Professional Appraisal Organizations React to Fannie Mae and Freddie Mac Home Valuation Code of Conduct

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RISMEDIA, Dec. 31, 2008-The nation’s largest organizations of professional real estate appraisers – the American Society of Appraisers, the Appraisal Institute, the American Society of Farm Managers and Rural Appraisers, and the National Association of Independent Fee Appraisers – have issued the following statement in reaction to the revised Home Valuation Code of Conduct (Appraisal Code) released by the Federal Housing Finance Agency and Fannie Mae and Freddie Mac:

Now that Fannie Mae and Freddie Mac have taken steps to improve appraisal quality by establishing an Appraisal Code, we suggest lenders set their policies to use the most competent appraisers available. Now more than ever we need to return to the time-tested process of choosing appraisers based on quality, not price. We firmly believe the best and most efficient way for lenders to identify competent appraisers is to seek out those with advanced education, experience and credentials including professional appraisal designations.

We are reviewing the revised Appraisal Code to study its impact on the appraisal profession and the mortgage lending industry. While we applaud the thrust of the Appraisal Code to increase appraisal independence, we have continuing concerns that certain elements are at odds with the goal of obtaining competently prepared appraisals, specifically, provisions that place increasing reliance on unregulated appraisal management companies. Like much of the mortgage industry during the years that lead up to the current housing crisis, these entities are unregulated. Further, the current business model of many appraisal management companies places appraisal quality last, while shifting the cost of appraisal management services to the consumer without any disclosure.

For many years after the Great Depression, lenders sought out competent appraisers as a central component of risk management activities. This system worked. Those tables turned in recent years however, as the lending industry became dominated by loan production and computerized risk management. We pledge to work with Congress to reestablish and emphasize the fundamentals of collateral valuation as it reviews the future of the mortgage lending industry next year.

Jay Fishman, a Fellow of the American Society of Appraisers (ASA) and chair of ASA’s Governmental Relations Committee said, “We welcome the fact that the just-released Home Valuation Code of Conduct will improve the independence of appraisers who value properties collateralizing residential mortgage loans purchased by Fannie Mae and Freddie Mac. We are concerned, however, that the Code also permits mortgage lenders to avoid the use of professional appraisals and rely, instead, on valuation products that are all-too-frequently unreliable and distort the true value of residential properties. When valuations lack credibility, homeowners and taxpayers can be put at significant risk. We intend to work with the Fannie Mae, Freddie Mac, their regulator and Congress to improve the HVCC.”

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Tuesday, March 16, 2010