2012 Loan Originator Survey – Appraisals

Originators have been hit with a double-whammy because of appraisals. First, they are now subject to cumbersome requirements when ordering appraisal reports. Second, they face lost deals as a result of low fair market values. This area seems to be one of the biggest sore spots for originators — who are frustrated with appraisal reports and the appraisal process as well as appraisal management companies and appraisers, themselves.

Appraisal Impact on Business
The average loan originator has lost 14 percent of approved applications because the appraised value came in too low.

Several respondents indicated that their business was off by at least half due to low fair market values — including one who indicated lost business had reached 80 percent.

Appraisal Rules and Requirements
In March 2008, Fannie Mae and Freddie Mac entered agreements with New York’s attorney general that established the Home Valuation Code of Conduct. The HVCC requirements no longer allowed an originator to order an appraisal directly from an appraiser and prohibited the steering of appraisal business based how well an appraiser meets the originator’s expected fair market value.

As required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, HVCC was replaced in May 2009 by appraiser independence requirements.

Nearly two thirds of originators said that they maintain compliance with the appraisal rules and requirements by utilizing an AMC.

A company-managed appraisal panel is used by 29 percent of the originators, and 3 percent said appraisals are handled by the lender.

Comments About Appraisal Process
Survey participants were asked to comment about the appraisal process and appraisal industry.

Comments were overwhelmingly negative.

Some originators complained about the appraisers, themselves, while other have issues with AMCs. The lack of appraiser accountability irritated several originators, while other complained about slow turnaround, higher costs and out-of-area appraisers doing a poor job.

Here are some of the more notable comments:

• Appraisals are the #1 drag on the housing recovery
• Appraisers are controlling the values in areas. Appraisers are so scared of getting out of the box and being sued they are too conservative and keeping values down
• I wish it would go back to a relationship type business.
• Appraisal process makes little to no sense.
• It stinks as is
• It is cumbersome and unreliable at best
• Unfair, terrible appeal process
• The system is flawed and communication is horrible
• I think appraisers are afraid to bring values in higher then assessed values today, although assessors say that the values that they come up w/ are actually on average 10% lower then actual values
• The appraisers are bound by so many government mandated guidelines that there is no room for them to adjust to upwards trends in those marketplaces where values are actually increasing
• It’s NOT USER FRIENDLY… appraisals take too LONG….

But there were a few positive comments, including this one:

“It is ok,” one survey participant said. “Because of all the fraud and corruption in [the] past we had to come to this system.”