Appraisers Under New Scrutiny - Revisit Your Appraisal Policy

An article appeared in the Wall Street Journal on 8/18/09 that (again) scrutinizes the validity of real estate appraisals. (Click here for the complete article). The Regulators have been vilified in the press regarding their role in missing the housing debacle. You can be sure they are paying close attention to media scrutiny.

The role that appraisers played in the crisis is a matter of considerable discussion. Regardless of where you stand on the matter, the Regulators are taking a closer look at whether or not financial institutions use competent appraisers. It would be a good time to review your appraisal policy and at the very least, be sure you have all your "ducks in a row"; make sure you have a current list of approved appraisers, an updated copy of their license, etc. And don't just look at the bottom line value. Check each appraisal to be sure all required components are included. A checklist is always a good idea, and an appraisal policy is REQUIRED.

Speaking of crisis, the Chinese word for "crisis" contains two characters. One of them means "opportunity". Now that real estate values are correcting themselves, mortgage loans may have become a safer bet, at least as far as the underlying collateral value is concerned. But, due to historically low rates, be aware of interest rate risk. No need to stop selling to Fannie and Freddie. But to book mortgages in your portfolio, wait for the perfect storm - rates rise to a "normal" level, unemployment levels off, and collateral values can be trusted.

NCUA Regs require state-certified or state-licensed appraisers. The Reg states that appraisers must (1) have demonstrated competency, (2) subject their professional conduct to effective supervision, and (3) perform written appraisals in accordance with the Uniform Standards of Professional Appraisal Practice.

Do you need your state's appraisal licensing board contact information? Click Here

Real home values depend upon an appraisal about as much as the economy depends on economists as the weather does on forecasters. You should know your market, use common sense, and be sure your appraisers valuation makes sense.