Who chooses your home appraiser?

"If mortgage brokers are prohibited from ordering appraisals, consumer costs will rise, contracts will be delayed and borrowers will be stripped of one of the primary benefits of working with a mortgage broker, namely, cost-effective and timely customer service," Hanzimanolis wrote.

The code will be "a horrible, monstrous disaster," declares Joe Metzler, a mortgage specialist at Mortgages Unlimited in St. Paul, Minn. He says that once the code becomes effective, mortgage brokers won't be able to speak informally to appraisers, much less order appraisals. That lack of communication could stymie some homeowners who want to refinance but don't know whether they have enough equity in their home to do so.

The code was "designed to prevent the fraudulent appraisals that created a lot of the mess" in the mortgage sector, Metzler says. But he adds that in his experience appraisers have already become more conservative in their valuations.

"There is no one who is willing to, ahem, sharpen their pencil," he says.

3. Will the new rules make appraisals more costly? 

Another major concern is whether these changes in how appraisals are ordered will increase borrowers' costs for appraisals.

Currently, mortgage brokers order half or more of all appraisals, according to Garber. Once they are pushed out of the process, more appraisals likely will be ordered instead by appraisal management companies, which control approximately 20 percent of the appraisal business, again according to Garber. These companies typically aren't paid for their services by the lender. Instead, they take a cut, which can be as much as 50 percent or more, of the appraiser's fee.

Garber says appraisal management companies have put substantial downward pressure on appraisers' earnings; consequently, some experienced appraisers have exited the business. Borrowers may be concerned about the effect of that exodus on the quality of appraisals since those who remain in the business may be only "minimally qualified," to use Garber's description. Appraisers may be forced to complete more appraisals more quickly due to lower fees for their services.

What's more, some appraisal management companies are owned in part by lenders, which means the lender receives an indirect benefit from the appraisal fee. These types of affiliated business relationships among companies that provide real estate settlement services aren't necessarily illegal. However, federal law requires that these relationships be disclosed to home buyers to avoid the appearance of kickbacks, which are prohibited.

The relationships between lenders and appraisal management companies have triggered two lawsuits. In one, homeowners claimed that an affiliated business relationship wasn't disclosed. In the other, homeowners claimed they were charged inflated appraisal fees due to an affiliated business relationship.

Finally, as if this state of confusion weren't complicated enough, there is also a wild card. The Federal Reserve recently released its own guidelines for appraisals. Whether the Fed's "Interagency Appraisal Evaluation Guidelines" will eventually trump the HVCC is an open question that only time will answer.


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