The appraisal laws are becoming stringent because during the boom the hiking up of the valuation of house led to the chaos. The appraisers got their assignments from the mortgage brokers who gained from the escalating prices. The appraisers had a free hand in stretching the values in the then market where the median prices went up by a staggering 40% annually.
Following the crash of the market in 2007, the regulators of the federal government drew up a string of reforms to create a distance between the lenders and the appraisers. The new rules became effective from last April. It was a part of Dodd-Frank financial overhauling law that prohibited “coercion and other similar actions”. It mandated that the appraisers would value their properties based on reasons “other than their independent judgment”.
Since the housing collapse affected the global financial markets the underwriters of mortgages now want a more conservative approach to appraisals – more traditional then ever before. Tim Mattingly of United Mortgage Partners LLC based in Orlando said, “Wholesale lenders, the people buying the loans, are afraid they won't be able to sell them, and the underwriters have a lot of pressure to scrutinize the appraisal. The underwriters may challenge comparable sales listed on the appraisal — and maybe even reject the appraisal”.
The house owners in Orlando are facing the maximum difficulty in seeing their house values return to pre-recession levels. The twin problems are persisting – foreclosures and new stringent appraisals. The outlying divisions that were constructed from 2004 to 2007 are the worst affected. The values have totally collapsed from the time of the housing peak. The bulk of the sales were funded with toxic sub-prime loans.
The house owners who had invested in renovations like kitchen repairs and making other improvements are now finding it difficult to recoup the money because the property value, they had thought would invariably go up has gone down.
This drop in valuation is affecting the houses that are not in foreclosure. Their fault is that the houses are in the same vicinity as the foreclosed ones said Tim Burns of Burns Appraisal of Winter Park. He said, “Short sales and foreclosure have no business being compared with arm’s-length transactions, but they are being compared”.
It has long been the standard measure to compare the house to be appraised with three similar sales. This is what the important mortgage lenders now want to be re-introduced. They want to be informed as to the competition the house would be facing by seeing the sale list of the locality.
Tags: collapse, appraisals, mortgage brokers, appraisers, comparable sales, underwriters, coercion