Can the borrower pick the appraiser?

Here is a great question which I was shocked it took so long to be asked.

Does the borrower have a say in what appraiser, appraisal company, or appraisal management company does the appraisal?

My answer:

With the mortgage meltdown came new rules about how appraisals get ordered and by whom. But before I get to all that a little history lesson is in order.

Back in the day, appraisals were ordered by the originating company. So if you came to me to do your mortgage, at application I would ask you for the appraisal fee and credit reporting fee. The reason for this is simple. I need those two things to see if you and your house qualify for the loan you seek.

No mystery…no scam…just a valid reason for asking for those fees upfront because if you DON”T qualify, the credit reporting agency and the appraisal firm did their work so they earned their fees and must get paid.

I don’t want to be on the hook for those two fees as the originator of a loan I can’t close, so I get them from the borrower at the time of application.

That is how it all worked prior to the foreclosure crisis.

Now, since the foreclosure crisis was basically laid at the doorstep of all originators, saying they were the ones who manipulated appraisers into falsifying higher values, the ordering of appraisals has changed.

It is important to remember that widespread manipulation of appraisers and subsequently the home values they produced in their reports by originators was never proved. The assumption was any close relationship between an originator and an appraisal firm was, by definition, corrupted. The belief being that since my income was dependant on how many loans I closed and low appraisal values would impact my ability to close more loans, than by definition, I would attempt to strong arm my appraiser on values.

That is the first wrong assumption. Most originators knew you let the appraiser do his work and if their were not any overt mistakes that even a child could see, you kept your mouth shut and tried to make it work with the value reported. To be honest, this was a rarity anyway.

It was rare that values came in low in the first place and it was even more rare to see an overt error that needed intervention. Every originator knows that too much intervention here could anger the appraiser or if the changes asked for were really a distortion of the value of the home, the lender’s underwriter would catch it.

And if you got a reputation as a mortgage broker who was “pushing” values you could lose all your lenders risking your ability to even stay in the business.

In practice I can say that 99% of my calls to an appraiser were not an attempt at raising the value, but to speed up getting the report. And 99% of the calls I received from an appraiser were a “heads up” that a certain home was not going to come in at value, so could potentially restructure the deal and make it work.

So systemic appraisal manipulation was never proven on the mortgage broker side of the business, but it was proven on the corporate side. In New York, then Attorney General Andrew Cuomo, sued and found corrupt appraisal practices in the big companies.

Cuomo said about his investigation and lawsuit with the now defunct Washington Mutual,

“The independence of the appraiser is essential to maintaining the integrity of the mortgage industry. First American and eAppraiseIT violated that independence when Washington Mutual strong-armed them into a system designed to rip off homeowners and investors alike. … By allowing Washington Mutual to hand-pick appraisers who inflated home values, First American helped set the current mortgage crisis in motion.”

But only in politics can one see the problem as Cuomo found, ignore what they found, and then penalize those who were not found guilty. Which is how we come full circle.

This system today has changed so that originators don’t pick the appraisal firms, the lenders do. The lenders use appraisal management companies who randomly assigned appraisers to add one more layer of separation in ordering.

This is how it is today. And of course, this is the same system Mr. Cuomo found so corrupted in the case sited above. A big lender working with a big appraisal management firm was the only proven appraisal scandal of the the entire mortgage meltdown, but yet that is the same system we all must now work with today.

Yikes!

So to answer your question, you can’t pick the appraiser(you can’t be trusted), your originator can’t pick the appraiser(he/she can’t be trusted), only the lender can.

Thanks for the question

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Author: The Mortgage Insider