When the new regulations on appraisers went into effect local knowledge was considered a secondary skill. The 3rd party companies hired the cheapest appraisers they could which meant that the appraisers often came from “elsewhere” and had no understanding of the local market.
This caused what would normally be a good deal to die because of a faulty appraisal. It looks like Fannie Mae has seen the writing on the wall and now is going to demand that the appraisers have the required knowledge, not just the lowest price. And they wanting the appraiser to take more pictures of the properties and any defects found.
This is a step in the right direction. Back in the insanity that was the middle of the past decade appraisers were under extreme pressure to hit the number for the mortgage lenders. This led to many bad mortgages and pressure on the appraisers to betray their professional responsibilities. To correct this problem, appraisers were forced to go through a 3rd party and not be directly hired.
Of course, the 3rd party companies wanted to get the most profit out of the deal so they hired the lowest common denominator. Since they did not have to pay for fuel or any other cost, the appraisal brokers hired people who had no local knowledge to perform the appraisals.
Often you would hear of appraisers coming from 100 miles away to determine value on a property in an area they have never seen before. This is a recipe for disaster as the appraiser can not provide true value and has to be very conservative to protect themselves.
It is good to see Fannie Mae address the problem, and now let’s hope Freddie Mac follows quickly.
Fannie Mae just issued new requirements to help clarify single-family home appraisals, since it identified some issues in “post-purchase reviews of mortgage loan files.” Simply put, what Fannie’s June 30 selling guide updates mean is the agency didn’t like the looks of the some of the appraisals on mortgage loans sold to it by lenders.
One concern often voiced by real estate agents is how appraisers are being selected and whether lenders are hiring competent, as opposed to cheap, practitioners. Fannie’s new language says appraisers must have the “requisite knowledge” as well as experience and the right data to competently perform an appraisal. The lender, Fannie said, is ultimately responsible for hiring qualified appraisers.
Appraisal reports must also contain more pictures, including interior photographs of a home’s kitchen, all bathrooms, the main living area, any examples of physical deterioration and examples of recent updates like remodeling or renovation projects. via the Chicago Tribune