'Hindering Sales' or Reality Pricing?

The local angle is just the tip of the iceberg; realtors are protesting nationally, too.

Under an industry code of conduct that took effect May 1, mortgage brokers, real estate agents and loan officers are prohibited from selecting home appraisers. In order to avoid trouble with the rule, called the Home Valuation Code of Conduct, many lenders are hiring companies that put together pools of appraisers and then assign them to individual housing transactions, they say. The code applies to mortgages that will be sold to Fannie Mae or Freddie Mac.

Real estate agents and mortgage brokers say it has led to an increase in questionable or stingy valuations by appraisers who are leery of producing estimates that are too high, or who may be from outside the housing market and unfamiliar with the nuances of neighborhoods to which they're sent.

Note the Fan/Fred connection. You might recall that Fan and Fred have a few problem loans.

Bill Garber, director of government and external relations for the national Appraisal Institute, said appraisals are meant to be a risk-management tool for lenders "who typically don't want to lend beyond what the value of the collateral is worth."

"Appraisers don't make the market. They simply report what is occurring within the markets, and they are sort of the eyes and ears of the lender," said Garber, whose organization is the nation's largest association of appraisers. "In the end, it's really a lending decision."

It may be a fact that 'non-locals' are less informed. On the other hand, it IS a fact that if Fan/Fred lose, so does the US taxpayer.

From Ritholtz, in an essay outlining the national effort to rescind the new regs:

Historically, there was no incentive to inflate appraisals. But with the rise of the mortgage brokers—many working closely with real estate agents—the business of steering appraisals to the most generous rose rapidly. By inflating appraisals, many appraisers found they could attract more referral business; some even managed to always hit the target prices given by real estate agents, which contributed significantly to the huge run-up in home prices. In 2005, more than 8,000 appraisers—roughly 10 percent of the industry—petitioned the federal government to take action against such abuses. But both Congress and the White House did nothing, allowing this rampant fraud to continue unabated.

Nobody wants to hear that their house has devalued. But a devalued market is what it is.