Home value inflation by appraisers as a result of employment pressures from mortgage originators has long been a problematic issue for the mortgage market.
However, with home price appreciation declining and mortgage fraud on the rise, the symbiotic relationship between appraiser and originator needs to be undone, said participants at the Securities Industry and Financial Markets Association conference on MBS due diligence held in New York last week.
This includes cracking down on unscrupulous appraisers and, in some cases, reducing their direct involvement with the parties involved.
Part of counteracting overvalued appraisals is to increase the independence of appraisers, panelists said. "Appraisers have been challenged to meet industry demand," said panelist Joseph Swartz, a director at Deutsche Bank Securities. "We need to get to a point when we see that the property value is accurate," he said, noting that the market has refrained from acknowledging that value is something that can be controlled.
In an effort to provide true price assessments, the market has to remove the appraiser from the direct influence of the loan originator, panelists said. "The appraiser feels pressure to support the deal or face unemployment," said Robert Walker, executive vice president at First American CoreLogic. Walker suggested that the "silver bullet" in solving the current mortgage problems was to remove appraisers from the home sale transaction and to refrain from giving them the sale price.
Deutsche's Swartz also suggested that the four appraisal trade organizations can potentially organize the mortgage information and deliver it to the parties in the transaction. "There is too much incentive to apply bias to the product. We need a mandate, either industry generated or outside, to say, this is how we are going to do it."
The market had also been receptive to the idea of a "bad actors list," according to panelist Cheryl Croxton, vice president of single-family operations and risk management at Fannie Mae. The list would comprise unscrupulous appraisers and would be shared with the market, she said.
Overall, panelists seemed to be focused on increasing the flow of information to the market regarding home price evaluation.
"When we look at counterparties, including brokers and appraisers, look at the performance and bring that data to light" said Kerry O'Neill, executive vice president for transaction management and platform services at Clayton Holdings.
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