I love caller ID. It allows me to judiciously select whose phone call I wish to answer. This is particularly useful when fielding phone calls from solicitors, bill collectors and, of course, appraisers. Now if “Ross Shuffield, MAI” pops up, I would normally take it. “Larry Bankston” and I’m hitting the answer button because it might really be Dianne on the phone. “Tom Cook” and you know I’m hitting “Ignore.”
If only life were that easy.
New legislation is making this decision less a matter of personal preference and more a regulatory issue. On May 1, the Home Valuation Code of Conduct went into effect, prohibiting mortgage brokers and real estate agents from having a role in selecting, retaining or compensating the appraiser when a home loan involving Fannie Mae or Freddie Mac is concerned. In fact, no one with a financial interest in the origination of the loan, including loan officers, can be involved in the appraisal process. This really means that we cannot speak to the appraisers before or during the performance of an appraisal.
This is an unwelcome excuse for why I don’t take certain people’s calls or why they don’t take mine.
The goal of the code is “to help enhance the integrity of the home appraisal process in the mortgage finance industry” and it just applies to home loans financed through Fannie Mae and Freddie Mac — the FHA, VA, USDA and other lenders have not yet adopted the code. The underlying intent is to prevent undue influence on appraisers to reach inflated values just so a transaction would close. Bad appraisals are bad for everyone, particularly the homeowners who do not have the equity they thought they had, so in concept I understand the perceived need for the code.
My problem with the code is that prohibiting open communication with the appraisers restricts the exchange of market information, such knowledge which is typically a benefit to the borrower, the real estate agent and the lender for a host of reasons, including more certainty of closing. On the commercial side, I get a lot of valuable information from the appraisal community that helps my clients and my lenders make better decisions before getting too deep into a transaction. I can only imagine that the situation is the same on the residential side.
The policy is an understandable overreaction by the government, but I feel it was applied on far too broad a scale. And despite an outcry from the national real estate community, it is a policy that we will have to live with for now.
For more information on the code, click here.
(Brian Andrews is a certified mortgage banker specializing in the financing of commercial real estate. His business is Andrews Commercial Mortgage and he can be reached at brian.andrews@acmla.com.)
