Reappraising Appraisers

Advertising Disclosure: When you buy something by clicking links on our site, we may earn a small commission, but it never affects the products or services we recommend.

Image Not Available

Even while our nation’s real estate downturn is still unfolding, there’s been lots of talk about how to prevent a repeat in the future. But, proposals like the billion dollar bailout of brokers Fannie Mae and Freddie Mac aren’t enough… a drastic overhaul of the mortgage system is needed. Step one, remove the temptation for appraisers to inflate home appraisals, typically used to allow lenders to lend too much and borrowers to borrow too much.

The problem? A lender/borrower will simply ask an appraiser to “get to” a certain price on the home. If the appraiser can’t do it, the lender/borrower goes to a different appraiser who will. Obviously, this yields less than accurate appraisals.

The proposal? Fannie Mae and Freddie Mac have proposed a new “code of conduct.” Inside are provisions that will keep lenders and mortgage brokers from paying appraisers (so they can’t influence price). Instead, the lender would pay an outside management company which will handle the appraisers.

A solution? Not quite. Instead of a lender paying an appraiser, we’ll see a lender paying a management company, which then pays the appraiser. These management companies will still want to hire appraisers likely to appraise for the price desired. So how does this solve anything?