mortgage

New appraisal code causes chaos

"The turnaround has not been affected even a twitch," he says.

  • Cost. Borrowers are also naturally concerned about the cost of an appraisal. Stafford says appraisals have become more expensive as a result of the code because lenders had relied more heavily on automated valuation models, or AVMs, or so-called drive-by appraisals, which required only a confirmation that the home hadn't vanished from the property. Now, he says, lenders are more inclined to require a full appraisal, which is more costly.

Moreover, borrowers may now be required to pay for an appraisal upfront, which means they'll be paying out-of-pocket for that expense even if the loan doesn't close. Borrowers also may have to pay for a second appraisal if the first proves problematic or they want to switch their application to a different lender. The code allows appraisals to be transferred, but lenders aren't required to facilitate that and must make sure an incoming appraisal complies with the code.

A related issue is whether appraisers should be better compensated for their services. Feldman admits they're paid significantly less for jobs they're assigned through AMCs, but he believes their pay is a "cultural question" that shouldn't concern borrowers.

"Should borrowers pay more so appraisers can make more and therefore be happier?" he asks. "Or is this a new model that appraisers make less per order, although they may become more efficient, so at the end, they may be OK?"

Cultural questions aside, there's no debate that AMCs have gained market share as a result of the new rules. Some AMCs are independent; others are owned in whole or in part by lenders or title insurers. These companies schedule the jobs and keep as much as half of the fee for their services.

  • Disclosure. Borrowers may like a new rule that requires the lender to supply a copy of the appraisal to the borrower three days before the loan closes. That right may be waived, though not at closing.

Lenders are careful to comply with this rule, Feldman says, because an inability to demonstrate that they did so will void their certification of the loan to Fannie Mae or Freddie Mac.

That may give comfort to the two mortgage companies, but the code offers no recourse to the borrower if the appraisal isn't handed over on time and, thus, causes a delay in closing.

How to cope with new appraisal rules

Borrowers are well-advised to have a frank conversation with a loan officer, mortgage broker or Realtor before they apply for a loan since they no longer can rely on behind-the-scenes "value checks" to find out whether an appraisal is likely to return a high enough value for the proposed transaction.

Feldman advises borrowers to check into sales prices of comparable homes, online home valuations and news reports of home value trends before they apply for a loan, as difficult as that research may be for individuals not schooled in such matters.

"The hard part for homeowners (is) to be as realistic as they can, so they don't waste their time and just get disappointed," he says. "A good lender or mortgage broker will guide you."

Carter advises homebuyers not to waive the appraisal contingency in a purchase contract because that may be their best protection against an inflated sales price, perhaps as a result of an overexuberant bidding war.

The code itself calls for an "Independent Valuation Protection Institute" to operate a compliance-and-complaints hot line and promote "best practices for independent valuation." That may sound like a good idea; however, this institute has yet to be established.

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