Is our government “anti-American” when it comes to regulating the mortgage industry? While many throw this term around in an irresponsible manner, one thing is certain: government regulations designed to prevent another mortgage meltdown have hurt the industry and the real estate recovery. These new regulations clearly demonstrate a disconnect between Congress and the way the mortgage industry really works.
Take this example: The Appraiser Independence Requirements (AIR), effective as of Oct. 15, 2010, were developed by Fannie Mae, the Federal Housing Finance Agency (FHFA), Freddie Mac and key industry participants to replace the Home Valuation Code of Conduct (HVCC). Basically, this legislation prohibits banks from ordering appraisals directly from an appraisal company and prevents loan production staff or any other person who is compensated on a commission basis from engaging in communications with the appraiser.
AIR was intended to prevent any party from coercing or influencing appraisers in any way to produce a desired value for a residential property. Its true effect has created many unintended consequences.
The effects of AIR on loan processing
The effects of AIR include many inefficiencies and damage to both the appraisal and mortgage industries, and ultimately hurt the consumer.
The procedure seems very simple and straightforward: Appraisals on Fannie Mae and Freddie Mac loans must be ordered through an appraisal management company (AMC) that then places the order directly with an appraiser. The AMC picks the appraiser indiscriminately, then subsequently forwards the appraisal to the lender after it has been reviewed and scrutinized.
This procedure, however, creates several problems. First of all, it adds an additional layer between mortgage professionals and their customers, resulting in inevitable delays at best and potential misunderstandings in a process already beset by complexity and intricate requirements.
Responsible lenders lose control over the process and are unable to select professional appraisers with local real estate knowledge, experience and expertise at their jobs. This, in turn, leads to increased appraisal challenges and disputes caused by inexperience or unfamiliarity with the area.
In the end, AIR causes more work for loan processors and underwriters with few discernible advantages.
The impact of AIR on free enterprise
Even if we submit, for argument’s sake, say that AIR prevents “bad actors” from taking advantage of consumers, this is not the tried and true remedy in our economic system. AIR removes the freedom of choice by lenders to select appraisers who market their business and services in a competitive manner and compromises the recovery of both the mortgage and real estate industries.
AIR has severely damaged the appraisal industry by negating the ability of appraisers who have built up a good reputation and improved their business honestly. Instead of reaping the rewards of their hard work, they must now rely on “taking their turn” from the AMCs. Unable to freely market their services to lenders, many good professionals have left the industry.
AIR artificially categorizes all appraisal companies as equals. What would happen if our government forced us to choose our doctors in the same way, just because a few quacks, a small fraction of the total, took advantage of their patients? Or for a mortgage industry analogy, what if we made buyers select their dwellings in an artificial manner instead of letting them hunt and find their dream home? As mortgage professionals, we deserve the same rights within our own industry as are afforded everywhere else.
Carey Hollander is a retail sales manager for Guaranteed Home Mortgage Company, a licensed mortgage investment and banking firm comprised of more than 300 mortgage professionals lending in 28 states. For more information, e-mail
[email protected].
