Fannie Mae and Freddie Mac are now regulating the appraisal business and, with their track record, I don’t think that’s who you want in charge.

Let’s talk about what this means to investors.

First Fannie and Freddie came after mortgage brokers putting the kibosh on most third party originations. Then they came after us real estate investors with the crazy rules on investor loans, LLC’s, stated income and cash out refinances. Now, they’re coming after independent appraisers.

This law requires all appraisers to join Appraisal Management Companies (AMC’s), where they’re forced to give up 40% or more of their income. My favorite appraiser, Chris Shannon, says that the AMC’s are hiring young, inexperienced appraisers who are willing to work for 60% of normal wages. Oh, and guess who owns the AMC’s? An independent third party? Nope, the LENDERS.

It doesn’t take a rocket scientist to figure out what will happen to the quality of appraisals. Not  to mention the values on investment properties.

Appraisers are also no longer allowed to have any contact with mortgage brokers. When I ran my mortgage company, I worked with Chris exclusively because he understood our business.

Most of the conventional loans we did were rehab loan takeouts and the lenders *hated* them. They were always cutting our values arbitrarily or denying the loan because of a rapid increase in value. Um, yeah, there’s going to be a rapid increase in value if you’re spending $50-$60K to REHAB a house!

Chris always did a great job of supporting his comps and providing a well-documented rebuttal. That won’t happen anymore. One strike and you’re out, investors.

Also, mortgage brokers can no longer choose the appraiser they want. They’re not even allowed any contact with the appraiser. Only the lender is allowed contact with the appraiser. So, as Chris said, the 20 years that he spent building up his relationships with brokers to get business is now *poof* gone with the wind. It’s now illegal for them to even contact him. This is nuts, guys.

Oh, and since the appraisal won’t be in the mortgage broker’s name, you can’t have it reassigned. If you need to change lenders (for any reason including value issues) you’ll need to get and pay full price for a completely new appraisal! This will increase your costs, delay the loan closing and cause a ton of frustration on all sides. Hope the appraiser that your new lender chooses isn’t too backed up with orders – your earnest money is at risk!

Fannie Mae and Freddie Mac have lost billions of dollars in the last few years, so it’s no wonder they want to manipulate the market and have more control. But is this really the way to do it? By adding a level of bureaucracy and knocking independent appraisers out of the industry?

Here’s a 25 minute call I recorded with Chris Shannon about HVCC. Hear his opinion and how he thinks it will affect YOU!

Be sure and leave a comment and let me know what you think about the HVCC.