New California Law Bans Appraisal Commissions

These news snippets below are from a Daily Real Estate News digest that I receive. Looks like California is getting serious about putting the skids to some of the practices that led to the crazy real estate price inflation in their state. Namely, over valued appraisals and under qualified buyers purchasing those over valued homes.

I’m not sure exactly how they’ll enforce the appraisal issue. If an appraiser continuously misses the sales price on transactions, lenders just won’t use him anymore. That’s where the pressure to “make the price” comes from.

The second item, making lenders consider the long-term ability of a borrower to pay, not just their ability to pa ythe “teaser rate” payment, is a good solid step toward weeding out unqualified borrowers.

Texas has for the most part sat out much of this real estate madness, so I don’t think we’ll be seeing a rush for new laws.

California last week passed three laws affecting real estate transactions, and Gov. Arnold Schwarzenegger signed them.

It is now against the law for licensed appraisers to engage in any appraisal activity that is connected to the purchase, sale, transfer, financing or development of property if their compensation is impacted by the final price generated by the appraisal.

A second law applies federal lending guidelines to state-chartered lenders requiring them to clearly disclose the risks and evaluate borrowers’ ability to pay based on the long-term cost of the mortgage, not just the introductory rate. In California state-regulated lenders provide the majority of subprime mortgages.

A third bill increases the amount of affordable housing in California by raising the total debt that the California Housing Finance Agency can carry by $2 billion. CalHFA issues bonds to finance housing for low and moderate-income families.

Source: The Associated Press, Don Thompson (10/05/2007) and San Jose Business Journal (10/03/2007)

Posted by Steve
9 years ago

Steve is a Real Estate Blogger, Husband and Dad, UT Austin Grad, Runner, Real Estate Broker and owner of Crossland Team and Crossland Real Estate in Austin TX.

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scott - 9 years ago

Actually, that state bank loophole per federal guidelines explains much, if not all, of the craziness per subprime silliness.
It appears that California is at the forefront of things, as usual, in mandating federal guidelines for loans. I can assure
you they won’t be the last, either. After the dust of the subprime meltdown has cleared, expect a drastically changed
picture nationwide per lending. Yes, real estate itself is local, but something as integral as the banking system, whether
state or interstate, should indeed be held to federal standards, particularly if they expect to be bailed out by the FDIC.
If not, we will return to the run-ins on banks of the 30’s, when they not only weren’t regulated, but weren’t backed at all by the fed. I think we should regulate appraisers, per the article, as well as mortgage brokers, to something resembling
a federal standard. This isn’t the wild west, after all. If they want to continue lending like they have, let it be on their
own dime.

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