Crossing your guide’s desk as an email from the Big Cheeze, Mr. Thad Wong, is an article from the Wall Street Journal about appraisals, low valuations and the new Home Valuation Code of Conduct (HVCC.)
Link to article here, but some excerpts to follow as the article is buried behind a log-in page.
Patti Sanders, an aerospace engineer in Oakdale, Calif., knew prices were down sharply but said she was "flabbergasted" recently when her 3,100-square-foot Victorian home was appraised at $250,000, compared with $635,000 assayed two years earlier. The new estimate prompted a lender to reject her application for a refinancing that would have lowered her mortgage payments about $400 a month.
Credit lines are also vulnerable. J.P. Morgan Chase & Co. recently froze one customer’s home-equity line of credit because, the bank said, his Manhattan apartment — a 2,650-square-foot three-bedroom, two-bedroom duplex with a terrace appraised at $1.475 million in 2005 — was worth just $600,000. Chase told the borrower, who asked not to be identified, that the lower
credit line would remain in effect until a new appraisal could demonstrate the value was much higher than $600,000.
One of your guide’s clients had his Home Equity Line of Credit slashed from $175,000 down to the outstanding balance. The original HELOC was with WaMu. I suppose these HELOC’s were what contributed to WaMu’s demise. Now the HELOC is held by Chase. Your guide banks with Chase as well as keeps a biz credit card and a car loan with them. And I can tell you, Chase is not in the habit of keeping anything you wouldn’t ordinarily characterize as "conservative" in their system.
Lenders burned by huge losses from defaults now are pressing appraisers to be more conservative. And appraising itself is more difficult with home prices fluctuating rapidly and transactions few and far between in some markets; sale prices from a few months back may no longer reliably indicate the value of nearby homes.
One of my recent appraisals came back $60,000 below contract price. And this happened after I listed the house for sale $70,000 less than the last identical unit sold for.
And don’t even get me started again on the selection process for appraisers with the new rules of the HVCC.
The code bars loan officers, mortgage brokers or real estate agents from any role in selecting appraisers. This has encouraged lenders to outsource the selection to appraisal-management companies, or AMCs, which take a sizable cut of the appraisal fee. As a result, appraisers are under pressure to "do it faster, do it cheaper," said Bill Garber, a spokesman for the Appraisal Institute, a trade group.
Debbie Huber, a Las Vegas appraiser for 20 years, said she has turned down requests from AMCs that offer to pay 50% to 70% of her standard fee and require that the work be completed in as little as 48 hours.
Some appraisers said AMCs settle for appraisers who have little experience or live far from the homes they evaluate. John Simms of Peoria, Ariz., said he often gets assignments more than 100 miles away in neighborhoods he doesn’t know well.