New Appraisal Rules

On December 23rd the final Home Valuation Code of Conduct was released. The HVCC is a new set of rules designed to prevent undue influence on appraisers by lenders, mortgage brokers and realtors. While inflated appraisals may or may not be a significant problem (see my earlier post), these rules are definitely not the solution.

The most significant change is that virtually all appraisals will have to be ordered through Appraisal Management Companies, or AMCs. These AMCs are essentially middlemen who take orders from lenders and assign them out to appraisers. This firewall is seen as a way to prevent appraisers from feeling pressure to hit a specific value.

Of course this assumes that lenders are bad and the AMCs are above reproach. The irony of the situation is best expressed in an article by Dave Biggers, "This massive push toward AMCs is all the more surprising given that the original lawsuit by the Attorney General was filed against eAppraiseIT, an AMC, accusing it of inflating appraisals to satisfy Washington Mutual's demands."

Even if we assume that appraisers were inflating values in response to pressure from their clients, this solution takes us in the complete wrong direction. If an appraiser is pressured by a loan officer, the worst that can happen is that they'll lose that person's business. Is one client really worth risking your license over?

Once all the appraisals are ordered by a small handful of national AMCs that becomes a whole different question. Can any appraiser afford to piss off Landsafe, LSI, or eAppraiseIT when they become the Wal-Marts of appraisal ordering? The potential for abuse is much higher in a world where there are only a few large clients ordering all the appraisals.