A variety of factors came together to create the perfect storm of the financial crisis, with appraisers playing their own role in the downturn. According to an article in BloombergView, real-estate appraisers acted like deal-enablers rather than valuation experts during the crisis.
Indeed, inflated appraisals were a key ingredient in the erosion of mortgage-lending standards that led to the housing bust. Now we are seeing the opposite -- low appraisals -- with unwelcome consequences for the housing market.
The article focused on a recent study by the Federal Reserve Bank of Philadelphia that looked at the impact of the Home Valuation Code of Conduct rules on the outcome of appraisals and mortgage.
Although the study indicates that inflated appraisals are less common today, the impact of low appraisals may be problematic in its own right -- higher levels of loan rejections that put a damper on the housing market. With the recent rise in housing prices, we are again seeing more low appraisals. This may mean that the rules have left appraisers slower to respond to sudden changes in housing-price trends.