Integrity in Property Valuation: The Introduction of Appraiser Independence
In 2010, the Department of Housing and Urban Development (HUD) launched the “Appraiser Independence” initiative. This program was designed to protect appraisers from potential coercion by reverse mortgage lenders and borrowers, thereby preventing the inflation of property values that could affect market stability.
Legislative Response to the Housing Bubble
The impetus for this program was a widespread belief among lawmakers that undue influence on appraisers contributed to the housing bubble. By insulating appraisers from such pressures, HUD sought to promote a more accurate and fair evaluation of property values.
Changes in Appraisal Processes
For professionals in the loan origination sector and for borrowers alike, the most significant impact of this initiative has been the mandatory use of Appraisal Management Companies (AMCs) for the selection of appraisers. This means that neither reverse mortgage lenders, banks, nor borrowers have a say in choosing the individual who will appraise the property.
The Shift from Past Practices
Before this regulatory shift, loan originators often developed working relationships with appraisers, facilitating communication and ensuring a better understanding of the property valuation process. Appraisers would preliminarily assess whether a property could meet HUD guidelines and review comparable sales before visiting the property and incurring any costs to the borrower. If an appraiser anticipated an inability to generate a viable report, they would communicate this, saving time and money for all parties involved.
The Value of Professionalism
Good appraisers are known for maintaining client satisfaction by providing honest and accurate property values, which may not always align with the client’s expectations. This level of professionalism is crucial for the integrity of the real estate market and the financial decisions of both reverse mortgage lenders and borrowers.
Comparable Sales Data in Reverse Mortgage Appraisals
Appraisers are often provided with feedback on their valuations, and today, this practice continues with regularity. A well-trained FHA appraiser is aware of the importance of selecting appropriate comparables; for instance, they know not to use detached single-family residences to benchmark attached townhomes and condos.
Understanding Non-Disclosure States
In some regions, known as “Non-Disclosure States,” sale details of properties are not publicly accessible. This lack of disclosure means that the intricacies of property transactions remain confidential. Despite this, appraisers have access to specialized tools that grant them the ability to view sales activities and the final sale prices.
This can present a challenge if you reside in a non-disclosure state. The reverse mortgage loan officer handling your application may not have access to information regarding comparable sales, which could impact their knowledge of your property’s value in the market. In such cases, it wouldn’t be fair to hold the loan officer accountable for the lack of comparable sales data.
Appraisal Review and Communication
Upon receipt of the appraisal, however, the loan officer must review the document meticulously. If there are any issues, he should act swiftly by contacting the Appraisal Management Company (AMC). It’s important to remember that due to the stipulations of Appraiser Independence, the loan officer is prohibited from communicating directly with the appraiser. This step is essential to ensure transparency and maintain the integrity of the appraisal process.
Working with Appraisal Management Companies
Working closely with Appraisal Management Companies (AMCs) is critical to the loan origination process. If the AMC informs an originator that no suitable comparable sales (comps) are available, the company that initiated the appraisal should negotiate with the AMC to either reverse the charges or retain only the fee associated with the initial visit to the property. This is under the premise that it was impossible to anticipate the lack of comps without a property inspection.
At this point, it would be advisable for you to encourage the originator to pursue this course of action. Particularly if the appraisal was intended to meet FHA HECM requirements but failed to align with HUD standards. Unfortunately, this scenario is not uncommon and reflects one of the more challenging elements of the real estate industry.
The Impact of Appraiser Independence on Quality and Timing
Appraiser Independence necessitates that the originator coordinates with an AMC, who then directly engages the appraiser to perform the property evaluation. In this process, the AMC retains a part of the appraisal fee, which consequently reduces the appraiser’s earning potential per assignment.
The introduction of Appraiser Independence was intended to raise the bar for appraisal quality. However, there’s a sentiment that the level of appraisal expertise has declined. This is because AMCs sometimes assign the appraisal to the first available appraiser rather than the most qualified for the specific task.
Furthermore, in areas with sparse appraisers, an AMC may struggle with limited local options, leading to delays as they seek an appraiser willing to take on the job. The assigned appraiser may not be well-acquainted with the local market, potentially affecting the accuracy of the appraisal.
However, it’s important to note that if comparable sales data are available, it’s still possible to amend the appraisal or conduct a new one, which could facilitate the loan acquisition process.
It’s also crucial to acknowledge that if no comps are available to substantiate the necessary property value, the appraiser cannot be held responsible. Transparency and honesty from the beginning of the appraisal process are vital to set realistic expectations for all parties involved.
How to Submit an Appraisal Rebuttal
When addressing concerns with an appraisal, it’s essential to understand the flexibility and constraints within the process. HUD and the lender can offer some leeway regarding the age and distance of comparable sales, but ultimately, it is the lender’s responsibility to determine if the scarcity of comps compromises the marketability of the property.
Lender’s Considerations on Property Value and Marketability
Lenders are reluctant to finance a property if they cannot establish its value or if its marketability is questionable due to insufficient comparable sales data. If you believe that an accurate appraisal could have led to a reverse mortgage loan application, there is still an opportunity to rectify the situation.
Taking Action on a Disputed Appraisal
It is imperative to reach out to the loan originator and demand that they contact the AMC to request a refund, especially if the appraisal did not meet the specified requirements. In cases where there is available sales data, the originator has the option to commission a new appraisal, either through a different AMC or by requesting the current AMC to reassign the task to a different appraiser.
Your Rights Regarding the Appraisal
As a client, you are legally entitled to receive a copy of the appraisal; the originator is obligated to provide it upon request. If the AMC declines to issue a refund, you have additional recourse.
Submitting a Complaint
One option includes filing a complaint with HUD against both the appraiser and the AMC for non-compliance with HUD standards. While this course of action may not directly lead to a refund, the threat of a formal complaint may incentivize the appraiser and AMC to reconsider their position and potentially issue the refund to avoid further complications.