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mortgage-webRISMEDIA, March 3, 2009-(MCT)-Stunned by falling home values and rising foreclosures nationwide, mortgage lenders have become more critical of the appraisal process and begun insisting the assessment of a home’s worth be far more rigorous than it used to be.

Even if the Pittsburgh region may not have been a hotbed for the inflated and sometimes even fraudulent appraisals that flooded overheated markets elsewhere during the real estate boom, the tightening of mortgage lenders’ credit guidelines has affected borrowers here.

“The big thing is national property values are declining in other markets, and lenders write national guidelines which assume values have declined here, too,” said Kenneth Christoff, president of Real Estate Appraisal Services in Robinson.

For example, a Beaver County couple who paid $180,000 for their home two years ago then put on an addition to improve its value. When they tried to pull cash out in a refinance recently, it turned out the home had not appreciated at all.

“That’s just the situation the market is in,” said Scott Churchill, president of the Pittsburgh Metro Chapter of the Appraisal Institute, who did the survey of the Beaver County residence.

In the past, appraisers typically would use comparable home sales within the previous year to assess values. Now lenders require them to use sales within the past three to six months.

Location, which used to be the No. 1 factor in appraisals, is now not as important as the date of sale.

“If I appraise a property in Mt. Lebanon, the lender might be more concerned with the latest sale in Upper St. Clair,” Mr. Christoff said. “They will put more credence in a property value that sold in Upper St. Clair three months ago than one that sold next door in Mt. Lebanon a year ago.

“In Phoenix and Las Vegas, that method may be credible. In Pittsburgh, it’s stupid. What impacts values in Pittsburgh is not the same as what impacts values in other markets. But lenders write national guidelines.”

This region had far less of the speculative building and price appreciation that caused so many homes in other parts of the country to be appraised for more than they were worth. Yet this region has not escaped the downtick in the current recession.

“Prices here have dropped in the past six months,” said Robert Barone, president of Barone and Sons Inc. in Whitehall. “After the stock market fell in early fall, it created downward pressure on houses here that were not as evident before. “Buyer confidence fell when 401(k) values dropped. But it’s been a mixed bag here. Some neighborhoods have held their own, and some haven’t.”

Even though the home buyer pays for the appraisal, it’s done to satisfy the lender and investors who buy the loan from the lender. They want to know that their investment is safe. In the case of a foreclosure, property that is worth less than the loan could add to the losses.

More than a few homeowners have ended up owing more than their homes were actually worth because of the pressure by mortgage brokers, lenders and real estate agents to make sure appraisals were high enough to meet the sales price. A new rule is meant to make that less likely to occur in the future.

According to the home valuation policy adopted by government-backed mortgage finance companies Fannie Mae and Freddie Mac effective in May, lenders and mortgage brokers will no longer be able to choose an appraiser. Realtors also will be banned from having an influence.

Instead, lenders will have to go through an intermediary.

“This is good. I believe there should be a firewall,” Churchill said. “The part I don’t like is there are appraisal management companies that will be processing these orders and taking a significant portion of my fee.”

Rick Greenhouse, president of Greenhouse Real Estate in Imperial, North Fayette, said the management companies could charge a homeowner $400 for the appraisal and then pay the appraiser $150.

“They are making the customer pay more than they would if they went with an independent company, and the customer has no option,” Greenhouse said.

Still, in his opinion, the Pittsburgh area hasn’t been entirely free of abusive appraisal practices, and many homeowners here are paying the price for it now. “I’m appraising houses now that are valued at less than two years ago in places like Sewickley, Moon, Squirrel Hill, Oakland and Fox Chapel,” he said. “It’s not because the value has dropped but because the appraisal was inflated.”

He said lenders and management companies were usually looking for a given number. “The way it worked is if you didn’t deliver the numbers, you didn’t get anymore business with them.”

Copyright © 2009, Pittsburgh Post-Gazette
Distributed by McClatchy-Tribune Information Services.