I have no problem showing my YSP. I’m not ashamed of my income and don’t hide anything from my clients. But there has never been one plausible explanation as to why bankers don’t need to disclose their YSP and brokers do. The same issue goes with this appraisal issue. I have no problem not ordering my own appraisal if that’s what the law requires and if it makes this business better for everyone. But if their reasoning is that brokers aren’t lending their own money, then I get to take exception.

First, this should mean that unless the appraisal was completely independent and followed the same process as the broker, then that originating bank should NEVER be allowed to sell that loan–because if they sell it to another bank, wouldn’t their whole argument be invalidated? Wouldn’t the bank have a financial reason to want the value inflated? It should be funded and serviced by the same bank for the full term.

And second, I beg to differ that as a broker I don’t have any money invested. Last I checked, as a tax payer, the banks’ money IS MY MONEY!

Many of these borrowers took on their mortgages based on a blind belief that the home’s value would quickly climb, providing them with instant wealth. History has proven that many of those who bought early came out okay. But most who bought a few years later, at the top of the market, lost everything.

So enter the government. In an effort to fix everything, they came up with what they saw as easy solution — stop appraisers from inflating values to simply match what an emotionally driven borrower wanted to pay. Let the appraiser call it as he or she sees it without worrying about how that final number will affect their future workload from this lender.

In theory, it all makes sense. And to be sure, this new policy, as it’s presently shaped, will prevent some ill-conceived loans from closing. But as with any across-the-board policy, it will also impact many innocent bystanders — lenders who do a reputable job and buyers/sellers who agree on a home’s legitimate market value only to be caught in the cross-hairs of some underpaid appraiser’s hurried evaluation that comes in $5,000 below its realistic market value.

Send out 10 appraisers and I guarantee you’ll get 10 different values. If they know the local market, if they pull relevant comps and if they make legitimate adjustments when comparing these comps to the subject property, you’d expect the values from one appraiser to another to be relatively close.

But bring in appraiser from 50 miles away, who’s vaguely familiar with the neighborhood he’s visiting and who has no real familiarity with that local market and there’s a good chance that the appraisal could come in radically lower (or higher) than its true market value.

Appraising a piece of real estate is a very subjective process. No two homes are exactly alike, no two cities are exactly the same, and no two markets are exactly alike. So appraising is certainly not an exact science. In its truest form, it should be prepared by someone who knows the local market like the back of their hand and knows first-hand why a buyer might pay $10,000 more for a home on this street versus a home three blocks away.

But with this new policy, we’re probably going to see those appraisers less and less. Instead, it will Mary from 50 miles away or Jim who needs a GPS system to find the best way to get to a city he’s only been in three or four times before. In other words, an appraisal environment that’s somewhat doomed from the outset.

From what I’m hearing, for many big banks/direct lenders it will be ‘business as usual’ — they’ll still be able to hire their regular appraisers. The appraiser might now be selected by the bank’s corporate office from their “panel” of approved appraisers , but from what I understand, that panel will consist of appraisers hand-picked by the same loan officers who used to order the appraisals themselves, essentially ensuring that the same appraisers they’ve been using all along will continue to get their business.

But for mortgage brokers, it will be a far different story. They’ll submit the loan and find out only after the appraisal is complete who did the work and how it came out.

In the end, it very likely will signal a decline in business for mortgage brokers and an increase in business for direct lenders.

If it ultimately limits competition by forcing mortgage brokers to close up their own shop and go to work for a direct lender, that wouldn’t be a good thing.

Hopefully the government’s attempt to fix a system that definitely contributed to many of today’s mortgage defaults doesn’t go too far. Time will tell.