New Rules Foul Up Local Realtors
Photo/Christina H. Davis
Cheryl Eidinger-Taylor
For Cheryl Eidinger-Taylor, chief operating officer for ERA Key Realty of Whitinsville, new rules governing the appraisal business have “added a lot of aggravation.”
The new rules adding to an already pressure-driven residential real estate market are known as the Home Valuation Code of Conduct, which became effective May 1. The code is a byproduct of a legal settlement between New York Attorney General Andrew Cuomo and Freddie Mac and Fannie Mae, as well as their regulator, the Federal Housing Finance Agency. It was intended to make the appraisal process more transparent and accurate by limiting communication between loan originators and appraisers. Because Fannie and Freddie back 56 percent of U.S. home loans, totaling more than $5 trillion, a deal arose in New York now has ramifications nationwide.
While well intentioned, the rules have done more than crimp appraisers like Head in
Worcester. They’ve also impacted real estate agents and mortgage financers.
The code is designed to alleviate pressure on appraisers to hit predetermined home values, a part of the process that many blame for contributing to the housing boom and its subsequent collapse. Brokers and many lenders can’t just call up appraisers anymore, a jarring shift in standard practice that has led many to use middlemen — appraisal management companies.
Brokering change
Eidinger-Taylor of ERA Key Realty, which has 246 agents across Central Massachusetts, said the new rules have definitely slowed down the process of buying and selling homes.
She said the use of appraisal management companies has meant that appraisals are now often done by people who are unfamiliar with the intricacies of a local market, resulting in wild swings in appraisal amounts.
For example, she said she was involved in the sale of a Bellingham home that was on the market for $233,000. The appraiser assigned to the transaction was from the North Shore, and came back with a valuation of only $186,000. In that case, the buyer decided to change financing, so a new appraiser was assigned that happened to be local. The second appraiser valued the house at $238,000 and the deal went through.
Eidinger-Taylor said she doesn’t envy the position of the out-of-market appraiser because they are having to use short sales and foreclosures as comparable sales in forming the appraisal.
Since the rules went into effect, Eidinger-Taylor said there have been several deals that went sour strictly because of the new appraisal rules. And that hurts, especially when the real estate market finally seems to be leveling out.
“In the spite of this, I’m cautiously optimistic,” she said. “We had a May and a June that was pretty level this year to last year… and in July our units are up a bit.”
Nearly 58,000 people have signed an online petition to reconsider the rules. An effort is now under way in the U.S. House of Representatives to put an 18-month moratorium on HVCC. The bill, HR 3044, is now before the House Committee on Financial Services.
A section in the rules explicitly prohibits lenders from using appraisers employed by them, their affiliates or any company in which they have an ownership stake. But a subsection outlines a number of exceptions, primarily requiring that sales and loan production be kept separate from appraisals, limiting communication between the functions, and calling for outside audits or regulatory examinations.
The Appraisal Institute, a national trade group, wants to rework HVCC rather than scrap it by way of the moratorium, according to President Jim Amorin. “The intent of the Home Valuation Code of Conduct was very good,” he says, specifically relieving pressure on appraisers to hit target values. “Do we think that there are some things about the code that could be tweaked to make it better? Absolutely.” The group is pushing greater regulation and disclosure of appraisal management company practices, and reintroduction, with oversight, of mortgage brokers into the process. “The mortgage brokers have become the pariah in all this,” Amorin says.
But not everyone involved in home sales is being put out by the new rules.
Stephen Tomaselli is a regional sales manager based in Franklin for PHH Mortgage, which is a top five mortgage originator in the United States. He said that he’s seen frustration from real estate agents about the new rules, but the transition has been relatively smooth for his business.
“We had already been ahead of the curve,” Tomaselli said of PHH. “We’ve used an appraisal management company for several years.”
But, Tomaselli said, the same is not necessarily true for smaller, local mortgage originators who are accustomed to working with a small group of local appraisers.
Tomaselli said the new rules are helping to “empower appraisers” who had been pressured for many years to match real estate agent expectations.
“I think they (appraisers) took a lot of abuse for a lot of years,” he said.
Jackie Farwell is a staff writer for Mainebiz, a sister publication of the Worcester Business Journal. WBJ Staff Writer Christina H. Davis also contributed to this story.
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