Real Estate Investing:Will new appraisal law prevent a future housing crash?

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When looking for people to blame for the current housing crash, don’t forget the real estate appraisers.

In fact, I’d argue that appraisers — not all of them, but certainly many of them — played a major role in the housing mess we’re all struggling through now. How do you think homes in so many parts of the country became so over-valued so quickly? The appraisers, often pressured by mortgage loan officers to value a home just high enough so that a mortgage deal could close, artificially pumped up housing prices.

We’re dealing with the results of that now. Housing prices, thanks largely to appraisers who slapped just about any price that their mortgage loan officer business buddies requested, or hinted at, were too high. Now they’re crashing down, taking a lot of folks’ personal wealth with them.

The Federal Housing Finance Authority, as all government bodies seem to do, is now rushing in to fix this situation. Never mind that they’re several years too late. Maybe, at least, the new Home Valuation Code of Conduct — which you can read about at Appraisal Scoop.com — will prevent appraisers from screwing up the housing industry in the future.

The new code of conduct, which takes effect today, prohibits direct contact between a loan originator and an appraiser; forbids loan officers from requested estimated values or sales comparables before an appraisal report is completed; and forbids direct payment for appraisals to the appraisers by origination-related personnel.

In other words, the new code seeks to prevent appraisers from overvaluing homes for personal gain or to curry favor with loan officers who, the appraisers hope, would then send additional business their way.

Too bad this code wasn’t in effect in 1999, huh? Then we might not be suffering through today’s housing crash. In fact, if you think about it, the overvaluation of homes not only led to the housing crash, it also helped — along with several other factors — to bring out about our current recession.

Way to go, appraisers!

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