Lori Telesz of National City Mortgage sent me this article and I wanted to share it here with you.  It was posted in the Columbus newspaper as follows:

Appraisal reforms a mixed bag

Sunday,  October 4, 2009 3:46 AM

By JIM WEIKER

When the housing industry was booming, few people had problems with appraisers.

Their job, after all, seemed simple: A lender would call one, say how much a home was in contract for and ask whether the appraiser could defend the price.

Those days seem as foreign now as avocado-colored appliances.

To hear some lenders, borrowers, home builders and real-estate agents tell it, appraisers are single-handedly keeping the housing industry from recovering. By regularly turning in home-value estimates that can't support purchase agreements, the detractors say, appraisers are preventing home after home from selling.

In their defense, appraisers are reduced to mimicking actor Jack Nicholson: "You can't handle the truth."

The truth, as they see it, is that homes in central Ohio are not always worth what they once were -- or even what someone is willing to pay. (The old rule of thumb -- that a home is worth whatever someone will pay for it -- is true only when the buyer is paying in cash; otherwise, a home is worth what lenders and their underwriters say it's worth.)

"When the market's going up, it's real easy to appraise," said Stephen Hutchinson, president of Statewide Appraising in Columbus. "But now we have homes that are decreasing in value. The banks want to know their risk."

Appraisers say their job is to estimate home values, not to make sure that sales happen.

The way they estimate home values changed dramatically May 1 with the Home Valuation Code of Conduct, imposed on the industry by Fannie Mae and Freddie Mac, the federal agencies that guarantee most mortgages.

Appraisals must include not only comparable houses that have sold recently but also houses listed for sale. Comparable sales also must be more recent than those allowed in the past -- with any older than six months sure to be suspect. In the sloppy world of real estate today, that means taking into account short sales, bank-owned properties and distressed sales.

"You go in some neighborhoods, and you see for-sale signs up and down the street," said Steve Stowe, a manager with the Appraisal Group in Columbus. "It's unbelievable. I've never seen anything like it."

Appraisals also must now include a form called Market Conditions Addendum, a big name for something every homeowner instinctively understands: Is my neighborhood improving, declining or staying the same?

The biggest change, though, centers on the middleman.

Convinced that the scratch-my-back-I'll-scratch-yours relationship between lenders and appraisers contributed to a home-price bubble that obviously burst in many parts of the nation, the federal government required appraisal management companies to serve as a buffer between the lender and the appraiser.

The idea of this is sound: Create a gap between lender and appraiser so that the appraiser is under no pressure to hit a certain figure. (Appraisers don't even know what figure to hit now.)

But the practice, critics say, has led to problems.

For starters, adding a middleman increases the cost to the home buyer (estimates vary, but for most appraisals, it's an additional $150 or so).

The changes also lengthen the time needed for an appraisal.

But perhaps the most important criticism of the new method is that the management companies are hiring appraisal companies with little expertise in the areas they're serving.

Even appraisers who think their industry is unfairly being blamed for hindering a real-estate recovery acknowledge that some appraisals might not be receiving the attention they should.

"You're getting people who don't know your markets who are doing your appraisals," Stowe told a group of real-estate agents recently.

Whether an appraisal is right or wrong must be determined case by case.

One thing is certain, though: It's much tougher to be an appraiser now than it was during the housing boom.

"When I joined the profession 15 years ago, I used to joke that there's no one looking over our shoulder," Stowe quipped.

"There is now -- you'd better believe it."

Jim Weiker writes about real estate and housing for The Dispatch.