There is plenty of blame to go around after a robust housing market swelled to a bubble and then deflated. Fingers point to impractical consumers, overzealous lenders, and yes, the appraisers whose signature on a home's value helps close or kill the deal.
Before the credit crisis, some appraisals seemed to be mere formalities; that attitude helped fuel the boom days. Now, overly conservative appraisal standards, many unfairly calculated, some observers argue, may be holding back the housing recovery.
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Rather than hire appraisers whose work is known to them, banks now outsource their selection to appraisal-management companies, some of which are even units of other banks and financial companies. These appraisal-management companies take a sizable cut of the fee, leaving the appraisers under pressure to work faster, asserts some criticism of the reforms.
"There's mixed reaction in the industry," says Gary Painter, associate professor at the University of Southern California School of Policy, Planning and Development and an affiliate of the USC Lusk Center for Real Estate. "An independent appraiser may mean someone with expertise in an entirely different market, with no idea about the neighborhood, the schools, and little understanding about available comps except for their price. A lot of business relationships have been broken and it will take time to build those up again under the new rules."
"Many are worried about a Lemons Problem," he said, referencing the vernacular of the economics discipline in describing quality uncertainty, for cars or other big purchases.
For its part, the Mortgage Bankers Association has said in white papers on the topic issued both during the period of alleged overinflated appraisals and in the tougher market conditions since, that anti-fraud rules already existed. The emphasis should have been on enforcing those rules ,not creating new ones.
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