The first of these new mortgage industry regulations was the Home Valuation Code of Conduct (HVCC) that became effective on July 1, 2009. It was supposed to "clean up" the appraisal process by having appraisals ordered through independent Appraisal Management Companies. These were not actually required by law but were adopted by Fannie Mae and Freddie Mac after the Attorney General of New York, Andrew Cuomo, twisted their arms.

Exactly why the Federal Housing Finance Agency that supervises Fannie Mae and Freddie Mac didn't say, "Hey! Wait a minute. That's not your job! We regulate these enterprises, not you; if you think something ought to be done, make your proposal to us." But Fannie and Freddie were reeling from years of mismanagement and losses that wiped out their shareholders. I suspect they just had no will to resist. What was more likely was that their regulator's leader, James B Lockhart III, dropped the ball and let someone else usurp his authority. In fact, in an ironic twist of fate, the administrator who oversaw two of the largest corporate collapses in American history now works for a private company that helps companies that need restructuring.

The effect of HVCC has been that these intermediaries interposed themselves in a system at a cost of between $100 and $150. Lenders order from an AMC that, in turn, orders from a list of appraisers. This was a pricewise competitive business before, so one of three things had to happen.

The appraiser would be paid a normal cost minus the AMC's fee that would be deducted from the cost charged to the customer. That would mean the appraiser makes $100 to $150 less. Or the cost of the AMC would be added on to a higher price of the appraisal so that the consumer pays more. The third alternative would be that only newer, less experienced appraisers would work for such small fees. In practice, all three have happened.

Let me insert a little information here. According to statistics complied by alamode, inc., publisher of appraisal software, the average price for appraisals in my county was $375. By comparison, I have a fee schedule that one AMC uses to establish what they will pay. This is the schedule:

You can see easily that the appraiser's income will be 20 percent to 40 percent less than the old days if the AMC charges market price for appraisals. That is about what they earned back in 1982. In my view, no good appraiser can afford to work for that small of a fee.

Sometimes the AMC charges more. One lender has its own captive AMC and they now charge $475 for a standard appraisal.

The third case was amply demonstrated by an appraisal we received in early January. It had problems that were ultimately solved, but when I looked at the appraiser's state license, it showed that the appraiser got his license in September. He had three months on the job!  In the old days, an appraiser couldn't get in the list of approved appraisers unless he had at least two years' experience.

I shudder to think what the scene will be like a few years from now, but my guess is that many competent appraisers – the backbone of the industry – will have changed careers, a tragic loss.

It is clear to most of us in the mortgage industry that neither consumers nor investors are better protected by this process. I doubt that the complaints from consumers, lenders, and appraisers will have any effect on efforts to change the system either.

The only good thing is that they didn't make us order appraisals from the Post Office, but maybe that's next. After all, who knows the neighborhoods better than the letter carriers?  

As a consumer, you just have to add one more "potential problem" to your list of things to worry about in the mortgage industry.

Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles, Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.