Real-estate appraisers caught in rule backlash

SAN JOSE, Calif. — John Montgomery is a property appraiser who loves being a property appraiser the way a pilot loves being a pilot or a cop loves being a cop or a teacher loves being a teacher.

It's not just a job or a paycheck. It's his vocation, his career and his business — the business his father was in and a business he shares now with his brother — Montgomery Appraisal.

"It's a career for my brother and me," says Montgomery, an athletic-looking 44-year-old who works out of a Willow Glen, Calif., office within walking distance of his home. "This is a family kind of career, so it's hard to change."

Ah, change. It used to be that mortgage brokers would call up an appraiser like Montgomery and ask him to calculate the value of a home that a potential borrower wanted to buy. The brokers would get to know the appraiser's work. They'd remember the ones who were prompt and accurate and not a pain in the neck.

They'd call again and they'd spread the word to their mortgage-broker buddies.

"It's a viral thing," Montgomery says, "and that's how we got to be a decent-sized company."

But amid the mortgage meltdown, regulators worried that brokers and appraisers had become too cozy. They said some brokers pressured some appraisers to inflate the value of a home to ensure that the loan would go through.

So, beginning in May, new rules by Freddie Mac and Fannie Mae barred mortgage brokers from directly selecting appraisers. Instead, lenders request appraisals and generally they must do that through third-party appraisal-management companies that rotate work among appraisers on a set list.

The rule looked good on paper, but it's been criticized for raising the cost of appraisals to consumers while lowering the fees appraisers receive for their work. The third parties, after all, need their cut. Furthermore, critics say, management companies are sending appraisers to unfamiliar territory where they are botching their analyses.

Montgomery says the change is killing his business. Revenue is down — probably by as much as 50 percent since the rule change, he says.

Sure, the money is important. But Montgomery says he feels the pain in a more personal way. His way of doing business, his way of life, has been turned topsy-turvy.

The new system means no more going out to hustle up business among brokers he could impress with his experience and skill; no more good-natured back and forth with the mortgage guys.

Yes, Montgomery says, no doubt there were appraisers who'd become too friendly and fudge an appraisal for a broker. There are dishonest people in every line of work — including real estate and banking. And yes, over the years, he's been pressured to pump up a valuation on a job for which he'd typically charge $350. But, he says, he'd have none of it.

"I'm not going to risk my license for $350," he says.

And maybe the worst thing about the new rules? The new regulations make his 17 years of experience meaningless. Under the new system, Montgomery's name could be on the same list as an appraiser who earned his license yesterday. He waits his turn along with the experienced and inexperienced, the competent and the incompetent. Another name on the list.

"I really dread what's happening to our industry," he says.

The Montgomery boys got interested in the appraisal business early. Their father, Joseph, 78, was chief appraiser at American Savings and then World Savings in San Jose for 40 years. On weekends, when he'd pick up extra appraisal work, he'd sometimes take the boys along. They'd help him spot addresses or take some notes.

In 1993, Ted Montgomery, 45, started Montgomery Appraisal in a spare bedroom in his Willow Glen home. John soon joined him and they've been at it ever since.

Now the Montgomerys are wondering whether those skills alone are going to be enough to make a living in this new world. The wrenching change at Montgomery Appraisal is another shock wave that has been unleashed by the current economic upheaval.

For every closed car dealership or shuttered bank, for every bankrupt mom-and-pop store or retail chain, there are the workers who saw the time they put in as something more than a job. They saw it as an extension of themselves.

Sure, many like the Montgomerys will carry on. Some will work new jobs. Others will work some distant version of their old ones. They will carry on — a little less joyfully and always remembering the way things used to be.