Real estate appraisers face new rules...but will they work?

The real estate appraisal industry is undergoing a shake-up designed to prevent the conflicts of interest that led to so many crooked appraisals during the housing bubble -- like the $103,000 mortgage on this $18,000 shack. Here are the key changes made to Fannie and Freddie's Home Valuation Code of Conduct:

  • Lenders planning to sell their loans to Fannie Mae and Freddie Mac cannot allow real estate agents or mortgage brokers to choose appraisers.

  • Lenders cannot promise future work or withhold payment in an effort to influence appraisal valuations. If lenders have in-house appraisers, the loan origination department is not allowed to influence their decisions.

The first item makes perfect sense, but I'm not at all convinced on the second one. It reminds me of the "Chinese wall" that supposedly separated Wall Street's investment banking businesses from the research arms of the same companies. The wall was a joke and conflicts of interest were (and are) rampant, and investors lost millions.