As if selling your home wasn’t hard enough in today’s housing market, a stricter set of appraisal guidelines, the new home evaluation code, introduced by Fannie Mae and Freddie Mac, could potentially cause more headaches to consumers, banks and brokerage firms.
Many people are unaware that the inflated and fraudulent appraisals that flooded the market during the real estate boom, also contributed to its downfall. Before the real estate boom came to an abrupt end, hundreds of thousands of homes were being appraised for far more than they were worth. While this may sound good to a homeowner looking to sell at top dollar, the long-term result is not a positive one. Homeowners not only end up owing more than their home is actually worth; but it also leaves banks is a bad position if the loan remains unpaid. This is exactly what has happened in recent years. Banks eager to loan money to high-risk borrowers have now been left with foreclosed homes that are worth far less than what is owed.
According to the new home evaluation policy, set to take effect in May 2009, mortgage brokers will no longer be able to choose an appraiser. Likewise, realtors will be banned from having an influence on which appraiser is chosen on a given deal. In short, appraisals will become a totally separate process, one that cannot be swayed any which way by parties of interest in a given real estate transaction.
So what does this mean to you as a consumer? Stricter guidelines simply give consumers and banks security in future real estate deals, nothing less and nothing more. In fact, consumers may not even realize that any changes have been made. Mortgage brokers on the other hand, may not be so lucky. There is a lot of speculation that small brokerage companies may be put out of business as a result of the new guidelines, but that remains to be seen.