According to some mortgage lenders, a shortage of qualified home appraisers may destabilize the industry. In fact, this problem has suddenly replaced regulations and economic instability as a top concern.

According to the Appraisal Institute, the total number of licensed or certified home appraisers has declined by at least 28 percent, or 23,000 people, since 2007. An entire generation of appraisers is poised to retire, and the number of college graduates qualified to work in this field are insufficient to fill the vacancies. The owner of the Chicago appraisal firm, Rick Hiton and Associates, noted that in approximately five years the banking sector will not have enough appraisers available to service home mortgages.

Working appraisers between the ages of 50 to 55 are scheduled to retire during the next 10 years. At the same time, young graduates face additional hurdles that did not affect previous generations. This includes a sharp increase in the barriers to entry. In January, a new rule imposed stricter certification requirements on new appraisers. The new workforce also faces an economic situation where low pay and increased workloads are considered acceptable.

Comergence of Mission Viejo in California is a company involved in vetting new appraisers and mortgage lenders. According to its president, Greg Schroeder, it can take up to seven years for a professional to conduct an independent appraisal. He added, “Regulation has created very onerous time and educational requirements for appraisers, and it’s killing an industry that is already dying because of age.”

Home appraisals are required for homes valued at more than $250,000, and these appraisals must be conducted by a credentialed professional. According to Schroeder, 20 to 30 percent of these professionals are “grumbling about retiring, so the actual number of working appraisers could be cut in half.” He adds that up to 30 percent of the 61,000 qualified residential appraisers continue to hold licenses even though they are not active in the industry.

Professional housing appraisers blame the 2009 Home Valuation Code of Conduct, or HVCC, for the decline. This rule was the outcome of a negotiation between the state’s Attorney General Andrew Cuomo and three federal housing agencies: The Federal Housing Finance Agency, Fannie Mae and Freddie Mac. The new rules ostensibly protect appraisers from being bullied by aggressive loan officers and mortgage brokers who may pressure appraisers to inflate home values because they rely on commissions from sales.

Inside the banks, an appraisal management company suddenly replaced entire in-house departments. Bill King holds a senior position at a California firm Platinum Data Solutions. King noted that “The banks saved millions of dollars a year, but appraisal fees never went up.” The fees incurred by these companies reduced the appraiser’s fees by as much as $350. The new arrangement saved money for the bank, but the appraiser’s fees never returned to the original amount, which was as high as $500 per appraisal.

The Dodd-Frank reform required lenders to pay their appraisers according to standards that are “customary and reasonable.” However, these terms are not interpreted by most state officials identically or consistently.

Fannie May released their new Collateral Underwriter software in January. Advocates say that this tool accurately provides an automated risk assessment for mortgage appraisals. Fannie Mae does not currently allow appraisers to use the software. A Fannie spokesperson described the appraisers as “boots on the ground updating property.”

Tim McCarthy is the chief appraiser at TJ McCarthy and Associates, a Chicago-based appraisal firm. He expressed surprise that Fannie will permit lenders to benefit from the software while forbidding appraisers from using it. “Can you think of any other industry that withholds the best tools available for the professional, and only uses the tool after the job was completed to see if they did it correctly?” he asked.

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