Beginning February 15,2010, mortgage brokers can no longer order their own appraisals for residential real estate loans backed by the Federal Housing Authority. Instead, the appraisal selection process will be in the hands of appraisal management companies. 

The idea behind the creation of the new law is to remove bias from the process. Previously, loan officers and other representatives form loan companies could order their own appraisals. As a result of greed, there have been cases where the real estate appraisers have inflated values of real estate on appraisals as not doing so may have impacted getting future business from that same loan officer/loan company. In theory, the idea was sound. 

In practice, the idea is flawed. The major problems are twofold. 

First, the appraisal management companies tend to be regional or national companies. They do not think locally. A s a result they do not hire appraisers based on their local knowledge or expertise. Rather, they hire who’s cheapest. Appraisal management companies make their money by the spread between what they pay the appraiser and that they charge the lender. The cheaper the appraiser, the more profitable it is for the appraisal management company. As such, the use of non-local or inexperienced appraisers is becoming more common. 

Secondly, the timeliness of the appraisers turn around time is becoming extended. It is taking more time to process mortgage loans as a result.

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