Change in appraisal process draws criticism

<p>A major change in who does appraisals for new loans has shifted the business of determining a home's value from individual appraisers, many based locally, to outside companies.</p><p>The change, driven by concerns over cozy relationships between appraisers and mortgage brokers, has spawned complaints from brokers and real estate agents that appraisals are being done too quickly and do not reflect an understanding of the local market.</p><p>The concern comes as large numbers of homeowners are refinancing mortgages and buyers are busy making purchases to take advantage of low interest rates. Accurate appraisals are critical to closing those deals.</p><p>Appraisal management companies have proliferated because mortgage brokers now must order appraisals through them rather than directly hire appraisers. Lenders may still work directly with appraisers, though many rely on the companies.</p><p>The losers have been appraisers who now must take a cut of the fee borrowers pay to appraisal management companies rather than being paid directly.</p><p>Kris Swanson is leaving the business after nine years as an appraiser because she can't get work. The Santa Rosa resident said firms want appraisals done in one-third the time and pay about $200 less per job than she charged.</p><p>"They're asking for 24-hour turnaround for half the price," she said. "It's gone downhill. A lot of us lost our jobs. It wasn't supposed to be that way."</p><p>Complaints over the new industry standard have prompted California lawmakers to consider regulating appraisal management companies.</p><p>The change in appraisal practices follows a settlement between national mortgage companies Freddie Mac and Fannie Mae and New York Attorney General Andrew Cuomo. He has probed the U.S. mortgage industry and the role inflated property values play in the record wave of foreclosures hammering housing nationwide.</p><p>Appraisal management companies are gaining work since the change took effect last month, but increased competition should keep borrower fees in check and appraisers can still earn a good living, said Paul Chandler, chief executive for Property Sciences, a Pleasant Hill appraisal management company he founded 25 years ago. Further, he said companies that don't provide consistently accurate appraisals won't last long in the business.</p><p>"When it comes to the end of the day, each appraisal has to stand on its own," Chandler said. "Our success depends on our execution on file after file after file."</p><p>But critics charge that turning to appraisal management companies to address concerns about mortgage brokers and lenders pressuring appraisers has created other problems.</p><p>In a letter Monday to regulators, the National Association of Realtors pressed for an 18-month hold on the code, arguing that it the change is "hampering the housing market's recovery."</p><p>Concerns center on companies not hiring enough appraisers to handle workloads and paying them lower fees while also hiking costs to borrowers.</p><p>"The biggest complaint coming in so far is that appraisal management companies are very significantly lowering fees, that their emphasis is on how quickly you can turn around an appraisal, and that there's not an emphasis on quality and your local geographic competency," said Greg Harding, licensing and enforcement chief for the state Office of Real Estate Appraisers.</p><p>In the past, mortgage brokers often would order appraisals from a short list of appraisers, some of whom they worked with for many years. In some instances, lenders funding those loans might require brokers to go through appraisal management companies. This typically occurs with major banks lending nationwide and regional lenders making loans outside their core business areas.</p><p>Now mortgage brokers must work through appraisal management companies. Lenders can still hire appraisers directly.</p><p>The change affects loans purchased by Freddie Mac and Fannie Mae, the national mortgage companies that collectively own nearly two-thirds of all home mortgages.</p><p>Unbiased appraisals are critical so lenders gain a good sense of a property's value and don't lend more than it's worth.</p><p>But some mortgage brokers have complained that appraisal management companies are sending out appraisers who don't know enough about Sonoma County to make accurate valuations.</p><p>"It is just ridiculous. What the heck do they know about Sonoma County?" said Marty McCormick, of owner of McCormick and Co., a Santa Rosa mortgage broker and real estate sales office. "The real issue is not getting a good appraisal."</p><p>North Bay appraisers said they have been called in to review questionable appraisals that likely were rushed.</p><p>"The appraisers aren't getting paid enough and they're working as fast as they can to earn a profit," said Curt Thor, a Novato appraiser and president of North Bay Chapter of the Real Estate Appraisers Association.</p><p>Recently, Thor pegged a $650,000 value on a Sonoma house after the first appraiser came in at $500,000. An appraisal management company hired Thor to review the appraisal, one of the few jobs he has received from the companies he signed up with following the change.</p><p>Below market appraisals haven't been a problem so far for loans funded by Santa Rosa-based mortgage banker Austin Perry Financial Corporation, said Christine McMains, a vice president who oversees operations. Austin Perry has developed a panel of appraisers for Sonoma County loans and contracts with an appraisal management company for loans in the remainder of its Northern California territory.</p><p>Questions remain about giving appraisal management companies greater control, she said. "I don't necessarily think that going to an appraisal (company) ensures the best quality work. It ultimately costs the borrower more."</p><p>Chandler said fees have risen in recent months primarily because Freddie Mac and Fannie Mae have added a report appraisers must complete on local market conditions, adding to their work. He acknowledged the cut management companies seek on each appraisal pushes down what appraisers are paid. But he defended the accuracy of their work.</p><p>"We're constantly out recruiting people, testing people, rating people," Chandler said.</p>