Appraisers Still Feeling Pressure

From: TAMB [mailto:TAMB@tamb.org] Sent: Friday, August 22, 2008 5:00 PMTo: TAMB@TAMB.orgSubject: Ken Harney's Saturday Article Appraisers, Still Feeling Pressure By Kenneth R. HarneySaturday, August 23, 2008; F01 Have the real estate valuation shenanigans and inflated home appraisals that characterized the boom years disappeared? Or are mortgage loan officers and real estate agents -- even individual home sellers -- attempting to influence or interfere with appraisals despite new federal rules that ban such behavior? Ask appraisers, and many will tell you: It's still business as usual. Attempts to encourage inflated appraisals continue, although in some cases, the techniques have become subtler. "Absolutely, appraisers continue to get pressured" to hit the numbers needed to push transactions to closing, said Bill Garber, government affairs director for the Appraisal Institute, a professional organization representing appraisers. "That has not changed yet," he said, even though recent federal housing legislation toughens appraisal standards and the Federal Reserve's new truth-in-lending rules ban interference, bribes or intimidation designed to influence appraisers' valuations. A national poll of appraisers, conducted by October Research two years ago, found that 90 percent of those interviewed reported some form of interference or intimidation by retail loan officers, brokers, third-party appraisal management firms and others. Gary Crabtree, principal of Affiliated Appraisers in Bakersfield, Calif., said, "It hasn't gone away." There are even some developments that could make things worse, he said. Starting Oct. 1, a new federal foreclosure-relief refinancing program requires lenders to write down the value of distressed houses to 90 percent of current market value to enable borrowers to be refinanced. Some appraisers "could find themselves under pressure to inflate values" on those properties to cut lenders' losses, Crabtree said, even though the federal legislation authorizing the program specifically prohibits interference. Sara F. Schwarzentraub, president of Inter-State Appraisal Service of La Mesa, Calif., recalls how one client left a recorded message on her office phone complaining, "If you didn't know you could hit what was needed, you shouldn't have taken the assignment." The number needed by the caller -- a mortgage company employee -- was $50,000 to $60,000 higher than comparable values in the area could support, according to Schwarzentraub. In Owings, Md., Michael Tsourounis, president of Calvert Appraisal and Realty Services, recounted a recent visit to a mortgage company in his area. Tsourounis inquired about the possibility of doing appraisal work for the lender. "The office manager asked me directly: 'If I sent you out to appraise a million-dollar home and the comps [comparable sales] only came in at $800,000 . . . but in your heart you knew it was worth a million dollars, what would you bring it in at?' " Tsourounis said he told the manager, "The market is full of million-dollar houses selling for $750,000. Why should I be responsible for adding one more foreclosed property to the already growing list?" "Not surprisingly," he said, he has never heard back from the lender. "Was that a form of interference? You bet it was," Tsourounis said. "It was just a little subtler, a little less direct, than it used to be." The obvious intent, according to Frank Gregoire, immediate past chairman of the Florida Real Estate Appraisal Board and an appraiser in the Tampa-St. Petersburg area, "is really to find out: Will this guy play ball? Will he be cooperative when we need him?" Gregoire says appraisers still routinely receive probing e-mails and phone calls from lenders and brokers designed to elicit the same information: Will an appraiser "pre-comp" a property with a sales contract pending at a specific price? Can that appraiser reach a specific valuation number needed for a refinancing -- which may be far out of line with current local property values? He said, "Things are tough, sales volumes are down, and some lenders know that they'll eventually find someone who'll cooperate" -- often a newcomer to the appraisal field who badly needs an assignment. "It's not easy for some of them to say no, especially when they see business go to folks who everybody knows are playing the game." Only when federal and state governments severely punish unethical appraisers and the people who put pressure on them "will all this start to get under control," Gregoire said. But he sees some reasons for optimism: State regulators in Florida and elsewhere are increasingly cracking down on appraisers, even stripping away their licenses. And the new federal legislation authorizes the housing secretary to impose financial penalties when appraisers are found to have inflated values.