It's back....

Once again, HUD is listing FHA appraisers according to the "claims" and "defaults" associated with the properties they have valued. On HUD's Appraiser Claim and Default Rates page, you can see which appraisers allegedly have the highest claim and default rates at the national, state, and local levels.

Under the HUD's Appraiser Watch Initiative, "default" means a mortgage has been unpaid for at least 90 days. A "claim" means foreclosure.

Nationwide, the HUD form shows that a typical appraiser had 77.79 appraisals from July 1, 1999 through June 30, 2001, and also that 7.87 percent were in "default" while the "claims" rate was .65 percent. The HUD database includes records for 22,502 appraisers.

If this information seems familiar, it is. In January, 2001, HUD listed appraisers and their alleged default rates online, a listing that was discontinued within weeks.

it may seem logical to have some way to measure appraisers and their services, but using defaults and claims is not the way to go. The problem is that appraisers have nothing to do with who pays their mortgage and who doesn't.

Appraisers are independent professionals who provide an estimate of market value for a given property at a given time. Lenders -- who hire appraisers directly -- rely on appraisals to assure that properties are not over-valued and thus not over-financed.

In the process of valuing a home an appraiser has no access to a borrower's financial information. The appraiser does not know what the borrower earns or owes, does not review the borrower's credit report, and never sees a borrower's tax returns. No less important, after a sale the appraiser does not collect mortgage payments and has no idea whether a borrower pays on-time, is late, or pays not at all.

If buyer Smith defaults on a loan or is late making payments, that's a problem -- but it's not the appraiser's problem. It may well be that Smith isn't making payments because he was laid off, hit by a bus, mugged, or infected with some awful disease. Perhaps the biggest factory in town closed so all local appraisers suddenly have "high" claim levels. None of these reasons for non-payment have anything to do with a property valuation -- but will lenders, consumers and government officials care when they start judging appraisers by "default" levels and "claim" percentages?

It's easy to understand that HUD wants some way to measure quantify, enumerate, graph and chart appraiser performance. But the defaults and claims idea didn't work when HUD was run by Andrew Cuomo and it's an idea that still doesn't work. Why officials at HUD would dig up a program for which a Clinton appointee can claim "credit" is difficult to understand.

These are lush times in real estate and there's no shortage of work for appraisers. If HUD is going to evaluate appraisers on the basis of measures which appraisers cannot impact or control -- and if HUD is then going to post the results online for all to see -- it follows that appraisers may elect not to handle FHA loans. The result will be higher FHA appraisal costs for consumers, delays in the FHA application processing, and suggestions from brokers and lenders that consumers are best served using alternative loan products that require little down and represent less hassle.

For more articles by Peter G. Miller, please press here

Published: June 18, 2002

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Peter G. Miller, also known as OurBroker®, is the author of six real estate books -- including The Common-Sense Mortgage -- and is the original creator and host of America Online's Real Estate Center. Peter's weekly columns appear in more than 100 newspapers nationwide, he is also published in a variety of other media outlets and he is a frequent speaker at national events and conventions. Peter welcomes your questions, comments, and news releases via e-mail at .