Last week saw the official kickoff of Fannie Mae's and Freddie Mac's mandatory new system of appraisals nationwide, and some mortgage and appraisal groups are up in arms over sharply higher costs for consumers.

The so-called "home valuation code of conduct" imposed by Fannie and Freddie puts most appraisal assignments in the hands of management companies, some of whom are owned by major lenders such as Bank of America and Wells Fargo.

The Appraisal Institute, which represents 20,000 appraisers across the country, and the National Association of Realtors, which has thousands of appraiser members, both have been critical of the new code.

The Institute is particularly incensed at the expanded management company role in appraisals because those companies pay appraisers much less than their standard fees, and tack on thirty to fifty percent extra charged to the consumer.

For example, an appraiser who'd normally charge $325 for a valuation ordered though a lender or mortgage broker, now might be required by a management company to do the same work for $175 to $200.

Meanwhile the consumer, who has no idea where the money is going, is charged $400 or more for the appraisal, and must pay for it up front by credit card, rather than at closing.

The $200 to $225 extra goes to the management company. If the deal falls through and the mortgage doesn't close, that's the consumer's problem. The appraisal fee has already been pocketed by the management company.

Now evidence is circulating in Washington that not only are appraisal fees significantly higher under the new Fannie-Freddie code, but are being extended to FHA mortgages, despite the fact that FHA is not covered by the code.

The National Association of Mortgage Brokers has begun documenting the higher fees and other problems with the new code. In one case the association shared with Realty Times last week, a large lender, EverBank, circulated its list of new appraisal fees to be charged consumers through its "automated appraisal system."

Not only does the bank require credit payment for appraisals up front, but it now charges a flat $465 for FHA appraisals and $390 for standard single family conventional appraisals. Flat fees go up to $700 in Hawaii.

Roy de Loach, CEO of the brokers group, cited one member's experience -- where total appraisal fees for a routine FHA cash-out refi ballooned to $1,068 to the consumer.

Home buyers and realty professionals need to be aware of these sharply escalating fees -- and their controversial use on FHA loans that are supposed to be exempt from the Fannie-Freddie code.

Published: May 11, 2009

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consumer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.