involved in the mortgage process to be licensed and governed the same way Appraisers are.  Every two years I have to complete 30hrs of continuing education.  Every two years I must take 7hrs of USPAP to help me keep up with changes or just to refresh what is required of me. 

Loan Officers need to be Licensed, so do Processors.  Underwriters should have something more required of them then just their opinion.  One lending institution that is not licensed in the state to do business should not be able to use another business to circumvent the law.  To do these things would not only hold people more accountable it would also be a source of legtimate revenue for the state.  The licensure of these people is vital to avoid future meltdowns like the current crisis.

This new law I have referred to results from a Law Suit filed by the State of New York against "E Appraise it" (an appraisal mgmt company) and Washington Mutual, the second largest lender in the nation.  EAppraiseIt was working in concert with Washington Mutual to select Appraisers who they pressured to inflate values.  Contained within Washington Mutual were in house Appraisers and Underwriters who knowingly selected the panel that was pressured and used by EAppraiseIt.  Thus you had in house Loan Officer, Underwriters and Appraisers making it all look like it was on the up and up because they used an Appraisal Mgmt Co.  In reality the Mgmt Company selected their Appraisers based upon their willingness to be pressured. 

Within the last ten days a Business Associate had an audience with our Governor about this very subject and reasonable solutions including eliminating these management companies was rejected.