Re-appraising home values

by Paul F. P. Pogue

When members Theresa and Joe Berger of Hilliard sold their investment home in 2007, they say the first appraiser, hired by the mortgage broker, delivered an inflated value — $98,000 for a house they bought for $47,000 one year earlier.

“We’d made some improvements, but I knew doubling the price wasn’t realistic,” Theresa says. She says she suspected the broker, James Hatfield of America’s Mortgage Group, was trying to take advantage of the first-time homebuyers to hike the commission rate and sell them on a pricey home equity loan.

Once the Bergers questioned the appraisal, which they say was performed by Kevin Kiener, the deal with the broker fell apart. They eventually sold the house through a conventional loan, with an appraisal of $57,000. America’s Mortgage Group did not respond to requests for comment.

A spokesman for the Ohio Department of Commerce says the company’s broker’s license expired April 30. Kiener says he does not remember specific appraisals from two years ago, but says he would never inflate a value and state records show he’s never had a disciplinary action. “I’m sorry they feel the appraisal was inflated, but I never got a call from them,” he says.

The Bergers were not alone in their complaint about an inflated appraisal. New York Attorney General Andrew Cuomo alleged the country’s two largest mortgage companies relied on the practice to boost their profits. In May, as part of a settlement with Cuomo, Fannie Mae and Freddie Mac instituted the Home Valuation Code of Conduct that applies to all loans each company handles nationwide.

The HVCC limits contact between appraisers and lenders or brokers and requires lenders and brokers to hire appraisers through third-party companies rather than use their own. Lenders may still set up their own appraisal branches, but must restrict communications between the lending and appraisal departments.

Columbus-area appraisers, mortgage brokers and lenders say the inflated valuations did happen, but blame fly-by-night operators who are now out of business. “The ones who are still around have been here a long time, have a good reputation and wouldn’t risk it on something like that,” says Steve Knight, owner of Knight Wagner Mortgage Co.,
a highly rated Worthington broker.

One banker says the new rules should curb undue pressure on appraisers to hit certain numbers. “People can be confident that the appraiser will be as accurate as they can be,” says Brian Landis, past president of the Columbus Mortgage Bankers Association.

In an online poll of Angie’s List members nationwide, only 12 percent said they were familiar with the rules. Experts say home buyers and sellers are likely to see three practical effects from the code: Fees will probably rise by $50 to $100, the process will take more time, and appraisers will more likely require payment up front.

The rules apply only to Fannie Mae and Freddie Mac loans, but insiders say HVCC will likely become standard practice because banks will want the option of selling mortgages to Fannie Mae or Freddie Mac later.

Ralph Berger (no relation to Theresa and Joe), a veteran Columbus appraiser and member of the Appraisal Institute, says he worries the code will impact flexibility. “Because the order comes through a third party and goes to a specific person, I don’t have the economy of having people appraise a given area,” he says.

He also notes the market remains unsteady. “Columbus is usually a safe harbor in hard economic times, but we were hit this time,” he says. “We didn’t go as deep into the bubble, so we’ll recover more quickly.”


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