In response to the real estate meltdown of 2007/2008 the government thought it was their duty to step in to make sure you, the consumer, were protected. According to the government, in particular Barny Frank and Chris Dodd, one of the reasons for the real estate fall out was the appraisal process and how it was being handled. Barney Frank and Chris Dodd felt you the consumer, weren’t being protected from banks and appraisers who worked in conjunction with each other in obtaining value to make a loan work. They felt that the banks were putting undue pressure on appraisers they chose by holding the appraiser accountable for low values. Never mind the fact that all appraisers are licensed by their individual states and must adhere to the individual states own set of standards.
Theory vs. Reality
The theory behind the Dodd-Frank Act, that appraisers were being influenced by lenders and Realtors was largely driven by the assumption these two groups had the most to gain, financially, from a consummated transaction and therefore must be the reason appraisals were constantly on the rise. What they failed to understand was speculation and the ease in which financing was attainable (another aspect Barney Frank had his hand in creating) played major roles in the increase of property values leading up to the real estate bubble's burst.
As is the case with most politicians, they don't always express their real interest or real values but say what will be attractive to the public at large. What the Dodd-Frank Act did was state they affected to look out for the public good. They might have had good intentions and were sincere but the Dodd-Frank Act ended up working against the people it was meant to help.
Let me explain how this happened. One of the components to the Frank/Dodd Act requires lenders to use a third party to order appraisals through an Appraisal Management Company. The problem with this is they didn’t anticipate the cause and effect of adding a middle man to the process, both in time constraints and additional costs to the consumer. Since the Appraisal Management Company's are taking approximately half the appraisal fee charged, a vast majority of appraisers are raising their fees to compensate and we know who pays for this….the consumer. Equally troubling is the way in which some of these Appraisal Management Company’s operate. What the Appraisal Management Company does is bid out the job to numerous appraisers in an attempt to get a low quote. This results in a higher percentage for the Appraisal Management Company, but a poor appraisal for the consumer. According to some of the lenders I have talked with on this subject, the appraisal dispute process is a time consumer and very rarely results in the consumers favor. It’s ridiculous to think that the appraiser who did the original job, will agree to “adjust’ their value even if they are given better comps because it’s asking them to admit they did a bad appraisal to begin with. Does this sound logical to you? Also, the HVCC (home value code of conduct) which the government “wrote”allows for the appraisals to be transferred from one lender to another, however, what it fails to admit is that the lender has the last say so….even if it’s allowed per the HVCC guidelines, the lenders are not required to transfer the appraisals which means, a second appraisal fee to the consumer, which they have to pay for. It’s ok to say it’s acceptable but if you do not make it mandatory, it’s not consumer friendly
All in all, the Dodd-Frank Act, which is supposed to help the consumer, ends up costing the consumer more money and leaves them with a higher chance of receiving a bad appraisal. All while telling the consumer it was done in their best interests. And the final insult to injury? Barney Frank is retiring and Chris Dodd is now a lobbyist. Nothing worse than someone creating a mess and leaving it for everyone else to clean up.
