Steamboat Springs Local lenders, real estate agents and appraisers are bemoaning recently enacted appraisal regulations that have frustrated an already difficult market and spoiled potential sales, refinancings and efforts to access home-equity lines of credit.
The Home Valuation Code of Conduct was implemented May 1 and prohibits communication between appraisers and real estate agents, loan officers or mortgage brokers. Instead, appraisals must be ordered through appraisal-management companies, new middlemen in the process that cycle through a roster of appraisers and take a cut of their fees.
Whether they think it was a problem, many involved in mortgage deals locally and nationwide say they are supportive of efforts to reduce collusion and shield appraisers from being pressured to inflate home values. They say the HVCC, however, is a solution that has proven far worse than the problem by creating delays, removing flexibility, decreasing appraisal quality and substantially increasing costs. The National Association of Mortgage Brokers, which is working to see the regulations repealed, estimates the HVCC is costing consumers more than $2.8 billion a year in extra fees.
"I think the intention was good, but the result is really going to make things difficult," said John Truslow, of Castle Appraisals in Steamboat Springs. "To have a lack of communication throughout the entire process really hurts everybody. : I think it's a disaster in the making, and I see nothing good coming out of it.
"The last thing you need to be doing right now is killing real estate deals because of the HVCC : and that's what's happening."
Truslow said he has lost business because of the rules because anybody with a Colorado appraiser's license has an equal chance of receiving an assignment from an AMC regardless of his or her experience, skill or familiarity with a local market. Truslow also said AMCs take a cut of the appraisal fee and seek the lowest rate possible. He said he used to receive an average fee of about $400 for an appraisal, and now that number has dropped to $250 to $300.
"The impetus to do a good job is exactly where?" said Kathy Arce, of Phoenix Resources Mortgage in Steamboat. "The idea of it is fine. It's to take all fraud out of the appraisals. It's not a bad idea, but it doesn't work. And the customer is suffering as a result. : The appraisals are not as carefully done. : We, as brokers, can no longer work with appraisers that we have good working relationships with."
Cam Boyd, managing broker and co-owner of Prudential Steamboat Realty, said he has begun receiving calls from out-of-town appraisers asking him questions about properties he's been involved with in the past. He takes that as a sign that the appraisers don't have a good understanding of the Steamboat market. Arce, Boyd and Ed Allbright, of Columbine Mortgage in Steamboat, said they have seen deals fall through because of appraisal stumbling blocks since the HVCC was implemented.
"We had a couple of transactions fall through because of appraisals that probably were not done correctly," Boyd said. "The new rules are making it a lot harder for us."
Multitude of problems
Lower quality appraisals, however, is just one of many downsides to the process, opponents say. Arce said she used to be able to call an appraiser and ask whether a home value being sought was realistic before paying for an appraisal.
"We used to be able to figure out if a deal was doable before doing the whole thing," Arce said. "Now, we can't even inquire as to whether it's in the ballpark. : We did not influence the appraiser to say we need this value, but we could ask their honest opinion."
Allbright said he used to be able to have technical errors in an appraisal corrected the same day by calling the appraiser. Now disputes, even small technical ones, must be handled through the AMC and can take longer than a week to resolve. That alone can be enough to kill time-sensitive real estate deals.
"It's god-awful," Allbright said. "Timing is critical here. : You end up banging your head against the table."
Customers also no longer can transfer an appraisal between lenders. If they find a better deal or otherwise decide to switch lenders, they must repeat the entire HVCC appraisal process.
"If the borrower wants to explore another option, they can, but they have to pay another $400 for a new appraisal," said Arce, who said she knows customers who have had to buy as many as three appraisals. "That's unacceptable in my mind."
Sledgehammer for a fly
The HVCC is the result of a deal struck between New York Attorney General Andrew Cuomo and Fannie Mae and Freddie Mac, the federal government-backed mortgage companies. Although inflated appraisals may have been a legitimate problem in New York and other parts of the country, Truslow, Arce, Boyd and Allbright said there was not a problem in Steamboat.
"They're using a great big sledgehammer to kill a fly," Allbright said.
Local appraiser Jim Yannaccone, of ASI Appraisal Services, disagreed and said he absolutely has felt pressure from lenders to inflate home values.
"There was definitely a need for more impartiality," Yannaccone said. "There were some lenders who had appraisers they knew they could call to look the other way. : That's the good part (about the HVCC), is we can give an honest opinion of value."
Even so, Yannaccone said he is not a fan of the HVCC overall. He complained about his inability to ask simple questions of lenders or brokers and noted that the HVCC system is not conducive to a unique resort market such as Steamboat's.
"I send my appraisal to somebody who is sitting in a high-rise in Chicago. They don't understand the market," Yannaccone said. "It's costing the consumers a lot of money and the lenders a lot of time. What we used to be able to do in two to three weeks is taking six to eight weeks."
Truslow said he is skeptical that the HVCC will effectively achieve any of its goals because people who want to collude will find a way around the new rules.
"The people who were criminals before are going to be criminals after," he said. "It's honest people who are going to suffer. : The whole system assumes that everybody is corrupt, when I think a very small percentage are. : Common sense is not the rule of the day."