Home Appraisal Codes Being Revamped so as to Avoid Rerun of Foreclosure Crisis

Plans have been made to help the rerun of foreclosure crisis

Appraisal codes of houses have come in for sharp criticism. Plans are afoot to revamp the codes so as to avoid a rerun of the foreclosures crisis in the future.

The appraisal system had been imposed through the entire country by the jumbo mortgage giants – Fannie Mae and Freddie Mac in May this year. Many see that this is causing low valuation of properties and high fees for the consumer that is ultimately leading to stagnation in the housing sector.

With both the political parties agreeing on this point there is a slim hope that the change might be brought about. A bipartisan amendment was given the green signal on 22nd October by the House Financial Services Committee.

It was agreed that the Home Valuation Code of Conduct would be ended soon and replaced by a Consumer Financial Protection Agency.

By the amendment the director of the agency would replace the existing code with a better group of rules crafted by following regular administrative steps and allowing for public comments. This has been always followed by all the federal agencies.

In contrast the valuation code was reached because of a settlement between the Attorney General of New York, Andrew Cuomo, Fannie Mae and Freddie Mac together with Federal Housing Finance Agency.

Coumo decided to retreat from the investigations being done regarding the appraisal practices of Fannie Mae and Freddie Mac. The main purpose of the code was to see that the appraisers remained independent and were in no way influenced by loan officers, brokers and lenders. The latter group always wanted them to “hit the number” so that the mortgage funds got released even if it resulted in erroneous increase of the house value.

There is no second opinion about the appraiser being independent but the critics allege that the code fell over and generated problems of its own doing.

Protest petitions were singed by developers, realtors and consumers. The complaint was that the code has made it easy for lenders to make use of the appraisal-management firms. Some of the latter were owned or connected intimately by and with the lenders.

The firms started to pay the appraisers much less than the required fees but the buyers of homes and those who refinanced, had to pay much higher. In their defense the management firms contend that they add value to the equation by getting together a network of many appraisers, giving the assignments and managing all administration related matters.