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In Appraisal Shift, Lenders Gain Power And Critics

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http://www.nytimes.com/2009/08/19/business...ml?ref=business

Mike Kennedy, a real estate appraiser in Monroe, N.Y., was examining a suburban house a few years ago when he discovered five feet of water in the basement. The mortgage broker arranging the owner’s refinancing asked him to pretend it was not there.

Brokers, real estate agents and banks asked appraisers to do a lot of pretending during the housing boom, pumping up values while ignoring defects. While Mr. Kennedy says he never complied, many appraisers did, some of them thinking they had no choice if they wanted work. A profession that should have been a brake on the spiral in home prices instead became a big contributor.

On May 1, a sweeping change took effect that was meant to reduce the conflicts of interest in home appraisals while safeguarding the independence of the people who do them.

Brokers and real estate agents can no longer order appraisals. Lenders now control the entire process.

The Home Valuation Code of Conduct is setting off a bitter battle. Mortgage brokers, lenders, real estate agents, regulators and appraisers are all arguing over whether an effort to fix one problem has created many new ones.

The agents, maintaining that the changes are effectively blocking home sales by encouraging the use of inexperienced appraisers, are asking Washington to suspend the code until 2011. For their part, appraisers acknowledge that the change may have been well intentioned but contend that it has no teeth and is undermining the economics of their profession.

“We’ve been begging for years for enforcement of existing state and federal laws regulating appraising,†said Mr. Kennedy, a leader in the appraisal community. “We thought we were finally going to get that. But the code is doing nothing except putting ethical appraisers out of business.â€

Financial change is one of the most contentious issues in Washington, and efforts to fix even widely acknowledged problems seem stalled. The attempt to change the appraisal system is an example of how difficult it can be to adopt changes that are good in theory and also work in practice — while simultaneously winning support from warring interest groups.

“The real estate industry is incredibly complex,†said Josh Denney, a lobbyist with the Mortgage Bankers Association. “If you take one piece and tinker with it, it causes friction throughout the process.â€

So some US housing stock may be even more overvalued!!!!!

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It used to be the case (early 1990's and prior to that time) that banks and building societies controlled the appointment of the surveyor to "value" the property in either an owner occupier purchase or even early BTL. The value remember was on behalf of the lender albeit the surveyor owed a duty of care to the prospective or eventual buyer.

Brokers then exerted their power by taking over the house buying process, but in effect pulled the so called independent valuer into their own pocket. The broker decided which valuer should be instructed given the location and condition of the property.

It was a case of "he who paid the piper called the tune"!

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